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Sesa Sterlite (SSLT) - Qtr. Update - Dated - November 01, 2013




Axis Capital Limited


01 Nov 2013





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Sesa Sterlite reported key financial numbers of the combined entity (first time post the group restructuring). While the numbers are not comparible with previous periods, they do help in getting a consolidated picture of the merged entity. H1 proforma EBITDA is Rs 124 bn, largely contributed by volume growth in Cairn and Hindustan Zinc. H1 proforma net profit and EPS are Rs 21 bn and Rs 7 respectively. Gross debt is Rs 840 bn and cash at Rs 480 bn. Of the total debt, Rs 580 bn is USD denominated (avg. interest rate of 6.8%) and the remaining Rs 260 bn is rupee denominated debt (avg. interest rate of 10%). Goodwill amortization: Consolidated goodwill is Rs 405 bn (Rs 350 bn relates to Cairn). To follow conservative accounting, the company will be amortizing this goodwill on the unit of production method. Additional charge on account of goodwill amortization will be approximately Rs 26 bn per annum. Valuation: Post factoring in the proforma financials, our consolidated EPS estimates for FY14 and FY15 are Rs 22 and Rs 28 respectively. Our revised SOTP-based target price is Rs 178 (Rs 159 earlier) as we now value VAL’s CWIP at 50% of book value vs. nil value earlier. The company indicated it is evaluating the potential to start its 1.25 expansion (based on external alumina) and is currently working on completing the project. Concerns remain, given lack of clarity on its key triggers viz. bauxite sourcing for its VAL plant and restart of iron ore operations in Goa. We downgrade the stock to SELL due to the sharp run up in the stock over last two months. Our target price implies downside of 14% from CMP of Rs 207. Regards, Jagdishwar Toppo (Executive Director – Materials) Institutional Equity Research Axis Capital Ltd. Tel: +91 22 4325 1103 Nitesh Jain Senior VP – Materials Institutional Equity Research Axis Capital Ltd. Direct: +91 22 4325 1145 Sujan Sanisetty AVP – Materials Institutional Equity Research Axis Capital Ltd. Direct: +91 22 4325 1122

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