Court orders copper plant shutdown — The Madras High Court ordered the
shutdown of Sterlite’s copper smelting plant at Tuticorin on 28 Sep 2010. This
judgment is based on writ petitions filed against Sterlite in the late 1990s with
respect to environmental and pollution clearances for the Tuticorin smelter.
Environmentally sensitive location — Press reports indicate that Sterlite’s copper
plant was originally proposed to be set up in Gujarat and Goa but was shifted to
Maharashtra due to opposition. Sterlite started construction work in Maharashtra
in 1993-94 but its license was revoked (pressure from environmentalists),
following which the plant was set up in Tuticorin in 1995-96. The plant is situated
within 25km of an ecologically sensitive area. Instances of gas/acid leaks and
blasts leading to deaths and injuries were reported in the late 1990s.
Sterlite likely to seek a stay — Sterlite plans to seek a stay on the Madras High
Court order in the Supreme Court in order to continue operating the plant. The
company produced 334kt of copper cathodes in FY10, ~46% India's copper
cathode output and 2% of global output. It sold about 206kt in India, a third of
India's total consumption in FY10. It is in the process of setting up a new 400kt
(and 160MW of power) at Tuticorin expected to be completed by mid-2011.
Stock impact — Sterlite's copper division accounts for 9-10% of total PAT and the
impact will depend on the outcome of the legal process. While the profit impact
may not be very significant given the current low copper TC/RC margins, the
announcement is negative for sentiment, in our view, given the recent
environmental issues surrounding Sterlite and its associate companies. We
maintain our Sell rating. All things being equal, we might reconsider our rating if
the stock came off 15-20% from current levels.
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