F-1/A 1 u92827bfv1za.htm STERLITE INDUSTRIES (INDIA) LIMITED Sterlite Industries (India) Limited
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As filed with the Securities and Exchange Commission on November 22, 2006
Registration No. 333-138739
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
AMENDMENT NO. 1
TO
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
Sterlite Industries (India) Limited
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
         
Republic of India
  3330   Not Applicable
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
    Vedanta, 75 Nehru Road
Vile Parle (East)
Mumbai, Maharashtra 400 099, India
(91-22) 6646-1000
   
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
CT Corporation System
111 Eighth Avenue
New York, New York 10011
United States of America
(212) 894-8940
(Name, address, including zip code, and telephone number, including area code, of agent for service)
     
Copies to:
Michael W. Sturrock, Esq.
Anthony J. Richmond, Esq.
Latham & Watkins LLP
80 Raffles Place
#14-20 UOB Plaza 2
Singapore 048624
(65) 6536-1161
  Matthew D. Bersani, Esq.
Shearman & Sterling LLP
12th Floor, Gloucester Tower
The Landmark, 11 Pedder Street
Central, Hong Kong
(852) 2978-8000
     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
     If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.    o
     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.    o
     If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
     If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
 
     The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
 
 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2006
                                                                      American Depositary Shares
(STERLITE IHNDUSTRIES (INDIA) LIMITED LOGO)
Sterlite Industries (India) Limited
Representing                             equity shares
 
        This is the initial public offering of our equity shares in the form of American Depositary Shares, or ADSs. Each ADS represents the right to receive one of our equity shares. The ADSs are evidenced by American Depositary Receipts, or ADRs. See “Description of Share Capital” and “Description of American Depositary Shares.”
      Prior to this ADS offering, there has been no public market for our equity shares or ADSs in the United States. Our equity shares are listed and traded in India on the National Stock Exchange of India Limited, or the NSE, and the Bombay Stock Exchange Limited, or the BSE. The price to the public per ADS will be determined by reference to the prevailing market prices of our equity shares in India after taking into account market conditions and other factors, and the price to the public per ADS will not be greater than 5% above the closing market price, nor less than 10% below the closing market price, of our equity shares on the NSE or the BSE (whichever has the higher average daily trading volume for the five business days preceding the day the price to the public per ADS is determined) on the day the price to the public per ADS is determined. On November 20, 2006, the last closing price per equity share was Rs. 505.95 ($11.27) on the NSE and Rs. 505.60 ($11.26) on the BSE. In addition, under applicable Indian regulations described in “Prospectus Summary,” assuming the meeting of our shareholders occurs on December 11, 2006 as expected, the price to the public per ADS may not be less than Rs. 531.84 ($11.85). The currency translations from Indian Rupees to US dollars in this paragraph are at an exchange rate of Rs. 44.89 per US dollar, the noon buying rate for cable transfers of Indian Rupees as certified for customs purposes by the Federal Reserve Bank of New York on November 20, 2006. We intend to apply to have our ADSs listed on the New York Stock Exchange under the symbol “SLT.”
 
      Investing in our ADSs involves risks. See “Risk Factors” beginning on page 13 to read about factors you should consider before buying our ADSs.
 
       Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
                 
    Per ADS   Total
         
Initial public offering price
  $       $    
Underwriting discounts and commissions
  $       $    
Proceeds, before expenses, to Sterlite Industries (India) Limited
  $       $    
      We have granted to the underwriters an option to purchase up to an additional           ADSs to cover over-allotments at the initial public offering price less underwriting discounts and commissions.
 
      The underwriters expect to deliver the ADSs to purchasers on                     , 2006.
 
Joint Bookrunners
         
Merrill Lynch & Co.
  Morgan Stanley   Citigroup
 
The date of this prospectus is                     , 2006


 

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 Ex-10.28 Agreement between Sterlite Industries (India) Limited and Rajni Jain dated February 15, 2006.
 Ex-10.29 Share Purchase Agreement between Sterlite Industries (India) Limited and Anil Agarwal dated October 3, 2006.
 Ex-10.30 Share Purchase Agreement between Sterlite Industries (India) Limited and Dwarka Prasad Agarwal dated October 3, 2006.
 Ex-10.31 Share Purchase Agreement between Sterlite Industries (India) Limited and TwinStar Infrastructure Limited dated October 3, 2006.
 Ex-23.1 Consent of Deloitte Haskins & Sells, Mumbai, India, independent registered public accounting firm with respect to Sterlite Industries (India) Limited.
 
      Until                    , 2006 (25 days after the date of the final prospectus), all dealers that effect transactions in the ADSs, whether or not participating in this ADS offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
      You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. We and the underwriters are not making an offer of our ADSs or our equity shares in any jurisdiction or state where the offer is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or time of any sale of the ADSs or our equity shares. Other than as required by law, we are under no duty to update the information in this prospectus.
      We have not taken any action to permit a public offering of our ADSs outside the United States or to permit the possession or distribution of this prospectus for purposes of the ADS offering outside the United States. Persons outside the United States who have come into possession of this prospectus for purposes of the ADS offering must inform themselves about and observe restrictions relating to the ADS offering and the distribution of this prospectus outside of the United States.


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CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
      In this prospectus, we refer to information regarding the copper, zinc and aluminum industries and our competitors from market research reports, analyst reports and other publicly available sources. Although we believe that this information is reliable, we have not independently verified the accuracy and completeness of the information. We caution you not to place undue reliance on this data.
      In this prospectus, references to “this offering” or the “ADS offering” are to the initial public offering of our equity shares in the form of ADSs in the United States.
      In this prospectus, references to “US” or the “United States” are to the United States of America, its territories and its possessions. References to “UK” are to the United Kingdom. References to “India” are to the Republic of India. References to “$,” “US$,” “dollars” or “US dollars” are to the legal currency of the United States, references to “Rs.,” “Rupees” or “Indian Rupees” are to the legal currency of India and references to “AUD,” “Australian dollars” or “A$” are to the legal currency of the Commonwealth of Australia. References to “¢” are to US cents and references to “lb” are to the imperial pounds (mass) equivalent to 0.4536 kilograms. References to “tons” are to metric tons, a unit of mass equivalent to 1,000 kilograms or 2,204.6 lb. Unless otherwise indicated, the accompanying financial information for our company has been prepared in accordance with US generally accepted accounting principles, or US GAAP, for the fiscal years ended March 31, 2004, 2005 and 2006 and for the six-month periods ended September 30, 2005 and 2006. References to a particular “fiscal” year are to our fiscal year ended March 31 of that year. Our fiscal quarters end on June 30, September 30 and December 31. References to a year other than a “fiscal” year are to the calendar year ended December 31.
      We conduct our businesses both directly and through a consolidated group of companies that we have ownership interests in. See “Business — Our History and Relationship with Vedanta” for more information on these companies and their relationships to us. Unless otherwise stated in this prospectus or unless the context otherwise requires, references in this prospectus to “we,” “us,” “our,” “Sterlite,” “our company” or “our consolidated group of companies” mean Sterlite Industries (India) Limited, its consolidated subsidiaries and its predecessors, collectively, including Monte Cello BV, or Monte Cello, Copper Mines of Tasmania Pty Ltd, or CMT, Thalanga Copper Mines Pty Ltd, or TCM, Bharat Aluminium Company Limited, or BALCO, Sterlite Energy Limited, or Sterlite Energy, Sterlite Opportunities and Ventures Limited, or SOVL, and Hindustan Zinc Limited, or HZL. Sterlite Energy became part of our consolidated group on October 3, 2006 when it was acquired by us. Our financial information does not include Vedanta Resources plc, or Vedanta, Vedanta Resources Holdings Limited, or VRHL, Konkola Copper Mines plc, or KCM, Twin Star Holdings Limited, or Twin Star, The Madras Aluminium Company Limited, or MALCO, India Foils Limited, or IFL, Sterlite Optical Technologies Limited, or SOTL, Sterlite Gold Limited, or Sterlite Gold, SIL Employees Welfare Trust, or SEWT, Monte Cello NV, or MCNV, Twin Star Infrastructure Limited or Vedanta Alumina Limited, or Vedanta Alumina, except that as to Vedanta Alumina, our consolidated financial statements account for our 29.5% minority interest therein under the equity method of accounting, but Vedanta Alumina is not otherwise included in our consolidated group of companies or our consolidated financial statements. References to the “Vedanta group” are to Vedanta and its subsidiaries.
      In this prospectus, references to The London Metal Exchange Limited, or LME, price of copper, zinc or aluminum are to the cash seller and settlement price on the LME for copper, zinc or aluminum for the period indicated. References to primary market share in this prospectus are to the market that includes sales by producers of metal from copper concentrate or alumina, as applicable, and do not include sales by producers of recycled metal or imports.

