Tulsian sees value unlocking post- Vedanta restructuring

SP Tulsian of sptulsian.com said Malco looks attractive now as it will be purely focussed on aluminium. "The transfer of Balco's 2.5 lakh tonne per annum capacity to Madras Aluminum, which stands at 40,000 tonne, is also very positive. From a shareholder perspective, the move is positive for both Sterlite and Malco."

According to Tulsian, the group has presence is into copper, aluminum, zinc, lead, and ferrous metals. "So; each company is focused on one metal."

Excerpts from CNBC-TV18's exclusive interview with SP Tulsian:

Q: The Sterlite stock still remains under pressure. Is that a cause for concern?

A: There is no real concern on that account. One cannot take any share price as base to calculate forward valuation because some projects are being hived off now. Sterlite's 51% holding in Balco, or Bharat Aluminum Company, has been removed and put into the Malco, or Madras Aluminium Company, basket. At present, many analysts and investors were confused.

Sterlite is now purely a copper company. The company has 65% holding in Hindustan Zinc and 51% in Balco. They are also in the process of creating power generation capacity of 10,000 mw.

Malco will be focusing purely on aluminium and power generation. If given a choice between Hindalco and Malco, I would choose a focused metal company. The group has presence is into copper, aluminum, zinc, lead, and ferrous metals. So; each company is focused on one metal. That clarity will be very attractive.

The pricing of Malco was on the lower side which is quite surprising. It has a low equity base with 80% stake held by promoters. Institutional investors hold 10-20%. The balance is held by the state investment body. There is no floating stock, so there was no reason for the stock to react negatively to the swap ratio. The transfer of Balco's 2.5 lakh tonne per annum capacity to Madras Aluminum, which stands at 40,000 tonne, is also very positive.

From a shareholder perspective, the move is positive for both Sterlite and Malco. Now, one will have clarity. This share swap ratio has been worked out considering the present market price.

Q: Would Sterlite Aluminium look more attractive going forward as a stock because it has a power unit and is also expanding more?

A: Yes. Sterlite Aluminium, which is the present Malco, will have a capacity of close to 1.5 million tonne of aluminium. By 2012, they will have a metal capacity of 12.5 million tonne metal capacity, apart from the about 11,000 mw of power. Bauxite is one of the two principal materials required for the production of aluminium. If a company has captive source of power, I don't think they will have any problem. The cost of production shouldn't exceed USD 1,000 per ton. I don't see prices of aluminium falling below USD 2,500 per tonne on the LME, or London Metal Exchange. Based on these projections, Sterlite Aluminium will be the right script to choose.