Hold Sterlite Ind; target of Rs 92: Emkay

Emkay Global Financial Services has recommended hold rating on Sterlite Industries (India) with a target of Rs 92, in its October 26, 2012 research report.

“Sterlite Industries (India), on the operational front copper, lead, silver and the power business registered increase in volumes with copper business contributing 49.1% of the total revenue (up from 48.2% in Q1FY13). Despite fall in LME and increase in unit CoP in INR terms, the margins improved across businesses on account of higher metal premiums and operational efficiencies during the quarter. EBIT margin for copper, Aluminium and Zinc businesses improved 138, 457 and 71 bps on a QoQ basis to 5.2%, 5.0% and 39.1% respectively. Only marginal decline was seen in case of power business, where the EBIT margin declined 78 bps QoQ but rose 1243 bps YoY to 20.9% with Sterlite Energy CoP reducing 20% YoY to Rs 2.31/ unit and realization improving 2% YoY to Rs 3.51/unit.”
“Vedanta aluminium (VAL) performed well again with production at 134kt (up 47% YoY) and CoP lower by 25% YoY at $1905/ton (Rs 105,300/ton); while Balco’s CoP was higher at $1970/ton. The above has been possible only on account of higher operational efficiencies as it still sources significant bauxite / alumina requirements from the open market. The EBITDA from VAL in spite of LME fall by 20% improved from 0.03 bn to Rs 2.25 bn; owing to higher production, better cost performance (mainly reduced coal costs) and higher metal premiums. Since last couple of quarters, signs of operational improvement are vsible for the company, The management has also been guiding for a better second half in form of better Zinc sales, enhancement in power evacuation capacity and increase in PLF at SEL (on better coal availability) other than gradual improvement in aluminium business. However, we feel these are not reflected in the stock prices due to the ‘Sesa overhang’ and the same would contiunue due to the uncertainty on Sesa Goa’s mining operation in Goa and Karnataka.”
“At CMP of Rs 101 the stock trades at 5.9XFY14EPS and 4.2XFY14EV/EBITDA and is available at 0.6 P/B. Our revised target price for Sesa Goa stands at Rs 153/share and the corresponding value for Sterlite give a TP of Rs 92/share. Assign Hold,” says Emkay Global Financial Services research reports.   Non-Institutions holding more than 90% 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. To read the full report click on the attachment

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