Click on Free Online Surveys to take part in R K Global Weekly Newsletter Opinion Poll

Free Online Surveys

Sterlite Industries Q4FY12 Result Update: Key Takeaways

Sterlite Industries (SIIL) disappointed the street with its muted Q4FY’12 earnings. Company’s standalone PAT fell by ~6946bps to `864mn (our estimate `3496mn) with 6% Y-o-Y fall in top-line at `45343mn above our expectation: Sterlite standalone revenue declined by 6%Y-o-Y to `45343mn in Q4FY12 (above our estimate of `41925mn) compared to `48303mn in Q4FY’11 on the back of voluminous growth despite weak LME price. EBITDA too declined by 5%Y-o-Y to `2350mn (above our expectation of `2029mn) in Q4FY’12 compared to `2480mn in Q4FY’11. EBITDA adjusted Other Income (OI) improved by 4760bps to 15.4% at the back of 80% improvement from OI. However, the company’s interest cost went up by 71% to `1729mn during the quarter. Further, exceptional expenses stood at `4233mn during the quarter as the company was liable to pay Asarco a sum of US$82.75mn for the breach of contract. This impacted PBDT which declined by ~74% Y-o-Y to `1036mn during the quarter much below our expected `4686mn. PAT also declined by ~69.4%Y-o-Y during the quarter. Tax expenses declined but it was offset by the increment in the depreciation cost by 32.8% during the quarter.    

Consolidated top-line grew 7.6%; however EBITDA declined ~11.6%: Sterlite consolidated revenue grew at 7.6% Y-o-Y at `107,627mn in Q4FY’12 compared to `100,000mn in Q4FY’11. But the company’s operating profit declined by ~15.6% to `25723mn compared to `30511mn in Q4FY11 as total expenditure grew by 17.7% Y-o-Y to `82465mn in Q4FY12 compared to `70050mn in Q4FY11. PBDT declined by 18.3% to `29804mn in Q4FY12 at the back of higher exceptional loss of `4318mn and double interest cost during the quarter. Consolidated PAT too fell 27% Y-o-Y to `19866mn compared to `27300mn due to 44% increase in depreciation cost; however tax cost fell by 14% Y-o-Y to `4866mn during the quarter.

Outlook and Valuation:

At CMP of `104, the stock is trading at P/Ex of 26.5 on its FY13 EPS of 3.9. Our valuation revised for the core business, Sterlite standalone business at `19 (earlier 20) using EV/EBITDA 3x, HZL at `113 using EV/EBITDA of 6x, BALCO and VAL at `12 using EV/Sales 1.7x and SEL & others at `4 using BV/Share. Hence, our SOTP (sum of the parts) based target price is `148 per share. We recommend investors to “BUY” the stock as the stock has potential upside of ~42% from current level.

Sesa Goa Q4FY12 Result Update

Sesa Goa Q4FY12 Result Update: Key takeaways from the report

Sesa Goa consolidated revenue dip by ~23% Y-o-Y but still better than our expected degrowth of ~45%Y-o-Y on the back of mining ban in Karnataka impacted iron ore production. EBITDA declined by ~53% Y-o-Y more than our expectation (our estimate 50% fall).

Revenue growth declined, better than our estimate: During the quarter, revenue of the company fell by 23% Y-o-Y to `27943mn in Q4FY’12 (our estimate `19730mn) compared to `36236mn in Q4FY’12 on the back of lower volume growth due to ban in Karnataka mining and mining lease expiration in Orissa.

Volume production continued to be hurt on the back of mining activity: Production of saleable iron ore fell by 11% Y-o-Y to 4.9mn ton compared to 5.5mn ton of corresponding quarter of previous year where full sales contribution came from Goa. However, total saleable iron ore production declined by 4% Y-o-Y to 4.9mn ton in Q4FY12 compared to 5.1mn ton in Q4FY11. Total sales declined by 21% Y-o-Y to 5.2mn ton in Q4FY12 compared to 6.6mn ton in Q4FY11. Out of total sales, volume sales declined by 17% Y-o-Y to 4.9mn ton from Goa, 60%Y-o-Y fell at 0.2mn ton from Karnataka.

