Sterlite: Improving cash flows? - Views on News from Equitymaster

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Sterlite: Improving cash flows?

Jun 30, 1999

Sterlite Industries has redeemed the foreign currency convertible bonds (FCCBs) amounting to US$ 95.34 m. The money for the repayment has come from the securitization of receivables, and internal accruals. Sterlite Industries (FY99 Turnover Rs 14 bn) is into the manufacture of copper and the telecommunication cables. The company manufactures jelly filled, and optical fiber telecom cables.

The FCCB were to be converted at a predetermined price of Rs 561.01 per share. As the company's stock is currently trading at Rs 238 per share most of the FCCB holders preferred to redeem rather than convert their bonds. As a result the burden on the company was greatly enhanced. The company has however done well in arranging to pay for the redemption by means other than taking fresh loans.

The redemption will lead to a lower interest burden and consequently a higher bottomline. Moreover, the potential dilution of equity has not occurred thus favorably affecting the investor sentiment.

Market View:
The stock has been rated as a 'HOLD' by analysts because of the weak margins in copper refining and the pending litigation regarding the Indal shares. Some analysts are concerned that the company might diversify into other areas including aluminum.

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