IIFL has recommended an add rating on Sterlite Industries (India) with a target price of Rs 263 in its March 9, 2009 research report.
“Sterlite has announced a renegotiated deal to acquire substantially all assets of ASARCO. It will make an upfront payment of USD 1.1 billion for ASARCO’s assets and pay USD 600 million over the coming nine years (including a bullet payment of USD 460 million in the last year). ASARCO falls in the highest quartile in terms of production cost; its costs will continue to be among the highest even after the company-projected reduction to USD 2,700 per tonne.”
“In our assessment, the acquisition is expensive even on the assumption of current copper price and company-projected cost savings. Hence, we cut our target price by Rs 25 for Sterlite to Rs 263. Any sharp drop in copper prices would make ASARCO lossmaking. Additionally, the acquisition will drain cash out of Sterlite’s well-endowed balance sheet, which has been major source of comfort for investors. Add,” says IIFL’s research report.
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