In today’s Daily Alert, Personal Finance Editors Benjamin Shepherd and Roger Conrad recommend a play on Indian economic and industrial growth.
“Sterlite Industries India Ltd. (SLT) is the largest miner of non-ferrous metals in India and one of the largest in the world, producing aluminum, copper, zinc and lead with mines in India, South Africa, Ireland, Namibia, Liberia and Australia. Sterlite also has extensive oil and gas interests in India and is the largest private crude producer, responsible for about 25% of the domestic supply. What’s more, the company is one of the largest commercial power producers in the country, currently generating 4.8 gigawatts (GW) annually, with plans to expand to 8.6 GW over the next few years.
“Sterlite’s shares are currently trading at just 0.7 times both the company’s book value and sales. Despite a 25% year-over-year increase in revenues in fiscal 2012 and a 15% increase in earnings, that discount is largely attributable to a sharp slowdown in sales and earnings growth in the first nine months of fiscal 2013, largely because of the weak global economy.
“The company is also undergoing an ambitious mergers process, with the acquisition of competitor Sesa Goa and the integration of two other subsidiaries into its operations. The complexity of the transaction has rattled investors, particularly since the State of Goa is under a court imposed mining ban in October following the discovery of endemic illegal mining activity. While the court has yet to announce when mining will resume, it’s expected that the ban will be lifted soon, since the Goan economy is in a tailspin due to the lost tax revenue.
“Additionally, Chinese demand for copper has been steadily growing in the low single digits for the past few months, after flat-lining for nearly a year thanks to its slowing economy. India is the world’s largest consumer of copper, accounting for nearly 40% of global demand. Even slow growth in the country has a huge impact on the copper market. At the same time, two key sources of copper demand — the American construction and automotive sectors — are picking up.
“As the copper market improves, Sterlite has grown its copper production by 11% in Australia and 9% in India, two countries that are major suppliers of the red metal to the Chinese market. While copper demand has been weak over the past year, it should grow stronger along with the global economy. Increased infrastructure investments in emerging markets also will provide a big and lasting boost to sales of the company’s indispensable product. Sterlite Industries India is a buy up to 10.”
- Benjamin Shepherd and Roger Conrad, Personal Finance, March 27, 2013