Sterlite Q2 net sales likely to rise 4% to Rs 10,495 cr

By Nigel D'Souza, Research Analyst at CNBC-TV18

Sterlite Industries, a subsidiary of London Stock Exchange-listed Vedanta Resources, is expected to report a growth of 20 percent year-on-year in its profit after tax of Rs 1,205 crore in the July-September quarter of FY13 due to expected forex gain.

Analysts on an average expect a foreign exchange gain of approximately Rs 100 crore-Rs 150 crore on account of appreciation in rupee.

However, the forex gain at PAT level maybe partly offset by lower gain on mark-to-market of bonds, say analysts.

In the quarter ended September 2011, Sterlite had accounted for a total forex loss of Rs 466 crore of which Rs.62cr was accounted for at the EBITDA level

Net sales are likely to go up by 4 percent YoY to Rs 10,495 crore for the quarter.

Earnings before interest, tax, depreciation and amortisation (EBITDA) is seen going down by 5 percent to Rs 2,295 crore from Rs 2,420.1 crore during the same period. EBITDA margin is expected to fall by 200 basis points YoY to 21.9 percent in the July-September quarter.

Majority of Sterlite’s profit comes from Hindustan Zinc (HZL), wherein the company holds 65% stake. HZL contributes close to 30% to Sterlite’s topline as well.

HZL’s revenues/net income came in marginally above estimates owing to better realisations, higher other income and a lower tax outgo. HZL reported a PAT of Rs 1,540 crore on topline of Rs 2,822 crore in the second quarter.

Sterlite's topline will be pegged back by lower metal prices but will be partly offset by a weakening currency. LME copper, aluminum, zinc, lead and silver prices fell 14-23 percent YoY.
 
Topline may get a boost as production numbers surprised slightly positively in some segments:

Aluminum production from BALCO came in at 63000 tonnes, a growth of 4 percent YoY.

Copper cathode production came in flat at 87000 tonnes, which contributes approximately 45 percent to topline.

Refined zinc and lead production (Indian operations), which contributes 35 percent to topline, came in at 1,90,000 tonnes, down 9 percent YoY.

Total power sales, which contributes sub 10 percent to topline, stood at 2,474 million units, up 42 percent YoY primarily due to higher power sales from 3 units of the Jharsuguda 2,400MW power plant, operating at availability of over 80%.

Lower metal prices are likely to squeeze the margins of Sterlite:

Weak rupee will partially offset the negative impact of declining prices. Copper segment will have a robust quarter lead by improvement in TcRc and acid realization.

Coal and bauxite availability will hurt the aluminum segments profitability:

Aluminum business is likely to deliver negative EBIT margins due to lack of raw material availability.

BALCO is expected to move towards break even while cutting down of VAL’s losses (Vedanta Aluminium Limited) will be keenly monitored by investors.

Aluminum always has a seasonally weak quarter due to monsoon which impacts availability of coal.

Power segment:

Analysts feel the fuel costs at Balco CPP and SEL will determine the power segments profitability.