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Sterlite Industries (STLT)
Metals & Mining
Plant visit note—impressive execution. We visited Vedanta Aluminium and
Jharsugda IPP recently. Key takeaways include (1) capitalization of units 1 and 2 of
600 MW each of 2,400 MW Jharsugda IPP, will likely be done from April 2011.
Commissioning of new transmission link to PGCIL will help in evacuating power;
(2) Jharsugda has started receiving linkage coal for the first two units. Company expects
cash cost per unit of Rs1.7 at steady state PLF which will go up to Rs1.9/kwh after
recent increase in coal prices; and (3) poor visibility on securing new bauxite mines for
VAL. Maintain BUY on attractive valuations.
Jharsugda IPP—capitalization of first two units from April 2011; company receives linkage coal
We visited the 2,400 MW IPP in Jharsugda recently. Key takeaways include
Management indicates they have stated receiving linkage coal for the first two units of 600 MW
each. Cash cost of generation is high currently, which will decline subsequently once the plant
reaches steady PLF levels. Management expects cost per unit of Rs1.7-1.8, which will increase
to Rs1.9/kwh after recent increase in coal prices.
Capitalization of the first two units will likely be done from April 2011. Sterlite has
commissioned a 600 MW transmission link from its generation station to PGCIL grid. We are
surprised that Sterlite did not anticipate non-availability of transmission link as a potential
roadblock in timely commissioning of the plant.
Orissa GRIDCO is not absorbing the entire power offered to them from the first unit. Sterlite is
selling power to Orissa Grid at Rs2.53/unit. Sterlite may route the power unused by the grid to
the short-term market. Note that the transmission link capacity to the grid is 450 MW.
Sterlite is constructing another transmission line of 1,000 MW that can evacuate power from
the remaining two units that will be synchronized in Q2 and Q3 of FY2012E. Sterlite expects
this transmission link to be commissioned by October 2011. This will take the total transmission
link capacity to 2,050 MW (including 450 MW dedicated link to Orissa GRIDCO).
Sterlite has made significant investments in railway sidings and rakes and expects entire
movement of coal through rail infrastructure. Sterlite is setting up a dedicated rail link up to
Vansundhra mines of MCL which may be a large source of coal procurement. Rampia mines are
close to Vasundhra mines, hence the same infrastructure can be used.
Visit lends comfort to our power business estimates. Our revenue estimates for FY2012E from
Jharsugda IPP is based on effective capacity of 1,647 MW.
Balco captive coal block—steady progress
Balco management reiterated target of September 2011 for commissioning of The Durgapur
II Taraimar coal block that will feed Balco’s 4X300 MW captive power plant. This coal block
is 70 kms away from Korba. Balco will receive Stage II forest clearance for the mine by July
2011 and will execute the mining lease by August 2011. The company has received tapering
coal linkage for first two units.
Balco also reiterated a synchronization schedule for the power plant; unit 1 will be
synchronized in 1QFY12E and unit II in 2QFY12E. The commissioning is consistent with our
expectation.
Vedanta Aluminium—no bauxite in sight
Sterlite is hopeful of securing bauxite through the tonnages committed by the Orissa Mining
Corporation. The company is hopeful of securing a mining lease of Kalapeth mine in
Kalahandi district which has bauxite reserves of 200+ mn tons. However, after securing the
mining lease, the company has to go through the normal long-drawn process of getting
environment and forest clearance; this process may take at least two-three years. The
company is also working on six-seven other blocks. However, it would be difficult for the
company to secure access to bauxite mine for at least three years.
VAL’s cost of production of hot metal from the operational 500 ktpa smelter is US$1,850-
1,900/ton, which is unlikely to reduce in the near term. The smelter is working on 50%
imported alumina and 50% from captive sources. Cost of imported alumina (including
transportation) is US$500/ton. Conversion cost is US$1,100/ton.
The 1.25 aluminium smelter expansion has four potlines with each line having 336 pots.
