Jai Shree Krishna
Sesa Sterlite the conglomerate of the Year?
What Is the deal?
· Merger of Sterlite into Sesa Goa (proposed new name “Sesa Sterlite”), 3 Sesa Goa shares to
be issued for every 5 existing Sterlite shares
· Vedanta Aluminium Ltd (“VAL”) and The Madras Aluminium Company Ltd (“MALCO”)
to be 100% consolidated into Sesa Sterlite
· Transfer of Vedanta’s direct holding of 38.8% in Cairn India Limited (“Cairn India”) to Sesa
Goa , together with the associated debt of $5.9 billion, at cost. Post the transfer, Sesa Sterlite
will have a 58.9% shareholding in Cairn India
Numbers Game
· 12 Months ended for Dec 2011 total revenues of Rs 66,431Cr
· Net Debt Rs 36936 Cr
· Net Debt/EBIDTA 1.5 times – expected to be reduced later as a long term bet a good one to have in the portfolio
Offer for the share holders!
· Sterlite will merge into Sesa Goa to create Sesa Sterlite
· By issue of shares of Sesa Goa Ltd to shareholders of sterlite Ltd the swap ratio is 3 share of Sesa Goa Ltd will be issued for 5 Shares held of Sterlite Industries
· Sesa Goa also intends to establish an ADS facility comparable to Sterlite’s current ADS
· The current Sterlite Industries share holders will get a chance to get ADS of Sesa Goa with appropriate exchange ratio
· Each sterlite ADS represent four equity share of sterlite
Vedanta Aluminium ltd
Sesa Goa issuing 72.3 million shares to aquire stake in VAL by merger of Mauritius based Co Ekaterina Ltd (a Mauritius holding company for Vedanta’s 70.5% shareholding in VAL)
Valuation given to the company is around Rs 2332 Cr
Analysis
Approximately debt in the books of VAL Rs 20000 Cr
VAL Q3 Loss 2012 Rs 1140 Cr
VAL 9M Ended loss Rs FY 12 Rs 1850 Cr
Enterprise value Comes out to be about = Rs 22990 Cr
Sterlite has almost invest Rs 10000cr
Sterlite in a way wont be getting a fair value with this valuation given by the Vedanta Resources
MALCO
Proposed
· MALCO to merge into Sesa Sterlite, through the issue of 78.7 million Sesa Goa shares to
shareholders of MALCO
Analysis
· Valuation given to MALCO Rs 1790 Cr it includes the stake held by MALCO in sterlite of existing 3.6% will be cancelled as part of existing merger in Sesa Sterlite
· So the investment of 3.6% is wiped out at the end this will affect the Sesa Goa valuation the shareholders of sesa sterlite will be at loss.
· With 3.6% of shares held by VAL in sterlite ie 11.98 cr at the given market price of sterlite Rs 118
· 11.98*118 =1413.64 Cr
· With PAT of Rs 188 cr for FY 11the co is posting decent profit for no of years taking a call ie multiple of 6 it comes out to be roughly 1300 cr
· Value should have been given around 1413.64Cr+1300Cr=Rs 2542 Cr
Recently buy back was over from its shareholders of 56.52lakh shares at avg Rs115
But now it is been vaued at more price 1790/11.98= Rs 149 is it fair
To our valuation its sheers loss for the minority investors where the valuation given by the company is not justified
Cairns India
Proposed
Transfer of 38.83% stake which vedanda resources is directly have in cairns india will be transferred to Sesa Sterlite completely ie 73,88,73,586 shares at current MP of cairns India rs 387 =rs285,944,077,782
When they will also transfer the foreign debt of around $5.9 billion
Analysis
· $5.9billion*49= Rs 28,910Cr
· Per share Cost/share =28910/738873586 = Rs 391
· With CMP Rs 387
· Loss Rs4
· +Nominal consideration Of Rs 49 ie $49
Whether is this justified for cairns India with this kind of heavy debt which will be coming in their books in directly in the books of Sesa Sterlite
When in the Cairns India Books they have shown total shareholding Of 59% by parent Vedanta resources
Why Sesa sterlite will hold only 58.9% so where is the 0.10%
That is a big ? which they have to disclose
Twister Mauritius -73.89 Cr 38.83%
Sesa Goa -35.11 Cr18.45%
Sesa resources - 3.27Cr1.72%
Total 59%
Sesa Sterlite
A heavy debt Company ie around
All figures are Rounding off to the nearest approximation amt in rs
Sesa Goa 5000Cr
Sterlite 12000Cr
Val 20000Cr
Cairns 35000Cr
Total Debt 72000 Cr
Cheers for the Vedanta resources and roaming on streets for Indian Minority investors as the deal has many takings
1. Got rid of loss making VAL
2. Transferred the foreign payment liability worth $5.9billion to Indian cos
3. Escape from forex fluctuation
4. Got rid of huge debt of balance sheet
5. With a strategic move they have retained the Concola Copper mines Plc ie 79.4%
Sterlite should rule at60% Market Price of sesa Goa Ltd because of the swap ratio 3:5
History is been repeated by Mr Anil Agrawal way back before sterlite industries was delisted from the bourses.They bought shares from the retail investors forcefully those who dint wanted to ,they showed an ugly picture to the investors so that they were trapped to submit the shares in the buy back way back.
The proposal which has come out from the Vedanta Resouces Plc is we feel that its only for the investors of Vedanta Resources ltd. on the basis of Simplifying the structure the retail investors or the minority investors interest is on stake. The company is trying hard from past 11 years to buy back shares of BALCO where govt is supposed to have around 49% and29.5% stake in Hindustan zinc from the Government of India the total value given for the buy back is around Rs 25000Cr On Maximum side,but has failed to do so. Its important for all the investors that there has been in past corporate governance issue with the group and with the valuation given there is not much left on the table for the retail investors .At the end they are trying to take away from the investors. We feel there will be negative impact on the entire listed group companies on the bourses not that they will be thrashed but as and when a lot of clarity will be given by the group can take a call. Its not to buy now.Wait and Watch.
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