Sterlite Industries (India) Limited - Sterlite Industries India Ltd.

Zinc
Net sales in the zinc segment decreased from Rs. 78,222 million in fiscal 2008 to Rs. 55,724 million ($1,095.4 million) in fiscal 2009, a
decrease of Rs. 22,498 million, or 28.8%. This decrease was primarily due to a 47.8 % decrease in the daily average zinc LME price in fiscal
2009 as compared to fiscal 2008, partially offset by an increase in sales volume enabled by increased production, higher by-product realization
and a depreciation of the Indian Rupee against the US dollar by 14.1% between fiscal 2008 and 2009. Specifically:
• Zinc ingot production increased from 426,323 tons in fiscal 2008 to 551,724 tons in fiscal 2009, an increase of 29.4%, as a result of
increased production from HZL’s second 210,000 tpa hydrometallurgical zinc smelter at Chanderiya that was commissioned in
December 2007. The second hydrometallurgical zinc smelter at Chanderiya produced 103,980 tons of zinc ingots in fiscal 2009 as
compared to 42,071 tons in fiscal 2008 as production from the smelter was ramped up. Zinc ingot sales increased from 425,531 tons in
fiscal 2008 to 552,328 tons in fiscal 2009, an increase of 29.8%, enabled by the higher production.
• Zinc ingot sales in the domestic market decreased from 337,672 tons in fiscal 2008 to 331,704 tons in fiscal 2009, a decrease of 1.8%,
primarily due to a significant decrease in the production and sales of galvanized plain and corrugated sheets. There was a net decrease
of 9.9% in production and 6.7% in sales in galvanized iron in fiscal 2009 as compared to fiscal 2008. The color coated industry’s
performance decreased 24% in fiscal 2009 as compared to fiscal 2008. Indian galvanized plain and corrugated sheets exports to the
United States and Europe accounted for approximately 60% of total Indian galvanized plain and corrugated sheets exports. As a result
of the global economic downturn, the automobile, housing and consumer durables sectors in Europe and the United States were
severely affected and the export oriented demand of Indian galvanized plain and corrugated sheets was reduced substantially, resulting
in a fall of galvanized plain and corrugated sheet production and, as a result, a reduction in the demand for zinc. Our domestic sales as
a percentage of total sales decreased from 79.4% in fiscal 2008 to 60.1% in fiscal 2009 as the demand in the domestic market
decreased. Export sales increased from 87,860 tons of zinc in fiscal 2008 to 220,627 tons of zinc in fiscal 2009, an increase of 151%,
as a result of the reduction in domestic demand which left more zinc available for export. The zinc markets in the Middle East, South
East Asia and Far East Asia were also further developed. HZL’s LME registration also increased the marketability of our zinc
products.
• The daily average zinc cash settlement price on the LME decreased from $2,992 per ton in fiscal 2008 to $1,563 per ton in fiscal 2009,
a decrease of 47.8%.
• We also sold surplus zinc concentrate of 231,797 dmt in fiscal 2008 and 76,261 dmt in fiscal 2009 to third parties, a decrease of
67.1%. The decrease was due to increased internal consumption of zinc concentrate with the commissioning of our second
hydrometallurgical zinc smelter at Chanderiya in December 2007. We sold surplus lead concentrate of 65,418 dmt in fiscal 2008 and
56,487 dmt in fiscal 2009 to third parties, a decrease of 13.7%, due to the improved production of lead through ISP TM at the
pyrometallurgical smelter which involved higher consumption of lead to produce metal with a higher concentration of lead in fiscal
2009.
• Lead ingot production increased from 58,247 tons in fiscal 2008 to 60,323 tons in fiscal 2009, an increase of 3.6%, as a result of
improved production of lead from the pyrometallurgical process. Lead ingot sales increased from 58,298 tons in fiscal 2008 to 60,564
tons in fiscal 2009, an increase of 3.9%, enabled by the increase in production.
• Silver ingot production increased from 80,405 kg in fiscal 2008 to 105,555 kg in fiscal 2009, an increase of 30.7%, with silver ingot
sales at similar levels to production. Combined with a 5.1% decrease in the average silver London Bullion Metal Association, or
LBMA, price in fiscal 2009 as compared to fiscal 2008, net sales from the sale of silver ingots increased from Rs. 1,583 million in
fiscal 2008 to Rs. 2,099 million ($41.3 million) in fiscal 2009, an increase of 32.6%.
• The daily average lead cash settlement price on the LME decreased from $2,875 per ton in fiscal 2008 to $1,660 per ton in fiscal 2009,
a decrease of 42.3%.
Operating income in the zinc segment decreased from Rs. 53,192 million in fiscal 2008 to Rs. 25,148 million ($494.4 million) in fiscal
2009, a decrease of Rs. 28,044 million, or 52.7%. Operating margin decreased from 68.0% in fiscal 2008 to 45.1% in fiscal 2009. The decrease
in operating income was primarily due to the decrease in the daily average zinc and lead LME prices of 47.8 % and 42.3%, respectively,
between fiscal 2008 and fiscal 2009, which was partially offset by a 29.8% increase in sales volume, the depreciation of the Indian Rupee
against the US dollar and improved cost performance arising from increased operating efficiency.
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