Accumulate Sterlite Inds; target of Rs 115: Dolat Capital

Dolat Capital is bullish on Sterlite Industries (India) and has recommended accumulate rating on the stock with a target of Rs 115 in its January 29, 2013 research report.
 
“Sterlite Industries (STLT) Q3FY13 results were inline as weak operational performance in power and copper business was compensated by strong performance in Zinc business (both domestic and international). PAT was impacted by higher losses from VAL. Stage 2 forest clearance for the BALCO coal block was a major positive which will improve the viability of 1200MW and 325ktpa aluminum smelter. Acquisition of minority stakes in Balco and HZL would be the near term trigger for the stock.”
 
“We maintain our Accumulate rating on the stock with a target price of Rs 115 per share (based on SOTP) given the reasonable valuations. Concerns regarding 1) Availability of bauxite at VAL and BALCO 2) Suspension of iron ore operations in Karnataka and Goa 3) Coal sourcing at SEL leading to lower PLF are a major regulatory overhangs on the stock. Lower power and copper EBITDA offset by higher EBITDA form Zinc India and Zinc International operations: STLT cons EBITDA at 23.26bn (+0.7%YoY,- 7.9%QoQ) was marginally lower than our est of Rs 23.62bn. Zinc India EBITDA at Rs14.84bn were higher than est of Rs 14.1bn and was boosted by higher sales of silver and lead volumes. Copper EBITDA at Rs 2.34bn (DCe: Rs 2.74bn) was impact by lower byproduct realizations and higher cost although marginally offset by higher volumes. However EBITDA of Zn international at Rs 4.39bn (DCe: Rs 3.9bn) was higher due to lower cost and higher volumes. Power business continue to deliver dismal performance with SEL units operating at 35% PLF. Power EBITDA at Rs 1.55bn was a disappointment due to 22.6%QoQ lower power sales as BALCO power plant was also impacted by grid constraints.”
 
“Aluminum business EBITDA at Rs 640mn (DCe: Rs 750mn) was impacted by higher alumina cost. COP increased by Rs 1%QoQ to USD1995 per tonne VAL reported a loss of Rs 7.6bn (DCe: Rs 5.6bn) due to forex loss of Rs 2.95bn whereas EBITDA at Rs 2.48bn up by 10.2%QoQ boosted by higher production and stable cost (+1.2%QoQ). PAT at Rs 12.02bn was inline as higher interest cost of Rs2.26bn (DCe: Rs 1.76bn) and VAL loss was set off by lower forex losss of Rs 625mn (DCe: Rs 1.75bn) and higher operating EBITDA,” says Dolat Capital research report.

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