INCAL 2007

India's role in the Aluminium World of tomorrow

D.Bhattacharya President, AAI MD, Hindalco Industries Vice Chairman, Novelis

India as a Desired Destination

Emerging Market Growth : 1980 2005

2,700 2,400 2,100 1,800 1,500 1,200 900 600 300 United States Euro Area

PPP adjusted GDP ($ bn)

China

(1980 = 100)
Korea Taiwan India

Japan

1992

1994

1996

1980

1982

1984

1986

1988

1990

1998

2000

2002

2004

Emerging economies amongst the fastest growing

2006

Global growth driven by developing nations

Average GDP Annual Growth 2000-2007
Former USSR Countries
14.7 14.3

Asian Countries
9.5 9.7

6.6 5.4 5.0 5.4

6.7

G7 Countries
2.7 2.8 1.2 3.0 2.0 1.2 1.9

al ay sia In do ne si a Pa U ki ni st te an d Ki ng do U m ni te d St at es G er m an y C an ad a Fr an ce

Source: IMF World Economic Outlook 2006 - GDP Growth (Constant Prices, Local Currency)

World GDP growth to remain ~5% over next 5 years, ~4% to 2030

Ja pa n R us si a Az er ba ija Tu n rk m en is ta Ka n za kh st an

hi na

In di a

It a ly

Phases of economic growth

GDP at Factor Cost
Rs. Bn

20,000

CAGR = 6.9%

15,000

CAGR = 5.5%

10,000
CAGR = 3.4%

CAGR = 4.5%

5,000

19 64 -6 5 19 71 -7 2 19 78 -7 9 19 85 -8 6 19 92 -9 3 19 50 -5 1 19 57 -5 8 20 06 -0 7 19 99 -0 0

India: Accelerating growth over the years

India Reforms: Slow but a steady progress

Industrial licensing systems Distribution Controls

1950 1985
License Raj

Restrictions on Foreign investments

Fiscal controls Financial market Controls Stringent labor laws

Easing of administrative and fiscal controls

Access to global technology Pricing and distribution controls eased in some sectors

1985 1991 Piecemeal Deregulation

Taxes reduced but still higher than global levels

However:
Industrial licensing systems persisted Restrictions on Foreign investments continued
6

India Reforms: Accelerating the pace of reforms

Industrial licensing abolished FDI policy introduced Trade liberalization commenced

1991 1995

Capital Market Reforms, FII investments allowed, access to

global capital permitted, SEBI instituted. Currency convertibility on current account Introduction of CENVAT in lieu of Excise Duty Income Tax rates reduced Privatization of state owned enterprises Equity derivatives introduced Lowering customs duty

1995 2000

2000 2007

Autonomous market regulators TRAI, IRDA, CERC etc.

Introduction of VAT in lieu of State Sales Tax
7

Net Result: Rising savings and investments (both domestic and foreign)
Savings and Investments (As % of GDP)
35% GDS 30% GCF
32% 34%

FDI (US$ bn)

$ 19.5 bn

20

16

25%

12

20%

15%

10%
1970-71 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06

0
1996-97 2004-05 1990-91 1992-93 1998-99 2000-01 2006-07 2002-03 1994-95

100

150

200

250

50
1970-71 1973-74 1976-77 1979-80

Exports

1982-83 1985-86 1988-89

Imports

1991-92 1994-95 1997-98 2000-01 2003-04

Trade volumes (US$ bn)

190.6

2006-07 P

126.3

15%

25%

35%

5%
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Net Result: Rising trade volumes with reducing barriers

29%

Customs collections (As % of Imports)

10%

Net Result: Increasing bank lending with reducing interest rates

Banking Non Food Credit (Rs. Crs)
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 1970-71 1973-74 1976-77 1979-80 1982-83 1985-86 1988-89 1991-92 1994-95 1997-98 2000-01 2003-04 2006-07

Interest rates (10 year G-Sec yield)

14

1882

12.18%
12 10 8 6 4 2 -

7.78%

1999-00

2004-05

1998-99

2000-01

2001-02

2003-04

One of the finest banking systems in the world

2006-07

2002-03

2005-06

10

Significant improvement in social norms

60

(%)

Poverty Rates*

(Per 000 births)

150

Infant mortality rates

146
50
125

40

45.31%

100

30

75

20
19 50 19 60 19 70 19 80 19 90

26%
50

63
19 60 19 70 19 80 19 50 19 90 20 00

75 60

(%)

Literacy rates
64.84

20 00

30% 25% 20%

Urban Population
29%

45 30 15 0

18.33

20%
15% 10%

70

80

90

00

19 50

19 60

19 70

19 80

19 90

20 00

19

19

19

20

_______________________ * Poverty threshold as defined by the Government: Income of Rs.296 per month in Urban areas and Rs.276 per month in Rural areas Source: World Bank Reports

20

05

11

India and China: Can India match the pace of China?