Higher expenditure impacted operational efficiency; EBITDA declined by 26%: Total expenditure of the company grew by 19% Y-o-Y as a percentage of sales to `17974mn (our estimate `9058mn) in Q4FY’12 compared to `15052mn in Q4FY’11 out of which raw material cost, O&M expenses, employee cost and S&D cost increased by 9%, ~25%, ~32 and 61% respectively during the Q4. Hence, EBITDA declined by 52% Y-o-Y to `9969mn (our estimate `10671mn) in Q4FY12 compared to `21183mn in Q4FY’11. PAT also fell more than expected by ~52% Y-o-Y to `6963mn (our expectation `8648mn) compared to `14617mn in Q4FY11.

Margins too remain subdued: EBITDAM fell by 3897bps to 35.6% (our estimate 54%) in Q4FY’12 compared to 58.4% in Q4FY’11. PBDTM and PBTM fell by 3344bps and 3740bps to 39.7% and 38.6% respectively on the back of higher total cost. PATM too declined to 24.9% (our estimate 42.9%) in Q4FY’12 compared to 40.3% in Q4FY’11.

Outlook & Valuation: We value the company based on SOTP valuation (based on conservative approach) its core operations on FY13 EV/EBITDA multiple of 3x (earlier 4x) at `127 and Cairn Investment based on market cap (discounted at 25%) at `113. At our revised valuation our target price is maintained at `212/share (adjusted Debt), the stock offers a potential upside of around ~15% from the current level; we recommend ‘Buy’ rating on the stock.

Must Read for all Retail Investors…

Must Read for all Retail Investors…

The term ‘investor’ by itself might sound like a heavyweight and make you ponder whether or not you are one of those. Come to think of it, all of us at some point of time or the other have acted as investors, without even realizing so. Buying out a stock, mutual fund, bond or infact the most popular class of investment- precious metals (gold, silver, diamonds, platinum etc.) automatically brings us under the umbrella of investors. Coming to the reason of writing this article: Whether or not one should stay invested, no matter what the corpus of funds he has or which asset class he chooses, we need to first have a clear understanding of the rationale behind doing so. So, the first thing that comes to your mind when somebody asks you- “Why should you invest?” you would automatically revert with a sweet cliché, “For higher returns”, which is the crux of investing per se. But my purpose is to take you a step forward and make you realize the consequences of not doing so at all.

For this, we need to interpret the real difference between ‘Saving’ and ‘Investment’. We would never discourage you from saving, it’s important. Savings should constitute around 15% of your income, primarily for the sake of liquidity and safety, in the form of insurance policies, bank deposits or so. But saving beyond that level would mean more of your funds remaining idle. That’s because the only problem with them is that the returns on savings have not been able to outpace inflation, especially in an easily overheated country like India, where the prices of food articles and other necessities like petrol, cooking gas etc. have been accelerating over the years. This results in negative real returns. Hence comes the utmost necessity of Investing, where the returns are higher and so are the risks at times. Then there are capital gains that come with higher leverage. You can easily outpace inflation by adopting the right kind of investment strategy, which might sound very time consuming, but on the contrary, it just involves identifying the targeted time period, instrument and the intermediary.

What if I talk about Stocks? You would be apprehensive and lose your calm thinking of the massive market crash of January 2008, when the Sensex registered a dip of 2250 points in a single day washing out the long-term investment returns of many retail investors in India. Heavy fall in valuations due to the FIIs pulling out their money from ‘other markets’ and the rupee losing its value against the dollar took a toll on the portfolios of domestic investors who were relying on the growth potential of Indian Companies and stayed invested therein. But, has anybody noticed the fortune of those ‘out-of-the-box’ thinkers who entered the markets during that phase? Interesting point to note is that post-2008 crash (of about 50%) the markets generated positive returns of upto 80% in 2009. Which means if someone entered at 9647 levels, he came out flourishing by the end of 2009 at 17465 and a further 17% in 2010 at 20509 levels. Now, doesn’t that sound tempting enough to you? We are not considering the downfall of 2011 when fears of a double-dip recession and Global unrest again dragged the bourses down, but then, it is all a part of the game. Capitalizing on the volatilities (the interplay of the bulls and bears) is what differentiates a smart investor from the herd. Now comes the question of what to buy and what to sell. You must be getting umpteen stock calls from various broking houses, financial portals and the like. It’s good to follow technicals, they work sometimes. But, identifying fundamentally strong companies is not that difficult as experts make them look like. Each of us are acquainted with the Blue-chip companies like- State Bank of India, Reliance Ind., Sterlite Ind., L&T, HUL etc. When we are talking long-term investments, betting on these stocks can never go wrong. A simple strategy is to hold them in your Demats and observe them appreciating overtime, while accumulating more of them on every large dip possible. For these sound companies, their stock prices are nothing but a reflection of their robust growth, strong businesses and the confidence that investors bestow on their potentials. This goes out for the experienced investors, who have been there and watched these stocks over a while.

