Emkay Global Financial Services is bullish on Sterlite Industries (India) and has recommended accumulate rating on the stock with a target of Rs 203 in its July 25, 2011 research report.
“Sterlite Industries (India)- Zinc business, both in India as well as internationally continue to be the major driver of the overall good performance of the company. After good show by HZL, zinc international also surprised positively with an EBITDA of Rs 5.2 bn against our estimate of Rs 4.4 bn. We believe both HZL and zinc international to continue to be the key performance driver for the company in foreseeable future.”
“Base metals prices though slipped slightly on QoQ maintained fair strength during the quarter. This supported the company’s topline to remain flat on QoQ basis despite drop in volume in its aluminium and copper business. During the quarter, average LME for copper and aluminium stood at US$9125/ tonne and US$2600/ tonne respectively. Copper sales during the quarter fell by 12% to 72,032 tonnes while aluminium production at Balco came at 61,000 tonnes, down slightly both YoY and QoQ. We believe copper and aluminium volume to remain subdued going forward also. Rising costs continue to put pressure on the margins of all the businesses. Aluminium business has been the worst victim of higher coal costs.”
“The cost of production of aluminium at Balco came at US$1981/ tonne (Rs 88642) against US$1781/ tonne (Rs 80570) during Q4FY11 and US$1813/ tonne (Rs 82818) for Q1FY11. For VAL the CoP rose to US$2344/ tonne against US$1895/ tonne in Q1FY11 and US$2089/ tonne during Q4FY11. In power business, the blended average cost of generation stood at Rs 2.6/ unit, up by Rs 0.81/ unit QoQ and Re 1/ unit YoY. Particularly in SEL the generation costs remained even higher at Rs 2.86/ unit during Q1FY12 mainly on account of higher coal prices. We feel the high cost scenario continue to be the biggest concern going forward till there is some better solution for sourcing of coal.”
“At the CMP of Rs 172, the stock is trading at 8.9x FY12E EPS and 7.3x FY13E EPS. On EV/ EBITDA basis the stock is trading at 5.1x and 3.6x on FY12E and FY13E respectively. Valuing all the metals businesses on FY13E EV/ EBITDA basis and power business on DCF method, our revised SOTP target price for the stock remains at Rs 203/ share. We maintain ACCUMULATE rating on the stock,” says Emkay Global Financial Services research report.
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