This Article is From Sep 05, 2012

Why Vedanta group shares are down today

Shares in Vedanta group firms - Sterlite Industries, Sesa Goa, and Cairn India - traded lower Wednesday on news that Vedanta Aluminium (VAL) will shut down the 3 million-tonne-per-annum alumina refinery in Lanjigarh.

Vedanta Aluminium is likely to send a notice to the Orissa government for shutting down the refinery because of the non-availability of bauxite. The refinery feeds alumina to its smelters located in Jharsuguda and Korba.

Shares in Sterlite Industries, which is also engaged in the mining of bauxite and the production of aluminum products, traded 2.1 per cent lower at Rs 94.25 in a weak Mumbai market. The stock underperformed the broader BSE metal index, which traded 1.4 per cent lower.

Metal stocks have been under pressure because of falling commodity prices. Aluminium prices are at a 33-month low. Sterlite shares, which have fallen nearly 5 per cent this week, are trading near the 52-week low of Rs 86.10.

Shares in other group firms such as Sesa Goa, which is India's largest producer and exporter of iron ore in the private sector, also traded. Sesa Goa was down 2.2 per cent at Rs 166.50.

Vedanta Aluminum's Lanjigarh refinery is the only profit making asset at ebitda (earnings before interest, tax, depreciation and amortisation) level. The Lanjigarh refinery also supplies alumina to BALCO, a public sector firm that was acquired by Vedanta Resources in 2001.

VAL's losses, currently pegged at Rs 2,300 crore, will widen once the refinery shuts down. That's because VAL will have to incur a fixed cost of Rs 300 core even if it shuts down the refinery. Additionally, the cost of aluminum production will also rise by 14 per cent to $107 per tonne.