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Sterlite Industries
VAL, SEL site visit
We visited the Jharsuguda aluminium and energy operations of Sterlite
Industries. Following are the key highlights from the same.
1st phase of 0.5mt smelter operating at 100% capacity, new 1.5mt smelter idle
! We visited the Jharsuguda aluminium and energy operations of Sterlite which includes the
0.5mt and the new 1.25mt Vedanta Aluminium (VAL) smelters and 2400MW Sterlite Energy
(SEL) power plant. The first phase of the 0.5mt smelter is fully functional and is operating at
almost 100% capacity based on 60% alumina from captive refinery and remaining from
imported sources. Imported alumina is being procured at a cost of US$425/t and the
conversion cost is at US$1,100/t. The new 1.25mt smelter is yet to be operational due to want
of alumina. With LME aluminium at over US$2500/tonne, the company finds VAL operations
viable. The captive 1200MW is fully operational and is producing power at a cost of Rs2 per
unit. This unit is getting coal of 35% on linkage basis and the remaining is being sourced from
e-auctions and imports.
Mining ban in Niyamgiri being challenged
! The 1mt Lanjigarh refinery is currently working on a mix of bauxite from BALCO and private
sources from all over India. The mining ban in Niyamgiri has had a deep impact on timely
commissioning of both VAL and BALCO and is resulting in huge capitalisation of interest
costs. The decision of the Ministry of Environment and Forest (MoEF) to cancel mining leases
for Niyamgiri is being challenged by the Orissa government but it has pushed back
commissioning of the world's largest single location smelter by at least 2 years.
Targeting aluminium cost of production at US$1500-1,600/tonne in steady state
! The company hopes to achieve a steady-state smelter cost of US$800/tonne at VAL. Coal
linkage is key to achieve the same. With 1.8bn tonnes of high quality bauxite ore In Orissa, a
resolution of the Niyamgiri bauxite ban or availability of bauxite from alternate nearby mines
will help save significant costs for VAL which is currently incurred on transportation. We
believe the above two changes could add EBITDA/tonne of US$350/tonne (EBITDA of
US$437mn at full capacity).
SEL - 600MW operational; Rest to be ready by end FY12
! Currently, 600MW out of the Sterlite Energy's 2400MW IPP is operational. The company
expects another 600MW to be fully functional in the next few months and the remaining
1200MW to be ready by end of the year. We believe delays are possible on this front. The
first 600MW is expected to operate only at partial capacity as the evacuation lines have a
capacity of 450MW. The entire power from this unit is being supplied to the state based on
fixed tariff. Evacuation on the 2nd 600MW is through an LILO of 600MW. The evacuation for
the remaining 1200MW is being worked out through a LILO with Power Grid Corporation. This
plant will operate through a mix of domestic and imported coal with linkage at 65%, e-auction
at about 25% and remaining imported.
! We have a Buy rating on Sterlite with target price of Rs207.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries
VAL, SEL site visit
We visited the Jharsuguda aluminium and energy operations of Sterlite
Industries. Following are the key highlights from the same.
1st phase of 0.5mt smelter operating at 100% capacity, new 1.5mt smelter idle
! We visited the Jharsuguda aluminium and energy operations of Sterlite which includes the
0.5mt and the new 1.25mt Vedanta Aluminium (VAL) smelters and 2400MW Sterlite Energy
(SEL) power plant. The first phase of the 0.5mt smelter is fully functional and is operating at
almost 100% capacity based on 60% alumina from captive refinery and remaining from
imported sources. Imported alumina is being procured at a cost of US$425/t and the
conversion cost is at US$1,100/t. The new 1.25mt smelter is yet to be operational due to want
of alumina. With LME aluminium at over US$2500/tonne, the company finds VAL operations
viable. The captive 1200MW is fully operational and is producing power at a cost of Rs2 per
unit. This unit is getting coal of 35% on linkage basis and the remaining is being sourced from
e-auctions and imports.
Mining ban in Niyamgiri being challenged
! The 1mt Lanjigarh refinery is currently working on a mix of bauxite from BALCO and private
sources from all over India. The mining ban in Niyamgiri has had a deep impact on timely
commissioning of both VAL and BALCO and is resulting in huge capitalisation of interest
costs. The decision of the Ministry of Environment and Forest (MoEF) to cancel mining leases
for Niyamgiri is being challenged by the Orissa government but it has pushed back
commissioning of the world's largest single location smelter by at least 2 years.
Targeting aluminium cost of production at US$1500-1,600/tonne in steady state
! The company hopes to achieve a steady-state smelter cost of US$800/tonne at VAL. Coal
linkage is key to achieve the same. With 1.8bn tonnes of high quality bauxite ore In Orissa, a
resolution of the Niyamgiri bauxite ban or availability of bauxite from alternate nearby mines
will help save significant costs for VAL which is currently incurred on transportation. We
believe the above two changes could add EBITDA/tonne of US$350/tonne (EBITDA of
US$437mn at full capacity).
SEL - 600MW operational; Rest to be ready by end FY12
! Currently, 600MW out of the Sterlite Energy's 2400MW IPP is operational. The company
expects another 600MW to be fully functional in the next few months and the remaining
1200MW to be ready by end of the year. We believe delays are possible on this front. The
first 600MW is expected to operate only at partial capacity as the evacuation lines have a
capacity of 450MW. The entire power from this unit is being supplied to the state based on
fixed tariff. Evacuation on the 2nd 600MW is through an LILO of 600MW. The evacuation for
the remaining 1200MW is being worked out through a LILO with Power Grid Corporation. This
plant will operate through a mix of domestic and imported coal with linkage at 65%, e-auction
at about 25% and remaining imported.
! We have a Buy rating on Sterlite with target price of Rs207.
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