GDP per capita at PPP (US$)
8,000 China India
7204

GDP per capita at PPP (US$) (India with a time lag)

8,000 6,000 4,000
3344

China India

7204

6,000

4,000

3344

2,000

2,000 1985 2000 1980 1990 1995 2005

_____________________ India: 1990-2005 China: 1980-2005

11

16

21

26

No, of Years 12

India: lagging China by 10 years

India and Aluminium

Aluminium: The fastest growing industrial metal in the world

Growth Multiple

10.00 7.50

Aluminium

Copper
5.00

Nickel Zinc Steel Lead Tin

2.50 -

1960

1965

1970

1975

1980

1985

1990

1995

2000

Tin

Lead

Crude Steel

Zinc

Nickel

Copper

2005

Aluminium

_______________________ Source: Australian Commodity Statistics 2005, Barclays Capital

14

World Aluminium - Stronger growth projected till 2015

4.76%
Industrial Metals Growth: 25 years (1980-2005) CAGR

3.0% 2.4% 1.9% 2.1% 1.8% 1.3% 1.2%

Zinc

Copper

Nickel

Crude Steel

Lead

Tin

_______________________ Source: Australian Commodity Statistics 2005, Barclays Capital, Metal Bulletin

Asian consumption growth to drive global demand

2005-2015 Aluminium Demand

Aluminium

15

Indias Position in World Ranking

6th Largest Alumina Producer
Australia

8th Largest Aluminium Producer

China Russia Canada USA

5th Largest Aluminium Consumer

China USA Japan Germany India South Korea Italy

China Brazil USA Jamaica

Australia

India
Brazil

Russia Suriname Venezula Ireland Ukrain Kazakhist an Others 0 5000 10000 15000 20000
0 5000

Norway

CIS
India

Brazil
South Africa Dubai Bahrain Others
10000

Canada France Spain Others

0 5000 10000

16

Leadership in cost and profitability

Amongst low cost producers globally
3000 US$/t

Amongst most profitable in the sector

Aluminium EBITDA Margins (%) Leading Indian Companies Leading International Companies

2500

2000

1500

1000

48

43 34

42 35

500

16

0
Company D Company A Company C Company B Company E

16%

37%

46%

61%

66%

72%

78%

84%

90%

95%

99%

28%

55%

______________________________________________ Source: CRU Aluminium Smelting Costs 2007

(% of World Production)

__________________________________________ Source: Company annual reports

Mainly due to fully integrated upstream operations

Company F

0%

17

Attractiveness of India as a Manufacturing Centre

Aluminium Production Cost structure remains key

Others 11% Carbon 10%

Aluminium production shifting from the west to east

Rising power costs in the west Alumina prices and logistics Sharp rise in labour costs
2006 (33,815 kt)

Alumina, Power & Labour are the main components ~ 80% of total cost
Power 27% Labour 9%

Alumina 43%

Europe
27%

1980 (18,500 kt)

America
23%

Alumina, Power & Labor form 80% of total metal production cost
Bauxite availability key to alumina production Power costs decide new smelter locations

40%

7% 6%

Oceania

Africa
37% 3% 3% 17% 37%

Asia

19

Costs moving up consistently

Overall industry cost curve is moving upward
1800 1600
2500

Breakup of cost 1994 v/s 2006

Liquid Metal Cash Cost ( USD/ Tonne ) Others Repairs & Maintainence Labour Anode

35% -1% 107% 6%

1994 2004

1998 2006

2002 2007
USD/ Tonne

1400 1200 1000 800 600 400

Cash Cost of Production

2000

61%

Power Alumina

1500

1000

200 0
500 % of World Production
1994

80%

Year

2007

The costs moving up by 36% at the lower end of the curve and 42%at the higher end

Total cash cost moved up by 58%

20

India Advantage Bauxite

Proven & Probable Bauxite Reserve (Mn MT)
Australia Guinea Jamaica Brazil China India Guyana Greece Suriname Venezuela Russia

Low Mining and Refining Cost

8700 8600

2500 2500 2300 1400 900 650 600 350

Low mining cost (US$22/t) Low reactive silica leading to low refining cost

250 *Total in situ reserves estimated at 3,076 Mn MT

_____________ Source: AME __________________ Source: Brook Hunt

21

India Advantage Power

Attractive Power Centres
Country Hydel Coal Gas

Coal Reserves
300 250 250 Billion ton

Qatar Oman Saudi Arabia Iran India Indonesia South Africa Algeria Nigeria Cameroon Russia Brazil Venezuela Trinidad Australia Iceland Malaysia

200 160 150 120 100 92 75 45

50

al ia

SA

us si a

In di a

hi na

us tr

India has 4th largest coal reserves; but 22 low calorific value

So ut h

fri

ca

India Advantage Labour

23

Labour Cost 2004-2014E $/hr

2004 2009 2014
7.1 10.2 8.5 9.1 9 14.8 14.4

20.5 18.7 17.5 15.9 15.7 15.9 18.9

11.6

11.2 10.1

0.7 0.9

1.2

0.7 0.9

1.3

0.9 1.1 1.3

India

China

S.E.Asia

Taiwan

Korea

ANZ

Japan

Germany
Source: Alcoa

US

Labour makes up 8% of Production cost - $150/t advantage!!!

