What do you make of this shutdown of the Sterlite plant? How big a setback is it for Vedanta? I was just going through some analyst notes and they were saying 4% to 5% on earnings?
More than the earnings, this is the third incidence with this company over the last few years where their operations have been disrupted. The first one was the Niyamgiri mines where they have invested almost $6 billion in alumina smelters and those assets are still struggling to turn profitable. The second was the iron ore mines which was more of a PAN India order given by the Supreme Court. Now, a copper smelter which was running for 20 years has been closed. Clearly, this shows the company has to do a lot of work on CSR and the plant which is a zero discharge plant as per the management, cannot have these kind of problems.
The impact on earnings is going to be 6% or more, according to the analysts. More importantly, investors will be very careful as to whether this stock is investible or not. Something else can come up at some other place and until and unless the company changes policies on CSR and does really good work, investors will try to avoid this one.
I believe the company is dragging the pollution control board to court citing that this is not really an environmental issue. Has it become bigger than that?
I do not think there is too much fault with the plant per se and it should be calling all the norms which have been established by Environmental Forest Ministry and the Pollution Control Board. I do not think there is too much merit. Obviously, the issue has been politicised but Vedanta comes with a very fragile reputation and they have to do the extra mile work on CSR to make sure that these kind of things do not happen. But since it has happened thrice in last few years, the reputation is definitely impaired more than the numbers.
How do you weigh that in on the stock price which has lost close to 10% in the last seven sessions? How does the perception of Vedanta dwindling in market circles impact the stock from a value point of view?
If you compare it with peers like Hindalco, it has been underperforming quite a bit in the recent past and that underperformance will continue till the time we see some resolution on this plant or the company comes out with much more improved CSR. This kind of thing takes a long time. The underperformance in Vedanta will continue for a much longer period.