Sterlite Industries - commodities and emerging markets play

November 26, 2007 By: User Image Arohan Category: SLT

‘Hot Commodities’ as Jim Rogers would say, have been in an extended bull cycle for some time. Many pundits believe that this cycle will continue for at least a decade. Generally the commodity bull cycles are driven by either

a. Demand: for example, rapid industrialization, or
b. Supply: for example, years of underinvestment or reduction in capacity in this sector

This time however, both these factors are in play. Surge in demand comes from rapid growth in the BRIC (Brazil, Russia, India and China) countries and other emerging markets. Commodities demand has increased rapidly in China and India due to growth in the industrial sector as well as a massive buildout of infrastructure in these countries. The infrastructure needs are dire and are likely to remain so for some time, specially in India that has had decades of underinvestment in infrastructure (roads, airports, power generation, ports, you name it). 8%-10% annual GDP growth in these countries cannot be sustained for long unless the basic infrastructure is improved

Sterlite Industries (ADS: SLT) is a metals producer in India that produces Copper, Zinc, Aluminum, and Lead. This company is part of the Vedanta Resources that is listed on London Exchange. Shares of Sterlite trade on Mumbai Exchange as well as on NYSE (SLT). The ADS represent about 19% of the company. While the available information is quite sparse on these shores, here is a basic profile of the company

Essential facts:
- Mostly fully integrated producer with own mining operations
- Owns mines in Australia
- Claims to have the lowest cost of production for several metals in the world
- ADS trading at a PE of around 11, Market Capitalization around 16 Billion USD
- TTM revenues around $6.5 B, Net Income around $1.2B
- Sitting on $4.2B in cash on the books with debt load around $403 million
- Looking to grow and expand in India in different ways. One of the ways it plans to do this is by entering into power generation (it already generates all the power that it consumes in its operations)
- Also looking for acquisitions of mines outside India, if it makes economic sense

Many of the financial information can be seen on the Yahoo financials page.

This is a company that I have just started to look into. This appears to be a fairly or attractively valued stock in a generally overvalued commodities AND Indian markets and is a direct play on commodities and Indian growth (most of the commodities demand in India for infrastructure projects is still in the future). However, some more due diligence needs to be done before I can commit any capital to this issue. Please stay tuned to this blog for updates