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      The following table sets forth the publishers and their respective publications referred to as sources for certain statistical information contained in this prospectus:
         
Publisher   Publication(s) or Data   Date(s)
         
Aluminium Association of India, or AAI
  Supplemental industry data compiled by AAI   Not Applicable
Bloomberg L.P
  Metal Bulletin   Not Applicable
Brook Hunt & Associates Ltd., or Brook Hunt
  Aluminum Metal Service Quarterly Data Volume   September 2006
    Copper Metal Service Quarterly Data Volume   September 2006
    Zinc Metal Service Quarterly Data Volume   September 2006
    Supplemental industry data compiled by Brook Hunt   Not Applicable
Central Electricity Authority’s General Review
  All India Electricity Authority — General Review — 2005   2004-2005
    Website, specifically the following address:   Not Applicable
    • http://www.cea.nic.in/ power_sec_reports/ executive_summary/ 2006_04/ index.htm    
Centre for Monitoring Indian Economy
  Monthly Review of the Indian Economy   June 2006
CRISIL Research & Information Services Ltd., or CRIS INFAC
  Copper Outlook   May 2006
    CRIS INFAC Aluminium Annual Review   September 2005
Energy Information Administration, a statistical agency of the United States Department of Energy
  Website, specifically the following address: http://www.ein.doe/oiaf/ieo/coal.html   Not Applicable
India Lead Zinc Development Association, or ILZDA
  Supplemental industry data compiled by ILZDA   Not Applicable
International Copper Promotion Council, India, or ICPCI
  Supplemental industry data compiled by ICPCI   Not Applicable
The London Metal Exchange Limited, or LME
  Website, specifically the following address:   Not Applicable
    • http://www.lme.com    
Ministry of Coal
  Website, specifically the following address:   Not Applicable
    • http://www.coal.nic.in/reserve2.htm    

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Publisher   Publication(s) or Data   Date(s)
         
Ministry of Power
  Website, specifically the following addresses:   Not Applicable
    • http://powermin.nic.in/ indian_electricity_scenario/ power_sector_at_a_glance.htm    
    • http://powermin.nic.in/ whats_new/ pdf/ development_of_project.pdf    
    • http://powermin.nic.in/ transmission/ transmission_overview.htm    
    • http://powermin.nic.in/ indian_electricity_scenario/ growth_of%20the_power_sector.htm    
    • http://www.cea.nic.in/ power_sec_reports/ executive_summary/ 2006_04/ index.htm    
    Annual Report   2004-05 and 2005-06
Geological Survey of India
  Website, specifically the following address:   Not Applicable
    • http://www.gsi.gov.in    
      Solely for the convenience of the reader, this prospectus contains translations of certain Indian Rupee and Australian dollar amounts into US dollars at specified rates. Except as otherwise stated in this prospectus, all translations from Indian Rupees or Australian dollars to US dollars are based on the noon buying rates of Rs. 45.95 per $1.00 and AUD 1.34 per $1.00 in the City of New York for cable transfers of Indian Rupees and Australian dollars, respectively, as certified for customs purposes by the Federal Reserve Bank of New York on September 29, 2006. No representation is made that the Indian Rupee or Australian dollar amounts represent US dollar amounts or have been, could have been or could be converted into US dollars at such rates or any other rates. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.
      IsaSmelttm and IsaProcesstm are trademarks of Xstrata Plc. Ausmelttm is a trademark of Ausmelt Limited. ISPtm is a trademark of Imperial Smelting Processes Ltd.

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PROSPECTUS SUMMARY
      This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider before investing in our ADSs. You should read this entire prospectus, including “Risk Factors” and the consolidated financial statements and related notes, before making an investment decision. Unless otherwise specifically stated, the information in this prospectus does not take into account the possible purchase of additional ADSs by the underwriters pursuant to the underwriters’ over-allotment option. This prospectus includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.”
Sterlite Industries (India) Limited
Overview
      We are India’s largest non-ferrous metals and mining company based on net sales and are one of the fastest growing large private sector companies in India based on the increase in net sales from fiscal 2005 to 2006. In India, one of the fastest growing large economies in the world with an 8.5% increase in real gross domestic product from 2004 to 2005, we have three primary businesses:
        Copper. We are one of the two custom copper smelters in India, with a leading 43% primary market share by volume in India in fiscal 2006, according to International Copper Promotion Council, India, or ICPCI. In 2005, our Tuticorin smelter had one of the lowest costs of production of all copper smelting operations worldwide and our Tuticorin and Silvassa refineries had the lowest and second lowest cost of production, respectively, of all copper refining operations worldwide, according to Brook Hunt & Associates Ltd., or Brook Hunt, a metals and mining consulting firm.
 
        Zinc. Our majority-owned subsidiary Hindustan Zinc Limited, or HZL, is India’s only integrated zinc producer and had a 73% market share by volume in India in fiscal 2006, according to the India Lead Zinc Development Association, or ILZDA. HZL’s Rampura Agucha zinc mine is the third largest in the world in terms of contained zinc deposits on a production basis and the fourth largest on a reserve basis and was estimated to have the third lowest cost of producing zinc concentrate in 2005, and HZL was the world’s fourth largest lead-zinc mining company in 2005 based on mine production, according to Brook Hunt.
 
        Aluminum. Our majority-owned subsidiary Bharat Aluminium Company Limited, or BALCO, is one of the four primary producers of aluminum in India and had a 19% primary market share by volume in India in fiscal 2006, among the primary producers of the country, according to the Aluminium Association of India, or AAI. BALCO was the fastest growing primary producer of aluminum in India in fiscal 2006 based on quantity of aluminum produced as a result of the ramp-up in production at its new Korba aluminum smelter. BALCO’s captive power plants provide nearly all of its required power, making it an energy-integrated aluminum producer.
      New businesses we currently have an interest in or plan to develop are as follows:
        Vedanta Alumina. We hold a 29.5% minority interest in Vedanta Alumina Limited, or Vedanta Alumina, a 70.5%-owned subsidiary of our parent corporation, Vedanta Resources plc, or Vedanta. Vedanta Alumina expects to commission a new 1.0 million tons per annum, or tpa, alumina refinery, expandable to 1.4 million tpa, subject to governmental approvals, and associated captive power plant in March 2007. It is also planning to build a greenfield 500,000 tpa aluminum smelter together with an associated captive power plant.
 
        Commercial Power Generation. We intend to develop a commercial power generation business in India that leverages our experience in building and operating captive power plants used to support our primary businesses. Our experience includes operating six captive power plants with a total power generation capacity of 1,040 MW, five of which we built, including two thermal coal-based captive power plants with a total power generation capacity of 694 MW in the last three years. We believe that with India’s large coal resources, ongoing government deregulation and high demand for power

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  relative to supply, this business represents an attractive growth opportunity. We intend to invest approximately Rs. 87,305 million ($1,900.0 million) over the next four years to build the first phase, totaling 2,400 MW, of a thermal coal-based power facility, which project will be pursued by our wholly-owned subsidiary Sterlite Energy Limited, or Sterlite Energy. In addition, BALCO has entered into a memorandum of understanding under which, among other things, feasibility studies will be undertaken for a potential investment of approximately Rs. 50,000 million ($1,088.1 million) to build a thermal coal-based 1,200 MW power facility.
      We have experienced significant growth in the Indian copper, zinc and aluminum markets. Our net sales increased from Rs. 53,476 million in fiscal 2004 to Rs. 122,791 million ($2,672.3 million) in fiscal 2006, representing a compound annual growth rate of 51.5%, and increased from Rs. 43,160 million in the six-month period ended September 30, 2005 to Rs. 111,328 million ($2,422.8 million) in the six-month period ended September 30, 2006, an increase of 157.9%, due to our capacity expansions and commodity prices increasing to historical highs.
Competitive Strengths
      We believe that we have the following competitive strengths:
        High quality assets and resources making us a low-cost producer in copper and zinc. We believe that our business has high quality assets of global size and scale, such as our Rampura Agucha lead-zinc mine and Tuticorin copper smelter and refinery. As a result, our costs of production in copper and zinc are competitive with those of leading metals and mining companies in the world.
 
