Catch a Solid Play on Indian Metals

Investors looking for exposure to India or exposure to commodity-related stocks can now have both rolled into one: Sterlite Industries (SLT - commentary - Cramer's Take) is one of India's largest nonferrous metals and mining companies, based on revenue.

It is a diversified metals company with mining operations in zinc, aluminum, copper and, soon to come, power generation, and I believe it offers a solid investment opportunity.

One of the major near-term catalysts for the stock is the approval by the Indian Ministry of Coal to get captive-coal-block allocation for its power generation, which is now just pending the green light from the prime minister's office.

That is just a formality, and getting that approval will allow SLT to reduce its cost of production by between 45% and 55%.

Another trigger is the strong likelihood of SLT exercising its call option, held by the government of India, on its zinc subsidiary Hindustan Zinc, upping its stake in the company from 65% to 94%. Chatter is that the company will exercise that option as soon as the prime minister's office signs off on those captive-coal-block allocations in the future.

SLT is also in negotiations with the government of India to buy out the latter's 49% stake in Bharat Aluminum Company, or BALCO as it is commonly known. Both sides are keen to push the deal through, and SLT says it could be completed by March 2008.

In addition, if the Indian government, which has stated publicly that it also wants to divest its holdings in National Aluminum Company or NALCO, decides to sell, SLT would be willing to buy out the government's interest in that company as well.

Factors to Keep in Mind

Sterlite Industries came public in the U.S. on June 20, 2007, at a price of $13.44 a share by offering 130,440,000 shares. The shares represent an 18.9% stake in Sterlite post-offering, not including overallotments of 19,560,000 shares. At Tuesday's close of $19.05, SLT has already delivered a three-month return of 42%.

---

At the time of publication, Somaney was long Sterlite Industries in India, although positions may change at any time without notice.

Jay Somaney is a partner and fund manager with TSG Capital Partners, a hedge fund based in Plano, Texas, and founder of GlobalTechStocks.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Somaney appreciates your feedback; click here to send him an email.