Buy Sterlite Industries; target Rs 114: Motilal Oswal

Motilal Oswal is bullish on Sterlite Industries (STLT) and has recommended buy rating on the stock with a target price of Rs 114, in its research report dated May 02, 2013.

"Sterlite Industries' (STLT) 4QFY13 consolidated EBITDA increased 42 percent QoQ to INR33b (v/s est of INR30.3b) due to strong performance across segments. Adjusted PAT increased 57 percent QoQ to INR19.6b. Superior performance (v/s est) was largely driven by improved operating parameters of recently commissioned 80MW CPP at Tuticorin and improved quality and lower cost of coal for Bharat Aluminium (Balco), Vedanta Aluminium (VAL) and Sterlite Energy (SEL) for generation of power and aluminum smelting. Uncertainty regarding restart of copper smelter persists but we are optimistic that the smelter will eventually come back to operations. SEL's fourth unit of 600MW was commissioned on March 31, 2013. Lack of PPA for 1,800MW, transmission bottlenecks and fluctuating quality of coal and prices will keep SEL's profitability volatile. Both VAL and Balco's aluminum smelters are operating at full capacity and are now fully non-integrated for alumina. Balco is in advanced stages of signing the mining lease for coal block, which could improve cash flows and cost structure of its 245ktpa smelter and 325ktpa expansion. Although production at Zinc International will decline ~5 percent in FY14, Hindustan Zinc (HZL) will more than compensate with higher mine production. STLT has a debt of INR190b (standalone INR100b + Balco INR43b + TSPL INR38b). Sesa-Sterlite (SS) merged entity will have a consolidated debt of INR730b. Standalone SS will have a debt of INR650b, while EBITDA will be only INR35- 45b. We are concerned about the servicing of debt as the surplus funds with cash cows (HZL and Cairn India) are not fungible. Management continues to evade answering queries regarding the same. We believe SS will have to undergo another round of group restructuring to avail cash from its cash cows for servicing debt. The high leveraged position of standalone-merged entity continues to concern us and drag SS' valuation. SS trades at attractive FY15E PE of 5.1x and EV/EBITDA of 5x. Maintain Buy with a target price of Rs 114," says Motilal Oswal research eport. Bodies Corporate holding more than 50% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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