        Leading non-ferrous metals and mining company in India with a diversified product portfolio. We have substantial market shares across the copper, zinc and aluminum metals markets in India.
 
        Ideally positioned to capitalize on India’s growth and resource potential. We believe that our experience in operating and expanding our business in India will allow us to capitalize on attractive growth opportunities arising from India’s large mineral reserves, economic growth, proximity to other growing economies and large and inexpensive labor and talent pools.
 
        Strong pipeline of growth projects. We have ongoing projects to further improve the operational efficiencies at Tuticorin to expand production, add a second new zinc smelter at HZL’s Chanderiya facility and enter the commercial power generation business. We also have a minority interest in Vedanta Alumina, which is building a new alumina refinery and planning to build a new aluminum smelter.
 
        Experience for entry into commercial power generation business in India. We have been building and operating captive power plants in India since 1997 and are currently operating six captive power plants with a total power generation capacity of 1,040 MW, including two thermal coal-based captive power plants with a total power generation capacity of 694 MW that we built within the last three years. We believe this experience positions us to enter the commercial power generation business in India.
 
        Experienced and focused management with strong project execution and acquisition skills. Our management and execution teams have a proven track record of successfully implementing capital-intensive expansion projects and acquiring and improving the operations and profitability of other businesses.
 
        Ability and capacity to finance world-class projects. Our strong recent cash flows and balance sheet allow us to pursue world-class projects.

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Strategy
      Our goal is to generate strong financial returns and create a world-class metals and mining company. To achieve this goal, we intend to take full advantage of our competitive strengths. Key elements of our strategy include:
        Increasing our capacities through greenfield and brownfield projects. We intend to continue to construct new facilities to capitalize upon the growing demand for metals in India and abroad, particularly in China, Southeast Asia and the Middle East.
 
        Leveraging our project execution and operating skills and experience in building and operating captive power plants to develop a commercial power generation business. We believe the commercial power generation business represents an attractive growth opportunity in India and that our experience in building and operating captive power plants positions us to develop this as a stand-alone business.
 
        Continuing to focus on asset optimization and reducing the cost of production. We focus on reducing our cost of production, including through maximizing throughput and plant availability, reducing energy costs and consumption, increasing automation, improving recovery ratios, reducing our raw material costs and seeking better utilization of by-products.
 
        Seeking further growth and acquisition opportunities that leverage our transactional, project execution and operational skills. We continually seek new growth and acquisition opportunities in the metals and mining and related businesses, primarily in India, including through government privatization programs.
 
        Consolidating our corporate structure and increasing our direct ownership of our underlying businesses to derive additional synergies as an integrated group. We have exercised our option to acquire the Government of India’s remaining 49.0% ownership interest in BALCO and are seeking to complete this acquisition, although the exercise is currently subject to dispute. Further, the Government of India has the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. We own 64.9% of HZL and intend to exercise our call option to acquire the Government of India’s remaining interest in HZL after it becomes exercisable on or after April 11, 2007. However, it has been reported that the Government of India is taking steps to sell its remaining ownership interest in HZL through a public offer prior to our exercise of the call option.
Risks Associated with Our Business
      Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors.” We may be unable, for many reasons, including some beyond our control, to implement our current business strategy. Those reasons could include: a decline in the treatment charge and refining charge, or TcRc, for copper or the commodity price of copper, zinc or aluminum, a shortage of or inability to secure raw materials, including copper concentrate, alumina and coal, disruptions to operations, failure to make or effectively utilize capital expenditures, failure to acquire additional equity shares of BALCO or HZL, failure to be successful in the commercial power generation business, changes in legal or regulatory conditions in India, including tax and environmental regulations, losses in litigation matters in which we are involved or actions by our controlling shareholder, Vedanta, that are detrimental to our interests.
Company Information
      Sterlite Industries (India) Limited was incorporated on September 8, 1975 under the laws of India and maintains a registered office at B-10/4, MIDC Industrial Area, Waluj, District of Aurangabad, Maharashtra 431 133, India. Our principal executive office is located at Vedanta, 75 Nehru Road, Vile Parle (East), Mumbai, Maharashtra 400 099, India and the telephone number for this office is (91-22) 6646-1000. Our equity shares are listed on the National Stock Exchange of India Limited, or the NSE, and the Bombay Stock Exchange Limited, or the BSE, which are collectively referred to as the Indian Stock Exchanges. Our website address is www.sterlite-industries.com. Information contained on our

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website, or the website of any of our subsidiaries or affiliates, including Vedanta and other members of the Vedanta group, is not a part of this prospectus.
Our Relationship with Vedanta
      We are a 76.0%-owned subsidiary of Vedanta, a public company listed on the London Stock Exchange, or LSE, and included in the FTSE 100 Index. Vedanta’s 76.0% ownership interest in us is equal to the sum of the 72.3% ownership interest in us held by Twin Star Holdings Limited, or Twin Star, plus 80.0% of the 4.6% ownership interest in us held by The Madras Aluminium Company Limited, or MALCO (reflecting Vedanta’s 80% ownership interest in MALCO). After this offering, Vedanta will continue to own a majority of our equity shares. Vedanta is in turn 53.8%-owned by Volcan Investments Limited, or Volcan, a holding company wholly-owned and controlled by members of the Agarwal family, specifically Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, his father, Mr. Dwarka Prasad Agarwal, and his son, Mr. Agnivesh Agarwal, the Non-Executive Chairman of HZL. See “Business — Our History and Relationship with Vedanta.”

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      The following diagram summarizes the corporate structure of our consolidated group of companies and our relationship with Vedanta and other key entities as of November 17, 2006:
(GRAPH)
 
Notes:
(1)  Volcan is owned and controlled by members of the Agarwal family, specifically Mr. Anil Agarwal, his father, Mr. Dwarka Prasad Agarwal, and his son, Mr. Agnivesh Agarwal. Mr. Dwarka Prasad Agarwal and Mr. Agnivesh Agarwal, the Non-Executive Chairman of HZL, own all of the shares of Volcan. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our

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Non-Executive Chairman, may also be deemed to beneficially own all shares that may be owned or deemed to be beneficially owned by Volcan.
(2)  Madras Stock Exchange Limited.
(3)  We exercised our option to acquire the remaining 49.0% of BALCO owned by the Government of India on March 19, 2004. The exercise of this option has been contested by the Government of India. The Government of India has the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See “Business — Options to Increase Interests in HZL and BALCO” for more information.
(4)  Sterlite Opportunities and Ventures Limited, or SOVL, has a call option, exercisable on or after April 11, 2007, to acquire from the Government of India a further 29.5% of HZL (or 26.0% if the Government of India exercises in full its right to sell 3.5% of HZL to HZL employees). However, it has been reported that the Government of India is taking steps to sell its remaining ownership interest in HZL through a public offer prior to our exercise of the call option. See “Business — Options to Increase Interests in HZL and BALCO” for more information.
(5)  HZL was listed on the NSE on November 21, 2006.

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The Offering
ADSs that we are offering and to be outstanding immediately after this offering                     ADSs.
 
Number of equity shares per ADS One equity share, par value Rs. 2 per equity share.
 
Equity shares outstanding immediately prior to this offering                     equity shares.
 
Equity shares to be outstanding immediately after this offering                     equity shares.
 
The ADSs Each ADS represents the right to receive one equity share. The ADSs will be evidenced by ADRs executed and delivered by Citibank, N.A., as Depositary.
 
• The Depositary will be the holder of the equity shares underlying your ADSs and you will have rights as provided in the deposit agreement and the ADRs.
 
• Subject to compliance with the relevant requirements set out herein and in the deposit agreement, you may surrender your ADSs to the Depositary and withdraw the equity shares underlying your ADSs.
 
• The Depositary will only deliver equity shares upon surrender of ADSs to the extent the number of equity shares at that time deposited with Citibank, N.A., Mumbai Branch, as Custodian, have been listed for trading on the Indian Stock Exchanges and dematerialized. The Depositary will process requests for withdrawal of the equity shares represented by ADSs surrendered to it on a first come, first served basis. We expect the equity shares to be represented by the ADSs offered hereby to be (i) listed for trading on the Indian Stock Exchanges approximately 45 days after the closing of this offering and (ii) dematerialized in the account of the Custodian 10 days following receipt by the Depositary of confirmation of listing on the Indian Stock Exchanges. We expect the equity shares to be represented by the ADSs issuable upon exercise of the over-allotment option to be (i) listed for trading on the Indian Stock Exchanges approximately 45 days after the closing of the over-allotment option and (ii) dematerialized in the account of the Custodian 10 days following receipt by the Depositary of confirmation of listing on the Indian Stock Exchanges.
 
