Sterlite Industries Ltd (Q1 FY14)

India Infoline News Service | Mumbai |

Zinc and power business to boost earnings; Upgrade to buy with a 9-month price target of Rs92

CMP Rs77, Target Rs92, Upside 20.1%

  • Topline declines 34.9% qoq to Rs82.5bn due to shutdown of copper smelter and lower production in Zinc International
  • Copper business was impacted as the Tuticotin smelter was shut following the order from TNPCB
  • HZL continued to report strong numbers in mined metal output, higher than expected PAT was aided by a jump in other income
  • BALCO’s profitability was impacted by lower linkage coal and a shutdown of one unit of 540MW power plant
  • VAL’s aluminium CoP continued to decline on operational efficiencies. The company has restarted its Lanjigarh refinery in July ‘13
  • Power production under SEL jumped 25.6% qoq on easing evacuation issues and commissioning of its fourth 600MW unit in March ‘13
  • Zinc and power business to boost earnings; Upgrade to buy with a 9-month price target of Rs92
Result table
(Rs m) Q1 FY14  Q4 FY13 % qoq Q1 FY13 % yoy
Net sales 82,491 126,738 (34.9) 106,484 (22.5)
Raw material costs (23,690) (57,724) (59.0) (50,398) (53.0)
Personnel costs (4,820) (5,035) (4.3) (4,504) 7.0
Other overheads (32,256) (30,912) 4.3 (28,499) 13.2
Operating profit 21,725 33,067 (34.3) 23,083 (5.9)
OPM (%) 26.3 26.1 24 bps 21.7 466 bps
Depreciation (5,256) (4,534) 15.9 (5,182) 1.4
Interest (3,619) (2,758) 31.2 (2,419) 49.6
Other income 10,662 7,984 33.6 9,484 12.4
PBT 23,512 33,759 (30.4) 24,966 (5.8)
Tax (3,565) (4,180) (14.7) (3,339) 6.8
Effective tax rate (%) 15.2 12.4
13.4
Other provisions / minority etc (8,311) (9,936) (16) (7,437) 12
Adjusted PAT 11,637 19,643 (40.8) 14,190 (18.0)
Adj. PAT margin (%) 14.1 15.5 (139) bps 13.3 78 bps
Extra ordinary items (2,297) (397) 479 (2,174) 6
Reported PAT 9,340 19,246 (51.5) 12,016 (22.3)
Ann. EPS (Rs) 11.1 22.9 (51.5) 14.3 (22.3)
Source: Company, India Infoline Research

Lower copper volumes lead to a 34.9% qoq decline in topline
Revenue during the quarter decreased sharply by 34.9% qoq to Rs82.4bn, due to lower contribution from the copper smelter. Topline was higher than our estimate due to sales of traded goods in the standalone entity. The outperformance in revenue was also led by an increase in power sales from SEL. HZL continued to report strong mined metal output coupled with a rebound in their refined metal output. Power production improved due to commissioning of 4th 600MW unit and easing of power excavation. Zinc international business topline was lower due to subdued metal realizations and lower volume.

BALCO: BALCO’s performance was weak compared to its previous quarter performance. It was impacted by an increase in coal costs and shutdown of one of its 540MW power plant. Aluminium volume declined 1.6% qoq to 61,000 tons in line with our expectations. However, the disappointment was on account of the sharp increase in CoP. Due to higher power costs, aluminium CoP increased from Rs104.532/ton in Q4 FY13 to Rs108,233/ton in Q1 FY14.104.532/ton in Q4 FY13 to Rs108,233/ton in Q1 FY14. Aluminium COP was higher primarily on account of further tapering of coal linkage as per the Coal Block policy and higher operating cost of captive power plant due to maintenance shutdown of one of the units of 540MW Captive Power Plant (CPP). The power plant with a capacity of 1,200MW is ready to commence, but management is waiting for consent to operate. On coal block, company is yet to receive state approval on diversion of forest land; we believe it would take longer time for coal block to come on stream as company is yet to acquire land. The company expects to tap first metal from the 0.325mtpa smelter in Q3 FY14. 

BALCO’s quarterly performance
(Rs m) Q1 FY14 Q4 FY13 % qoq Q1 FY13 % yoy
Aluminium production (Tons) 61,000 62,000 (1.6) 60,000 1.7
Revenue (Rs mn) 7,450 9,540 (21.9) 7,800 (4.5)
EBIDTA (Rs mn) 280 850 (67.1) 570 (50.9)
PAT (Rs mn) (630) 200 - (70) -
Avg LME Aluminium prices (US$/ton) 1,869 2,037 (8.2) 2,022 (7.6)
Aluminium CoP (US$/ton) 1,934 1,930 0.2 1,910 1.3
Source: Company, India Infoline Research

Vedanta Alumina (VAL): Topline from VAL was inline with our estimate as the impact of lower realisations was offset by marginally higher volumes and higher product premiums. VAL’s alumina refinery continued to remain shut in Q1 FY14 for the second consecutive quarter due to unavailability of bauxite. Aluminium CoP during the quarter declined on a qoq basis due to operational efficiencies and lower alumina cost. The company continued to import alumina to meet its requirement. Operating profit was lower primarily on account of the fixed costs of the Lanjigarh refinery and lower realisations, partially offset by higher volumes and lower COP. Aluminium CoP declined from US$1,799/ton in Q4 FY13 to US$1,675/ton. The company has restarted the alumina refinery in July and expects cost savings of US$30/ton in CoP.

VAL’s quarterly performance
(Rs m) Q1 FY14 Q4 FY13 % qoq Q1 FY13 % yoy
Aluminium production (Tons) 134,000 133,000 0.8 124,000 8.1
Revenue (Rs mn) 16,300 17,090 (4.6) 16,810 (3.0)
EBIDTA (RS mn) 2,600 2,610 (0.4) 2,630 (1.1)
PAT (Rs mn) (8,810) (7,000) 25.9 (5,650) 55.9
SIIL Share (Rs mn) (2,600) (2,060) 26.2 (1,670) 55.7
Avg LME aluminium prices (US$/ton) 1,869 2,037 (8.2) 2,022 (7.6)
Aluminium CoP (US$/ton) 1,675 1,799 (6.9) 1,845 (9.2)
Source: Company, India Infoline Research

Standalone Copper: During the quarter copper division performance was impacted due to regulatory issues. Tuticotin smelter was shut following the order of TNPCB which impacted the production. The company has received all the clearance from pollution control board and has commenced operations from 23rd June ‘13. Management expects to return to quarterly run-rate of 85,000 tons by end-Q2 FY14. It expects Tc/Rc margins to remain high ~16cents. Due to the smelter shutdown, company sold 137mn units of power from its 1st unit of 80MW power plant. For the 2nd unit management is awaiting for consent to operate.

Copper business quarterly performance
 

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