We maintain 'reduce' rating on Sesa Sterlite (SSLT) and revise our target price to Rs 275 (earlier Rs 290). We cut our ebitda estimate by 6-11% over FY15-17 mainly from cut in Cairn estimates. Improving fundamentals of zinc and aluminum will be the next earnings drivers. Strong pricing outlook for zinc businesses overall and incremental volume growth in Zinc India and potential asset sweating from the idle Jharsuguda smelter will drive SSLT earnings over FY15-17e, in our view. The delayed but eventual restart of iron ore mining in Goa will aid earnings. While these potential triggers can create value, the improvement will be gradual and calls for patience.
The management hopes to receive approval from the Odisha government to divert power from a 2,400 MW power plant to Jharsuguda 1.25 mtpa aluminum smelter within two months; the government has in-principle agreed to the diversion. If approved, the company will commission first pot line (312.5 ktpa) by mid 2015 and thereafter progressively commission other pot lines. In zinc business, the company will work on extending the Rampura Agucha open pit depth to 420 mts (from 372 mts) to support volumes and has completed the feasibility study of Gamsberg that can eventually offset the volume decline from exhausting mines.
By Kotak Institutional Equities