Hold Sesa Goa, Sterlite Industries: Nirmal Bang

Nirmal Bang has recommended hold rating on Sesa Goa and Sterlite Industries, in its October 10, 2012 research report.

“Vedanta Resources reported 2QFY13 production data for its various segments like zinc, iron ore, copper, aluminium, crude oil and power generation.” Zinc - India segment: In line with its guidance, Hindustan Zinc (HZL) reported mined metal production of 190,000tn for 2QFY13, a drop of 9% YoY and a growth of 2% QoQ. Due to lower mined metal production, HZL reported 17% YoY and 3% QoQ drop in integrated zinc metal production at 153,000tn. However, custom route zinc metal production stood at 10,000tn compared to nil production in 2QFY12 and 4,000tn in 1QFY13, which restricted the overall fall in zinc production to 12% YoY, while it was up 1% QoQ. Integrated refined lead production was up 41% YoY due to ramp-up at Dariba lead smelter, but down 17% QoQ due to lower mined metal production. Integrated silver production jumped 63% YoY due to ramp-up at Sindesar Khurd mine, while it was up 1% QoQ as well. Custom route silver output jumped multi-fold from 77,000ounce to 366,000ounce. HZL maintained its FY13 guidance to achieve higher zinc production from a year ago despite weak performance in the first-half. HZL expects Rampura underground mine and Kayar mine to start production in FY14. Zinc - international segment: The company reported flat performance compared to the quarter in the corresponding period a year ago, while it was up 8% QoQ at 114,000tn. However, the company maintained its FY13E guidance of 400,000tn, implying 180,000tn of output in 2HFY13 compared to 220,000tn output in 1HFY13. Oil and gas segment: Cairn India (CIL) reported a 22% YoY growth in average daily crude oil output at 207,245boepd, largely driven by Rajasthan fields, while it was flat QoQ . However, due to higher output from Rajasthan (where the company has high working interest), working interest production jumped 30% YoY and 2% QoQ to 129,431boepd. CIL has given guidance of achieving output target of 240,000boepd by the end of FY13E, but it has regulatory approval for only 200,000boepd. Iron ore segment: Sesa Goa reported a very dismal performance with 88% YoY and 93% QoQ fall in iron ore volume to 0.2dmt, while production was down 64% YoY and 88% QoQ at 0.4dmt, largely due to the mining ban in Karnataka and restricted ore movement in Goa. However, the company achieved strong growth in pig iron and met coke production due to commissioning of new facilities. Pig iron production was up 30% YoY and 110% QoQ, while met coke output was up 28% YoY and 30% QoQ. Copper segment (India and Australia): Sterlite Industries (India) reported flat production growth in copper cathode, YoY as well as QoQ. Mined metal production in Australia was 6,000tn compared to 5,000tn in 2QFY12 and 7,000tn in 1QFY13. The company has synchronised 80MW from its captive power plant last week, which should increase the volume from 3QFY13 onwards. Aluminium segment: BALCO continues to operate at a rated capacity as the company achieved 5% growth in aluminium production at 63,000tn, YoY as well as QoQ. Aluminium production continued to remain robust at Vedanta Aluminium (VAL) with 47% YoY and 8% QoQ growth. Alumina production was down 10% YoY and 6% QoQ due to low availability of third-party bauxite. The company has indicated that it is evaluating the option to shut down alumina refinery in case the bauxite shortage continues. However, the management has indicated that it is not likely to exert any significant pressure on costs as captive alumina costs continue to remain high due to long haulage and lower grade of bauxite. Power segment: Sterlite Energy reported a 53% YoY jump in power sales to 1,940mu, while it was flat QoQ, which led to overall 42% YoY and 1% QoQ jump in total power volume.  FIIs holding more than 30% 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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