Result Flash on Sterlite Industries for 4QFY2011

Sterlite reported stellar profitability for 4QFY2011 beating our expectations. The company reported a robust sales growth of 39.9% yoy to Rs10,000cr in 4QFY2011, above our estimates of Rs9,896cr. Net profit grew 35.1% yoy to Rs1,925cr, above our estimate of Rs1,473cr on account of higher-than-expected profit from on Zinc business. We will review our estimates for FY2012 and FY2013 post conference call today. Meanwhile, we maintain our Buy rating on the stock with a target price of Rs215.

4QFY2011 consolidated financial result highlights-  

·         Net sales increased 39.9% yoy  to Rs10,000cr above our expectation of Rs9,896cr. Net sales growth was primarily driven by increase in zinc and lead sales volumes. Zinc production volumes increased 29.0% yoy to 194,000 tonnes, while lead production volumes declined 10.0% yoy to 18,000 tonnes in 4QFY2011.

·         EBITDA increased 22.9% yoy to Rs3,059cr, while EBITDA margin expanded 543bp yoy to 30.6%.

·         Other income increased 30.9% yoy to Rs725cr, while tax rate declined 190bps yoy to 17.2% in 4QFY2011. Consequently, net profit  increased 35.1% yoy to Rs1,925cr, significantly above our estimate of Rs1,368cr.

Exhibit 1: 4QFY2011- Actual vs. Estimates

(Rs cr)	4QFY11A	4QFY11E	Variation (%)
Net Sales	10,000	9,896	1.1
EBITDA	3,059	2,489	22.9
EBITDA margins (%)	30.6	25.2	543bp
PBT	3,296	2,911	13.2
Adj. net income	1,925	1,473	30.7

Source: Company, Angel Research

Exhibit 2: 4QFY2011 Performance summary

Y/E March (Rs cr)	4QFY11	4QFY10	% chg	FY2011	FY2010	% chg
Net Sales	10,000	7,147	39.9	30,248	24,501	23.5
- Consumption of Raw Material	4,531	3,467	30.7	14,389	12,139	18.5
(% of Net Sales)	45.3	48.5		47.6	49.5
- Power& Fuel	685	493	39.0	2,380	1,953	21.8
(% of Net Sales)	6.8	6.9		7.9	8.0
- Staff Costs	368	235	56.2	1,132	854	32.5
(% of Net Sales)	3.7	3.3		3.7	3.5
- Other expenses	1,414	913	55.0	4,478	3,261	37.3
(% of Net Sales)	14.1	12.8		14.8	13.3
Total Expenditure	6,998	5,108	37.0	22,379	18,207	22.9
(% of Net Sales)	70.0	71.5		74.0	74.3
Operating Income	55.9	80.6	(30.7)	180.4	181.9	(0.8)
EBITDA	3,059	2,120	44.3	8,049	6,475	24.3
EBITDA margin (%)	30.6	29.7		26.6	26.4
Interest	104	2	6,287.1	301	292	3.0
Depreciation	352	225	56.7	1,030	750	37.4
Other Income	725	554	30.9	2,472	1,506	64.1
Exceptional Items	(32)			(57)	(297)
Profit before Tax	3,296	2,448	34.6	9,134	6,642	37.5
(% of Net Sales)	33.0	34.3		30.2	27.1
Tax	566	468	21.1	1,812	1,233	46.9
(% of PBT)	17.2	19.1		19.8	18.6
Profit after Tax	2,730	1,981	37.8	7,322	5,409	35.4
Net Profit	1,925	1,425	35.1	5,043	3,744	34.7

Source: Company, Angel Research

Outlook and Valuation

Sterlite reported stellar profitability in 4QFY2011. We continue to believe the company is well placed to capitalise on strong metal demand through its expansion plans in the zinc-lead segment, higher merchant power and silver sales. We will review our estimates for FY2012 and FY2013 post conference call today. Meanwhile, we maintain Buy rating on the stock with a target price of Rs215.

Financial Summary

Y/E March ( Rs cr)	FY2008	FY2009	FY2010	FY2011E	FY2012E	FY2013E
Net Sales	24,705	21,144	24,501	30,248	35,288	41,571
% chg	1.3	(14.4)	15.9	23.5	16.7	17.8
Net Profit	4,399	3,540	3,744	5,043	5,615	7,396
% chg	(0.5)	(19.5)	5.8	34.7	11.4	31.7
FDEPS(Rs)	15.7	12.3	11.9	14.3	16.7	22.0
OPM (%)	31.8	22.2	25.7	26.0	24.8	28.8
P/E(x)	11.4	14.4	15.0	12.4	10.7	8.1
P/BV(x)	2.3	2.0	1.6	1.4	1.3	1.1
RoE(%)	27.3	14.8	12.0	12.9	12.8	14.4
RoCE(%)	27.2	10.6	11.8	11.8	11.6	14.5
EV/Sales (x)	2.1	2.5	2.7	2.2	1.9	1.4
EV/EBITDA (x)	6.7	11.0	10.4	8.6	7.5	4.8

Source: Company, Angel Research