'International listing will add value to Sterlite group'

Sterlite Industries has rarely been far away from controversy.

The last time was when company drew a lot of flak for its innovative buyback program in a bid to delist the company from the bourses.

Unfazed by the criticism, the company completed 80 per cent of its targeted buyback of equity shares. With an eye on an international listing, the company has lined up a series of capacity expansion plans for Bharat Aluminium Company and Hindustan Zinc, companies it acquired by participating in the government's divestment programme.

Anil Agarwal, chairman and managing director, speaks about his future plans for the company in an interview with Business Standard, .

News reports indicate you are looking to list on the London Stock Exchange during the current financial year. How will an international listing help improve valuations of the company?

The Sterlite group is a global player in the non-ferrous mining and metals industry with operations in Australia, India and Europe.

It enjoys a unique position with significant presence in all four major non-ferrous metals viz. copper, aluminium, zinc and lead.

The Sterlite group is essentially looking at the possibilities of an international listing in order to create a currency for global acquisitions in the non-ferrous metals and mining area as well as finance organic expansions.

It is pertinent to note that all the peer group companies have global presence especially in developing economies with international listing, notably at the London Stock Exchange.

An international listing will also enable benchmarking with the peer group. Further, it will enable us to tap a much larger investor base as compared to domestic bourses, which lack adequate depth and breadth.

You have plans to delist from the Indian bourses. So will you make another offer for the 20 per cent of shareholders who haven't accepted the offer earlier?

The company had offered to buyback up to 50 per cent of its capital under its offer and has purchased 36 per cent of its capital.

Currently, Sterlite's equity capital is Rs 17.8 crore (Rs 178 million) compared to Rs 27.8 crore (Rs 278 million) prior to the buyback programme.

Whilst it is the stated intention of the company to have an international listing as a primary offering, no decision has been taken as yet on any new buyback offer.

You have lined up a Rs 4,000 crore (Rs 40 billion) expansion for Balco and are looking to double the capacity of Hindustan Zinc. How will you fund the expansion plans?

Capacity expansions in Balco and Hindustan Zinc will essentially be funded from internal generations, suppliers' credit, export credit financing, external debt and equity offerings.

It must be pointed out that these are separate companies and resources will be mobilised by these companies. Sterlite group will provide the requisite financial support wherever necessary.

Zinc prices have been declining and the metal has little takers in the developed countries. What's your rationale for doubling your capacity in Hindustan Zinc?

Zinc prices, which were low, have shown a recovering trend. Investments are not based on current prices but a longer-term view in so far as demand supply and prices are concerned.

There is a distinct trend in the non-ferrous metals industry towards developing economies with manufacturing bases shifting to such globally competitive economies.

Further, consumption is also being driven by these countries.

The domestic demand-supply gap for zinc also provides an attractive opportunity for the group. The two major consuming sectors namely steel and the automobile industries are well on the recovery path leading to a demand fillip for zinc.

Hindustan Zinc has a very globally competitive cost structure with the Rampura-Agucha mine having the best quality resources at the lowest cost.

This strengthens the competitive advantage and the expansion will further consolidate the group's position in this segment.

In light of these factors, it makes logical sense to expend in capacity augmentation at the present juncture.

What is the outlook on copper and aluminum prices for the year ahead?

Copper and aluminium prices are likely to remain stable in the current year. Not much upside is expected in view of subdued demand and high inventory levels at the LME.

However, in our opinion, there is no significant downside from the current levels.

What is the capacity utilisation currently? How do you see domestic demand in the coming quarters?

Our copper plant is operating at over 165,000 MT production per annum which is more than 100 per cent.

Balco is currently also operating at 100 per cent utilisation levels.

Domestic demand for copper which is essentially driven by the telecommunications and the power sectors is likely to grow at 6-7 per cent annually while aluminium is also likely to show similar growth in the medium term.

Are you interested in Nalco? How important is this acquisition for Sterlite? How do you plan to fund the acquisition?

Sterlite group's growth strategy essentially hinges on organic growth as well as growth by acquisitions.

The Sterlite group has a significant presence in the aluminium sector through Balco and the group is looking at opportunities to consolidate and enhance its presence in the aluminium sector and the group has already submitted its expression of interest for Nalco as well.

Investment decision will be based on the valuations, expected earnings potential and return on investment.

Since the entire Nalco divestment process is still nascent, it would be premature to comment upon the funding at this stage.

What is the company's current debt-equity ratio and what will be the increase in debt burden once your capacity expansions are implemented?

Expansions are being planned in separate companies and the financing will ensure that an optimal debt: equity structure is maintained.

Sterlite group has always been very conservative and has funded most of its growth through internal generations and equity.

Currently, Sterlite's debt equity is a comfortable 0.95:1 and the overall strategy is to maintain leverage at 1:1 even after the expansions.

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