| The Sterlite chief's belief that his group will get a higher valuation abroad has proved right, going by the over-subscription of the Vedanta issue on the London Stock Exchange. |
| The issue was oversubscribed 5.6 times, which reflects a strong demand for stocks of commodity companies and the positive outlook for commodity prices in future. |
| Even Sterlite's domestic valuations have taken a cue from the bullishness around Sterlite's intention to list on the LSE. Since November, the stock has almost doubled to the Rs 1,500 levels. |
| The current market price for the Sterlite stock results in a discounting of 16 times FY03 earnings compared with a discounting of around 4-5 times earlier in the year in March 2003. |
| These are valuations comparable with those given to companies globally. However, on a consolidated basis, Sterlite's FY03 earnings are discounted only around 9 times. |
| The huge inflow of $1 billion now puts adequate funds at Sterlite's disposal to acquire companies at will "" the prime target being Nalco. This will mean serious competition to Hindalco in the race for acquiring Nalco. |
| Besides, part of the monies will now be utilised to fund expansion at Balco ($200 million), its alumina refinery ($300-400 million) and Hindustan Zinc's repayment of debt. |
| Analysts say Sterlite may also buy out the remaining stake in Hindustan Zinc and convert it into a fully owned subsidiary or even merge it since its fundamentals will improve significantly after the debt repayment. |
| Quite surprisingly, Sterlite's stock was down 5.5 per cent yesterday. It's almost as if the rally in the stock was meant to sustain only till the Vedanta issue went through. |
| Tea stocks |
| Shareholders in tea companies have plenty to cheer about. In just two weeks, tea stocks have given returns between 16 and 46 per cent. |
| Tata Tea has risen 16 per cent, George Williamson has gained 33 per cent, Jay Shree Tea has jumped 34 per cent and Goodricke has surged 40 per cent. |
| To hazard a guess, there seems to be, after a long gap, some good news for the tea industry. It turns out that tea prices have risen between 15 per cent and 20 per cent year-on-year in the last two weeks. |
| Besides, inventory levels have been pruned to less than 1 mln kg from 34 mln kg recently. But is that reason enough to cheer? Let's see why tea prices have moved up in the first place... |
| This year has seen an improvement in the functioning of the tea auction system, thanks to the implementation of the Tea Marketing Control Order (TMCO). |
| As a result, the trade cycle, or, to use the parlance among tea players, printing time at tea auctions has come down to around 19 days. |
| This could take as long as three months earlier, as auction suppliers would try and ensure that there was adequate supply throughout the year. |
| With the trade cycle having come down, the lower inventory has led to the rise in tea prices. With the production season coming to end, a similar trend should continue. But the point is the rise may not be sustained. |
| Earlier in the year, for instance, the shortening of the trade cycle led to a scenario where more and more tea was coming into the auctions. |
| This had resulted in a drop in tea prices. Keeping this in mind, the current rise in prices is nothing to get very excited about. |
| Year-till-date, average tea prices are lower compared to 2002. When production resumes and supply increases, prices could again come under pressure. |
| Nevertheless, thanks to the shorter trade cycle, tea producers' cash flow has improved considerably. It now takes seven weeks from the date of production for payments to be realised, a process which took up to thirteen weeks earlier. |
| With contributions by Sameer Ranade and Mobis Philipose |
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