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Sterlite Industries Overweight
STRL.BO, STLT IN
Site Visit Day 1- Aluminum and Power operations - It is going to be all about Coal
• Power update: The site currently has 3600MW capacity (135MWx9
and 600MWx4). The 1215MW power plant is operating at 97% PLF
and services the 0.5MT aluminum smelter. In terms of coal
sourcing, only 35% is linkage coal and the rest is mainly e-auction
coal (for captive power plants after 2008, Coal India is supplying
50% of linkage coal). Currently the cost of generation is nearly
Rs2.1/unit (cash cost) and in our view, this will slightly move up
because of the recent coal price hikes implemented by MCL.
Regarding the 600MWx4 units, currently the first 2 units are getting
synchronized and management expects steady improvement in PLF.
The key issue behind the low PLF was transmission line and only
very recently a new line of 25km (carrying capacity of up to 800MW)
connecting to the national grid has been constructed and hence
generation should increase. The 25km line was delayed because of
some protests, which have now been resolved. The existing evacuation
line (capacity of up to 450MW) is used for supply to state grid. Another
line of 25km is being constructed with carrying capacity of up to
1000MW and this line should be ready by Oct-11, and post this the total
evacuation capacity would be nearly 2200MW. As per management,
the CoP for the 600MWx4 plant, at steady state PLF, would be
Rs1.70/unit with increase from here driven by recent Coal India
price rise. The company expects that the first unit of 600MW could
hit +90% PLF in Mar quarter and the 2nd unit could have PLF of
86% in the Jun quarter.
• Its all about coal: The sight of dozens of trucks outside the plant loaded
with coal seemed surreal until management said that at month end the
plant gets nearly 6000 trucks a day (60kt of coal a day) and on average
there are 2500 trucks a day. This is because the e-auction coal is
transported by trucks. Currently 2/3rd of coal for the 1215MW plant
is from e-auction and the management expects to source 1/3rd coal
from non-linkage sources on a steady state basis. Currently the site
buys 0.4MT of coal on e-auction basis which would increase to 0.6MT
per month once the 600MWx4 stabilizes. The site is also importing coal
at the rate of 50kt per month with the port nearly 400km away. Company
expects to import up to 100kt per month when 3600MW is ready. The
current landed cost of imported coal (3000GCV) is Rs2800-3000/MT vs
Rs2000/MT for e-auction coal prices. The boilers can accept coal of
3000GCV+-4000GCV, which essentially means imported coal would
need to be blended with domestic coal. At full 3600MW operating at
+90% PLF would require as much as 23MT coal. While
management expects to source a third on e-auction, we believe it
should be much higher- nearly 50%. For the Balco coal block (very
critical for profitability upside surprise on the upcoming 1200MW
project), the company expects to receive the final environment clearance
by May-2011, final forest clearance by June-2011 and mining lease by
August-2011.
• Coal movement infrastructure: We found it interesting that the
company is investing in building MGR (merry go round) to evacuate
coal from Coal India's mines and also investing in rail infrastructure.
Company expects to have railway logistics infrastructure in place by
FY13 to move 23MT of coal by rail (including e-auction), which would
greatly minimize the average truck movement per day from 2000 trucks
level currently. The 1st ash pond would be ready in 2 months. 500-
600acres land is under acquisition at Jharsuguda. Total railway rakes
required in 2 years’ time would be 28 rakes. The company highlighted
that it has purchased 4 box rakes and has given it to eastern railways (one
rake cost is Rs200MM). While there is no discount, it eases rake
availability and company plans to buy more rakes.
• Aluminum update: We last visited the project site in March-09 when
work had just started on the 1.25mt smelters with fabrication work
starting on line 1&2 and piling work on line 3&4. Currently, lines 1&2
are mostly ready and some work is required on line 3&4. Management
highlighted that it would require 3 months to commission the lines (ramp
up would take another 6 months) and highlights that once the alumina
issue is resolved, the smelting capacity can be quickly brought around.