• The Depositary will charge you fees for withdrawals and other transactions.
 
You should carefully read “Description of American Depositary Shares” to better understand the terms of the ADSs. You should also read the deposit agreement and the form of the ADRs, which are exhibits to the registration statement filed with the US Securities and Exchange Commission, or the Commission, on Form F-6 (Registration No. 333-                    ) to register the ADSs.

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Shareholder approval of offering Pursuant to applicable Indian regulations, consummation of this offering requires the approval of a three-fourths majority of our shareholders. On November 15, 2006, our board of directors approved an increase in our authorized share capital and this offering and recommended that our shareholders approve an increase in our authorized share capital and this offering. A meeting of our shareholders has been scheduled for December 11, 2006 to consider and vote upon an increase in our authorized share capital and this offering. Twin Star, which owns 72.3% of our outstanding equity shares, MALCO, which owns 4.6% of our outstanding equity shares, and Vedanta, which controls both Twin Star and MALCO, will each agree with the underwriters to vote or cause to be voted all of our equity shares owned or controlled by each of them for an increase in our authorized share capital and this offering.
 
Offering price Pursuant to applicable Indian regulations, the offer price of the ADSs cannot be less than the average of the weekly high and low closing prices of our equity shares, as quoted on the NSE or BSE, whichever is higher, during the six-month and during the two-week periods immediately preceding November 11, 2006, the date 30 days prior to December 11, 2006, the date on which a meeting of our shareholders is expected to be held to consider this offering. Assuming the meeting of our shareholders to approve this offering occurs as expected on December 11, 2006, under these Indian regulations the offer price of our ADSs in this offering may not be less than Rs. 531.84 ($11.85), assuming an exchange rate of Rs. 44.89 per US dollar, the noon buying rate for cable transfers from Indian Rupees as certified for customs purposes by the Federal Reserve Bank of New York on November 20, 2006.
 
Subject to these restrictions, the price to the public per ADS will be determined by reference to the prevailing market prices of our equity shares in India after taking into account market conditions and other factors, and the price to the public per ADS will not be greater than 5% above the closing market price, nor less than 10% below the closing market price, of our equity shares on the NSE or the BSE (whichever has the higher average daily trading volume for the five business days preceding the day the price to the public per ADS is determined) on the day the price to the public per ADS is determined.
 
Over-allotment option We have granted to the underwriters an option to purchase up to an additional                     ADSs from us to cover over-allotments in this offering at the initial public offering price less underwriting discounts and commissions. If the underwriters exercise this option in full,           ADSs and           equity shares would thereafter be outstanding. See “Underwriting.”
 
Use of proceeds Our net proceeds from the sale of           ADSs in this offering will total approximately $           million (Rs.           million) after deducting the underwriting discounts and commissions and estimated offering expenses which are payable by us. We intend to use the net proceeds from this offering for general corporate

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purposes, including capital expenditures and working capital, for reduction of debt and for possible acquisitions of complementary businesses and consolidation of the ownership of our subsidiaries. See “Use of Proceeds.”
 
Risk factors See “Risk Factors” and other information included in this prospectus for a discussion of the risks you should carefully consider before deciding to invest in our ADSs.
 
Payment and settlement The ADSs are expected to be delivered against payment on                     , 2006. The ADRs evidencing the ADSs will be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or DTC, in New York, New York. Unless you elect to receive an ADR certificate evidencing your ADSs, in general, beneficial interests in the ADSs will be shown on, and transfers of these beneficial interests will be effected through, records maintained by DTC and its direct and indirect participants.
 
Listing and trading We will apply to have the ADSs listed on the New York Stock Exchange, or NYSE. Our outstanding equity shares are listed and traded in India on the NSE and the BSE. Our equity shares are also listed, though not currently traded, on the Calcutta Stock Exchange Association Limited, or the CSE. We have applied to have our equity securities delisted from the CSE, which application is currently pending.
 
We expect the equity shares to be represented by the ADSs offered hereby to be (i) listed for trading on the Indian Stock Exchanges approximately 45 days after the closing of this offering and (ii) dematerialized in the account of the Custodian 10 days following receipt by the Depositary of confirmation of listing on the Indian Stock Exchanges. We expect the equity shares to be represented by the ADSs issuable upon exercise of the over-allotment option to be (i) listed for trading on the Indian Stock Exchanges approximately 45 days after the closing of the over-allotment option and (ii) dematerialized in the account of the Custodian 10 days following receipt by the Depositary of confirmation of listing on the Indian Stock Exchanges.
 
Proposed NYSE symbol for the
ADSs
“SLT.”
 
Depositary for the ADSs Citibank, N.A.
 
Lock-up We have agreed with the underwriters not to issue, our principal shareholders, Twin Star, a wholly-owned subsidiary of Vedanta, and MALCO, an 80.0%-owned subsidiary of Vedanta, and our directors and officers, have agreed not to offer, sell or contract to sell, directly or indirectly, or otherwise dispose of or hedge, any of our equity shares or ADSs or securities convertible into or exchangeable for equity shares or ADSs or any similar securities held by such shareholder, officer or director at the time of this offering during the period from the date of this prospectus

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continuing through the date 180 days after the date of this prospectus, subject to certain exceptions. See “Underwriting.”
 
Restrictions on ADSs relating to the Indian Stock Exchanges ADR holders may not surrender their ADSs to the Depositary for the purpose of withdrawing the deposited shares until we have confirmed to the Depositary that we have received confirmation from the Indian Stock Exchanges that the underlying equity shares have been listed for trading thereon and have therefore become listed shares. We expect to receive the confirmation from the Indian Stock Exchanges of the listing of the equity shares underlying the ADSs approximately 45 days after the closing of the ADS offering, or approximately 45 days after the closing of the over-allotment option for any ADSs that are sold as part of an exercise of the ADS offering over-allotment option. The Depositary will process applications for withdrawal of ADSs for cancellation on a first come, first served basis and only to the extent of the number of listed shares deposited at that time with the Custodian.

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Summary Consolidated Financial Information
      The summary historical consolidated statements of operations data for fiscal 2004, 2005 and 2006, and the summary historical consolidated balance sheet data as of March 31, 2005 and 2006, have been derived from the audited consolidated financial statements appearing elsewhere in this prospectus. The selected historical condensed consolidated statements of operations data presented below for the six-month periods ended September 30, 2005 and 2006, and the selected historical condensed consolidated balance sheet data as of September 30, 2005 and 2006, have been derived from our unaudited condensed consolidated financial statements. You should read this information together with the consolidated financial statements and related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with US GAAP. Our historical results do not necessarily indicate results expected for any future period. The translations of Indian Rupee amounts to US dollars are solely for the convenience of the reader and are based on the noon buying rate of Rs. 45.95 per $1.00 in the City of New York for cable transfers of Indian Rupees as certified for customs purposes by the Federal Reserve Bank of New York on September 29, 2006. No representation is made that the Indian Rupee amounts represent US dollar amounts or have been, could have been or could be converted into US dollars at such rates or any other rates.
                                                           
    Year Ended March 31,   Six-month period ended September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
    (in millions, except share and per share data)
Consolidated Statement of Operations Data:
                                                       
Net sales
    Rs.53,476       Rs.66,643       Rs.122,791     $ 2,672.3       Rs.43,160       Rs.111,328     $ 2422.8  
Other operating revenues
    679       628       1,334       29.0       370       1,248       27.2  
                                           
Total revenue
    54,155       67,271       124,125       2,701.3       43,530       112,576       2,450.0  
Cost of sales
    (39,194 )     (50,615 )     (86,981 )     (1,892.9 )     (34,115 )     (66,400 )     (1,445.0 )
Selling and distribution expenses
    (1,392 )     (1,428 )     (2,117 )     (46.1 )     (731 )     (1,572 )     (34.2 )
General and administration expenses
    (2,457 )     (2,370 )     (2,596 )     (56.5 )     (1,074 )     (1,717 )     (37.4 )
Other expenses:
                                                       
