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STERLITE INDUSTRIES
Vedanta Resources Holdings, currently has an economic interest of 51 per cent. KCM is an integrated copper producer operating three mines, a smelter and a leaching plant in Zambia.
During 2001, Sterlite took a 26 per cent stake in Hindustan Zinc Ltd (HZL) from Government of India at a price of US$ 96 million.The acquisition was made through Sterlite Opportunities and Ventures Limited, a new wholly-owned subsidiary and a special purpose vehicle set up for the purpose of acquiring HZL. Sterlite's stake was later raised to 64.9 per cent. HZL is India's only
integrated zinc producer. Its operations include three zinc-lead mines, three smelters in north-west India and one smelter in south-east India.
The company's aluminium operations are carried out through BALCO, in which Sterlite had acquired Sterlite is a leading producer of non-ferrous metals
in India.
Background
Sterlite Industries (India) Limited (Sterlite) is the flagship company of Vedanta Resources Plc (Vedanta) and is a major global player in the non- ferrous metals business.Vedanta is listed on the LSE and is a FTSE 100 metals and mining company with a market capitalisation of over US$ 7.5 billion.
Sterlite has a strong presence in the Indian copper market and is also present in the aluminium and zinc sectors. It is one of the two leading domestic copper producers in India. Its copper operations include a smelter, refinery, phosphoric acid plant and copper rod plant at Tuticorin in Tamil Nadu, a refinery and copper rod plant at Silvassa in Dadar
& Nagar Haveli and one copper mine in Australia.
This mine currently contributes approximately 10-12 per cent of Sterlite’s copper concentrate requirements.Tuticorin being a port city is logistically well positioned for imports of copper concentrate and export of finished copper while Silvassa, an industrial hub caters to the industrial segment. Konkola Copper Mines (KCM), the largest copper producer in Zambia, is a subsidiary of Vedanta Resources in which the Group, through
Company Products Established Founder Distribution Production plants
Sterlite Non ferrous 1975 Anil Agarwal India, Americas, India
Industries metals Europe, Middle East,
Asia Pacific, Africa
135 cast copper rods find application in finished
manufactured goods like jelly-filled telephone cables, magnetic wires and winding wires, power cables, automobile wire harness, communication cables, house wiring, conductors (rounds and flats) and transformers.
The company also produces power transmission line aluminium conductors, zinc and lead as well as chemicals like sulphuric acid, phosphoric acid, phospho gypsum, hydro fluo silicic acid and granulated slag.
Financial analysis
Sales of Sterlite witnessed a 12 per cent CAGR between 1999 and 2005, with gross sales reaching US$ 946 million in 2005, a quantum jump from its level in the previous year.This was driven mainly by the strong rise in metal prices across the globe as well as a rise in exports. Exports grew at an impressive CAGR of 70 per cent between 1999 and 2005. Net profit stood at US$ 50 million in a 51 per cent from the Government of India for a
consideration of US$ 118.5 million in March 2001.
BALCO is a fully integrated producer with its own bauxite mines, a captive power plant and aluminium refining, smelting and fabrication facilities.
Vedanta holds the majority stake in the company (76 per cent of the equity stake).The next largest shareholders are insurance companies, mutual funds, domestic financial institutions and banks (5.1 per cent equity stake) and foreign institutional investors (5.1 per cent stake). Indian public,
corporate bodies and non-resident Indians hold the remaining stake.
Products
Sterlite's main products are copper cathodes and continuous cast copper rods.The copper cathodes find application in copper wire bars, bus bars, billets, ingots, moulds and other semis; as well as in copper based alloys and downstream products such as copper tubes, strips and foils.The continuous
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Limited (TCM).These acquisitions helped Sterlite to largely mitigate raw material risks through assured availability of copper concentrate.
Sterlite has also signed a long-term supply agreements with copper mines whch will feed its smelter requirements. Besides its international acquisitions, Sterlite has been keen in turning around the erstwhile public sector companies bought earlier to global competencies. For this it set out to invest capital for their turn-around and expansion plans. In December 2003, a distinctive Indian identity (read Vedanta Resources) was successfully listed on the LSE after raising US$ 825 million through an initial public offering (IPO).This was the first primary listing by an Indian company on the LSE and the second largest on the LSE in that year.Vedanta subsequently raised a further US$ 600 million through a global dollar bond issue in December 2004. In January 2006 it raised another US$ 725 million by issue of convertibles.
