>STERLITE INDUSTRIES (INDIABULLS)

In Q2’10, Sterlite Industries Ltd.’s (SIL’s) net sales declined by 7.7% yoy to Rs. 60.9 bn. The Company reported a yoy increase in production of Copper (12.3%) and Zinc/Lead (14%) but Aluminium production was down (29.7%) due to complete ramp down of BALCO plant 1 smelter. EBITDA plunged by 26.3% yoy to Rs. 13.7 bn, primarily on account of a steep decline in nonferrous metal realisations. However, the LME Copper (Cu), Aluminium (Al) and Zinc prices have recovered sharply from the lows of last year, driven by the expected recovery in the global economy and the strong demand from China. Going forward, we continue to hold a positive outlook for the Company, on the back of a sharp recovery in the metal prices. However, we believe the stock is fairly valued at the Current Market Price (CMP) of Rs. 847 and thus we reiterate our Hold rating on the stock.

Economic recovery helps Sterlite post a strong qoq performance

Metal prices to remain stable: The LME Aluminium prices have rallied sharply since February 2009, driven by China's State Reserve Bureau's (SRB's) restocking and an expected recovery in the economy. However, we do not expect further rally in the LME Aluminium prices in the near term, especially with the LME inventory piling up. On the other hand, LME Copper prices have rebounded sharply from the low levels witnessed in December 2008, driven by a strong demand for the metal in China and brighter outlook for the global economy. Although we do not expect any substantial increase in the LME prices from the current levels, we have upwardly revised our base-metals average realisation estimates for the Company following the recent rally in the LME prices. Thus, we expect Cu, Al, and Zinc realisation to be ~USD 5,650 per tonne, ~USD 1,835 per tonne and ~USD 2,000 per tonne, respectively in FY10.

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