Sterlite: Awaiting power sector reforms - Views on News from Equitymaster

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Sterlite: Awaiting power sector reforms

Feb 15, 2001

Sterlite Industries it seems has set itself an objective of becoming a major in the non-ferrous metals business. In order to achieve this goal the company has gone on an acquisition spree. The company has acquired Madras Aluminium and India Foils for a footing in the aluminium industry. It has also expressed interest in acquiring Bharat Aluminium (Balco) and Pennar Aluminium (Palco) to gain higher capacities. Further, the company has shown interest in acquiring Madras Fertilisers, Hindustan Zinc and Hindustan Copper. Sterlite Industries manufactures phosphoric acid, which is supplied to the fertilizer industry. This could be the reason for integrating forward into the fertilizer business.

The company now plans on hiving off its aluminium conductor business to a 100% subsidiary. The aluminium business has a capacity of 33,000 Kms and contributes 4.5% to the turnover of the company.

The aluminium conductor business has grown rapidly over the past four years for the company with sales growing from Rs 57.2 m to Rs 1,333 m. The future growth, however, is dependent on the materialization of reforms in the power sector. The sector is mired in controversy as Government policy has left a lot to be desired. Consequently, investments in the sector from private players have slowed down. Further, projects set up by independent power producers are far from commissioning stage. Hence, evacuation of power currently is not required.

The industry environment could be a dampener to the company's plans for its aluminium conductor business. Nevertheless, Budget 2002 is expected to offer some reprieve to the sector, which could buoy investments.

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