StockMarket Update on Sterlite Industries for 1QFY2012 with a Buy recommendation and a Target Price of `205 (12 months)
Sterlite Industries’ (Sterlite) consolidated net revenue for 1QFY2012 stood at `9,824cr, slightly below our estimate of `10,200cr. Net profit at `1,640cr was also slightly below our estimate of `1,700cr.
Robust 1QFY2012 sales performance: For 1QFY2012, Sterlite’s consolidated net sales grew by 65.8% yoy to `9,824cr. Top-line growth was aided by higher metal sales volume as well as metal prices. Further, merchant power sales during the quarter increased by 244.2% yoy to 1,652mn units. However, the company’s power tariff declined by 28.7% yoy to `3.6/unit.
Strong EBITDA growth aided by rising prices: EBITDA margin expanded by 358bp yoy to 28.1% because of higher realisations across most product categories despite cost increases witnessed in a) the aluminium segment on account of higher alumina and power costs and b) the zinc segment due to higher stripping ratio and royalty costs. Consequently, EBITDA increased by 84.2% yoy to `2,758cr. Net profit for the quarter increased by 62.6% yoy to `1,640cr, slightly below our estimate of `1,700cr.
Outlook and valuation: Sterlite is currently trading at 7.9x and 5.3x FY2012E and FY2013E EV/EBITDA, respectively. We expect Sterlite to benefit from the expansion of zinc-lead smelting capacity during FY2012–13. Furthermore, Sterlite’s expansion in the silver-rich Sindesar Khurd mine should result in robust bottom-line growth. We maintain our Buy rating on the stock with an SOTP-based target price of `205.
