Vedanta Resources will demerge the alumina and energy business of Sterlite Industries. The company has announced a USD 9.8 billion aluminium capex programme and aims to raise aluminium smelting capacity by 2.6 million tonne per annum by 2012.
SP Tulsian of sptulsian.com said Malco looks attractive now as it will be purely focussed on aluminium. "The transfer of Balco's 2.5 lakh tonne per annum capacity to Madras Aluminum, which stands at 40,000 tonne, is also very positive. From a shareholder perspective, the move is positive for both Sterlite and Malco." According to Tulsian, the group has presence is into copper, aluminum, zinc, lead, and ferrous metals. "So; each company is focused on one metal." Excerpts from CNBC-TV18's exclusive interview with SP Tulsian: Q: The Sterlite stock still remains under pressure. Is that a cause for concern? A: There is no real concern on that account. One cannot take any share price as base to calculate forward valuation because some projects are being hived off now. Sterlite's 51% holding in Balco, or Bharat Aluminum Company, has been removed and put into the Malco, or Madras Aluminium Company, basket. At present, many analysts and investors were confused. Sterlite is now purely a copper company. The company has 65% holding in Hindustan Zinc and 51% in Balco. They are also in the process of creating power generation capacity of 10,000 mw. Malco will be focusing purely on aluminium and power generation. If given a choice between Hindalco and Malco, I would choose a focused metal company. The group has presence is into copper, aluminum, zinc, lead, and ferrous metals. So; each company is focused on one metal. That clarity will be very attractive. The pricing of Malco was on the lower side which is quite surprising. It has a low equity base with 80% stake held by promoters. Institutional investors hold 10-20%. The balance is held by the state investment body. There is no floating stock, so there was no reason for the stock to react negatively to the swap ratio. The transfer of Balco's 2.5 lakh tonne per annum capacity to Madras Aluminum, which stands at 40,000 tonne, is also very positive. >From a shareholder perspective, the move is positive for both Sterlite and >Malco. Now, one will have clarity. This share swap ratio has been worked out >considering the present market price. Q: Would Sterlite Aluminium look more attractive going forward as a stock because it has a power unit and is also expanding more? A: Yes. Sterlite Aluminium, which is the present Malco, will have a capacity of close to 1.5 million tonne of aluminium. By 2012, they will have a metal capacity of 12.5 million tonne metal capacity, apart from the about 11,000 mw of power. Bauxite is one of the two principal materials required for the production of aluminium. If a company has captive source of power, I don't think they will have any problem. The cost of production shouldn't exceed USD 1,000 per ton. I don't see prices of aluminium falling below USD 2,500 per tonne on the LME, or London Metal Exchange. Based on these projections, Sterlite Aluminium will be the right script to choose. Q: A brokerage has put out a report with a sell call on Sterlite, if there is further negative news, as the profitable aluminum business is getting transferred. Would you share that kind of view and is a switch from Sterlite warranted? A: No. Sterlite still holds 65% in Hindustan Zinc, which has a profit of about Rs 1,000 crore per quarter. This means they are making a profit of close to Rs 4,000 crore, or a billion dollars, per year. This translates into an EPS of about Rs 100. Zinc prices fell about one-and-a-half year back. From a high of USD 4,800 per tonne, it is now trading at around USD 1,800 per tonne. Since then, they have ramped up capacity from 1.8 lakh tonne to 7.2 lakh tonne at present. The increase in production has helped them maintain profitability to a great extent. The estimated EPS of Hindustan Zinc for FY09, even at a reduced realization of USD 1,800 per tonne, will be about Rs 19-20 per share. 65% stake in HZL is held by Sterlite industries. So, it is wrong to say that the bottomline constituent of Sterlite industries is coming from Hindustan Zinc. I don't think Balco's contribution to the bottomline of Sterlite industries is more than Rs 500 crore gross. It is wrong to presume that a profitable asset has been hived off by Sterlite Industries. Q: Does this change Vedanta's control over Sterlite or Malco in terms of percentage shareholding? A: Yes, that will happen post restructuring. At present, the parent holds 80% in the standalone Malco. Post-restructuring, their holding will go to 61%. In absolute terms, if you shift one basket to another company and carry the same value, then the end absolute value of Vedanta still remains the same. It is only in relative terms, because of the transfer of projects, that we see a fall in holding of Sterlite Aluminium from 80% to 61%. Q: Will you give some value to Sterlite Aluminium for holding 15% stake in Vedanta Aluminium? A: Yes, because each holding has a value. It is because Sterlite Aluminium, or the present Malco, will ultimately be holding 15% in Vedanta, 100% in the energy arm, and 51% in Bharat Aluminium Company. Once they succeed in acquiring the government's 49% stake in Balco, for which arbitration proceeding are on, it will be a good value booster. At present, that value has not been fully factored in by the market because of the long litigation process which is likely to come to an end maybe in 3-5 months. Probably, the Left was a big hurdle in transferring the state government stake, in spite of a clear shareholder agreement. But the matter is subjudice. Q: What would be the right way to trade Malco? A: At present, the stock is up because of momentum or low floating stock factor. No shareholder has less than 10% of the floating stock because 80% is promoter stake, 10% is held by institutions, and the balance is held by the local state investment body. It is not right to take an investment call for Malco because one needs to assign a value. This is a good move of rationalisation of each metal with each company. Earlier, there was an overlap because of inter-investments or inter-ownerships. ekamber The greatest lesson in life is to know that even fools are right sometimes. ---Churchill --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
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