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Action: Revised target price reflects SESA GOA downgrade
We have downgraded SESA GOA to Neutral on concerns on iron ore
mining and aluminium business. We have also reduced our TP for SESA
GOA to INR179 from earlier INR220. As Sterlite is to be merged with
SESA GOA by Dec 2012, based on an announcement made by
management, we are lowering our target price for Sterlite as well to
INR107 at 0.6x SESA GOA’s target price. With just ~9% potential upside,
we thus downgrade Sterlite to Neutral.
Sterlite is currently trading at 0.58x SESA GOA’s stock price. In our view,
owning Sterlite at its current price will not give investors any material
advantage over owning SESA GOA.
Valuation:
We value Sterlite Industries at INR107, which is at 0.6x our SESA GOA
target price of INR179. This is based on the merger ratio announced by
the company.
Risks that may impede the achievement of our target price
Upside risks include: 1) Government divesting its remaining stake in
Hindustan Zinc (HZ IN) to Sterlite and HZ getting merged with SESA
Sterlite 2) allotment of bauxite mine.
Downside risks include: 1) iron ore mining ban continuing in Goa 2) a fall
in commodity prices.
Action: Revised target price reflects SESA GOA downgrade
We have downgraded SESA GOA to Neutral on concerns on iron ore
mining and aluminium business. We have also reduced our TP for SESA
GOA to INR179 from earlier INR220. As Sterlite is to be merged with
SESA GOA by Dec 2012, based on an announcement made by
management, we are lowering our target price for Sterlite as well to
INR107 at 0.6x SESA GOA’s target price. With just ~9% potential upside,
we thus downgrade Sterlite to Neutral.
Sterlite is currently trading at 0.58x SESA GOA’s stock price. In our view,
owning Sterlite at its current price will not give investors any material
advantage over owning SESA GOA.
Valuation:
We value Sterlite Industries at INR107, which is at 0.6x our SESA GOA
target price of INR179. This is based on the merger ratio announced by
the company.
Risks that may impede the achievement of our target price
Upside risks include: 1) Government divesting its remaining stake in
Hindustan Zinc (HZ IN) to Sterlite and HZ getting merged with SESA
Sterlite 2) allotment of bauxite mine.
Downside risks include: 1) iron ore mining ban continuing in Goa 2) a fall
in commodity prices.
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