>STERLITE INDUSTRIES: BALCO projects delayed by two quarters

■ 3Q results broadly in line: EBITDA of INR23.1bn (up 17,2% y-o-y/ down 7% q-o-q ) broadly in line with our estimate of INR22.8bn. Reported NPAT of INR9.1bn (down 17% y-o-y/ down 8% q-o-q) was impacted by INR4.25bn of forex losses & INR2.6bn in associate losses from Vedanta Aluminium (VAL). Adjusting for these, NPAT at INR14.5bn was up c22% y-o-y (down 5% q-o-q) (See exhibit 1 for details)


■ Projects delayed: Projects at BALCO have been delayed by two quarters. Unit 1 of the 4x300MW captive power plant is now expected to be synchronized in 1QFY13 & first metal tapping at the 325ktpa smelter is now expected during 2QFY13. The 211mt coal block at BALCO has received Expert Appraisal Committee approval and now the stage 2 forest clearance is the next leg of the approval process.


■ STLT continues to overinvest in VAL – STLT infused INR6.7bn as debt during the quarter taking its total investment in the company to 34% (INR101bn) vs an equity holding of 29.5%. However, Vedanta’s (VED LN, OW (V)) investment in the company’s debt fell by 50% q-o-q. STLT though expects the incremental infusion to be repaid during 4Q through VAL’s undrawn credit lines. While VAL reported a strong q-o-q improvement in operating costs (down cUSD500/t) through higher linkage coal availability and control over operating metrics such as coal consumption and current efficiency, it continued to make losses at the NPAT level (INR8.9bn in 3Q12). Management is confident though of bringing costs down further to INR95k/t (c7% lower than current levels) but coal supply & costs would likely continue to form an overhang.


■ Cutting FY12/13e EBITDA; Reduce TP to INR140 (from INR200) but retain OW rating: We have cut FY12/13 EBITDA by 10%/19% to reflect a) project delays b) revised commodity price forecasts as published in HSBC Metals Quarterly today c) higher input costs. We revised our valuation SoTP valuation methodology and now a) value Sterlite Energy (100% subsidiary) at 1.0x invested book (Jharsuguda project only) given uncertainty in project cash flows due to uncertainty in coal pricing b) value STLT’s current investment in VAL at a 80% discount due to low visibility on profitability of the project. We derive a price target of INR140 (was INR200) earlier & rate STLT OW.


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