Sterlite's success in accessing and tapping global financial markets has paved the way for the company (and the Group) to position itself as a major player in the global non-ferrous metal space through massive expansions in the future.
Factors fuelling Sterlite's global initiatives
An analysis of strategies adopted by the company (i.e., the Group) in accessing global financial markets reveals the following reasons for success:
• Tactful timing of the listing by Sterlite who sensed an upswing in the metals' market mainly driven by increased demand from China
• Correctly choosing LSE as the vehicle for
accessing global finance - London is a hub for the global mines and metal industry
• Successfully leveraging India's global investor friendly image in sectors such as IT, Pharma and BPO
2005, a net margin of 5.3 per cent on turnover a slight slide from a high of 7.9 percent recorded in 1999.The fall in profitability was mainly on account of the impairment of assets, foreign exchange loss and write off of advances to subsidiary company.
Sterlite has achieved impressive cost reduction in copper. Copper conversion cost per tonne has been reduced from US cents 7.8 per pound in 2004 to US cents 6.1 per pound in 2006. Even in
production of zinc, HZL’s new facilities would assist in reducing unit costs to US$ 500 per tonne from the current cash production cost of US$ 700 per tonne. BALCO is also expected to derive significant economies of scale in its aluminium business as it expands from a relatively smaller capacity of 0.1 million tonnes to 0.35 million tonnes.
Capital infusion through a rights issue from the group and repayment of high cost debt has reduced Sterlite's gearing from 1.68 in 2004 to 0.68 in 2005.
The Vedanta Group raised resources of over US$ 2 billion overseas via equity and debt, part of which was invested in Sterlite.
Sterlite's contribution in making “Made in India” global
Sterlite (and by extension Vedanta) has in the recent past placed India on the world map of metals and mining through focused acquisitions and increasing emphasis on exports. Contribution of exports to total revenue grew from only 3.3 per cent in 1999 to more than 40 per cent in 2005.
As a first step in its quest to go global, Sterlite had acquired copper mines in Tasmania and Thalanga in Australia through a buy-out of their holding company Monte Cello Corporation B.V., Netherlands.The mines were owned by Monte Cello's wholly owned subsidiaries Tasmania Pty Limited (CMT) and Thalanga Copper Mines Pty
137 is further planned to expand to 570,000 tonnes by
2008.
Vedanta is setting up a 1-1.4 million tonne alumina refinery at a cost of US$ 800 million at Lanjigarh in the state of Orissa, which is estimated to be commissioned by 2007. It is also setting up a 0.5 million tonnes per annum greenfield aluminium smelter at Jharsuguda in Orissa at an estimated cost of US$ 2.1 billion, which is estimated to be commissioned in two phases in mid 2009 and late 2010.This project also includes a 1,215 mega watts captive power plant. After the completion of these projects, the company will be the fifth largest producer of refined copper, third largest producers of integrated zinc and among the top 10 producers of aluminium in the world.
• Track record of the company in running profitable operations in India and abroad in related lines of business
• Track record in setting up world class facilities in record time and below international benchmarks
Simultaneously, the company brought in
professional acumen for any future acquisitions, restructuring and consolidations by hiring
appropriate human resources.The company and its subsidiaries also embarked on streamlining internal systems and processes and improving its HR practices.
Reducing costs aggressively as well as more focus on global markets has resulted in Sterlite's exports as percentage of sale steadily increasing every year.
Sterlite exports to many countries including China, Korea,Thailand, Singapore,Taiwan and Saudi Arabia.
Future plans
Sterlite is expanding its existing aluminium production capacity under BALCO to 350,000 tonnes a year from 100,000 tonnes. It has also expanded its copper capacity to 300,000 tonnes from 180,000 tonnes in 2005 and is further planned to expand to 400,000 tonnes in 2007. Zinc capacity has been expanded to 400,000 tonnes in 2005 from 230,000 tonnes at the time of acquisition and
Globalisation at a glance
• Contribution of exports to total revenues more than 40 per cent
• Acquired two copper mines in Australia as part of its backward integration plans
• First Indian company to raise an IPO on the LSE
www.sterlite-industries.com