Sesa Sterlite net drops 11% as zinc galvanises business

Falling prices of crude, copper bring down revenue marginally

Falling commodity prices and higher depreciation and tax expenses led Sesa Sterlite to report an 11% year-on-year decline in net profit for the quarter ended December 31 to Rs 1,588 crore.

The India-focused metals, mining and energy arm of the Anil Agarwal-led Vedanta Resources reported a turnover of Rs 19,128 crore during the third quarter, a marginal decline of 1% over the year earlier.

On a sequential basis, net profit and turnover fell 3.17% and 1.64%, respectively.

The December 2013 quarter numbers used by Sesa to draw year-on-year comparisons with the October-December 2014 quarter have been adjusted to reflect the effects of merger between Sesa Goa and Sterlite Industries, which was completed in August 2013. Upon completion of the restructuring process, Sesa Sterlite also became the holding company for other Vedanta Group firms like Cairn India and Hindustan Zinc.

The net profit reported by Sesa Sterlite for the December quarter came in above Street estimates as its zinc business did better than expected. A Bloomberg consensus of Sesa Sterlite’s earnings estimates had pegged net profit at Rs1,415 crore. The company’s reported turnover was in line with the Bloomberg estimate.

crude oil price, copper price, Sesa Sterlite, Anil Agarwal, Vedanta Resources

Declining prices of commodities that Sesa Sterlite produces, such as crude (produced by Cairn India), copper, lead and silver, impacted revenues in the last quarter. The company’s top line and bottom line were supported by higher prices and better realisations from aluminium and zinc compared to the year-ago period.

“We are focused on disciplined capital allocation, coupled with deferred and phased development spending in zinc, oil and gas, and other businesses, which will help optimise our assets and drive strong cash flow in the near future,” Tom Albanese, Sesa Sterlite’s group chief executive, said in a statement.

The company earned an Ebitda (earnings before interest, tax, depreciation and amortisation) of Rs6,234 crore during the December quarter, down 5% from the December 2013 quarter. Its Ebitda margin stood at 43%, which the company called “strong”  in its earnings statement and attributable to higher volume of production and low operating costs. However, the Ebitda margin was five percentage points lower than last year’s and two percentage points lower sequentially.

Depreciation charge, at Rs 1,782 crore, was 26% higher than last year and 16% higher than in the July-September quarter, and this impacted the company’s profitability as well. The higher depreciation was on account of changes in Cairn India’s accounting practices to conform to the revised Companies Act, Sesa Sterlite explained. The firm’s tax expenses for the December quarter stood at Rs478 crore against a write-back of Rs 139 crore in the year-ago period.

Sesa Sterlite’s profitability was boosted by a 13% year-on-year decline in finance costs, which the company said was a result of repaying foreign currency convertible bonds to the tune of $717 million in October through a combination of internal accruals and refinancing. Project loans in the aluminium business that were refinanced at lower costs earlier in the year also helped the company bring down interest costs.

Gross debt came down by Rs 1,400 crore during the quarter and stood at Rs 79,096 crore. The company had cash and cash equivalents to the tune of Rs 46,806 crore.

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