Sesa Sterlite net falls 77% on changed depreciation norms

Written by fe Bureau | Mumbai | Updated: Jul 30 2014, 16:21pm hrs
Metal, mining and energy major Sesa Sterlite has posted a sharp 77% sequential drop in consolidated net profit for the quarter ended June 30 at R376 crore, due to a hefty exceptional charge on account of changed depreciation norms at its oil and gas subsidiary, Cairn India.

Sesa Sterlites June quarter earnings are not strictly comparable with the same period a year earlier as the amalgamation of the erstwhile Sesa Goa and Sterlite Industries was completed only in September 2013.

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The company, a part of billionaire Anil Agarwals London-listed mining and energy conglomerate Vedenta Resources, reported a turnover of R17,056 crore for the April-June quarter, around 18% lower sequentially. The decline in revenues was mainly on account of lower production volumes in the companys copper business, which saw a 23-day planned maintenance shutdown.

The outlook for the natural resources sector and for our company is positive as the government is looking at formulating forward-looking policies, Sesa Sterlites chairman Navin Agarwal said in a company statement.

Sesa Sterlite said in a statement that barring the exceptional item of R1,627 crore - which was on account of Cairn India retrospectively changing the way it calculates depreciation in line with guidelines under the new Companies Act - it had done well operationally during the June quarter, if numbers were compared with adjusted proforma numbers for the June 2013 quarter.

Barring the exceptional item, Sesa Sterlite posted a net profit of R1,341 crore, which was almost unchanged sequentially and double the net profit in the year-ago period. The year-on-year increase in Sesa Sterlites revenues, according to the adjusted numbers it provided, stood at 19%. This rise in turnover was on account of higher revenues from its copper business, which was temporarily closed in June quarter of FY14, and the oil and gas business of Cairn India, which benefited from higher average crude oil prices.

The companys operating profit for the June quarter stood at R5,670 crore, almost unchanged over the year earlier and 15% lower sequentially. Operating profit margin, however, improved 200 bps y-o-y as well as sequentially to 47%. The lower operating profit was on account of lower volumes in the zinc and power businesses.

Sesa Sterlites net profit could have appeared worse but for its other income rising significantly at R1,139 crore, almost double of what it was a year earlier and 50% higher over the March 2014 quarter. The jump in other income was due to higher maturities of investments in fixed-maturity plans, the company said.

The company had a consolidated net debt of R32,364 crore as on June 30, around 9% higher than the April-March period, largely due to additional expenditure towards funding Cairn Indias share buyback programme. The company had cash and cash equivalents of R47,664 crore during the same period.

Sesa Sterlites Indian zinc production operations were weak during the June quarter, declining 31% y-o-y to 1,63,000 tonne. This was in line with the companys mine plan to excavate more waste than ore during the first half of the fiscal, Sesa Sterlite said. Operating profit from the business fell 10% over the year earlier at R1,296 crore due to lower volumes, rupee depreciation, planned shutdowns and higher mine development costs.

With improving open pit grade cycles, we expect to have higher production in the second half of this year, the company statement said. The full-year production is expected to be marginally higher than FY14.

The firms iron ore business continued to be a negligible contributor to its earnings with mining in Goa still suspended and production in Karnataka very low.