Sterlite Industries' CEO Discusses F4Q 2011 Results - Earnings Call Transcript

Sterlite Industries (India) Limited (SLT)

F4Q 2011 Earnings Conference Call

July 26, 2012 08:30 ET


Ashwin Bajaj – Director, Investor Relations, Vedanta Group

Navin Agarwal – Vice Chairman

M.S. Mehta – Chief Executive Officer

D.D. Jalan – Chief Financial Officer

S.K. Roongta – Chief Executive Officer, Aluminium and Power Business


Anuj Singla – Deutsche Bank

Prasad Baji – Edelweiss

Pinakin Parekh – JPMorgan

Rahul Jain – RBS

Bhavin Chheda – Enam Holdings

Sanjay Jain – Motilal Oswal Securities Limited

Ashish Kejriwal – AMSEC

Bijal Shah – IIFL

Alok Nemani – Nomura



Ladies and gentlemen, good day and welcome to the Sterlite Industries’ Fourth Quarter and Full Year Results Conference Call. As a reminder for the duration of this conference all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions) I would now like to hand the conference over to Mr. Ashwin Bajaj, Director Investor Relations for Vedanta Group. Thank you, and over to you, sir.

Ashwin Bajaj – Director Investor Relations, Vedanta Group

And gentlemen, this is Ashwin Bajaj. Thanks for joining us today to discuss Sterlite’s results for the fourth quarter and financial year ended 31st March 2012. From our management team we have with us today Mr. Navin Agarwal, Vice Chairman, Mr. M.S. Mehta, our CEO, Mr. D.D. Jalan, CFO, Mr. Tarun Jain, our Director of Finance and Mr. S.K. Roongta, CEO of our Aluminium and Power Business.

With that, I’ll hand it over to Mr. Navin Agarwal to make his opening remarks. Mr. Agarwal?

Navin Agarwal – Vice Chairman

Hello everyone and very good afternoon. This is Navin Agarwal and I am delighted to make a few opening comments for our Q4 FY ‘12 results. So, this has been another good year for us. We continue to deliver on our growth projects and have achieved record production growth in many of our businesses. I’m also pleased to share that we have announced a record dividend of Rs.2 per share for the year in line with our stated strategies to increase the payout ratios across our group companies.

As we are witnessed over the last few days, Hindustan Zinc and Sesa Goa have also announced significantly enhanced dividends in their results announcements. And Cain India had also announced its dividend policy going forward.

On the results itself very quickly our EBITDA for the year is up 26% at over Rs.10,000 crores and our underlying EPS excluding one-time items was up 11% at Rs.16.7. M.S. will cover the results more in detail. As you are aware, we made a key strategic announcement, which is the merger of Sterlite and Sesa Goa leading to simplification of the overall group structure. The new entity to be named Sesa Sterlite will be amongst the world’s largest diversified natural resource company with a global portfolio of assets in base metals, silver, R&R, oil, and gas, and power.

I now want to move to a few basic themes that we are witnessing in our sector and in the country at large and the global economy at large. Last year we saw considerable volatility in the financial markets due to macroeconomic factors. During the middle of the financial year, European Sovereign debt fears pulled down the markets and commodity prices. The commodity prices were weak during the last quarter of 2011 that is Q3 FY´’12. However, as we have usually seen, commodity prices are supported by the marginal cost of production and the prices rebounded soon thereafter. More recently we have seen concerns over a hard landing in China affected sentiment and prices. However, the consensus has been that these fears were overdone as a lot of the data is fairly benign, and China is expected to continue to grow at a healthy as by slower – slightly slower pace.

In Europe, the EU and ECB have taken strong action to stabilize their country’s facing issues. And though the fears and volatility does resurface from time-to-time, we have seen strong will to keep the Euro Zone together and prevent problems from going out of control. The U.S. economy, however, seems to be showing very promising signs of a recovery with positive momentum in the job market as well.

India has not been insulated from the global macro situation, and in addition we have some of our own issues mainly inflation, a weakening rupee and slower regulatory decisions. GDP growth has slowed down from an 8% plus range to a 6% to 7% range. However there are some promising signs that India GDP growth rate may have bottomed out.

Given this macroeconomic environment, we believe that we have once again delivered strong results. Our strategy to deliver long-term value by investing in growth projects through the cycle and asset optimization has enabled this performance. Going forward, we believe the demand for commodities will continue to remain strong, aided by growth in emerging markets. Urbanization in China, India and other emerging economies is a secular trend that will play out over the next couple of decades driving growth in infrastructure and investment.

As importantly on the supply side, resources are becoming scarcer, cost of production are increasing and a lot of new resources are in more difficult geographies, which we believe will support commodity prices. For example, in zinc an estimated 1.2 million tonnes of mining capacity will see closure by 2015 which is 10% of the world zinc market. This we believe is expected to result in strong zinc prices going forward.

Similarly on the demand side, there is a lot of room for growth in zinc consumption as China galvanizes only 4% of its steel production compared to a global average of 7% and 15% to 20% in developed regions. In India of course this is even lower than that in China.

And finally on some more color on the Sesa Sterlite, the new Sesa Sterlite as we have announced will be very well positioned to leverage growth opportunities in the natural resource sector as the Sesa Sterlite will be the seventh largest diversified global natural resource company with a very strong balance sheet. Sesa Sterlite will also have significantly higher scale and diversification and strong asset base with very low cost positioning. The merger as we have informed earlier is significantly EPS accretive for all shareholders from the outset. And on the time line as we have announced earlier, we are on track for completing this transaction in calendar year 2012. We have already received approvals from the stock exchanges and both Sterlite and Sesa have filed the schemes with the respective High Courts.

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