Sesa Goa, Sterlite's Q1 revenues to suffer due to disruption in ops

Delay in merger has unnerved company shareholders which would have resulted in the seventh largest diversified natural resources major in the world

Delay in merger of Sesa and Sterlite has unnerved company shareholders which would have resulted in the seventh largest diversified natural resources major in the world

Sesa Goa and Sterlite Industries, the two giants from the Anil Agarwal-controlled Vedanta group that are slated for merger, will come up with their worst quarterly results next week as both companies went through disruptions in operations. Sterlite revenues and profits will be affected due to the closure of Sterlite Copper’s Tuticorin smelter in Tamil Nadu for 11 weeks out of the 12-week June quarter, while Sesa Goa’s iron ore mining in Goa and Karnataka is on hold due to a Supreme Court ban.

According to estimates of nine leading broking houses compiled by the Business Standard Research Bureau, Sterlite’s revenues are estimated to fall 32 per cent to Rs 7,172 crore, compared with last year’s June quarter, while its profit will fall 6.6 per cent to Rs 1,120 crore. Similarly, Sesa Goa’s revenues are estimated to decline 82 per cent to Rs 307 crore, while profit will be lower 65 per cent at Rs 345 crore. Sesa Goa gets 20 per cent of revenues from its investment in Cairn India.

The poor show by these two companies may not have much impact on stock prices as the prices are moved according to the merger ratio decided in February 2012 when the merger was announced. Kamlesh Kotak, head of research at Asian Markets Securities, said: “Since the merger was announced, prices of both companies have moved in the band of merger ratio and not truly reflecting the performance of the individual companies.” In the quarter ended March 2013, Sterlite saw a jump in profit, while Sesa Goa saw loss. However, prices of both companies moved as per the merger ratio.

Since there is a delay in approval of the merger by the Madras High Court, shareholders are not getting benefits of the merged entity where risks will be hedged. Vedanta Group had announced in February 2012 that Sterlite and Sesa Goa would be merged into a single company known as Sesa-Sterlite. The High Court of Bombay at Goa has already approved the merger.

Anubhav Gupta, a metal analyst with Kim Eng India Securities,  a Malaysian Bank group company and a registered foreign institutional investor in India, said: “The whole process has been delayed” as the Madras High Court, which completed the hearing in October 2012, reserved the judgment. The court had not cited any reason for the delay in delivering the judgment.

The merger was expected to create the seventh largest global natural resources major and would result in substantial saving on account of economies of scale, pooling in technical expertise, better capital allocation and cash management and tax efficiencies, the Vedanta Group had stated when it announced the plan.

The delay in merger has also unnerved several shareholders who have flooded registrar and even respective company offices with queries seeking to know the status of the merger. The merger cannot be implemented without the high court’s approval.