Sesa Sterlite: Worries stem over performance of key segments

Key segment zinc saw 23% decline in mined metal over last year; flat LME zinc prices, hike in production cost caused 18% y-o-y fall in EBITDA to Rs 1,711 crore

Sesa Sterlite which reported marginally better than expected results for the quarter ended March 2014, saw its shares falling by 1.37 per cent to Rs 190.4 on Tuesday as analysts worry over the financial performance of a few segments. As against the Street expectations of revenue of Rs 20,780 crore, it reported net sales of Rs 20,894.4 crore. Net profit came marginally better at Rs 1,621.55 crore as against expectations of Rs 1,590 crore.

Its key segment, zinc (India) compared to last year reported 23 per cent decline in mined metal to 200,000 tonne. Also, flat LME zinc prices at $2,029 per tonne and increase in cost of production (including royalty) by 7 per cent to $1,068 per tonne caused 18 per cent year-on-year decline in EBITDA to Rs 1,711 crore. Oil and Gas, which accounted for 55 per cent of consolidated profit before interest and tax (PBIT), for which the last year data is not available saw one per cent sequential growth in revenues to Rs 5,049 crore while its PBIT grew 2.8 per cent. Sequentially this segment witnessed marginal decline in realisations as a result of lower Brent crude oil prices at $108 a barrel as against $109 a barrel in December quarter.

Though zinc and oil & gas account over 90 per cent of the company's profits, analysts are worried about the performance of its copper and power businesses. The segment reported a loss (at PBIT level) of Rs 94.4 crore in the fourth quarter against a profit of Rs 98 crore in the December 2013 quarter. The loss was led by 21 per cent year-on-year decline in power sales and 8 per cent increase in generation cost. Copper business, too, saw pressure despite higher (up 25 per cent year-on-year) Tc/Rc (refining) margins at $18.5 cent. This segment reported a five per cent year-on-year decline in EBITDA at Rs 356 crore. Further, because of the shutdown of mining operations, losses in iron ore segment increased by 43.4 per cent to Rs 140.2 crore.

Aluminium segment, however, did well driven by higher production and rupee depreciation. The segment reported 15 per cent year-on-year growth in revenues despite 15 per cent decline in LME prices at $1,708 per tonne. However, considering that aluminium only account for about 5 per cent of its consolidated PBIT, the impact was marginal. Most analysts do not see aluminium having a major impact on the valuations and earnings expectations of Sesa Sterlite.