Sterlite Industries: Expansion Play Takes Advantage of Commodity Long-Term Up-Cycle

| About: Vedanta Ltd (VEDL)

There were two bits of news yesterday on one of my favorite emerging markets/commodities plays. Sterlite Industries (SLT) plans to become the largest copper smelter in the world and has announced a 400 ktpa brownfield expansion project in India along with a captive power plant generating 160 MW. The project is expected to be commissioned by middle of 2011.

The total investment in this capital project is estimated to be $500 million.

Concurrently, the company also launched a $500 million convertible debt offering which will be convertible to the ADS listed on the New York Stock exchange.

Commodities are in a long term up-cycle and any new capital investment projects are likely to be value creators over the long term. Primary metals like copper are critical to the growth of emerging economies. While a convertible debt offering potentially dilutes the stockholders, it is important to note that a potentially more valuable asset is being created as long as the return on capital on this project exceeds the interest on the note. Of course, this remains to be seen. The stock is selling off on the news and can be an attractive entry point.

You may recall Sterlite from its bid to buy the Asarco mines in US. The following article in Forbes is also a great introduction to Sterlite/Vedanta and Anil Agarwal, the key man behind the company.