Sterlite: Re-energised

Between the time that the Vedanta group announced a group restructuring on September 9, 2008 and Tuesday, the Sterlite stock had lost 22 per cent. However, the stock bounced back 8 per cent on Wednesday after the management decided to call off the restructuring.

The Street was upset because the two businesses with maximum potential — aluminium and power — were being demerged from the Rs 24,705 crore company. Moreover, the management had failed to provide sufficient information on Konkola Copper Mines, which was being integrated with Sterlite.

Even after this, shareholders may have little to cheer about prices of aluminium, lead and zinc coming off. Aluminium prices, have already fallen by 26 per cent to $2,500 per tonne between July and September and could fall further.

Moreover, world inventories are believed to have risen 4 per cent in the last two months to about 3 million tonnes, according to a Macquarie report. The report adds that demand has slackened with key consumer sectors like autos and construction slowing down globally. Even in China, consumption, which grew by 39 per cent in 2007 has slowed to 11 per cent since the start of the year.

In the June 2008 quarter, Sterlite’s aluminium sales were up by 36 per cent y-o-y thanks to better realisations, up 7 per cent y-o-y. Prices of lead and zinc too have fallen by 51 per cent and 58 per cent respectively from their highs in October 2007. In the June quarter, Sterlite’s sales of both zinc and lead fell by nearly 40 per cent y-o-y and it reported a 6 per cent decline in consolidated net sales to Rs 5,770 crore. Due to bottlenecks at the plant , production of zinc could be further hampered for some time in the September quarter, say analysts.