KIM ENG India expects Sterlite Industries to hit Rs 1230
KIM ENG Securities India has initiated coverage on Sterlite Industries with ‘Buy’ recommendation and has set target price of Rs 1230 per share.
By ET Bureau |
MUMBAI: KIM ENG Securities India has initiated coverage on Sterlite Industries with ‘Buy’ recommendation and has set target price of Rs 1230 per share.
Sterlite Industries is implementing a CAPEX plan of Rs 250 billion over 3 years for increasing metal capacity by 40% and expanding power generation capacity.
Our forecast of 105 per cent earnings growth next year is supported by 20% growth in metal sales volume, increasing cash spreads and a contribution from the startup of a new commercial power business this quarter. We also like the company for its strong B/S, free CF and FY11F ROE of 22%. Our target price of Rs 1,230/share is based on a ‘sum of the parts’ valuation.
Our target price takes into account metal business valuation at EV/EBIDTA of 6x FY11F and discounted CF valuation of power generation business. Our valuation also includes benefits from the purchase of minority stakes in Hindustan Zinc and BALCO.
Excluding valuation gains from the stakes, our worstcase SOTP valuation is Rs 1,060/share. Over the past year, the stock has outperformed the BSE Sensex by 90 per cent. However, we continue to recommend the stock for: 1) a recovery in metal prices this year, 2) the company’s strong B/S, and 3) a 40 per cent discount based on PER to global Peers,” the recommendation said.
Sterlite Industries is implementing a CAPEX plan of Rs 250 billion over 3 years for increasing metal capacity by 40% and expanding power generation capacity.
Our forecast of 105 per cent earnings growth next year is supported by 20% growth in metal sales volume, increasing cash spreads and a contribution from the startup of a new commercial power business this quarter. We also like the company for its strong B/S, free CF and FY11F ROE of 22%. Our target price of Rs 1,230/share is based on a ‘sum of the parts’ valuation.
Our target price takes into account metal business valuation at EV/EBIDTA of 6x FY11F and discounted CF valuation of power generation business. Our valuation also includes benefits from the purchase of minority stakes in Hindustan Zinc and BALCO.
Excluding valuation gains from the stakes, our worstcase SOTP valuation is Rs 1,060/share. Over the past year, the stock has outperformed the BSE Sensex by 90 per cent. However, we continue to recommend the stock for: 1) a recovery in metal prices this year, 2) the company’s strong B/S, and 3) a 40 per cent discount based on PER to global Peers,” the recommendation said.
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