23

Scope for major growth in per capita consumption

Kg Per Capita
28.1 20.8 30.5 31.7 32.9 33.8

8.5 4.5 1.3

France

Japan

Italy

China had 1.3 Kg per capita consumption in1990-91

Germany

China

India

Brazil

Canada

USA

24

Change in consumption pattern to accelerate growth

India Picture World

_______________________ Source: World - Barclays & Alcoa India Company Data

Electrical sector still the major aluminium consumer in India

25

Beyond an inflection point on GDP / capita, lifetime value products like Aluminium grow rapidly
India GDP v/s Al cons. Per capita
USDmn Kg per capita

Al cons. growth

800 GDP per capita(LHS) 700 600 500 Per capita Al cons (RHS)

1.4 1.2 1 0.8

CY 03

CY 04

CY 05

CY 06

4 Year Growth

World China India

8% 20% 20%

9% 17% 14%

5% 18% 32%

7% 21% 6.7%

34% 101% 93.7%

400 0.6 300 200 100 0 0.4 0.2 0

2003-2006 CAGR China : 26 % India : 24 %

2001

2002

1990

1995

2000

2003

2004

2005

2006

India seems to have crossed this inflection point

26

By 2030, Aluminium consumption growth will be driven by China & India.

2005
World demand-31.9 Mn tonnes China
22% 5% 23%

2030
World demand-73.7 Mn tonnes
6% 14%

China
India
3% 8% 4% 5% 22%
35%

13%

4% 5%

India
8%
EU/EEA India Japan China

5% 8% 10%
Latin America

North America SE Asia

Source: CRU June07

CIS & Other Europe Others

Aluminium demand in India to grow more than 5 fold by 2030

27

India Most viable option

Country Energy Alumina Labour Skilled & Low Cost Market Country Risk

Qatar, Oman, Iran Saudi Arabia India China South Africa Algeria Cameroon Russia Brazil Venezuela Trinidad Australia Iceland Malaysia Guinea Ghana Suriname Vietnam Indonesia Jamaica

28

Huge potential in key end user segments

Passenger Car Sales (000 nos)
1 ,0 7 6 1 ,5 0 0

Power Capacity Addition (Million MW)

67.7

509

26.6 16.7 19.2

2 0 0 1 -0 2

2 0 0 6 -0 7

2 0 0 9 -1 0

1992-97

1997-02

2002-07

2007-12

Two wheeler Sales (000 nos)

10900 7858 4204

80 60 40 20 0

Infrastructure Spending ($ bn)

FY 01-05 FY 06-10

2001-02

2006-07

2009-10

Power

Road/Port/ Rail/Airport

Telecom
29

Consumption Pattern require additional downstream capabilities

2006
rs 5% Othe
Rolled 34%

1 0%

Wi r eR

Rolled 17% Extrusions 14% Wire Rod 42%

od
Castings 27%

Extrusions 24%

Castings 27%

World Total Consumption 47.3 mt

India Total Consumption 1.315 mt Includes Recycled metal

58% of the Worlds consumption is in Rolled Products/Extrusions Downstream capability therefore necessary for a country to create/service
30

Market driving downstream opportunities

Railway Wagons

Two Wheeler
Aerospace

Cans
Buses /Trucks/Cars/ 2-wheelers Premium / Branded Windows

Market Driving efforts being carried out by focused players

31

The Aluminium Industrys role in India

The Aluminium Industrys role in India

India can logically position itself as a Primary Producer, Consumer and Exporter of ALL FORMS OF ALUMINIUM. How ever

Downstream, also will play a crucial role to grow markets & for employment creation

The Primary Producer position alone would under-leverage Indias natural advantages.

33

Job Creation Potential

2006 Million Tons 1.1 2015 5

Employment in Million Upstream (Primary and Semi Fabrication) Downstream (including end uses)

0.18

0.8

2.2

10.0

Assumptions:
Upstream 20 employees per ton Includes direct + Indirect Downstream : Value addition & Labour cost considered

Aluminium, particularly downstream can be a major employment generator. Chinese policy recognises this. This Value & Job-creating industry needs continuing support from the Government of India.
34

Aluminium Industry A Major Contributor

Possible Industry investments around Rs 1,000 bn (US$25bn) - starting from last year & for the next 5 years

Job creation potential 10 Million people

A major contributor to the Indian Economy

35

A Significant World Player

At 5mn TPA the Indian aluminium industry will be amongst the top three in the world

36

.. And can help transform India

Let us all work towards this transformation

37

Thank You