Sterlite Industries - Company Update - Centrum

Sterlite Industries

Neutral

Target Price: Rs115

CMP: Rs121.5         

Downside: 5.3%

Q3FY13 to be unexpectedly weak and below expectations

We see unexpectedly weak results (contrary to our earlier expectations) from both Sterlite and HZL for Q3FY13E despite better LME realizations on both YoY and QoQ basis and this could surprise the street negatively in our view. We expect subdued results on account of i) higher proportion of custom smelting volumes in HZL for lead & silver (~18-20% custom volumes in refined sales) and low refined zinc volumes (flat QoQ at 1.65 lakh tonne), ii) lower merchant power volumes from SEL (down by ~14% QoQ at 1.66bn units) due to continuation of evacuation issues, iii) higher losses from VAL operations due to low captive alumina & bauxite availability and negative forex fluctuations and iv) higher depreciation and negative impact of rupee depreciation resulting in reduced PAT on a group basis for Sterlite. The stock has rallied smartly in the recent few weeks and is trading at Rs121, well above our target price of Rs115. We have been maintaining our positive view on the stock but expect upside to remain capped at current levels in the wake of our weak results expectations (well below current Bloomberg consensus) and slow progress on commissioning of expansion projects across assets.

Updates on various operations and our estimates for Q3FY13E are as follows:-

Oil & Gas - Sector Upate - Centrum

Sector Update

Oil & Gas

Rangarajan committee report on the production sharing contract mechanism in petroleum industry was published yesterday. The salient features, recommendations and its impact on the Oil and Gas sector and the companies is as follows:

LKP Bytes_Suprajit

The story so far ………..

Suprajit incorporated in 1985 by Ajit Kumar Rai is the second largest producer of 2-wheeler cables in the world and the largest manufacturer of automotive cables in India with a capacity to produce 125million cables across its 14 manufacturing facilities.

Suprajit has grown its revenues and profits at a CAGR of 28% and 70% over the last 4 years. It derives 60% of its revenues from the 2-wheeler trio of Bajaj-Hero-TVS, 30% of revenues from CV and Car manufacturers which include Mahindra, Tata Motors, Leyland and Volkswagon among others while 10% revenues is from overseas markets to customers like GM,Ford,Suzuki,BMW,Nissan,Valeo and John Deere among others.

The story ahead ………..

Suprajit has spent close to 85crs over the last 5 years and has increased capacities by 2x while revenues have increased by more than 2x. We like its highly capital efficient business model as it has consistently demonstrated its ability to sustain an ROCE of more than 30% over the past few years while maintaining an EBIDTA margin of 15 to 16% and keeping debt equity within manageable levels of just over 0.5x

Suprajit is spending close to 35crs to raise capacity further to 150million cables by putting up its 15th facility exclusively for Honda Motors who presently source from Hilex of Japan. Suprajit is virtually a single source supplier to Bajaj and TVS and supplies more than half the requirements of Hero Moto and Mahindra.

Suprajit has successfully brought down its cash conversion cycle to almost 40days and can easily sustain gross margins of 15-16% due to pricing power and cost advantage. We expect it to be a Rs5bn company this fiscal given its global footprint and comprehensive product range of control cables. We expect net profits of 45crs this fiscal and 57crs next fiscal and the stock trading at 7xFY'13-14E earnings continues to be our preferred small cap auto component play and we re-iterate BUY with a price target of 50

Thanks and Regards

LKP Advisory

Canara Robeco Equity Tax Saver: Invest ::Business Line

Drive safe and gain on policy premium ::Business Line

Safe drivers, who don’t make insurance claims often stand to enjoy savings through lower premiums. Insurers reward safe drivers with a benefit called no-claim bonus (NCB). This entitles an auto insurance policy holder to discounts on the premium for every claim-free year.

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The no-claim bonus applies to any comprehensive motor insurance policy which includes mandatory third party cover as well as own damage premium. The bonus is valid only on the own damage part of the policy which constitutes the bulk of the premium.

The third party damage component, which accounts for about 20 per cent of the premium, is not included under NCB benefits. When a claim is filed the NCB is wiped out. Subsequently, the renewal premium becomes higher as the benefit on account of NCB is no longer available to the policyholder.