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.