>STERLITE INDUSTRIES (ANAND RATHI)

Expanding for the next upcycle; initiate at Buy

■ Buy. We initiate coverage on Sterlite with a Buy and a target price of Rs748. Its status as one of the world’s lowest-cost metals producers, its energy venture in power-starved India and strong
balance sheet make it one of our top picks in our sector universe.

■ Low-cost player. Sterlite is one of the world’s lowest-cost manufacturers in each of its business segments, with a balance sheet tough enough to weather the present meltdown. Given its expansion plans, it is on target to touch yet lower production costs in its aluminium, zinc and copper businesses.

■ Expansion plans on track. Sterlite is moving ahead with its expansion plans in aluminium, zinc-lead and power. The downturn in metals prices has helped it execute these projects at a
lower cost. We expect earnings to rise once metals prices recover.

■ Power to pack some punch. Sterlite Energy, a 100% subsidiary, is on course to commission a 2,400 MW plant by Jul ’10. The first 600-MW phase would start operations in Oct ’09. Merchant
power is an attractive proposition in a power-hungry nation and should boost earnings significantly, in our view.

■ Valuation. We use a sum-of-parts method to arrive at a target price of Rs748. We see short-term triggers from the successful exercise of call options in Hindustan Zinc and Balco, as well as from acquiring the US-based integrated copper producer, Asarco.

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