 
Voluntary retirement scheme expenses
    (611 )     (186 )                       (97 )     (2.1 )
 
Impairment of assets
          (1,276 )                              
 
Guarantees, impairment of investments and loans
                (1,300 )     (28.3 )                  
                                           
Operating income
    10,501       11,396       31,131       677.5       7,610       42,790       931.3  
Interest income
    1,609       2,179       2,414       52.5       1,001       2,096       45.6  
Interest expense
    (1,969 )     (1,962 )     (3,238 )     (70.5 )     (1,018 )     (1,969 )     (42.9 )
                                           
Income before income taxes, minority interests and equity in net loss of associate
    10,141       11,613       30,307       659.5       7,593       42,917       934.0  
Income taxes:
                                                       
 
Current
    (2,624 )     (2,674 )     (7,894 )     (171.8 )     (1,583 )     (11,052 )     (240.5 )
 
Deferred
    (350 )     (831 )     (1,111 )     (24.2 )     275       (1,084 )     (23.6 )
                                           
Income after income taxes, before minority interests and equity in net loss of associate
    7,167       8,108       21,302       463.5       6,285       30,781       669.9  
Minority interests
    (2,349 )     (2,764 )     (6,073 )     (132.2 )     (1,591 )     (8,795 )     (191.4 )
Equity in net loss of associate, net of taxes
                (99 )     (2.1 )     (98 )     (15 )     (0.3 )
                                           
Net income from continuing operations
    4,818       5,344       15,130       329.2       4,596       21,971       478.2  
Discontinued Operations:
                                                       
 
Income from divested business,
net of tax
    203       222       369       8.1       122       86       1.9  
                                           
Net income
    Rs.5,021       Rs.5,566       Rs.15,499     $ 337.3       Rs.4,718       Rs.22,057     $ 480.1  
                                           

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    Year Ended March 31,   Six-month period ended September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
Basic earnings per share(1):
                                                       
 
Income from continuing operations
    Rs.13.42       Rs.11.74       Rs.27.35     $ 0.60       Rs.8.36       Rs.39.71     $ 0.86  
 
Income from discontinued operations
    0.57       0.48       0.67       0.01       0.22       0.16       0.01  
                                           
 
Basic earnings per share
    Rs.13.99       Rs.12.22       Rs.28.02     $ 0.61       Rs.8.58       Rs.39.87     $ 0.87  
                                           
Diluted earnings per share(1):
                                                       
 
Income from continuing operations
    Rs.13.13       Rs.11.57       Rs.27.35     $ 0.60       Rs.8.28       Rs.39.71     $ 0.86  
 
Income from discontinued operations
    0.55       0.48       0.67       0.01       0.22       0.16       0.01  
                                           
 
Diluted earnings per share
    Rs.13.68       Rs.12.05       Rs.28.02     $ 0.61       Rs.8.50       Rs.39.87     $ 0.87  
                                           
Weighted average number of equity shares used in computing earnings per share(1):
                                                       
 
Basic
    359,007,797       455,343,743       553,216,634       553,216,634       549,816,294       553,216,634       553,216,634  
 
Diluted
    367,697,507       465,108,143       553,216,634       553,216,634       552,782,694       553,216,634       553,216,634  
 
Note:
(1)  Earnings per share and weighted average number of equity shares used in computing earnings per share have been adjusted for the five-for-two stock split and one-for-one bonus issue effective May 12, 2006.
                                         
    As of March 31,   As of September 30,
         
    2005   2006   2006   2006   2006
                     
    (in millions)
Consolidated Balance Sheet Data:
                                       
Cash and cash equivalents(1)
    Rs.5,909       Rs.9,258     $ 201.5       Rs.1,577     $ 34.3  
Total assets(1)
    133,197       167,539       3,646.1       203,694       4,433.2  
Long-term debt, net of current portion
    28,794       30,237       658.0       21,967       478.1  
Short-term and current portion of long-term debt
    8,663       4,390       95.5       11,095       241.5  
Total shareholders’ equity(1)
    37,388       53,498       1,164.3       74,390       1,618.9  
 
Note:
(1)  A $1.00 (Rs.                 ) increase (decrease) in the assumed initial public offering price of $        (Rs.                 ) per ADS would increase (decrease) each of cash and cash equivalents, total assets and total shareholders’ equity by $         million (Rs.                  million).

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RISK FACTORS
      This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those described in the following risk factors and elsewhere in this prospectus. You should consider the following risk factors carefully in evaluating us and our business before investing in our ADSs. If any of the following risks actually occur, our business, financial condition and results of operations could suffer, the trading price of our ADSs could decline and you may lose all or part of your investment.
Risks Relating to Our Business
Our copper and aluminum businesses depend upon third party suppliers for a substantial portion of their copper concentrate and alumina requirements, and their profitability and operating margins depend upon the market prices for those raw materials.
      Our copper and aluminum businesses source a majority of their copper concentrate and alumina requirements from third parties. As a result, profitability and operating margins of our copper and aluminum businesses depend upon our ability to obtain the required copper concentrate and alumina at prices that are low relative to the market prices of the copper and aluminum products that we sell.
      We purchase copper concentrate at The London Metal Exchange Limited, or LME, price for copper metal for the relevant quotational period less a TcRc that we negotiate with our suppliers but which is influenced by the prevailing market rate for the TcRc. The TcRc has historically fluctuated independently and significantly from the copper LME price. We attempt to make the LME price a pass through for us as both our copper concentrate purchases and sales of finished products are based on LME prices. Nevertheless, we are also exposed to differences in the LME price between the quotational periods for the purchase of copper concentrate and sale of the finished copper products, and any decline in the copper LME price between these periods will adversely affect us. We attempt to hedge against such risks, but are still exposed to timing and quantity mismatches. In addition, some of our long-term copper concentrate supply agreements provide for a TcRc that is a percentage of the prevailing LME price, and hence would fluctuate with the LME price, or provide our third party supplier with price participation terms linked to LME prices. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results of Operations — Metal Prices and Copper TcRc.”
      We purchase alumina from third party suppliers through short-term contracts and on the spot market. The market price for alumina has historically fluctuated independently and significantly from the market price of aluminum. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results of Operations — Metal Prices and Copper TcRc — Zinc and Aluminum.”
      Both the market prices of the copper concentrate and alumina that we purchase and the market prices of the copper and aluminum metals that we sell have experienced volatility in the past, and any increases in the market prices of those raw materials relative to the market prices of the metals that we sell would adversely affect the profitability and operating margins of our copper and aluminum businesses, which could have a material and adverse effect on our results of operations and financial condition.
Our operations are subject to operating risks that could result in decreased production, increased cost of production and increased cost of or disruptions in transportation, which could adversely affect our revenue, results of operations and financial condition.
      We are subject to operating conditions and events beyond our control that could, among other things, increase our mining, transportation or production costs, disrupt or halt operations at our mines and

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production facilities permanently or for varying lengths of time or interrupt the transport of our products to our customers. These conditions and events include:
  •  Disruptions in mining and production due to equipment failures, unexpected maintenance problems and other interruptions. All of our operations are vulnerable to disruptions. Our aluminum smelters are particularly vulnerable to disruptions in the supply of power which, even if lasting only a few hours, can cause the contents of the furnaces or cells to solidify, which would necessitate a plant closure and a shutdown in operations for a significant period, as well as involve expensive repairs. For example, power interruptions caused BALCO to partially suspend operations at its new 245,000 tpa aluminum smelter at Korba in May 2006, and as a result of this interruption the smelter did not become fully operational again until November 2006. The loss from this interruption includes lost production, repair costs and other expenses.
 
  •  Availability of raw materials for energy requirements. Any shortage of or increase in the prices of any of the raw materials needed to satisfy our businesses’ energy requirements may interrupt our operations or increase our cost of production. We are particularly dependent on coal, which is used in many of our captive power plants. Our aluminum business, which has high energy consumption due to the energy-intensive nature of aluminum smelting, is significantly dependent on receiving allocations from Coal India Limited, or Coal India, the government-owned coal monopoly in India. Starting April 1, 2005, a shortage of coal led Coal India to reduce the amount of coal supplied to all its customers, including BALCO, except utilities, forcing BALCO to utilize higher-priced imported coal and increasing power generation costs.
 
