>STERLITE INDUSTRIES (MORGAN STANLEY)

Growth Potential Yet to Be Valued Fully, Stay OW

Investment conclusion: We are raising our price target by 35% to Rs963. This implies upside potential of 19% from current levels. In our view, Sterlite offers one of the best and most balanced growth opportunities in Indian metals. We expect the market to appreciate this over the next 4-6 quarters as Sterlite makes progress on its next-stage expansion, although power project delays may be short-term headwinds
.
With its strong balance sheet, Sterlite is upping the ante on its aluminum and zinc expansion projects. We expect this to enhance its valuations amid a healthy metals price environment. For the period F09-F12 we project a CAGR in Sterlite’s attributable production of 52% for aluminum and 32% for zinc/lead, with a 10-15% decline in cash costs. As well, its saleable power output is likely to grow by 2,400 MW, despite the likelihood of some delay in the Jharsuguda power project.

Forecasts reflect new projects, new metals price outlook, delay on Jharsuguda power: We include the entire 1.25 mt smelter project in the VAL division now (earlier we assumed just 325 kt), given clear progress. On the other hand, we are pushing forward our commissioning timeline for the 2,400 MW power project by 9 months. Further, in line with the changes made by our global mining team, we raise our aluminum and zinc price forecasts for F2010-11 by 5% to 16%. Our EPS
forecasts change by -0.3% for F2010 and 2.3% for 2011. We introduce our F12 EPS forecast of Rs 106.7.

HZL and Balco stake purchase yet to be priced in properly: We also believe negative impact from Asarco will likely be eased out from the stock price soon.

To see the full report: STERLITE INDUSTRIES