Macro Tsimmis

intelligently hedged investment

BUY Sterlite Industries India Ltd. (SLT)—feeding the buildout

Posted by intelledgement on Fri, 05 Oct 07

Sterlite Industries (SLT) is the flagship company of Vedanta Resources (VDNRF), the London-based metals and mining company run by Indian billionaire Anil Agarwal. Mr. Agarwal started Sterlite back in 1976; today they are the largest copper producer in India, with smelter/refining operations in Silvassa and Tuticorin, and a mining operation in Australia which supplies about one-tenth of the copper the company need to produce their copper cathodes and cast copper rods. They also engage in the mining of bauxite, and the production of aluminum conductors and various aluminum products, as well as in the mining of zinc ore, and in the manufacture of zinc ingots and lead ingots. In addition, Sterlite produce various chemical products, such as sulphuric acids, phosphoric acids, phospho gypsum, hydro fluo silicic acids, and granulated slag. Further, the company are involved in trading gold, as well as in paper business. And within the last year or so, the company announced they are getting into the perennially underserved electricity market in India. The company’s main operating subsidiaries are Hindustan Zinc Limited for their zinc and lead operations, Copper Mines of Tasmania Pty Limited for their copper mining operations in Australia, and Bharat Aluminium Company Limited for their aluminum operations.

Sterlite has been on a tear for the last decade, growing from FY1997-98 revenues of $217MM to $5.6B in the FY ending 31 Mar 07, a compounded annual growth rate of 44%. The financials show a healthy profit and lots of cash: $2.8B in current assets as of 31 Mar 07 plus another $1.7B from their NYSE IPO in June. (We should have bought in then, as the stock is up 31% since then…but the Indian buildout is still in the early innings here, so there’s a long way yet to run.)

When the US consumer cools off, possibly as early as next year, the pace of the Indian buildout will slow and we may take a vacation from SLT for a spell. But in the long run, this company is well run and well-positioned to be a major player in economic growth in the subcontinent and beyond.

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