Two potlines are complete, substantial progress is made on the third potline, while the
fourth potline may take a few months. However, the company is unlikely to tap metal from
this expansion till it receives bauxite mines. We are impressed with the pace and scale of
execution with the entire expansion being done in just over two years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries (STLT)
Metals & Mining
Plant visit note—impressive execution. We visited Vedanta Aluminium and
Jharsugda IPP recently. Key takeaways include (1) capitalization of units 1 and 2 of
600 MW each of 2,400 MW Jharsugda IPP, will likely be done from April 2011.
Commissioning of new transmission link to PGCIL will help in evacuating power;
(2) Jharsugda has started receiving linkage coal for the first two units. Company expects
cash cost per unit of Rs1.7 at steady state PLF which will go up to Rs1.9/kwh after
recent increase in coal prices; and (3) poor visibility on securing new bauxite mines for
VAL. Maintain BUY on attractive valuations.
Jharsugda IPP—capitalization of first two units from April 2011; company receives linkage coal
We visited the 2,400 MW IPP in Jharsugda recently. Key takeaways include
Management indicates they have stated receiving linkage coal for the first two units of 600 MW
each. Cash cost of generation is high currently, which will decline subsequently once the plant
reaches steady PLF levels. Management expects cost per unit of Rs1.7-1.8, which will increase
to Rs1.9/kwh after recent increase in coal prices.
Capitalization of the first two units will likely be done from April 2011. Sterlite has
commissioned a 600 MW transmission link from its generation station to PGCIL grid. We are
surprised that Sterlite did not anticipate non-availability of transmission link as a potential
roadblock in timely commissioning of the plant.
Orissa GRIDCO is not absorbing the entire power offered to them from the first unit. Sterlite is
selling power to Orissa Grid at Rs2.53/unit. Sterlite may route the power unused by the grid to
the short-term market. Note that the transmission link capacity to the grid is 450 MW.
Sterlite is constructing another transmission line of 1,000 MW that can evacuate power from
the remaining two units that will be synchronized in Q2 and Q3 of FY2012E. Sterlite expects
this transmission link to be commissioned by October 2011. This will take the total transmission
link capacity to 2,050 MW (including 450 MW dedicated link to Orissa GRIDCO).
Sterlite has made significant investments in railway sidings and rakes and expects entire
movement of coal through rail infrastructure. Sterlite is setting up a dedicated rail link up to
Vansundhra mines of MCL which may be a large source of coal procurement. Rampia mines are
close to Vasundhra mines, hence the same infrastructure can be used.
Visit lends comfort to our power business estimates. Our revenue estimates for FY2012E from
Jharsugda IPP is based on effective capacity of 1,647 MW.
Balco captive coal block—steady progress
Balco management reiterated target of September 2011 for commissioning of The Durgapur
II Taraimar coal block that will feed Balco’s 4X300 MW captive power plant. This coal block
is 70 kms away from Korba. Balco will receive Stage II forest clearance for the mine by July
2011 and will execute the mining lease by August 2011. The company has received tapering
coal linkage for first two units.
Balco also reiterated a synchronization schedule for the power plant; unit 1 will be
synchronized in 1QFY12E and unit II in 2QFY12E. The commissioning is consistent with our
expectation.
Vedanta Aluminium—no bauxite in sight
Sterlite is hopeful of securing bauxite through the tonnages committed by the Orissa Mining
Corporation. The company is hopeful of securing a mining lease of Kalapeth mine in
Kalahandi district which has bauxite reserves of 200+ mn tons. However, after securing the
mining lease, the company has to go through the normal long-drawn process of getting
environment and forest clearance; this process may take at least two-three years. The
company is also working on six-seven other blocks. However, it would be difficult for the
company to secure access to bauxite mine for at least three years.
VAL’s cost of production of hot metal from the operational 500 ktpa smelter is US$1,850-
1,900/ton, which is unlikely to reduce in the near term. The smelter is working on 50%
imported alumina and 50% from captive sources. Cost of imported alumina (including
transportation) is US$500/ton. Conversion cost is US$1,100/ton.
The 1.25 aluminium smelter expansion has four potlines with each line having 336 pots.
Two potlines are complete, substantial progress is made on the third potline, while the
fourth potline may take a few months. However, the company is unlikely to tap metal from
this expansion till it receives bauxite mines. We are impressed with the pace and scale of
execution with the entire expansion being done in just over two years.
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