  •  Availability of water. The mining operations of our zinc and aluminum businesses and our captive power plants depend upon the supply of a significant amount of water. There is no assurance that the water required will continue to be available in sufficient quantities or that the cost of water will not increase. For example, BALCO is currently in a dispute with the National Thermal Power Corporation Limited, or NTPC, regarding the right of way for a water pipeline that provides one of BALCO’s captive power plants access to a body of water adjacent to NTPC premises. An unfavorable resolution to this dispute may significantly increase BALCO’s costs of obtaining water for that power plant.
 
  •  Disruptions to or increased costs of transport services. We depend upon seaborne freight, rail, trucking, overland conveyor and other systems to deliver bauxite, alumina, zinc concentrate, copper concentrate, coal and other supplies to our operations and to deliver our products to customers. Any disruption to or increase in the cost of these transport services, including as a result of interruptions that decrease the availability of these transport services or as a result of increases in demand for transport services from our competitors or from other businesses, or any failure of these transport services to be expanded in a timely manner to support an expansion of our operations, could have a material adverse effect on our operations and operating results.
 
  •  Accidents at mines, smelters, refineries, cargo terminals and related facilities. Any accidents or explosions causing personal injury, property damage or environmental damage at or to our mines, smelters, refineries, cargo terminals and related facilities may result in expensive litigation, imposition of penalties and sanctions or suspension or revocation of permits and licenses. Risks associated with our open-pit mining operations include flooding of the open-pit, collapses of the open-pit wall and operation of large open-pit mining and rock transportation equipment. Risks associated with our underground mining operations include underground fires and explosions (including those caused by flammable gas), cave-ins or ground falls, discharges of gases or toxic chemicals, flooding, sinkhole formation and ground subsidence and underground drilling, blasting and removal and processing of ore. Injuries to and deaths of workers at our mines and facilities have occurred in the past and may occur in the future. We are required by law to compensate employees for work-related injuries. Failure to make adequate provisions for our workers’ compensation liabilities could harm our future operating results.

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  •  Strikes and industrial actions or disputes. The majority of the total workforce of our consolidated group of companies is unionized. Strikes and industrial actions or disputes have in the past and may in the future lead to business interruptions and halts in production. For example, the trade unions of BALCO initiated a 67-day-long strike in May 2001 in opposition to the divestment of equity shares of BALCO by the Government of India. We also experienced short strikes and work stoppages in 2005 and 2006. In addition, we may be subject to union demands and litigation for pay raises and increased benefits, and our existing arrangements with trade unions may not be renewed on terms favorable to us, or at all. The current wage settlement agreements entered into by HZL and BALCO with their respective unions will be up for renewal in 2007 and 2009, respectively. Other work stoppages or other labor-related developments, including the introduction of new labor regulations in India or Australia, may occur in the future.
      The occurrence of any one or more of these conditions or events could have a material adverse effect on our results of operations and financial condition.
We are substantially dependent upon our Rampura Agucha zinc mine, and any interruption in our operations at that mine could have a material adverse effect on our results of operations and financial condition.
      Our Rampura Agucha zinc mine produced 88.9% of the total mined metal in zinc concentrate that we produced in fiscal 2006 and constituted 77.8% of our proven and probable zinc reserves as of March 31, 2006. Our zinc business provided 68.4% of our operating income in fiscal 2006. Our results of operations have been and are expected to continue to be substantially dependent on the reserves and low cost of production of our Rampura Agucha mine, and any interruption in our operations at the mine for any reason could have a material adverse effect on the results of operations and financial condition of our business as a whole.
If we are unable to secure additional reserves of copper, zinc and bauxite that can be mined at competitive costs or cannot mine existing reserves at competitive costs, our profitability and operating margins could decline.
      If our existing copper, zinc and bauxite reserves cannot be mined at competitive costs or if we cannot secure additional reserves that can be mined at competitive costs, we may become more dependent upon third parties for copper concentrate, zinc concentrate and alumina. Because our mineral reserves decline as we mine the ore, our future profitability and operating margins depend upon our ability to access mineral reserves that have geological characteristics enabling mining at competitive costs. Replacement reserves may not be available when required or, if available, may not be of a quality capable of being mined at costs comparable to the existing or exhausted mines.
      We may not be able to accurately assess the geological characteristics of any reserves that we acquire, which may adversely affect our profitability and financial condition. Because the value of reserves is calculated based on that part of our mineral deposits that are economically and legally exploitable at the time of the reserve calculation, a decrease in commodity prices of the metals may result in a reduction in the value of any mineral reserves that we do obtain as less of the mineral deposits contained therein would be economically exploitable at the lower prices. Exhaustion of reserves at particular mines may also have an adverse effect on our operating results that is disproportionate to the percentage of overall production represented by such mines. Further, with depletion of reserves, we will face higher unit extraction costs per mine.
      Our ability to obtain additional reserves in the future could be limited by restrictions under our existing or future debt agreements, competition from other copper, zinc and aluminum companies, lack of suitable acquisition candidates, government regulatory and licensing restrictions, difficulties in obtaining mining leases and surface rights or the inability to acquire such properties on commercially reasonable terms, or at all. To increase production from our existing bauxite and lead-zinc mines, we must apply for governmental approvals, which we may not be able to obtain in a timely manner, or at all.

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Our business requires substantial capital expenditures and the dedication of management and other resources to maintain ongoing operations and to grow our business through projects, expansions and acquisitions, which projects, expansions and acquisitions are subject to additional risks that could adversely affect our business, financial condition and results of operations.
      Capital requirements. We require capital for, among other purposes, expanding our operations, making acquisitions, managing acquired assets, acquiring new equipment, maintaining the condition of our existing equipment and maintaining compliance with environmental laws and regulations. To the extent that cash generated internally and cash available under our existing credit facilities are not sufficient to fund our capital requirements, we will require additional debt or equity financing, which may not be available on favorable terms, or at all. Future debt financing, if available, may result in increased finance charges, increased financial leverage, decreased income available to fund further acquisitions and expansions and the imposition of restrictive covenants on our business and operations. In addition, future debt financing may limit our ability to withstand competitive pressures and render us more vulnerable to economic downturns. If we fail to generate or obtain sufficient additional capital in the future, we could be forced to reduce or delay capital expenditures, sell assets or restructure or refinance our indebtedness.
      In light of this, our planned and any proposed future expansions and projects may be materially and adversely affected if we are unable to obtain funding for such capital expenditures on satisfactory terms, or at all, including as a result of any of our existing facilities becoming repayable before its due date. In addition, there can be no assurance that our planned or any proposed future expansions and projects will be completed on time or within budget, which may adversely affect our cash flow. These projects include:
  •  HZL’s investment of approximately Rs. 13,785 million ($300.0 million) to build a new 170,000 tpa zinc smelter and associated captive power plant through a brownfield expansion at its Chanderiya facility;
 
  •  our investment of approximately Rs. 1,000 million ($21.8 million) to achieve operational efficiency improvements at our Tuticorin facility;
 
  •  HZL’s planned investment of Rs. 7,770 million ($169.1 million) at its Chanderiya and Debari zinc smelters to increase its total zinc smelting production capacity by 88,000 tpa and to construct a new 80 MW thermal coal-based captive power plant at its Zawar mine and add additional mining equipment at its Rampura Agucha mine; and
 
  •  HZL’s planned investment of Rs. 4,000 million ($87.1 million) to establish two wind power plants with a combined capacity of up to 75 MW in a phased manner during the second half of fiscal 2007 and the fiscal 2008.
      Cost overruns and delays. Our current and future projects may be significantly delayed by failure to receive regulatory approvals or renewal of approvals, failure to obtain sufficient funding, technical difficulties due to human resource, technological or other resource constraints or for other unforeseen reasons, events or circumstances. As a result, these projects may incur significant cost overruns and may not be completed on time, or at all. Our decision to undertake or continue any of these projects will be based on assumptions of future demand for our products which may not materialize. As a consequence of project delays, cost overruns, changes in demand for our products and other reasons, we may not achieve the reductions in the cost of production or other economic benefits expected from these projects, which could adversely affect our business, financial condition and results of operations.
      Demands on management. Our efforts to continue our growth will place significant demands on our management and other resources and we will be required to continue to improve operational, financial and other internal controls, both in India and elsewhere. Our ability to maintain and grow our existing business and integrate new businesses will depend on our ability to maintain the necessary management resources and on our ability to attract, train and retain personnel with skills that enable us to keep pace with growing demands and evolving industry standards. We are in particular dependent to a large degree on the continued service and performance of our senior management team and other key team members in our business units. These key personnel possess technical and business capabilities that are difficult to replace.

