Analysis – Sterlite Restructuring Cancellation

Vedanta / Sterlite has decided not to pursue the proposed group restructuring. According to the company, Vedanta/Sterlite remains committed to simplifying and streamlining its corporate structure in the interests of all shareholders. We view the restructuring cancellation positively.

Merill estimates the current year EPS to decline 14% to Rs54.3. This is based on forecast zinc price of US$1907/t, aluminum price of US$2912/t and copper tcrc of 15c/lb. For FY10, we forecast a marginal 4% increase to Rs56.2.

Merill has also cut the Target price to Rs 505 from Rs 655. The cut has been primarily in the metals business which is now discounted at 25% to its DCF earnings.
Metal Business – Rs 451
Power Business – Rs 54

Separately, Morgan Stanley has set a price Target of Rs 647 on the stock at 5.4x times FY09 earnings.