Sterlite reported inline results with adjusted Ebitda of R2,100 crore. During Q1, the copper business was impacted due to a temporary closure, while the power business is gradually improving with higher plant load factor (PLF) and the zinc business continues to provide stability to consolidated earnings.
We maintain ‘outperform’ with a target price of R82. During FY14Q1, net sales at R8,200 crore were down 23% y-o-y due to the temporary closure of a copper smelter during the quarter. Ebitda at R2,100 crore was up 4% y-o-y, led by stronger margins in the power and zinc business. NPAT of R940 crore was down 22% y-o-y due to higher interest cost and MTM forex loss.
The zinc business accounted for 69% of FY14Q1 Ebitda. Higher volume and a marginally better physical premium led to 5% rise in Ebitda y-o-y. Low visibility on the Gamsberg project limits the sustenance of the international business as its mine life is only 4-5 years. The copper smelting business was affected by a temporary closure due to an alleged environmental breach; however, the plant restarted from FY13Q2. A 160MW captive power plant, expected to fully commission in FY13H2, would provide further relief on costs. Power contributed 19% of Ebitda. PLF for SEL’s 2,400 MW continues to improve as transmission constraints are being removed and we estimate average PLF of 60% in FY14. We expect the 2-GW Talwandi Sabo power project to start commissioning in FY14Q4.