Stock Review: STERLITE INDUSTRIES

Firm metal prices resulted in a 63% rise in earnings per share for Sterlite Industries' investors in the first quarter of the current fiscal. The country's most-diversified producer of non-ferrous metals kicked off to a good start with the announcement of a 66% increase in the first quarter revenue.

The rise came mainly on account of a stellar performance of its zinc, lead and silver business, where revenues doubled compared with the year-ago period and also due to the lower cost of production and better TcRc (Treatment Charge, Refining Charge) margins in the copper business. The first quarter results are a reflection of the uptrend in commodity prices, which the company has benefitted from, coupled with organic and inorganic capacity expansion which has now started to contribute significantly. Yet, the high cost of power and fuel remains a concern for the company.

A few days ago, the company's subsidiary, Hindustan Zinc, announced a 68% year-on-year increase in profit on the back of higher volumes and improved realisations. During the quarter, zinc production was up 17% at 1,93,000 tonne on account of an enhanced contribution from the Dariba Hydro smelter. Despite an increase in the cost of production, the 11% rise in the price of zinc lead to better margins. In the lead business, production rose over 6%, whereas silver production was 8% higher on account of the ramp-up of the Sindesar Khurd mine. These were the key factors contributing to Sterilte's overall performance. Production of copper cathodes was lower during the quarter as a result of lower concentrate grade and reduced plant availability due to unscheduled maintenance shutdowns. However, the rise in treatment and refining charges lead to an overall improvement in margins.

Similar was the case in the aluminium business. Although output declined, overall performance of the business improved as a result of the 25% year-on-year increase in average aluminium LME (London Metal Exchange) prices.

The company reported a 66% increase in revenue to . 9,860.70 crore. Its operating profit margin improved by 300 basis points to 28% whereas net profit was higher by 63% to . 1,639.73 crore. At . 169, the Sterlite Industries scrip trades at 12 times on a 12-month trailing price earnings ratio and is fairly valued.