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Sesa Sterlite Ltd. | Q2FY14 Result Update | Above street expectation




IndiaNivesh Securities Pvt Ltd


01 Nov 2013





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Sesa Sterlite Ltd. | Q2FY14 Result Update Above street expectation | Sesa Sterlite Ltd reported Q2FY14 numbers above consensus led by good performance of Zinc, Aluminium and copper business, offset by poor performance of Energy and Iron ore businesses. Adjusted Net Sales stood at 180 bn, above consensus of Rs. 148.40 bn due to higher volume in Zinc, copper and Aluminium business. EBITDA margin stood at 29% above consensus of 27.8% due to higher top line coupled with better margin in Zinc and lead business. Revenues from Zinc and lead business were higher by 25% YoY on account of higher sales volume and depreciation of Indian Rupee. Aluminium business also performed well on account of INR depreciation and lower CoP, partially offset by lower metal prices. The Lanjigarh alumina refinery recommenced operations in July and produced 116,000 tonnes in Q2FY14. Copper business also shown sign of recovery as Tuticorin copper smelter restarted in end June 2013 and now operating at normalized capacity. However, iron ore mining operations continued to affect due to suspension of mining both in Karnataka as well as Goa. Power sales were lower primarily due to lower demand. Jharsuguda power plant operated in Q2FY14 at a PLF of 31% for all four units as compared with 41% in Q2FY13. Reported PAT stood at Rs. 34.16 bn (higher than consensus of Rs. 16.94 bn) due to higher top line and better operating margin. Valuation: Sesa Sterlite has created a structure of well diversified, low risk organic growth for itself by undertaking expansion activities across all base metals under its portfolio and is stepping into the commercial energy space through merchant power generation. The consolidation of Sesa Goa and Sterlite create value for all shareholders. At CMP Rs 203 the stock is trading at 2.27 x FY15E EV/EBITDA as per Bloomberg estimates. We had a buy rating on Sterlite with target price of Rs. 145. After the merger of Seas Sterlite, Every equity shareholder of Sterlite Industries holding 5 equity shares got 3 shares of Sesa Sterlite shareholder. Our fair assumption after the merger of Sesa aterlite was Rs 210, we have seen sharp move on the stock in last few days and it is near to our fair valuation. We maintain hold rating on the stock with target price of Rs. 210. We will wait for fresh triggers (like resumption of Goa and Karnatka mines) for rerating of the stock.

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