What about the inexperienced ones? We have a suggestion for them- ETFs like Nifty Bees. What’s that? ETFs provide investment returns that correspond to the total returns of the Index, in this case, the S&P CNX Nifty Index. By investing in them, one needs to have some idea of the broad markets rather than hunting for single stocks, hence they seem to be apt for those investors who are time/experience/knowledge restrained and reward them with the benefit of diversification and low cost. Does that mean we suggest you to jump into ETFs at the very outset? Honestly speaking, being stockbrokers, we may not be keen to suggest so. Also, due to overall unawareness, lower volumes and lesser liquidity, ETFs may not be that rewarding for retail investors at the moment, apart from a couple of deals like Gold BeEs and some large cap equity funds. So we better adopt a wait-and-watch strategy for this financially innovative product. Till then, our favorites would still remain individual multi-bagger stocks that have been consistent value creators.

Moving forward to the much talked about ‘Mutual Funds’. A diversified, professionally managed basket of securities, mutual funds are said to be common man’s easiest resort to the financial markets. Despite the numerous advantages associated with MFs, they have somewhat failed to create a mark among the Indian investors’ portfolios. The risk associated with MF investing, poor investor interest, higher costs and lower assets under management have acted culprits to their success as compared to the US MF industry, where every third person is a MF owner. Let’s tap them one by one. Risk: If a large number of MF holders decide to liquidate their positions in that fund, the fund manager is forced to sell out and reimburse, thus resulting in the drop of the MF value. This might be the case despite some of the individual stocks in the portfolio being under-valued and good picks. Poor investor interest: The one thing an Indian investor would completely detest is to pay taxes on every single penny that gets credited to his name. The bad news is that you have to pay taxes on capital gains even if you withdraw no money during that year. Higher costs: Mutual fund managers charge a fee to cover their costs, which sometimes turn out to be higher than what you plough back. The fund managers ought to be paid no matter how the fund performs at the year-end. Low Assets under Management: Now let’s study some hardcore data to prove that all of the above is correct. MF industry’s AUM have dropped for 2 consecutive years straight, by 11% in 2010 and 5% in 2011 losing Rs. 36,000 cr. in FY12. In a nutshell, you might be allured by the promises that some of the MF brands make, but to name a few- HDFC Mutual Fund, Reliance Capital Asset Management, ICICI Prudential, Birla Sunlife MF and UTI MF have proved to be the dark horses in this race registering consistent returns to their investors.

Coming to the last bit of this composition, no Indian investor is said to be complete without a holding of Gold/Silver in his kitty. Till date, Commodities as an investment class was either popular in the form of Futures Trading on an index like MCX, buying out physical gold from a neighborhood jeweler and storing it in-house or investing in Gold ETFs as discussed earlier. However, each of them is attached with their own prejudices. In Derivatives trading, you usually have to square up your outstanding positions before the contract expires, which might result in either profit or loss booking.  Physical delivery and storage of gold involves risk of safety and warehouse costs. Gold ETFs are usually expensive and do not offer Remat facility. How about the new e-Series Spot Commodity investing launched by NSEL? For those who are not aware, all of the above issues can be resolved by this brand new fabrication. Buy out commodities you have faith in, like Gold/Silver and now even Platinum in electronic form and keep the option of converting them to physical form handy. No storage costs, no risk and no complicated NAV calculations. Sounds good?

Now that you are aware of a gamut of investment opportunities that our markets provide us, do not hesitate to explore them further. It takes time for an Indian mind to instill credence in financial products, but at some point of time you realize it becomes inevitable to probe in, with the growing importance of financial markets in an emerging economy like ours. Apart from choosing the right intermediary (financial advisor, fund manager, broker whatever the case may be) who can professionally manage your funds and make your money work for you best, open up your senses to make the right judgments, as that would definitely act salt to your preparation and add taste to your fin-meal.