Sterlite- Buy of The Week
2008
Sterlite Industries CMP Rs661
We like Sterlite Industries (SIL), India’s largest and most diversified non-ferrous metals player. Besides a host of factors favoring investment (explained below), exercise of Balco and Hindustan Zinc options are also key triggers. It recently planned to acquire ASARCO, a US-based integrated copper producer.Although, the deal still faces some headwinds, the current bid of US$2.6bn seems to be reasonable and value accretive.Expansion of non-ferrous asset portfolio to drive growth SIL is undergoing a major expansion programme by increasing its rich non-ferrous based asset portfolio, both organically and inorganically. SIL is increasing its fully backward integrated zinc capacity (reserves to meet ~19 years requirement) to 1.06mtpa, an increase of 41% to the current capacity by June 2010. In aluminium, SIL 29.5%-owned subsidiary Vedanta Alumina is doubling its alumina capacity to 1.4mtpa and is building a 0.5mtpa aluminium smelter.SIL has one of the lowest quartile for production cost in each of its businesses.
Excellent track record
SIL has increased its zinc capacity by 3x (to 670ktpa) and aluminium capacity by 2.4x (345ktpa) since it took over Hindustan zinc and Balco. It has also doubled its copper smelting capacity to 400ktpa over the last five years. The company has completed all major expansion programmes ahead of its schedule date. SIL’s advancement of the commission date for 0.25mtpa aluminium smelter under Vedanta Alumina to Mid-2008 (from mid-2009) is another display of its execution capability. Power business adds substantial value Sterlite plans to add 9.6GW of power generation capacity over FY08- 12 through its fully-owned subsidiary Sterlite Energy Ltd (SEL). SIL has secured coal mines with reserves of 322m tons. We recommend with target of 760 .
Bhaumik Pandya
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