Sterlite Ind: Slowdown taking grip - Views on News from Equitymaster

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Sterlite Ind: Slowdown taking grip

Jul 31, 2001

Sterlite Industries (I) Ltd. (SIIL), the successful bidder of Bharat Aluminium Company (Balco), has reported a strong performance in FY01. The company, last July, demerged its optical fibre business into a separate company, Sterlite Optical Technologies Ltd. (SOTL).

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Net Sales 8,658 9,267 7.0% 22,651 30,931 36.6%
Other Income 161 88 -45.7% 328 281 -14.2%
Expenditure 7,769 8,753 12.7% 19,820 27,911 40.8%
Operating Profit (EBDIT) 889 514 -42.2% 2,832 3,021 6.7%
Operating Profit Margin (%) 10.3% 5.5%   12.5% 9.8%  
Interest 447 137 -69.3% 1,339 1,021 -23.7%
Depreciation 195 224 15.3% 749 886 18.3%
Profit before Tax 409 240 -41.2% 1,072 1,395 30.1%
Tax 21 14 -35.7% 21 116 452.4%
Profit after Tax/(Loss) 388 227 -41.5% 1,051 1,279 21.7%
Net profit margin (%) 4.5% 2.4%   4.6% 4.1%  
No. of Shares (eoy) (m) 53.0 55.6   53.0 55.6  
Diluted earnings per share 27.9 16.3   18.9 23.0  
P/E Ratio   6.4     4.5  

SIIL has reported a strong growth in turnover. This is mainly due to the debottlenecking exercises initiated over fiscal '00 & '01. The company over two phases increased smelter capacity by 50,000 m tonnes per annum (MTPA). In phase - I, smelter capacity was augmented to 120,000 MTPA and in Phase - II, which was scheduled to be completed by January '01, capacity was expanded to 150,000 MTPA. The company has set up a 100,000 MTPA phosphoric acid plant, which could have added to topline growth. Also, firm copper prices during FY01led to improved TC/RC (treatment & refining charges) charges of 18 cents/lb (c/lb) compared to 13 c/lb in FY00, which led to better realisations.

The high turnover growth has been matched by an even higher growth in operating expenses. Consequently, operating profit growth has remained subdued. The OPM has declined by 270 basis points in FY01. The operating environment has deteriorated considerably in 4QFY01 with OPM at 5.5% compared to OPM of 11.6% in 9m FY01. With a slowdown in the global economy, international commodity prices have come under pressure. Copper prices have been declining since the last week of May '01. This could have affected TC/RC charges for the quarter ended June '01. Copper prices on the London Metal Exchange (LME) have dropped further in July '01, breaching the $1,500 / MT mark and are currently trading at $1,469 / MT.

The interest cost of the company has declined substantially in FY01. The company has stated its intentions of becoming debt free by FY03. The lower interest could be a step towards that objective.

Besides lower operating margins, a decline in other income and higher effective tax has eaten into bottomline growth for the financial year. In FY01, the effective tax has increased by 6.3 percentage points. This could be due to the demerger of its optical business, which could be enjoying higher fiscal incentives. Adjusting for other income, bottomline would have grown by 38% YoY, which could indicate quality of earning remains healthy.

At Rs 105 the company trades on a multiple of 6.4x 4QFY01 annualised earnings and 4.5x FY01 earnings.


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