Sterlite Industries (India) Ltd’s zinc business held the fort during the March quarter, as it did in the December quarter.
Sterlite’s sales in the March quarter rose 40% year-on-year (y-o-y) to Rs 10,000 crore and by 20% quarter-on quarter (q-o-q). Profitability showed a significant improvement, rising by nearly one percentage point y-o-y.
Also see | Riding High (PDF)
Net profit after minority interests rose 35% y-o-y and 75% q-o-q. No wonder, its share rose by 4.4% on Monday after results were announced.
Zinc, lead and silver contributed about 40% to Sterlite’s segment revenue, but contribution to profit was greater at 80%, compared with 70% a year ago. Hindustan Zinc Ltd’s performance benefited due to higher output, especially of silver, and better realizations.
During the March quarter, the impact of Anglo American Plc’s zinc assets, too, was visible, and the acquisition added about 8% to overall sales and 12% to Ebitda (earnings before interest, tax, depreciation and amortization). The outlook for Sterlite’s zinc business is good, as output is expected to rise further during fiscal 2012 at both its Indian and overseas operations.
Copper contributes about half to revenue, but only 10% to profit, since it is a custom smelting operation. It buys copper concentrate from miners, and earns a treatment and refining charge (Tc/Rc).
The past few years have been bad for custom smelters, as miners beat down these charges due to excess smelting capacity. Tc/Rc charges have again begun rising, leading to hopes of better times for Sterlite.
Nearly 80% of its business is in long-term contracts; so the current increase in rates will take time to reflect in operations. Still, there is a q-o-q improvement in profitability visible in copper operations. It has also benefited from higher prices of a by-product—sulphuric acid.
Sterlite’s aluminium business did not report much revenue growth, but better realizations allowed it to overcome higher costs due to rising coal prices. Its power business did not fare well on a y-o-y basis, as revenue rose 8.4%, but profit fell 47% due to lower demand from utilities and a drop in merchant power rates.
In fiscal 2012, Sterlite’s metal output will increase as expansion projects are commissioned. Its power business, too, will see substantial expansion in output. The full impact of its zinc assets acquisition will become visible in the current fiscal.
The risks that investors will watch out for are volatility in non-ferrous metal prices. The outcome of the litigation in the Supreme Court relating to the operation of its Tuticorin copper smelter is another risk. Finally, it owns a 29% stake in Vedanta Aluminium Ltd, whose aluminium project in Orissa is facing regulatory hurdles.
An adverse trend in prices or a negative outcome in any of these would be negative for the company.
Graphic by Yogesh Kumar/Mint
We welcome your comments at firstname.lastname@example.org