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The loss or diminution in the services of members of our senior management or other key team members, or our failure otherwise to maintain the necessary management and other resources to maintain and grow our business, could have a material adverse effect on our results of operations, financial condition and prospects.
      Acquisition risks. As part of our growth strategy, we intend to continue to pursue acquisitions to expand our business. There can be no assurance that we will be able to identify suitable acquisition, strategic investment or joint venture opportunities, obtain the financing necessary to complete and support such acquisitions or investments, integrate such businesses or investments or that any business acquired will be profitable. If we attempt to acquire non-Indian companies, we may not be able to satisfy certain Indian regulatory requirements for such acquisitions and may need to obtain the prior approval of the Reserve Bank of India, or the RBI, which we may not be able to obtain. In addition, acquisitions and investments involve a number of risks, including possible adverse effects on our operating results, diversion of management’s attention, failure to retain key personnel, risks associated with unanticipated events or liabilities and difficulties in the assimilation of the operations, technologies, systems, services and products of the acquired businesses or investments. Any failure to achieve successful integration of such acquisitions or investments could have a material adverse effect on our business, results of operations or financial condition.
If we do not continue to invest in new technologies and equipment, our technologies and equipment may become obsolete and our cost of production may increase relative to our competitors, which would have a material adverse effect on our ability to compete, results of operations, financial condition and prospects.
      Our profitability and competitiveness are in large part dependent upon our ability to maintain a low cost of production as we sell commodity products with prices we are unable to influence. Unless we continue to invest in newer technologies and equipment and are successful at integrating such newer technologies and equipment to make our operations more efficient, our cost of production relative to our competitors may increase and we may cease to be profitable or competitive. However, newer technologies and equipment are expensive and the necessary investments may be substantial. Moreover, such investments entail additional risks as to whether the newer technologies and equipment will reduce our cost of production sufficiently to justify the capital expenditures to obtain them. Any failure to make sufficient or the right investments in newer technologies and equipment or in integrating such newer technologies and equipment into our operations could have a material adverse effect on our ability to compete and our financial condition, results of operations and prospects.
We intend to develop a commercial power generation business, a line of business in which we have limited experience, from which we may never recover our investment or realize a profit and which may result in our management’s focus being diverted from our core copper, zinc and aluminum businesses.
      In July 2006, our board of directors resolved and our shareholders subsequently approved in principle a new strategy for us to enter into the commercial power generation business in India. We expect that our initial strategy will be an investment of approximately Rs. 87,305 million ($1,900.0 million) over the next four years to build the first phase, totaling 2,400 MW (comprising four units of 600 MW each), of a thermal coal-based power facility, which project will be pursued by our wholly-owned subsidiary Sterlite Energy. See “Business — Our Future Commercial Power Generation Business — Our Plans for Commercial Power Generation.”
      In addition, on October 7, 2006, BALCO entered into a memorandum of understanding with the Government of Chhattisgarh, India, and the Chhattisgarh State Electricity Board, or CSEB, under which, among other things, feasibility studies will be undertaken for a potential investment of approximately Rs. 50,000 million ($1,088.1 million) to build a thermal coal-based 1,200 MW power facility, along with an integrated coal mine, in the State of Chhattisgarh.
      The entry by BALCO into the commercial power generation business will require board and shareholder approval, including the specific consent of the Government of India and the consents of

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lenders, and require BALCO to amend its memorandum of association. There can be no assurance that any such approval will be obtained, on satisfactory terms or at all.
      In addition, HZL’s board of directors has recently approved the establishment of two wind power plants with a combined capacity of up to 75 MW at an estimated cost of Rs. 4,000 million ($87.1 million).
      Although we have some experience building and operating captive power plants to provide a significant percentage of the power requirements of our copper, zinc and aluminum businesses, we have never before built or operated wind power plants or attempted to compete in the commercial power generation business. In addition to the significant capital investment, our management’s focus will also be directed towards this new business.
      In particular, our proposed commercial power generation business involves various risks, such as:
  •  We may face many uncertainties, including regulatory requirements and restrictions which may change by the time our planned power facility is completed. These may include a change in the tariff policy, which may have an adverse impact on our revenues and reduce our margins. We may also face delays in the development of our power plants and any coal mines we may seek to develop, as other coal and power companies in India and Southeast Asia recently have, as a result of protests or other obstructive or delaying activities by displaced persons and others who may oppose such developments.
 
  •  We must obtain the consent of certain of our lenders to commence a new business, and there can be no assurance that we will obtain such consents.
 
  •  We will be dependent upon third parties for the construction, delivery and commissioning of the power facilities, the supply and testing of equipment and transmission and distribution of any power we produce.
 
  •  We do not have our own coal mines, and given recent shortages in coal supplies in India, we may also not be successful at procuring an adequate supply of coal at sufficiently attractive prices, or at all, for our power plant to operate and generate a return on our investment.
 
  •  The commercial power generation business is highly competitive and we will be competing with established commercial power generation companies, including NTPC, Tata Power Limited and Reliance Energy Limited, with significant resources and many years of experience in the commercial power generation business. Our parent company, Vedanta, has also announced plans to enter the commercial power generation business and we may compete with them.
      There can be no assurance that we will recover our investment in this new business, that we will realize a profit from this new business or that diverting our management’s attention to this new business will not have a material adverse effect on our existing copper, zinc and aluminum businesses, any of which results may have a material adverse effect on our results of operations, financial condition and prospects.
If any power facilities we build and operate as part of our future commercial power generation business do not meet operating performance requirements and agreed norms as may be set out in our agreements, or otherwise do not operate as planned, we may incur increased costs and penalties and our revenues may be adversely affected.
      Operating power plants involves many operational risks, including the breakdown or failure of generation equipment or other equipment or processes, labor disputes, fuel interruption and operating performance below expected levels. However, the power purchase agreements and other agreements we may enter into may require us to guarantee certain minimum performance standards, such as plant availability and generation capacity, to the power purchasers. If our facilities do not meet the required performance standards, the power purchasers with whom we have power purchase agreements may not reimburse us for any increased costs arising as a result of our plants’ failure to operate within the agreed norms, which in turn may affect our results of operations. In addition to the performance requirements

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specified in our power purchase and other agreements, national and state regulatory bodies and other statutory and government mandated authorities may from time to time impose minimum performance standards upon us. Failure to meet these requirements could expose us to the risk of penalties.
The validity of the Government of India’s divestment of 64.9% of HZL to us is currently pending adjudication and our option to purchase the Government of India’s remaining shares in HZL may be challenged.
      A public interest litigation was filed in 2003 against the Government of India, HZL, SOVL and others, challenging the Government of India’s divestment of 64.9% of HZL to us. This public interest litigation proceeds on the same grounds as a decision of the Supreme Court of India, which held that the Government of India may not divest its shares in companies in which assets have been vested pursuant to an Act of Parliament without first repealing or amending the applicable Act of Parliament.
      The Supreme Court of India has directed that all pending challenges to divestments of government-owned companies be heard together by a larger bench of the Supreme Court of India. No date has been set for such a hearing.
      There can be no assurance that we will successfully defend the challenge to the Government of India’s divestment of shares in HZL or that a challenge will not be made to any future divestment of shares in HZL by the Government of India. In addition, the Government of India is reportedly taking steps towards making a public offer of its remaining ownership interest in HZL, which it has a right to do prior to an exercise of our call option to acquire such residual ownership interest, which call option becomes exercisable on or after April 11, 2007. If, prior to the exercise of our call option, the Government of India does not sell its residual ownership interest in HZL through a public offer and we seek to exercise our call option to acquire such remaining ownership interest, there can be no assurance that such an acquisition by us will not be challenged, including a challenge on the grounds of our existing litigation with respect to the Government of India’s prior divestments of HZL to us or a challenge on the same grounds as those raised in respect of our exercise of the BALCO call option discussed below. Any adverse ruling may undermine our ownership and control of HZL or preclude or delay us from exercising our option to increase our ownership interest in HZL, either of which outcomes would be likely to have a material adverse effect upon our operational flexibility, results of operations and prospects. Alternatively, we may only be able to acquire the Government of India’s remaining ownership interest in HZL at a price in excess of the market value or fair value of those shares, which could have a material adverse effect on our results of operations and financial condition. See “Business — Options to Increase Interests in HZL and BALCO.”
The Government of India has disputed our exercise of the call option to purchase its remaining 49.0% ownership interest in BALCO.
      Under the terms of the shareholders’ agreement between us and the Government of India, we were granted an option to acquire the shares of BALCO held by the Government of India at the time of exercise. We exercised this option on March 19, 2004. However, the Government of India has contested the purchase price and validity of the option. We have sought an interim order from the High Court of Delhi to restrain the Government of India from transferring or disposing of its shareholding pending resolution of the dispute. However, the court directed on August 7, 2006 that the parties attempt to settle the dispute by way of amicable negotiation and conciliation. Negotiations are currently underway between the parties and the next hearing date is January 10, 2007. Notwithstanding the outcome of the dispute, the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See “Business — Options to Increase Interests in HZL and BALCO.”
      There is no assurance that the outcome of the negotiations will be favorable to us. In the event of an unfavorable outcome, we may be unable to purchase the Government of India’s remaining 49.0% stake in BALCO or may be required to pay a higher purchase price, which may adversely affect our operational flexibility, results of operations and prospects.

