ANALYSIS OF

Submitted by Deeshesh Chheda (9869121416)

INDEX Sr No 1 2 3 4 5 6 7 8 9 10 Topic Overview Global Scenario Indian Scenario Duties & Taxes Pricing Trend In India Demand & Supply Scenario End User Industries Players In India Comparative Study Sterlite Industries Ltd.
Company Background Plant and its Applications Chairmans Speech Trend In Capacity Generation Trend In Capacity Utilization Trend in Total Energy Consumption Trend in Raw Material Ratio Analysis Future Plans

Pg No 3 4 5 7 7 8 9 10 10 11

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Future Outlook of the Copper Industry

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OVERVIEW
While the metal sector covers a large domain consisting of a variety of metals, this report focuses only on Copper. The name copper is derived from the Greek word chalkos. It is also related to the Greek mythology as it is said that it was associated with the goddess Venus. Copper is an element, reddish brown in color, having atomic number 29 and pertaining to the scientific symbol Cu. Coming from the same family of silver and gold, this element shares numerous common characteristics with those precious metals. This element is a highly ductile and malleable element and a very good conductor of electricity. It occurs in various minerals on earth and it also forms the part of a lot of alloys. Copper also has characteristics that it is a creep and corrosion free metal and all of its so very useful features make it an element on which the worlds economy directly depends. Copper is a very important element and the oldest known commodity in the world that directly affects the worlds economy. It stands at the third place in context of the world consumption after steel and aluminum. It is largely used in electrical appliances, as it is the cheapest metal, which is a good conductor of electricity. It is also considered safe as a raw material in wire making. Alloys of copper like bronze, brass, monel and speculum metal are also very popular and are extensively used throughout the world. It is also flexible, strong, durable and resistant to corrosion. As such it has been key to many of man's technological advances, the two biggest being telegraphic communications and electricity. But it is also widely used for heating, air conditioning, plumbing, roofing, brass fittings and for so much of the electrical environment we now take for granted: TV, radio, lighting, computers, mobile phones etc. all require copper wiring, electrical leads, adapters, transformers and motors. Various copper compounds and chemicals are also used to protect plants and crops and to preserve wood. Copper is believed to have been mined for over 5,000 years. It is the first mineral man extracted from the earth to make utensils, weapons and tools and since the early days it has become invaluable. It occasionally occurs natively, and is found in many minerals such as cuprite, malachite, azurite chalcopyrite, and bornite. Copper is amongst the largest consumed metal in the world. Until the mid-50s copper consumption kept in pace with the production. Since then, the global copper consumption has steadily outgrown the production and consumption patterns shifted towards the rapidly developing Asian countries.

GLOBAL SCENARIO
Global economy coming out of recession is seen lending impetus to metals demand currently. While the US and the European economies are still reeling under pressure, Asian economy has been doing well. No doubting fact that US and European economies, being industrial economies, are the largest copper consumer. However, the strengthening of Asian economy led by China and other Asian countries, the region has emerged as biggest consumer due to growing industrialization and population growth. Chinas economy has been growing at a phenomenal rate and the country is consuming everything from scrap to concentrate to cathode to feed its rapidly building downstream industry. China's copper industry continues to astonish, with consumption rising by 15% in 2004. It is expected to grow 10% per year for the rest of this decade. China now accounts for 20% of world consumption of copper sheet and strip, and usage in cable, wire, tube and pipe. Copper is considered to be a native of America. Large copper ore deposits are found in the US, Chile, Peru, and Canada apart from African countries such as Zambia, Zaire. Major copper producing countries are Chile (24% of the global mine production) and the United States (19%). The major copper exporting nations include Chile, Indonesia, Canada, Australia, etc. Global Demand & Supply for Copper (000 tons) Consumption (%) Production (%) Balance 2000 14979 14605 -374 2001 14443 -3.6 15435 5.7 992 2002 14981 3.7 15075 -2.3 94 2003 15472 3.3 15102 0.2 -370 2004 16478 6.5 15884 5.2 -594

Copper demand is closely linked to industrial growth in the economy. As we have observed, faster industrialization in the early 20th century led to shift in usage of copper from making cookware to utilizing for industrial purpose. Hence, the demand for copper jumped substantially. It so happened that, at times, the demand for copper outstripped supply. In 2003 the world copper consumption grew 3.3% to 155 mn tons whereas the supply was 151 mn tons. This created shortfall in copper of 3.7 mn tons. Hence, scrap became an important source of copper. Of the world copper needs about 20% is met through secondary sources i.e. metals recovered from old used consumer products.

