Sesa Sterlite Turns to Cutting Debt as Profit Beats Estimate

Sesa Sterlite Ltd., India’s biggest zinc and aluminum maker, beat third-quarter earnings estimates as metal and oil output rose. Billionaire Anil Agarwal’s company said it will focus on reducing debt.

Net income was 18.7 billion rupees ($300 million) in the three months ended Dec. 31, the Panaji, Goa-based unit of Vedanta Resources Plc said yesterday. That compared with a median estimate for 16 billion rupees. Sales were 194 billion rupees, better than analyst estimates of 186 billion rupees.

The figures don’t compare with the year-earlier period as the merger of copper producer Sterlite Industries (India) Ltd. and iron-ore miner Sesa Goa Ltd., both owned by Agarwal, to form Sesa Sterlite took effect in August.

The company has 61 billion rupees of debt maturing in the fiscal year that begins April 1, Chief Financial Officer D.D. Jalan said yesterday. Sesa plans partly to refinance that and partly to pay it off from internal cash generation, he said.

“We have been generating healthy cash flows in all our businesses,” Chief Executive Officer M.S. Mehta said on a conference call. “At this point, the company’s broad direction is to make sure we reduce our gearing going forward.”

The company has a debt-to-equity ratio of 80 percent, Jalan said on the conference call.

Output of zinc and oil at Sesa units Hindustan Zinc Ltd. and Cairn India Ltd. rose in the last quarter. Saleable zinc output rose 17 percent, while oil production climbed 10 percent.

Cairn’s Contribution

Hindustan Zinc and Cairn India accounted for 28 percent and 54 percent respectively of Sesa’s consolidated earnings before interest, taxes, depreciation, and amortization last quarter, Ritesh Shah and Anshuman Atri, analysts at brokerage Espirito Santo, said today in a research note. The company’s group net debt declined by 2 billion rupees from the previous quarter to 33.9 billion rupees as of Dec. 31 2013, according to the brokerage.

Shares of Sesa Sterlite rose as much as 1.8 percent to 203.50 rupees and traded at 200.80 rupees as of 9:41 a.m. in Mumbai today. The benchmark S&P BSE Sensex rose 0.5 percent.

A 1.3 percent gain in the Indian rupee against the dollar in the period affected earnings at Sesa Sterlite’s metals business that pegs domestic sales to dollar-denominated prices on the London Metal Exchange. The rupee was the second-best performer in the quarter among Asian currencies tracked by Bloomberg. The prices of aluminum and zinc fell 10 percent and 2.3 percent, respectively in the three months compared with a year earlier.

Smallest Profit

Total expenses at Sesa Sterlite were 150 billion rupees in the period. The cost of power and fuel was 13.7 billion rupees in the last quarter, according to the statement.

Cairn India, which owns the nation’s biggest onshore oilfield, posted its smallest profit in three quarters earlier this month as staff costs climbed and the rupee’s appreciation led to currency losses. Cairn India’s net income fell 14 percent to 28.8 billion rupees in the three months to Dec. 31, the company said on Jan. 23. That missed the 30.4 billion rupee median of 29 analyst estimates compiled by Bloomberg.

Net income at Hindustan Zinc Ltd., which is also owned by Sesa, rose 7 percent to 17.2 billion rupees, compared with a median profit estimate of 17.5 billion rupees.

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