Growing clarity on catalysts
Value unlocking ahead: We expect the Sesa-Sterlite merger to conclude by Q4FY13. A simplified holding structure and healthier diversification (including a new 59% stake in Cairn India) will help lift sentiment. We also see an increased possibility that Sterlite may be able to exercise its call option on the government’s remaining stakes in HZL (Hindustan Zinc) and Balco following media reports that the government is now evaluating a sale. We calculate an option value of R4 per share and continue to include it in our base case, while it will also ease liquidity concerns for Sterlite by making HZL’s cash fungible.
Sentiment toward aluminum and power divisions may improve: Regulatory news flow seems near a bottom and could improve if the government accelerates its policy push. The power business should gain from rising utilisations despite continued coal crunch. Our FY14 earnings forecasts are 34% higher than consensus; if we exclude minority consolidation we are still 22% higher due to improvements in aluminum and power businesses and higher zinc prices.
Chinese data supportive of metals prices: China’s PMI for the month of November stood at 50.49, the highest monthly figure since Oct 2011. As the new regime gives a fresh push to
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