INDIAN SCENARIO
PORTERS MODEL

Threat of Substitutes: Medium to High Copper faces competition from other metals like Aluminium and also experiences shifts in market preferences due to drastic changes in technology (e.g. Fixed line to wireless).

Bargaining Power of Supplier High with respect to Secondary producers who do not have captive mines. Low with respect to Primary producers who have captive mines. Inter Firm Rivalry Low: Medium Existence of just 3 major players limits market competition. However, declining domestic market enhances competition level.

Bargaining Power of Buyer Low: Medium Fragmented nature of the buyer industry results in limited bargaining power of buyer. However, drastic technological changes is affecting behavior of key buyer i.e. Telecom segment.

Barriers to Entry: High

Capital cost and ownership of copper mines are key entry barriers.

India does not provide a big market for copper. Due to shortage of copper mines and a low percentage of productivity of copper in the mines, India suffers a loss in the level of production and it has to completely depend on the copper ore imports. Also, not many companies are indulged in the refining and extraction of copper from its alloys and ores. India produces copper from the imported copper ore that accounts to around 6 lakh tons of production. This production level contributes to a mere 4% share in the total copper production in the world. Indian market is divided into two parts i.e. primary and secondary. Primary segment comprises of the producers that convert copper ore into refined copper. Three companies namely Hindustan Copper Ltd, Hindalco and Sterlite 5

Industries constitute this primary segment. Secondary segment comprises the producers that manufacture value added products made from copper like wires, foil etc. Governments increasing thrust on infrastructure development, which includes development of power sector, and pick up in industrial activity is likely to help generate demand for copper lately. In fact, the domestic mineral production recorded a 3.3% growth in June 2004 as compared to that of the corresponding month of previous year. Indias industrial activity continues to report stronger growth during the last four quarters. As a result, leading copper manufacturers such as Hindustan Copper, Hindalco, Sterlite Industries have witnessed increase in production. Hindalco and Sterlite Industries have evinced interest in overseas acquisition in order to meet growing demand. The Major producers account for a share of approximately 80% of the total copper consumption in the country. The balance is on account of imports and sales of smaller producers.

India's copper ore reserves are estimated at 1690 million tones containing about 15 million tones of copper metal averaging less than 1% copper. On the other hand, the world average is 1.5%. Most of Indias copper ore reserves (distributed over 35 deposits) are mainly in states of Bihar (1.38% Cu) and Madhya Pradesh (1.42% Cu). Due to the rise in the production of the three major players in the Indian market, the country is now emerging as a net exporter. The production of copper has significantly during the last few years have enabled India not only to satisfy its own domestic demand but also export refined copper in small quantities. Trends in Market Shares of Copper & Copper Products (in %) Company Sterlite Industries Others 1999-00 24.77 75.23 2000-01 24.04 75.96 2001-02 37.68 62.32 2002-03 29.77 70.23 2003-04 28.67 71.33 2004-05 28.71 71.29

DUTIES & LEVIES ON COPPER

Budget 2006-07 The customs duty on copper has been reduced to 7.5% from 10% while a 4% special countervailing (CV) duty has been imposed. The impact on margins of the CV duty stands neutralized as credit for the duty can be taken against the payment of excise duties. The net impact of reduction in basic customs duty will thus prevail on the products import parity pries. The impact of the customs duty cut on the copper margins has largely been neutralized due to the reduction in customs duty on copper concentrates.

PRICING TRENDS IN INDIA

Year 2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05 2005 - 06 Cop.wire rod (Rs/ton) 137,987 133,098 130,454 130,000 177,929 207,982 PRISING TREND - COPPER
250,000 200,000 (Rs/ton) 150,000 100,000 50,000 0 2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05 2005 - 06 YEAR Cop.wire rod (Rs/ton)

