>ASARCO DECISION ON STERLITE INDUSTRIES (MORGAN STANLEY)

Quick Comment: Asarco Decision Good for the Stock: Stay OW

The decision reduces confusion, brings focus back to Sterlite’s main businesses: We believe the bankruptcy court’s decision in the Asarco ownership case favoring Grupo Mexico is positive for Sterlite stock as: 1) This removes the confusion surrounding Asarco, 2) With this, the optimism regarding possible gains for Sterlite from the “Fraudulent Asset Transfer Case” may be put to rest; and 3) Based on our current assumptions, an acquisition would have been value dilutive by ~ 1.5% to 3.5% for Sterlite. Further, we believe that a possible case against Sterlite to hold it liable for its original bid of US$2.6b may be weakened now as the winning bid is just US$100m short of the amount. Note that our base case estimates for Sterlite do not include Asarco. In our
view, Sterlite should be better off without the Asarco assets than having bought them at a price higher than US$2.2bn (last bid by Sterlite). We remain Overweight on Sterlite due to its strong volume growth prospects, high chances to purchase the remaining stakes in HZL and Balco, and likelihood of higher valuations as we come close to commissioning of its power plant.

The stock may trade down on knee-jerk, offering good buying opportunity: In our view, there is a possibility that the stock may react negatively near term due to the recent media reports portraying a higher probability for Sterlite to win Asarco.


What’s New; The bankruptcy court has ruled in favor of Grupo Mexico as it believes the terms offered by the latter (US$2.2 billion in cash plus a US$280 million note) are superior. US Bankruptcy Judge today sent his recommendation to a district court judge who will make the final decision on Asarco, possibly in the next 2-3 months.

To see full report: STERLITE INDUSTRIES