Sterlite Tech closed strongly upwardly mobile @ Rs 104+
It clearly continues to benefit from Government’s scaling up the National Optical Fiber Network (NOFN) Initiative and the ‘Digital India’ Story unfolding
However an interesting development announced in May was the demerging of it’s capital intensive and yet to contribute to profits Power Segment
The Power Segment is being demerged as of April 15,2015 into a separate company Sterlite Power Transmission Ltd which will remain unlisted
Each Shareholder will get an option to remain invested also in the Power Co or exit it.For every 5 shares held in Sterlite Tech,the Shareholder will get the options of 1 share valued at Rs 112.30 (FV Rs 2) or 1 redeemable preference share for the same value which will be redeemed within 30 days.
The demerged entity will be worth Rs 885 crs after considering debt allocation.This would compute to a Value of Rs 22.46 per Share of Sterlite Tech
Chairman Anil Agarwal states that Sterlite Technologies is at a unique inflection point
When I did the Segment Analysis ,observed that while the FY 15 Topline of @ Rs 3000 crs is more or less evenly split between Telecom & Power,76% of the Segment EBITA of Rs 327 crs comes from Telecom (Rs 249 crs)
Importantly after the demerger of the Power Segnent ,Sterlite Tech will retain just Rs 674 crs consolidated net debt from the pre-re-structuring consolidated net debt of Rs 4881 crs
With Equity at Rs 79 crs (FV Rs 2) and with the capacity expansion plans one should expect surge in profitability which was being dragged down in the near term by the Power Segment …EBITA over Rs 300 crs for the Telecom Business in FY 16 is on the cards
There is an enabling resolution proposed for Borrowings up to Rs 1000 crs
At Rs 104,the ex demerger price works out to under Rs 82 if opting for exiting the Power business though there’s a few months to go before the demerger is effected
My sense is that whenever the record date is announced in FY 16 for the demerger and trading switches to an ex demerger basis just a few days prior,the ex demerger share price will quickly climb back to the cum demerger share price
Though I have had serious reservations on Corporate Governance issues with the Vedanta Group whenever they have restructured through merging group entitities ,I quite agree with the Chairman,Anil Agarwal that Sterlite Technologies is at an inflection point …and ironically it involves not a merger but a demerger situation !