SP TULSIAN.

Q: What about his potential news on Sterlite and Sesa Goa, how do you read it?

A: The background in which this news has germinated is that Vedanta group is looking to transfer stakes held by them in Cairn India to Serlite Industries. Sterlite Industries is going to become the holding company. If I move on this premise, it is a very positive move. But, ultimately everything boils down to the swap ratio because couple of years back Sterlite had moved similar proposal, which was against interest of minority shareholders. It was a bit complicated and they were forced to drop that proposal.

Cairn India holds 39% stake. I am excluding 24% stake held by Sesa Goa. So, if they transfer 39% stake into Sterlite Industries, eventually taking the current price as the base, they will be able to raise their stake in Sterlite Industries to about 75%. I am seeing this as a precursor by the group to initiate a move to purchase the residual stake of the government to the extent of 29% in Hindustan Zinc and 49% in BALCO.

Collectively, the group will require about Rs 23,000-24,000 crore for buying both these stakes. They need Rs 17,000-18,000 crore for Hindustan Zinc and Rs 4,000-5,000 crore for BALCO.

Ultimately, they will be looking to raise this kind of money based on cash flow of Cairn India. If Sesa Goa gets merged with Sterlite, this stake of Vedanta transfer to Sterlite, Sterlite will be holding 58-59% in Cairn India. Cairn India will be making a cash profit of about Rs 10,000 crore every year. So, they will be looking upon to capitalize this cash generation for buying out residual stake.

Otherwise in the present form, the balance sheet of Sterlite Industries will get stretched. There is no other point in buying residual stake in any other company because both these stakes are presently held by Sterlite Industries. So, it is a composite move and if that happens then Sterlite Industries will be the holding company for ferrous metal business, non-ferrous metal business and crude.

Apart from that, all the stakes in these three businesses will be more that 50%. So, everything will get consolidated on the top-line and bottom-line. In this background, there will not be in fear of company discounting for Sterlite valuations. If that happens, it will be very positive for Sterlite Industries overall and its shareholders, but one has to look for the swap ratio. I am presuming that swap will happen based on present market capitalization of all the companies.