With new leadership, Sesa Sterlite aims to revive confidence, growth
Top appointments come ahead of crucial decisions on stake sales in group companies, raw material linkages
Mumbai: The new leadership and a host of recent top appointments at Vedanta Resources Plc’s unit Sesa Sterlite Ltd are intended as a confidence-boosting measure, but could also be crucial in unlocking growth, as the company looks to the new government to take crucial decisions on raw material linkages and stake sales in group companies.
Effective 1 April, Navin Agarwal took over as chairman of Sesa Sterlite, while Tom Albanese started as chief executive officer. The company also inducted two executives into the board, appointed two new independent directors and brought in a new head of communications and corporate social responsibility.
“Some of the appointments were due to natural change while some of it was because they want to boost the confidence of investors," said Giriraj Daga, senior analyst at Nirmal Bang Equities Pvt. Ltd, a brokerage. “The focus of the new team will be to get the business going and to solve the multiple problems of the group."
Corporate social responsibility (CSR) remains key to Sesa Sterlite future growth as its image has taken a beating owing to activists who have raised social and environmental concerns, blocking its plans to mine bauxite in Odisha and hampering copper operations in Tamil Nadu.
Another key to higher profitability for this base metals and oil group is the government’s residual stake sale in its group companies—29.5% Hindustan Zinc Ltd and 49% in Balco, which could give it full control and unlock cash reserves of around ₹ 22,000 crore in the zinc firm.
The cash could help Sesa Sterlite retire a net debt of ₹ 34,290.7 crore, following which it is likely to scout for mainly coal and bauxite assets on a global scale, analysts say. It can even merge its profitable units such as Cairn India Ltd and Hindustan Zinc Ltd with itself.
A third important and pending decision is the allocation of a bauxite mine that would give a fillip to its 1 million tonne (mt) alumina refinery in Odisha which has no captive mine. Besides, it needs to win coal mines for its captive power plants in the government’s upcoming auctions.
“In Vedanta’s case, key triggers are awaited and these could unleash growth across all verticals," said Ritesh Shah, metal and mining analyst at Espirito Santo Securities India Pvt. Ltd. “We expect this (Hindustan Zinc stake sale) to pan out in FY15. Post this, we expect de-leveraging story to re-rate the stock. Not to forget, you will continue to see improvement in operational metrics on a quarter-on-quarter basis there on."
Tom Albanese, the erstwhile chief executive of global miner Rio Tinto, who was appointed as chief executive of Sesa Sterlite, is in line with the company’s international ambitions.
“Appointing him as the CEO should improve the visibility of the company among foreign investors," said Dhananjay Sinha, head of research, institutional equity, at Emkay Global Financial Services Ltd. “Despite being a London-listed company, Vedanta is perceived to be an Indian company with concerns of corporate governance, etc., which is what is sought to be sorted with this appointment."
However, founder-promoter Anil Agarwal’s move to chairman emeritus from chairman and the appointment of Navin Agarwal as chairman may not necessarily mean that Anil Agarwal will take a backseat, analysts said.
“Navin Agarwal’s (the new chairman) is Anil Agarwal’s confidante and ultimately it is Anil Agarwal who is in control," said an analyst without wishing to be named.
Tarun Jain and D.D. Jalan, top finance heads, will join the board as wholetime directors and analysts said the two were already playing a larger role and therefore their new appointment only “formalizes what they have been doing all along".
The appointment of former joint managing director of ICICI Bank LtdLalita Gupte and that of Naresh Chandra, former ambassador to the US and former cabinet secretary in the government as independent non-executive directors is also seen as profile enhancement effort, one which could help improve communication lines with the government.
“They are like ornaments, helping the company present a good face," said the analyst who did not want to be named.
Analysts said it is unlikely Sesa Sterlite would raise its spend on CSR immediately as it is already high and a new mining law may make it mandatory for all miners to share a quarter of their profits with displaced locals. “I see them increasing their talk about the existing CSR," one analyst said, asking to remain unnamed.
Analysts said they are positive about Vedanta’s future earnings owing to their profitable zinc and oil operations, diversified commodities mix (aluminium, copper, zinc, iron ore and oil, power), low-cost production and new aluminium capacities.
“Vedanta is a smart player. They have the right DNA with clear focus on lean costs structure and best in class capital cost," Espirito Santo’s Shah said. The company’s iron ore operations are set to improve with production in Karnataka normalizing and mining in Goa looking set to be reopened, he said. “In the aluminium production, Sesa Sterlite’s cost of production is less than $1,700 a tonne without a captive bauxite mine, while Hindalco’s is higher with captive bauxite and coal blocks. This speaks volumes on its efficient cost structure," said Shah.
Shares of Sesa Sterlite fell 0.57% to ₹ 192.60 on Wednesday, and gained 14.95% from the time of the company’s merger in August. From August, the Sensex is up 27.32% while the metals index is up 36.94%.
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