Stock Review: STERLITE INDUSTRIES

Shares of Sterlite Industries rose almost 5% on the BSE on Monday, after the company reported a 40% year-on-year increase in revenue and net profit, beating market expectations. The growth was lead by the increase in zinc volumes and better silver realisations due to higher silver prices. Hindustan Zinc, the company's subsidiary, was the major driver of Sterlite's stellar performance.

 

Late last week, Hindustan Zinc reported a 43% YoY jump in its fourth quarter revenue boosted by a 29% jump in lead production. The rise was mainly on account of the contribution from the Dariba Hydro Zinc smelter. Realisations in Sterlite's silver business almost doubled during the quarter with the average Silver cash settlement price as quoted by London Bullion Market Association more than doubled to $31.9/oz within a year. As a result of ramping up operations at its silver rich SK mine, the company expects to take silver production up to 500 tonne per annum by the end of the next fiscal from the current 180 tonne. On the flipside, a 13% fall in lead production and a 5% increase in the cost of zinc production due to higher stripping costs at Rampura Agucha, resulted in a 700-bp drop, YoY, in the operating profit margin for the lead, zinc and silver business. Together, they contribute about 40% to the company's consolidated sales. In the copper business, which makes up approximately half of the company's topline, net sales grew 36% YoY. The rise in aluminium prices resulted in a 400 basis points increase in its aluminium operating margins YoY, even though sales marginally declined. For the year ended March 2010, Sterlite's net sales increased 23.4% to . 30,248 crore as a result of high volumes due to its inorganic expansion. Net profit increased 35% to . 5,043 crore for the year. Its debt on book is . 11,700 crore while cash is . 22,600 crore. At . 186.4, it trades at a 12 month trailing price earnings ratio of 12.4 times.

In the near term, strong earnings growth can be expected as a result of Sterlite's recent acquisitions — Skorpion Zinc in Namibia, Black Mountain Mines and Lisheen Mines. The impact, to the tune of 44,000 tonne of mined zinc and 36,000 tonne of refined zinc, which has already started to impact the company's operating profit with an additional . 439 crore in the fourth quarter, will mostly likely continue in the coming quarters.