Sterlite Industries’ Q3FY13 Results: Profits Increase, Sales Muted

Sterlite Industries, a part of the London-based Vedanta Group, posted its Q3FY13 results on Jan 29, 2013. During the quarter, the net profit of the company increased by 30% on a yearly basis to Rs 1191 crore. However, the income from operations increased by just 4% in the same period and stood at Rs 10692 crore. Its EBITDA came in at Rs 2375 crore, which was up by just 1% YoY.

Despite seeing lower growth in its topline, Sterlite managed to post a better bottomline due to the lower tax outgo (down by 30% on a yearly basis) and lower forex losses, which stood at Rs 63 crore for this quarter against Rs 300 crore same quarter last year.

The company mainly operates under two major categories, metal & mining and power. Under metals & mining, it operates in three divisions – Aluminium, Copper and Zinc. The copper division, which contributes to almost 50% of the consolidated sales, witnessed a subdued performance in the recent quarter and this pulled down the results as a whole. Sterlite’s revenues increased by just 1%, whereas the EBIDTA and PAT saw a decline of 45% and 58% respectively. The reason for such decline was a fall in the realisations of copper by 22% in the same period.

Zinc International, a division of Sterlite, reported revenues of Rs 1065 crore. The EBITDA stood at Rs 440 crore, up 12% QoQ and 18% YoY. Higher LME prices and lower cost of production aided this increase.

Another division, Zinc India reported revenues of Rs 3117 crore for the quarter, which was higher by 14% on a quarterly basis. Its EBITDA came in at Rs 1480 crore, up 5% QoQ and 8% YoY. The cost of production without royalty was USD 829/tonne as compared to USD 844/tonne in Q2F13 and USD 785/tonne in Q3F12.

The power division of the company, which contributes around 5% of the total business, has witnessed a 9% decline in its revenues and a 180% decline in profit (posted a loss of Rs 28 crore) in the December 2102 quarter. The reasons for such underperformance were lower sales of power by 4% YoY basis and lower plant load factor (PLF) of 31%. The lower PLF was considering that three commissioned units of the 2,400 MW Jharsuguda power plant were constrained by the continued evacuation limitations that were imposed after the Northern and Eastern region grid failure in August 2012.

The CMP of the stock currently discounts its TTM earning by 7.2x, which is lower than its long-term average. In view of the strong balance sheet of the company (it has a cash holding of Rs 23472 crore) and the expected improvement in the metal sector, long-term investors can take exposure in the counter.