Currently the 0.5MT aluminum smelter sources alumina from
Lanjigarh refinery and imports with Lanjigarh alumina at $300/MT
and freight of $35/MT while imported alumina at nearly $500/MT
landed at plant. Current aluminum CoP stands at $1900-$1950/MT
in VAL and $1750-$1800/MT at Balco (we estimate sharp increase at
Balco CoP given that it gets nearly 70% linkage coal which would be
impacted by the 30% Coal India price increase). On Lanjigarh
management highlighted that for the expansion from 1.4MT to 5MT can
be done in 6 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries Overweight
STRL.BO, STLT IN
Site Visit Day 1- Aluminum and Power operations - It is going to be all about Coal
• Power update: The site currently has 3600MW capacity (135MWx9
and 600MWx4). The 1215MW power plant is operating at 97% PLF
and services the 0.5MT aluminum smelter. In terms of coal
sourcing, only 35% is linkage coal and the rest is mainly e-auction
coal (for captive power plants after 2008, Coal India is supplying
50% of linkage coal). Currently the cost of generation is nearly
Rs2.1/unit (cash cost) and in our view, this will slightly move up
because of the recent coal price hikes implemented by MCL.
Regarding the 600MWx4 units, currently the first 2 units are getting
synchronized and management expects steady improvement in PLF.
The key issue behind the low PLF was transmission line and only
very recently a new line of 25km (carrying capacity of up to 800MW)
connecting to the national grid has been constructed and hence
generation should increase. The 25km line was delayed because of
some protests, which have now been resolved. The existing evacuation
line (capacity of up to 450MW) is used for supply to state grid. Another
line of 25km is being constructed with carrying capacity of up to
1000MW and this line should be ready by Oct-11, and post this the total
evacuation capacity would be nearly 2200MW. As per management,
the CoP for the 600MWx4 plant, at steady state PLF, would be
Rs1.70/unit with increase from here driven by recent Coal India
price rise. The company expects that the first unit of 600MW could
hit +90% PLF in Mar quarter and the 2nd unit could have PLF of
86% in the Jun quarter.
• Its all about coal: The sight of dozens of trucks outside the plant loaded
with coal seemed surreal until management said that at month end the
plant gets nearly 6000 trucks a day (60kt of coal a day) and on average
there are 2500 trucks a day. This is because the e-auction coal is
transported by trucks. Currently 2/3rd of coal for the 1215MW plant
is from e-auction and the management expects to source 1/3rd coal
from non-linkage sources on a steady state basis. Currently the site
buys 0.4MT of coal on e-auction basis which would increase to 0.6MT
per month once the 600MWx4 stabilizes. The site is also importing coal
at the rate of 50kt per month with the port nearly 400km away. Company
expects to import up to 100kt per month when 3600MW is ready. The
current landed cost of imported coal (3000GCV) is Rs2800-3000/MT vs
Rs2000/MT for e-auction coal prices. The boilers can accept coal of
3000GCV+-4000GCV, which essentially means imported coal would
need to be blended with domestic coal. At full 3600MW operating at
+90% PLF would require as much as 23MT coal. While
management expects to source a third on e-auction, we believe it
should be much higher- nearly 50%. For the Balco coal block (very
critical for profitability upside surprise on the upcoming 1200MW
project), the company expects to receive the final environment clearance
by May-2011, final forest clearance by June-2011 and mining lease by
August-2011.
• Coal movement infrastructure: We found it interesting that the
company is investing in building MGR (merry go round) to evacuate
coal from Coal India's mines and also investing in rail infrastructure.
Company expects to have railway logistics infrastructure in place by
FY13 to move 23MT of coal by rail (including e-auction), which would
greatly minimize the average truck movement per day from 2000 trucks
level currently. The 1st ash pond would be ready in 2 months. 500-
600acres land is under acquisition at Jharsuguda. Total railway rakes
required in 2 years’ time would be 28 rakes. The company highlighted
that it has purchased 4 box rakes and has given it to eastern railways (one
rake cost is Rs200MM). While there is no discount, it eases rake
availability and company plans to buy more rakes.
• Aluminum update: We last visited the project site in March-09 when
work had just started on the 1.25mt smelters with fabrication work
starting on line 1&2 and piling work on line 3&4. Currently, lines 1&2
are mostly ready and some work is required on line 3&4. Management
highlighted that it would require 3 months to commission the lines (ramp
up would take another 6 months) and highlights that once the alumina
issue is resolved, the smelting capacity can be quickly brought around.
Currently the 0.5MT aluminum smelter sources alumina from
Lanjigarh refinery and imports with Lanjigarh alumina at $300/MT
and freight of $35/MT while imported alumina at nearly $500/MT
landed at plant. Current aluminum CoP stands at $1900-$1950/MT
in VAL and $1750-$1800/MT at Balco (we estimate sharp increase at
Balco CoP given that it gets nearly 70% linkage coal which would be
impacted by the 30% Coal India price increase). On Lanjigarh
management highlighted that for the expansion from 1.4MT to 5MT can
be done in 6 months.
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