STERLITE TECHNOLOGIES
Reco price: Rs 313
Current market price: 314.50
Target price: Rs 365
Upside: 16.1%
Brokerage: Emkay Research
Sterlite Technologies reported a net profit of Rs 54.7 crore in September 2009 quarter, slightly ahead than estimates, led by strong margin expansion and lower interest expenses. Although revenues fell by 30 per cent y-o-y to Rs 465.8 crore, EBIDTA was in line with estimates, helped by healthy conversion margin of Rs 17,000 per tonne in the power conductors business compared to Rs 13,000-14,000 per tonne guided by the management. The EBIDTA margins at 19.1 per cent were highest in last 7 years, and were also helped by increased optic fibre realisations. Revenues fell due to lower than expected revenues from copper cables business and lower realisation of conductors due to fall in aluminium prices. Due to lower revenues from copper cables business and delay in capacity expansion in H2 of 2009-10, the brokerage has reduced its revenue estimates by 8.3 per cent and 1.4 per cent for 2009-10 and 2010-11, respectively. But, EBIDTA estimates have been increased by 6-8 per cent, due to higher conversion margin in conductors, resulting in an EPS upgrade of 11 per cent each for the current and next two fiscal years. Given the improving margin profile, strong earnings growth and improving return ratios, the stock is due for further re-rating.
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