Sterlite: Non-ferrous mughal? - Views on News from Equitymaster

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Sterlite: Non-ferrous mughal?

Dec 15, 2000

Sterlite Industries (India) Ltd. is setting itself up to become a leader in the non-ferrous metals business in the country. Over the past two years it has been on an acquisition spree in a race to become the numero uno. Its race for the summit began in FY98 when the company launched a takeover bid for Indian Aluminium (Indal). However, the episode propelled into a dual, which eventually resulted in Hindalco as the victor.

For a footing in the aluminium business Sterlite took over Madras Aluminium and has extended its presence in the downstream aluminium sector with the acquisition of India Foils in FY00. To further consolidate its position in the aluminium sector the company has bid for the Government's 51% stake in Bharat Aluminium (Balco).

Extending its backward integration in the copper business, Sterlite's board recently approved the acquisition of two copper mines in Australia. In all cash deal Sterlite will acquire the entire shareholding in these companies for an estimated Rs 2 bn. Consequently, the company will obtain 50% (60,000 tonnes) of its raw material requirement from the mines in Australia. This will help reduce the risk in supply of the raw material; further, it is also expected to bring down copper concentrate procurement costs by an estimated 10%-15%. The acquisition of copper mines is not expected to alter the capital structure of the company as Sterlite has significant cash balances, which cover the acquisition costs.

Shifting into higher gear the company very recently announced its decision to submit an expression of interest (EoI) for acquiring 26% stake in the Government owned Hindustan Zinc. However, Sterlite has also indicated it would be more interested in picking up 51% stake in the company.

The company has stated its intention of moving beyond copper and extending its leadership in the non-ferrous metals business. With the economy expected to exhibit tiger growth rates it could be an opportune moment for Sterlite to expand its wings over other non-ferrous metal businesses and exploit the anticipated growth.


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