>STERLITE INDUSTRIES: Expansion update

Sterlite Industries India’s (SIIL) 1QFY13 EBITDA was 5%/7% below our/street estimates, while PAT was 1%/5% above our/street estimates, respectively, due to higher other income and lower tax despite being hit by forex loss. Power segment posted a strong performance, while other segments like aluminium, zinc and copper witnessed minor pressure. SIIL will witness multiple expansion projects getting commissioned in the next one year, which would ensure healthy growth. We retain our Buy rating, earning estimates as well as the TP on SIIL of Rs138. Our TP is based on the combined entity, Sesa-Sterlite’s valuation. 


Power segment gives a positive surprise, aluminium and copper drags: Driven by lower costs due to higher power generation and better coal availability, the power segment was able to post EBITDA margin of 37.6% versus 32.4% in 4QFY12 and 27.0% in 1QFY12. Power realisation per unit increased 1% QoQ, while costs/unit dropped 6% QoQ. Aluminium segment, particularly BALCO, continued to witness high costs to the tune of 17% YoY and 7% QoQ in rupee terms due to tapering of coal linkage and higher costs of alumina due to low grade of bauxite. Copper segment also disappointed due to lower Tc/Rc margin and higher production costs. 


Expansion update: BALCO is likely to start metal tapping operations at its 325,000tn smelter from 3QFY13 onwards, while the first 300MW unit of its 1,200MW power plant is set for synchronisation in 2QFY13 (deferred by a quarter). SEL’s fourth unit is under trial run and the same is likely to start commercial power generation in 2QFY13. After getting environmental clearance, SIIL is looking at obtaining stage-II forest clearance for 211mt BALCO coal block, but we expect a major delay. Talwandi Sabo plant is progressing well and its first unit of 660MW is set to be synchronised at the end of 4QFY13, although we expect a delay of 3-6 months. SIIL has indicated that the new expansion plan for HZL is being prepared and would be presented in due course. 


Other highlights: SIIL started an additional 700MW power transmission capacity in 1QFY13, while, it expects to commission another 1,000MW transmission capacity by 4QFY13, taking the total capacity to 2,850MW. SIIL has responded to Coal India’s offer of supplying pit-stock inventory (logistics arrangements have to be made by the buyer) at the administered price. It expects 2-3mt of additional coal from this route.


To read report in detail: SIIL