% yoy (3.5) (2.0) 0 36.9 16.9

DEMAND SUPPLY SCENARIO

Global Economic, technological and societal factors influence the supply and demand of copper. As society's need for copper increases, new mines and plants are introduced and existing ones expanded. The global production of refined copper is around 15 million tons (2004). Land-based resources are estimated at 1.6 billion tons of copper, and resources in deepsea nodules are estimated at 0.7 billion tons. The major copper-consuming nations are Western Europe (28.5%) & the United States (19.1%). Copper and copper alloy scrap composes a significant share of the world's supply. The largest international sources for scrap are the United States and Europe. Chile, Indonesia, Canada and Australia are the major exporters and Japan, Spain, China, Germany and Philippines are the major importers. Domestic The domestic market is in a Surplus position. As against a capacity of 4,77,500 tonnes, the domestic market size is just around 2,90,000 tonnes. The demand supply balance is expected to deteriorate further, as with the current expansion projects, the installed capacity for copper cathodes is expected to increase to 8,47,500 tonnes. However, the surplus position in the domestic market is not major concern for the Indian players because the Asian region has a deficit of around 2.6 mn. tonnes. India is emerging as net exporter of copper from the status of net importer on account of rise in production by three companies. Statistics of Copper & Copper Products Export Quantity Export Rs. Crore Value Import 000 Quantity tonnes Import Rs. Crore Value (Source: CIME) Units 000 tonnes 2000-01 62.8 749.2 133.2 1057.6 2001-02 92.9 995.5 170.7 1235.9 2002-03 449.7 1884.9 140.9 1043.1 2003-04 241.3 2624.2 179.8 1514 2004-05 284.9 4167.2 201.1 2309.8

END USER INDUSTRY

Copper is a special metal for industrial applications owing to its properties such as electrical conductivity, corrosion resistance, ductility, malleability and rigidity. Specific applications of copper include power cables and wires, jelly filled cables, building wires, air conditioning and refrigeration tubings also in telecom, power, construction, transportation, handicrafts, engineering, consumer durable, defence. The break down of copper by use is as follows; Copper Consumption Pattern in India Sector Electrical Electronics & Telecom Transport Consumer Durables Building & Construction Others Applications Motors, Pumps, Generators, Transformers, Switchgears, power and control cables Telecom, Cables, Telephone wires, Electronics Auto-electrical, Railway, Electrification, Electric Locomotives, etc Fans, washing machine, batteries, bulbs, wiring, etc Housing Wiring, pipes, etc General Engineering., Process Industries Defense, Mints, handicrafts % share 30 22 8 6 9 25

PLAYERS IN INDIA

Hindustan Copper Ltd. Sterlite Hindalco

Among these three companies, Hindustan Copper ltd forms part of the Indian public sector, while the other two belongs to the private sector.

COMPARATIVE STUDY
1) Capacity Generation Production and Utilization (2004-2005) STERLITE INDUSRIES LTD. Item Copper cathodes Cast copper rods Units THTPA THTPA Installed 165.0 196.0 Production 178.7 122.7 Utilization % 108.3 62.6

2) Employee(As on 31-3-2005) Company Sterlite Industries Ltd. Employees (Nos.) 1672 Employee Cost (Rs.crore) 44.30 Avg. Wages/ Employee (Rs.) 264952

COMPANY PROFILE
STERLITE INDUSTRIES (INDIA) LTD.

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Company Background: Sterlite Industries (India) Ltd (SIIL) is a leading producer of copper in India. (SIIL) is the principal subsidiary of the Vedanta Resources Group. SIIL pioneered the manufacturing of Continuous Cast Copper Rods in India and established India's largest Copper Smelting and Refining Plant for production of world class refined copper. SIILs main products, Copper Cathodes and Copper Rods meet global quality benchmarks. Products & Its Applications: A] Copper Cathodes Applications Continuous Cast Copper Rods Copper Wire Bars, Bus bars, Billets, Ingots, Moulds and Other semis Copper based alloys and downstream products Copper tubes, strips and foils

B] Continuous Cast Copper Rods Applications Jelly Filled Telephone Cables Magnetic wires & Winding wires Power Cables Automobile Wire Harness Communication Cables House wiring Conductors (Rounds and Flats) Transformer

Chairmans Statement The year 2004-05 witnessed an exceptional period for the metal pricing driven by the strong demand from China. India too has been moving up in the global scene. India has been ranked as the 10th largest economy and growing at over 6 % annually with a strong macro economic outlook, positive investment climate, continual investment support by foreign investors, the growth momentum is expected to be maintained. The companys turnover registered a healthy growth of 30%, while the gross profit remained stabled in spite of the shortfall in production due to planned plant shutdown, after a campaign period of 24 months and successive reduction in tariff structure.

