Buy Sterlite Industries; target of Rs 140: R K Global

R K Global is bullish on Sterlite Industries (India) and has recommended buy rating on the stock with a target of Rs 140 in its October 29, 2012 research report.

“Sterlite Industries surprised the street with better than expected Q2FY13 reported earnings during the Quarter. Standalone profitability grew better than the expected after posted 174% YoY PAT growth at Rs7048mn (expected Rs2505mn). Consolidated PAT increased by ~36% YoY, power contribution increased & forex gains (coupled with lower interest cost led profitability to soar.”
“Sterlite reported standalone revenue at Rs48636mn, (below our expectation of Rs50850mn) 1.3% YoY growth during the Q on the back of sharp correction in TC/RC (treatment and refining charges). TC/RC declined 13% YoY to 11.3cents/lb compared to 13cents/lb. On the other hand copper price fell 14% on LME to $7706/ton compared to $8982/ton of the corresponding Q of previous year. However, EBITDA grew drastically by 40% YoY to Rs2456mn (expected Rs940mn) on the back of operational efficiency. Total expenditure as a percentage of sales declined by 1.41% YoY during the Q to Rs46180mn (expected at Rs49910mn). However cost of production has increased from (3.7) cents/lb in the corresponding quarter of previous year to 7.1cents/lb in Q2FY13. Sterlite standalone business highly benefitted due to the forex gain of Rs1610mn compared to the losses of Rs1040mn of the corresponding quarter”
“The company revenue increased by 7% to Rs27460mn in Q2FY13 compared to Rs25600mn from zinc & lead business (domestic) as total refined zinc declined by 13.5% to 185KT; however lead and silver volume declined by 37% and 46% to 17KT and 49KT respectively during the quarter. However on the international front, refined zinc and mined metal content remain in line with the corresponding Q at 37KT and 77KT respectively. However fall in the zinc and lead prices by ~15% and ~20% respectively led international revenue to fall by ~3% to 11250mn. However rupee depreciation offset the fall in rupee for domestic operation and led revenue to grow by ~7% toRs27460mn. We have given detailed analysis of zinc business in our “Hind Zinc Q2FY13 Result Update”
"At CMP of Rs98, the stock is trading at EV/EBITDAx of 12.5 on its FY13 EBITDA of Rs10945mn. Our valuation revised based on Q2FY13 result and adjusted debt of FY12. Our valuation is based on SOTP basis for the core business Sterlite standalone business at Rs17(earlier 33) using EV/EBITDA 3x, HZL at Rs115 using EV/EBITDA of 6.8x (unchanged), BALCO and VAL at Rs12 using EV/Sales 1.7x and SEL & others at Rs4 using BV/Share. Hence our SOTP (sum of the parts) based target price is Rs140 per share (earlier Rs146/share). We recommend investors to “buy” the stock as the stock has potential upside of ~42% from the current level,” says R K global research report.. Shares held by Central Governments/State Governments 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. To read the full report click on the attachment

Read More