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

Income Taxes
Income taxes decreased from Rs. 25,159 million in fiscal 2007 to Rs. 21,624 million in fiscal 2008. Our effective income tax rate, calculated
as income taxes owed divided by our income before income taxes, minority interests and equity in net (loss)/income of associate, was 26.9% in
fiscal 2007 and 26.1% in fiscal 2008. The effective tax rate was lower in fiscal 2008 due to higher tax exemptions in the copper refinery and
copper rod plant at Tuticorin which were classified as export oriented units for only six months in fiscal 2007 while the tax exemptions were
enjoyed for the entirety of fiscal 2008. Further, tax holiday exemptions on the newly commissioned 68.8 MW wind power plant and 154 MW
captive power plant at our zinc business and 540 MW captive power plant at our aluminum business, and higher tax free dividend and
investment income, resulted in a lower effective tax rate.
Minority Interests
Minority interests as a percentage of net profits increased from 30.8% in fiscal 2007 to 31.2% in fiscal 2008. This increase was as a result of
a change in the profit mix between subsidiaries.
Equity in Net (Loss)/Income of Associate, Net of Taxes
Equity in net income of associate was Rs. 24 million in fiscal 2007 as compared to a net income of Rs. 491 million in fiscal 2008, which
primarily related to foreign exchange gains on foreign currency loans to Vedanta Aluminium.
Income from Divested Business, Net of Tax
Income from divested business, net of tax decreased from Rs. 86 million in fiscal 2007 to nil in fiscal 2008. The income from divested
business in fiscal 2007 was from our aluminum conductor business that we sold to STL, a company owned and controlled by Volcan, for Rs.
1,485 million, which was agreed upon on June 30, 2006. The sale of this non-core business was approved by our shareholders on
September 30, 2006. The loss on account of this sale was Rs. 105 million, which was recorded as an adjustment to additional paid-in capital in
shareholders’ equity as this was a transaction between companies under common control.
Liquidity and Capital Resources
Liquidity
As of March 31, 2009, we had cash and short-term investments and deposits totaling Rs. 189,003 million ($3,715.4 million), net cash and no
significant near-term debt redemption obligations, and SIIL had, on a standalone basis, cash and short-term investments totaling
Rs. 80,922 million ($1,590.1 million). We expect that our current cash and short-term investments and deposits, together with our cash flows
from operations, will be our principal sources of cash to satisfy our capital requirements for the next few years. We may also obtain cash to
satisfy our capital requirements from shareholder contributions to our share capital, offerings of our equity shares or ADSs or external
financing sources. While we believe that our current and anticipated sources of cash will be adequate to satisfy our capital requirements, recent
global market and economic conditions have increased the cost of and decreased the availability of credit and adversely affected the financial
markets and economy in India, the United States and most other western and emerging economies, which in turn has had, and may continue to
have, a material adverse effect on our business, our financial performance and the prices of our equity shares and ADSs. See “Item 3. Key
Information — D. Risk Factors — Risks Relating to Investments in Indian Companies, Global Economic Conditions and International
Operations — Recent global economic conditions have been unprecedented and challenging and have had, and continue to have, an adverse
effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect
on our business, our financial performance and the prices of our equity shares and ADSs.” As a result, we have had and may continue to have
reduced cash flows from operations, and we cannot be certain that we will be able to obtain cash from shareholder contributions to our share
capital, offerings of our equity shares or ADSs or external financing sources on favorable terms, or at all.
Capital Requirements
Our principal capital requirements include:
• capital expenditures, towards expansion of capacities in existing businesses including modernization of facilities;
• the establishment of our planned commercial power generation business;
• consolidation of our ownership in our various subsidiaries; and
• acquisitions of complementary businesses that we determine to be attractive opportunities, including Asarco.
We continue to consider increasing capacities of our existing businesses through greenfield and brownfield projects and through
acquisitions as one of our major growth strategies, though we are actively monitoring global market and economic conditions and the outlook
for commodity prices, as well as our current and anticipated liquidity positions, as we constantly evaluate our desired rate of growth in
pursuing this strategy.
Our business is heavily dependent on plant and machinery for the production of our copper, zinc and aluminum products, as well as
investments in our mining operations and our planned commercial power generation business. Investments to maintain and expand production
facilities are, accordingly, an important priority and have a significant effect on our cash flows and future results of operations. We spent
Rs. 25,362 million in fiscal 2007, Rs. 25,430 million in fiscal 2008 and Rs. 41,105 million ($808.1 million) in fiscal 2009, largely on our
capacity expansion and new projects across our zinc, aluminum and energy businesses.
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