2nd UPDATE: Sterlite Industries 1Q Net Profit Jumps 50% To INR10.08 Billion

Sterlite Industries Ltd. (500900.BY) Monday said higher product prices helped it post a 50% increase in first quarter consolidated net profit, but its results still fell short of market expectations.

The unit of London-listed Vedanta Resources PLC (VED.LN) saw its net profit rise to INR10.08 billion in the April-June period from INR6.73 billion a year earlier, while sales climbed to INR59.25 billion from INR45.80 billion.

The average of estimates in a Dow Jones Newswires poll of seven analysts was for net profit of INR11.22 billion on net sales of INR65.06 billion.

Base metals companies have benefited from rising product prices over the past few months, led by a revival of industrial activity in emerging markets. Metal prices in India usually closely follow international price trends.

In the quarter through June, the price of the benchmark three-month aluminum contract climbed 41% to $2,092/ton on the London Metal Exchange, while copper prices rose 50% to $7,011/ton.

In addition to higher product prices, Sterlite's earnings were boosted by a sharp rise in other income to INR6.91 billion from INR3.78 billion a year earlier. The company didn't give a reason for the increase.

Total costs rose to INR46.90 billion in April-June from INR36.64 billion, largely due to a 21.4% rise in raw material costs to INR29.24 billion, the company said.

Sterlite's cash and liquid investments, which include bank deposits and debt mutual funds, totaled INR248.74 billion as of June 30.

The company's aluminum production fell 12.5% in the first quarter to 63,000 tons, though production at Vedanta Aluminium, in which it holds a 29.5% stake, rose to 77,000 tons from 53,000 tons a year ago.

Production of copper cathodes also edged lower to 77,000 tons from 78,000 tons because of a planned maintenance shutdown of smelters for 22 days, which began on June 22, the company said.

Sterlite added that its 325,000 tons a year aluminum smelter in Chhattisgarh is likely to start operations in the fiscal fourth quarter, while it expects to complete construction of its 100,000 tons a year lead smelter in Rajpura Dariba, Rajasthan, this quarter.

The company also sold 480 million kilowatt hours of power during April-June, up from 287 million kilowatt hours the previous quarter.

Sterlite is setting up a coal berth in south India's Vizag port, in partnership with Leighton Contractors (India). The joint venture will invest an estimated INR5 billion in the project, which is expected to be completed by mid-2012, the company said.

Sterlite's chief executive, M.S. Mehta, said at an analyst conference that the company expects to increase its sales volume and reduce costs in the quarters ahead, as it expands its metals production capacities.

He said Vedanta Aluminium's proposed bauxite mining project in eastern India's Niyamgiri Hills will start within three to six months of receiving approval from the ministry of environment.

The ministry has set up a panel to probe the effects of the mining project on the indigenous Dongria Kondh tribes who live in Niyamgiri Hills, as well on the wildlife and forests in the area. The report is expected on July 30.

"We expect a favorable report from this panel," Mehta said.

The Niyamgiri project is critical for ensuring raw material security for Vedanta's alumina refinery in Lanjigarh. The mining project has been awaiting environment ministry approval for a little over 18 months.

Sterlite vice chairman Navin Agarwal said the company will continue to focus mainly on the eastern state of Orissa to mine bauxite for its aluminum operations, with some mining in the central state of Chhattisgarh.

-By Swansy Afonso and Prasenjit Bhattacharya, Dow Jones Newswires; 91-22-61456-106; [e-mail]

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