Ideally positioned to capitalise on India’s growth and resource potential
We believe that our experience operating and expanding our business in India will allow us to capitalise on attractive growth opportunities arising from factors including:
- India’s large mineral reserves. According to the IBM 2005, the total copper ore, lead-zinc ore, bauxite and iron ore resources of India are estimated at 1.4 billion tonnes, 0.6 billion tonnes, 3.3 billion tonnes and 25.2 billion tonnes, respectively. According to the Geological Survey of India 2008, the total coal resources of India are 264.5 billion tonnes as of 1 April 2008. According to CRISIL Research, India’s bauxite reserves are the fifth largest in the world with total recoverable reserves estimated at 2,600 million tonnes, and according to the Energy Information Administration, a statistical agency of the United States government, India has the fourth largest coal reserves in the world as of 2007. In addition, according to Indian Steel Alliance, India has the sixth largest iron ore reserves in the world.
- India’s economic growth and proximity to other growing economies. India is one of the fastest growing large economies in the world with a 9.6% increase in real GDP from fiscal 2006 to 2007 and a 9.0% increase in real GDP from fiscal 2007 to 2008, according to the Central Statistical Organisation Ministry of Statistics and Programme Implementation. This growth has been driven primarily by significant increases in industrial production and investments in infrastructure. We believe that our focus on the metals and power segments will allow us to directly benefit from this growth. In addition, India is strategically located close to other growing economies in China, Southeast Asia and the Middle East.
- India’s large and inexpensive labour and talent pools. India has, compared to other industrialised nations, low labour costs and a large and skilled labour pool, including many well-educated professionals.
According to Brook Hunt, the demand for copper, zinc and aluminium in India is expected to grow from 458,000 tonnes, 428,000 tonnes and 1.1 million tonnes in 2006 to 982,000 tonnes, 824,000 tonnes and 2.5 million tonnes in 2015, representing CAGR of 8.8%, 7.5% and 9.6%, respectively. According to CRU, demand for iron ore in India is expected to grow from 71.2 million tonnes in 2007 to 129.0 million tonnes in 2012, representing a CAGR of 11.4%.
Entrepreneurial management team with outstanding track record
Our senior management has significant experience in all aspects of our business and has transformed Vedanta into a leading metals and mining company that is listed on the LSE and included in the FTSE 100 Index. Mr. Anil Agarwal, our founder, remains involved in overseeing our business as our Executive Chairman. Our experienced and focused management and dedicated project execution teams have a proven track record of:
- successfully implementing capital-intensive projects to increase our production capacities:
- increasing the lead metal capacity of HZL’s lead-zinc smelter at Chanderiya from 35,000 tpa to 85,000 tpa in February 2006;
- increasing the copper anode capacity of Sterlite’s Tuticorin copper smelter from 180,000 tpa to 300,000 tpa in 2005 and then to 400,000 tpa in November 2006;
- completing brownfield expansions with the addition of HZL’s two hydrometallurgical zinc smelters with 170,000 tpa capacity each, together with coal-based captive power plants of 154 MW and 80 MW at Chanderiya in the State of Rajasthan in May 2005 and December 2007, respectively. The capacities of both smelters were increased to 210,000 tpa through de-bottlenecking in April 2008;
- increasing the capacity of the Rampura Agucha lead-zinc mine and processing plant from 2.4 mtpa to 5.0 mtpa of ore to supply the brownfield zinc smelter expansion at Chanderiya in the State of Rajasthan between 2003 and 2008; and
- expanding the Korba facility by adding a 245,000 tpa aluminium smelter to bring the total installed capacity to 345,000 tpa of aluminium in November 2006;
- selecting attractive acquisition opportunities and successfully improving the operations and profitability of acquired businesses:
- on 5 November 2004, we acquired a 51.0% ownership interest in KCM through our wholly-owned subsidiary, VRHL, and on 9 April 2008, we acquired an additional 28.4% ownership interest in KCM following the exercise of our call option, increasing the Group’s ownership interest to 79.4%; and
- on 23 April 2007, we acquired a 51.0% ownership interest in Sesa Goa through our acquisition of Finsider International Company Limited (“Finco”) and further acquired a 0.2% ownership interest in Sesa Goa through an open offer in September 2007, increasing the Group’s ownership interest to 51.2%.
We utilise project monitoring and assurance systems to facilitate timely execution of our projects. In addition, we have established relationships with leading domestic and international vendors that support our expansion projects. Since the UK listing of Vedanta, we have spent $4,476.8 million through fiscal 2008 on our expansion projects in our copper, zinc, aluminium and commercial power generation businesses.
We acquired our zinc business through our acquisition of HZL and our main aluminium business through our acquisition of BALCO. In both instances, we have been successful at increasing production levels from the existing assets by improving operational efficiencies, lowering the costs of production by commissioning captive power plants and growing the businesses through capacity expansions, specifically:
- increasing HZL’s production from 172,140 tonnes of zinc ingots and 214,447 tonnes of zinc mined metal content when we acquired HZL in 2002 to 218,862 tonnes of zinc ingots and 551,295 tonnes of zinc mined metal content in fiscal 2008, representing an increase of 27.1% and 157.1%, respectively, by increasing the production of HZL’s original two hydrometallurgical zinc smelters, one lead-zinc smelter and three lead-zinc mines; and
- increasing the production of BALCO’s original aluminium smelter from 89,164 tpa when we acquired management control of BALCO in 2001 to 109,279 tpa in fiscal 2008, representing an increase of 22.6%.
Ability and capacity to finance world-class projects through strong cash flow and prudent financial policies
We have generated strong cash flows in recent years due to our substantial volume growth, robust commodity prices and our cost reduction measures as illustrated by our improved cash flow from operating activities of $2,232.9 million in fiscal 2008 compared with $632.2 million in fiscal 2006. Moreover, we have a strong balance sheet which will enable us to finance future expansion projects.
We believe that holding substantial cash and current assets and maintaining low leverage are important for providing sufficient liquidity and meeting the cash outflow requirements of our capacity expansion projects.