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The success in all areas of our strategy over the past year has been encouraging and in the next twelve months we will see progressive benefit from the recently commissioned facilities at Chanderiya and Tuticorin.

Trend in Capacity Generation (in tonnes) Product/s manufactured/traded Aac/Acsr Conductors Aluminium Cold Rolled Products Continuous Cast Copper Rods Copper Cathodes Jelly Filled Telephone Cables (lakh mtrs) Optical Fibre (metres) Optical Fibre Cables (fibre kms) Phosphoric Acid Sulphuric Acid Trend in Capacity Utilization (in %) Product/s manufactured/traded Aac/Acsr Conductors Continuous Cast Copper Rods Copper Cathodes Phosphoric Acid Sulphuric Acid 2003 71.85 48.54 94.36 87.5 110.83 2004 68.33 62.61 108.27 94.09 124.53 2005 68.53 63.98 104.24 58.28 52.06 2003 33000 20000 196000 165000 70000 1000000 420000 125000 435000 2004 59580 20000 196000 165000 70000 1000000 420000 125000 435000 2005 73000 20000 196000 165000

180000 1050000

Trend of Total Energy Consumption in Value (in Rs. Crore) Energy Type Diesel Electricity (Purchased) Furnace Oil Liquefied Petroleum Gas 2003 0.71 27.8 18.22 13.91 2004 1.28 33.23 22.54 41.59 2005 1.59 30.2 18.99 20.38

Trend in Raw Material Qty & Rate (Quantity in tonnes & value in Rs. Crore) Product/s Qty
Aluminium Copper Cathodes 14894

2003 Amt
117.55

Qty
31465

2004 Amt
245.94

Qty
38752

2005 Amt
350.34

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Copper Concentrate Rock Phosphate

524917 360853

1226.49 93.94

599792 386785

1897.88 139.73

597927 347602

2690.91 105.53

Key Ratios 2004 PER SHARE RATIOS EPS (Rs.) Dividend Per Share PROFITABILITY RATIOS Gross Profit Margin (%) Net Profit Margin (%) LEVERAGE RATIOS Total Debt/Equity Owners fund as % of total Source Fixed Assets Turnover Ratio LIQUIDITY RATIOS Current Ratio Quick Ratio Inventory Turnover Ratio PAYOUT RATIOS Dividend payout Ratio (Net Profit) TURNOVER RATIO Return on Capital Employed (%) 14.84 3.00 2005 10.16 3.00

6.87 6.38

2.94 2.61

1.72 36.81 1.44

0.69 59.10 1.74

1.36 0.99 9.36

2.37 1.72 7.77

12.32

35.38

Analysis: The EPS (Earning per share) decreased considerably due to decline in gross profit, which is the result of declining sales, and increase in import cost. This has also affected the net profit margin. The gross profit margin in almost same whereas the net profit margin has been increased. The companys dividend per share has also shown on the rise. The current and quick ratios have increased considerably by about 100% and are in favorable condition.

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Future Plans The Company has commissioned the expanded capacity made to the Companys Tuticorin plant in the State of Tamil Nadu and additional smelting line has increased capacity of copper cathodes to 3,00,000 tpa. An increase of existing infrastructure also accompanied the increased smelter capacity. A new 22.5 MW power plant is built to provide power for the new smelter along with a 10 MW plant generating power from waste heat capture. In addition a new phosphoric acid plant and refinery is also constructed. The new refinery is built along the same lines as the Silvassa operation and will accommodate in excess of 1,25,000 tpa of anode. The inclusion of a refinery at the Tuticorin site is a beneficial step in the integration of the copper operation as it will greatly reduce the freight cost and increase returns from the new project.

Future Outlook of the Copper Industry

Copper is a key sector impacting the Indian economy. Copper has a number of applications across several sectors such as telecom, power, construction, transportation, handicrafts, engineering, and consumer durables. The performance of the copper industry is highly dependent on the performance of and demand for products like power and telecommunication cables, transformers, generators, radiators and other ancillary components. Hence, its growth is closely linked to the countrys economic and industrial growth. India has been growing at a steady and sustained compounded average growth rate of 5.6 per cent for the past 20 years. This is expected to improve further to a level of around 8 per cent in the future. The outlook for the copper industry in India is therefore positive.

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