shares overview metal non ferrous Sterlite Industries

Sterlite Industries Ltd (updated - 29 April 2010)
Higher metal prices, increase in power sales and a 40 per cent rise in other income to Rs 549 crore helped Sterlite Industries post a strong performance during the March 2010 quarter. While its consolidated top line surged 64 per cent year-on-year to Rs 7,228 crore, operating profit margins rose 11 percentage points to 30.2 per cent, enabling a 131 per cent jump in net profit to Rs 1,381 crore.

Sterlite’s zinc and lead businesses were the main profit drivers. Segment profits for these businesses nearly tripled to Rs 1,447 crore (contributing three-fourths of the total profits) due to over 90 per cent rise in average zinc and lead prices to $2,288 and $2,219 a tonne, respectively. Additionally, an 18 per cent surge in lead volumes, coupled with a mere 17 per cent rise in the cost of production per tonne (for zinc and lead), boosted profitability.

Last month, Sterlite commissioned a 2,10,000-tpa (tonne per annum) zinc smelter. By the September quarter, it expects to commission a 1,00,000-tpa lead smelter. After commissioning, these projects will make Sterlite the world’s largest integrated zinc-lead producer, with total smelting capacity of 1.064 million tpa. With zinc and lead prices ruling higher on a year-on-year basis, expect these businesses to do well in the coming quarters.

Sterlite’s aluminium business also reported a smart turnaround. While its cost of producing aluminium surged by a fourth (year-on-year), the average London Metal Exchange aluminium price was higher by 59 per cent to $2,163 per tonne during the March quarter. This helped the aluminium business report a profit of Rs 151.6 crore, as against a loss of nearly Rs 50 crore in the March 2009 quarter. Although aluminium production was lower by 20 per cent due to shutdown of some capacity, it enabled the company to gain from higher power sales, up nearly nine-fold. Consequently, profits in the power division stood at Rs 81.6 crore compared to just Rs 1.1 crore in the March 2009 quarter.

The copper business, however, was the lone exception, wherein margins slipped a bit. Analysts believe that smelting overcapacity may keep margins under pressure in future.

With metal prices ruling firm, volumes seen higher and Sterlite adopting costreduction measures, most analysts are positive on the stock, targeting a price range of Rs 890-1,010, which indicates there is room for upside from the current levels of Rs 813.
source - Business standard

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The stock has corrected around 23 per cent since the beginning of 2010 on various concerns, of which bauxite mining setback is the latest. Earlier, the energy arm’s longterm power sales agreement with Vedanta Aluminium was not welcomed as it undermined the other lucrative opportunities in the merchant power market.

Disproportionate capital that had been deployed from Sterlite Industries’ balance sheet into an associate company through inter-corporate deposits at the start of the current financial year had also worried analysts. The stock ended 8.5 per cent lower on Wednesday at `161.5.
source - business standard

Sterlite Industries Ltd (updated - 30 Sept 2010)
After being denied environmental clearance for the `8,000-crore bauxite mining project in Orissa in August, the UK-based Vedanta Group received another setback on Monday, as Sterlite’s Tuticorin copper smelter plant was directed to shut operations by the Madras High Court due to environmental concerns.

This is a major jolt to the company, as it undermines its plan to become an integrated aluminium player. The Tuticorin plant had around 400 ktpa (kilo tonnes per annum) copper smelter capacity. Sterlite had undertaken plans to double this, besides setting up a 160-Mw captive power plant, which was to be commissioned by mid2011. The outlay for the expansion stood at `2,300 crore.

Some of this investment has already been made. Besides losing production, Sterlite will have to pay its employees 16 days’ wages for every year of service, according to the court order.

On the earnings front, analysts at Prabhudas Liladher anticipate a 15 per cent impact on 2011-12E earnings (`31,830 crore) if the decision is not revoked. Analysts have not provided immediate earning downgrades given the favourable rulings on litigation related to clearances for plants in the past.

Motilal Oswal had guided that Sterlite’s revenues will grow at a compounded annual growth rate of 35 per cent over 2010-12. This is now at risk.

The only concern is regarding the mine life, which, according to analysts, is six years.

Also, while Skorpion has been acquired by Sterlite, it is not clear whether Sterlite or its subsidiary, Hindustan Zinc, which was to acquire the entire zinc and lead business of Anglo American, will now go ahead and acquire the Lisheen Mine (Ireland) and Black Mountain mines (South Africa). Hence, analysts remain neutral on the transaction as of now.

For Sterlite, revenues from the zinc-lead segment grew 21.4 per cent to `2,146 crore in the September quarter. With ongoing demand and expansions taking the zinc-lead capacity to 1.1 mt, the segment may continue to drive growth. The Rajpur-Dariba 100-kilotonne-per-annum (ktpa) smelter is expected to be commissioned in the third quarter of the financial year. Increasing silver capacities to 500 ktpa also bode well for the company, given the surge in the price of the metal.

However, there is some uncertainty over Tuticorin copper expansion, as the plant got an unfavourable verdict from the Madras High Court on environmental issues. However, increased merchant power sales from Balco and Sterlite Energy augur well, according to analysts at Angel Broking. They expect net profit to grow 20 per cent year-on-year to `4,500 crore in 2010-11. The stock, at `169.15, trades 12.6 times 2010-11 and 8.9 times 2011-12 estimated earnings.
source - business standard

Sterlite Industries Ltd (updated - 09 Dec 2010)
Sterlite Industries completed the acquisition of Namibia’s Skorpion Zinc Mine by paying $707 million. Anglo-Zinc assets add 206 million tonnes (mt) to Vedanta’s reserves, taking it to 478 mt and consolidating its position as the world’s largest integrated zinc-lead producer. Skorpion’s reserves and resources (in terms of ore) stand at 8.3 mt, with 11.3 per cent zinc content, according to Edelweiss reports.

The acquisition will strengthen Sterlite’s zinc-lead segment, with Skorpion enjoying the advantage of low cash costs. The deal valuation is also low, at EV/Ebitda (enterprise value by earnings before interest, tax, depreciation and amortisation) of only 3.5-4x (assuming flat volumes), according to analysts at Edelweiss.