>STERLITE INDUSTRIES INDIA LIMITED: Lead and silver smelters at Hindustan Zinc commissioned

We expect a stable quarter – not much to look forward to
We expect Sterlite Industries to have a modest quarter with not much expectations of change from last quarter apart from better lead and silver volumes. With prices remaining stable and aluminium and power businesses continuing to see high costs, we don’t expect quarterly results to have a significant impact on stock outlook.


We expect consolidated EBITDA of INR 25.2bn, up from INR 23.2bn in Q3FY12 largely on account of improvement in Hindustan Zinc results (HZ IN, Neutral). We expect Hindustan Zinc (HZ IN, Neutral) to see EBITDA of INR 15.8bn, up from INR 14bn in Q3FY12.


We expect net profit of INR 13.6bn for Sterlite (up from INR 9.1bn in Q3FY12) and INR 14.5bn for HZ (up from INR 12.7bn in Q3FY12). Lead and silver volumes ramp up during the quarter


Lead and silver smelters at Hindustan Zinc commissioned during the last quarter have started to ramp up and reported production of 37,000 tonnes and 2.8mn ounces respectively during the quarter, up from 28,000 tonnes and 1.8mn ounces respectively in Q3FY12. Please note
that lead volume growth is despite the closure of its smelter at Vizag (which produced 28,000 tonnes in FY12).


Apart from this, most other volumes are largely flat. Sterlite Energy (not listed) continues to operate at a PLF of less than 50% on limited coal availability.


Supported by stable metal prices…
Along with volume expansion, metal prices have remained stable up 3- 5% QoQ and should support earnings. With INR/USD rate also remaining at close to 50, the company should see strong realizations.


Aluminium and power operations remain a drag Sterlite continues to see stress in aluminium and power operations. While the external purchase of bauxite should keep the cost of
production high, we believe the company should see marginal improvement at Vedanta Aluminium (not listed) as operations normalize (last two quarters were affected by pot outage). We still expect Sterlite’s share of losses at VAL at INR 1.5bn (down from 2.6bn in Q3FY12).


At the same time the power business continues to operate at a PLF (plant load factor) of close to 45% (on a capacity of 1800MW). However, in March 2012, PLF has seen a jump to 58%; we need to watch whether the company can maintain these high levels over a longer period.


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