Sterlite Industries may under perform in near-term

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Sterlite Industries offered a follow on American Depository Share (ADS) issue worth USD 1.5 billion yesterday.
Udayan Mukherjee, Managing Editor, CNBC-TV18, said the stock could slip maybe another 4-5%. "The stock may under perform in the near-term because of the large dilution which has happened," he added.

Here is a transcript of Managing Editor, Udayan Mukherjee's comments on CNBC-TV18. Also watch the accompanying video.

It may slip a bit more and under perform in the near-term because of the large dilution which has happened.  I don't think it will fall too much more unless the market cracks and as you know metals is high beta and therefore if the market falls off again to 4,000 then Sterlite will fall with it as well. What the market did yesterday was probably price in some of the dilution; if you just look at Sterlite without Asarco, the American Depository Shares (ADS) yesterday does dilute earnings per share (EPS) by nearly 10%, the stock fell off 6% yesterday. So, you probably see the stock lose a bit more ground from here maybe another 4-5% but below that that is priced in and once Asarco happens maybe EPS will actually go up over the next couple of years once that is built-in.

The other thing to note about Sterlite is that it's actually got into a very good balance sheet position; I go as far as to say it's got the best balance sheet in the metals business in India with Jindal Steel and Power Ltd (JSPL) probably close behind. But Sterlite has got an excellent balance sheet and it's probably the best suited to ride out this downturn or down cycle in the metals business. So, it's been trading in a very wide range, it went to sub Rs 170 kind of levels in the October crash; it was more than Rs 700 just a few days back. So, I don't know when is a good time is accumulate but I suspect that once you see Sterlite trading sub Rs 500 levels, a lot of value investors will get in at Rs 450-500 zone if it gets there and accumulate the stock because its in a good position, balance sheet wise and business wise to ride out the down cycle.  In the near-term there could be minor underperformance of 5-7% because of the large dilution.