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We are involved in a number of litigation matters, both civil and criminal in nature, and any final judgments against us could have a material adverse effect on our business, results of operations, financial condition and prospects.
      We are involved in a variety of litigation matters, including matters relating to alleged violations of environmental and tax laws and alleged price manipulation of our equity shares on the Indian Stock Exchanges. A final judgment against us or our directors in one or more of these disputes may result in damages being awarded that we must pay or injunctions against us, or criminal proceedings being instituted against us or our directors, which may require us to cease or limit certain of our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. For a detailed discussion of material litigation matters pending against us, see “Business — Litigation.”
Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct operations on our properties or result in significant unanticipated costs.
      Our ability to mine the land on which we have been granted mining lease rights is dependent on the surface rights that we acquire separately and subsequently to the grant of mining lease rights and generally over only part of the land leased. Additional surface rights may be negotiated separately with landowners, though there is no guarantee that these rights will be granted. Although we expect to be able to continue to obtain additional surface rights in the future in the ordinary course, any delay in obtaining or inability to obtain surface rights could negatively affect our financial condition and results of operations.
      A significant part of our mining operations are carried out on leasehold properties. Our right to mine some of our reserves may be materially and adversely affected if defects in title or boundary disputes exist or if a lease expires and is not renewed or if a lease is terminated due to our failure to comply with its conditions. For example, as a result of pending litigation, we and Vedanta Alumina are not in compliance with certain conditions of the leases granted to us by the Orissa Infrastructure Development Corporation, or OIDC, in respect of certain of our lands at Lanjigarh. These conditions require us and Vedanta Alumina to commence operations within a specified period of taking possession of the land, which we have not complied with though an extension of the terms of the leases has been applied for. See “Business — Litigation.” Any challenge to our title or leasehold interests could delay our mining operations and could ultimately result in the loss of some or all of our interests. Also, in any such case, the investigation and resolution of title issues would divert management’s time from our business and our results of operations could be adversely affected. Further, if we mine on property that we do not own or lease, we could incur liability for such mining.
      We can also be subject to claims challenging our title to our non-mine properties. For example, BALCO is currently engaged in a dispute with the State Government of Chhattisgarh regarding alleged encroachment on state-owned land at its Korba facility. See “Business — Litigation.”
Our operations are subject to extensive governmental and environmental regulations which have in the past and could in the future cause us to incur significant costs or liabilities or interrupt or close our operations, any of which events may adversely affect our results of operations.
      Numerous governmental permits, approvals and leases are required for our operations as the industries in which we operate and seek to operate are subject to numerous laws and extensive regulation by national, state and local authorities in India and Australia. Failure to comply with any laws or regulations or to obtain or renew the necessary permits, approvals and leases may result in the loss of the right to mine or operate our facilities, the assessment of administrative, civil or criminal penalties, the imposition of cleanup or site restoration costs and liens, the imposition of costly compliance procedures, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of closing or limiting production from our operations. In addition, a significant number of approvals are required from government authorities in India for metals and mining and commercial power generation projects, and any such approvals may be subject to challenge. Our business, financial condition, results of operations and prospects may be materially and adversely affected

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by any of a number of significant legal and regulatory matters to which we are subject. See “Business — Litigation” and “Business — Regulatory Matters.”
      The costs, liabilities and requirements associated with complying with existing and future laws and regulations may be substantial and time-consuming and may delay the commencement or continuation of exploration, mining or production activities. For example, a gas leak at HZL’s sulphuric acid plant in Chanderiya caused the Rajasthan State Pollution Control Board to shut down the entire plant for a period of 12 days in November 2005.
      New legislation or regulations may be adopted in the future that may materially and adversely affect our operations, our cost structure or our customers’ ability to use our products. New legislation or regulations, or different or more stringent interpretation or enforcement of existing laws and regulations, may also require us or our customers to change operations significantly or incur increased costs, which could have a material adverse effect on our results of operations or financial condition.
Any increase in competition in our target markets could result in lower prices or sales volumes of the copper, zinc and aluminum products we produce, which may cause our profitability to suffer.
      There is substantial competition in the copper, zinc and aluminum industries, both in India and internationally, and we expect this to continue. Our competitors in the copper, zinc and aluminum markets outside India include major international producers. Certain of these international producers have significantly larger scale of operations, greater financial resources and manufacturing and technological capabilities, more established and larger marketing and sales organizations and larger technical staffs than we do.
      In the Indian copper market, we compete primarily against Hindalco Industries Limited, or Hindalco, Hindustan Copper Limited, or Hindustan Copper, and imports. In the Indian zinc market, we compete primarily against imports. In the Indian aluminum market, we compete primarily against National Aluminium Company Limited, or NALCO, Hindalco, MALCO, a subsidiary of Vedanta, and imports. Many of our competitors are also expanding their production capacities. If domestic demand is not sufficient to absorb these increases in capacity, our competitors could reduce their prices, which may force us to do the same or cause us to lose market share or sell our products in overseas markets at lower prices.
      The end-user markets for our metal products are highly competitive. Copper competes with a number of other materials, including aluminum and plastics. Zinc metal faces competition as a result of substitution of materials, including aluminum, stainless steel and other alloys, plastics and other materials being substituted for galvanized steel and epoxies, paints and other chemicals being used to treat steel in place of galvanization in the construction market. Aluminum competes with materials such as plastic, steel, iron, glass and paper, among others, for various applications. In the past, customers have demonstrated a willingness to substitute other materials for copper, zinc and aluminum. The willingness of customers to accept substitutes could have a material adverse effect on our business, results of operations and prospects.
Our insurance coverage may prove inadequate to satisfy future claims against us.
      We maintain insurance which we believe is typical in our industry in India and Australia and in amounts which we believe to be commercially appropriate. Nevertheless, we may become subject to liabilities, including liabilities for pollution or other hazards, against which we have not insured adequately or at all or cannot insure. Our insurance policies contain exclusions and limitations on coverage, and we do not have business interruption insurance. In addition, our insurance policies may not continue to be available at economically acceptable premiums, or at all. As a result, our insurance coverage may not cover the extent of any claims against us, including for environmental or industrial accidents or pollution. See “Business — Insurance.”

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Third party interests in our subsidiary companies and restrictions due to stock exchange listings of our subsidiary companies will restrict our ability to deal freely with our subsidiaries, which may have a material adverse effect on our operations.
      We do not wholly own all of our operating subsidiaries. Although we have management control of HZL and BALCO, and we intend to increase our ownership interests in both, each of these companies has other shareholders who, in some cases, hold substantial interests in them. The minority interests in our subsidiaries and the listing of HZL on the NSE and BSE may limit our ability to increase our equity interests in these subsidiaries, combine similar operations, utilize synergies that may exist between the operations of different subsidiaries or reorganize the structure of our business in a tax effective manner. For example, the Government of India, which is a minority shareholder in each of HZL and BALCO, has entered into shareholders’ agreements for HZL and BALCO and it is a term of the shareholders’ agreements that HZL and BALCO may not grant loans to companies which are under the same management as HZL or BALCO, as the case may be, without the prior consent of the Government of India. In addition, the Government of India has the right to appoint directors and has veto power over certain management decisions. These restrictions on our ability to deal freely with our subsidiaries caused by the minority interests may have a material adverse effect on our results of operations or financial condition as our ability to move funds among the different parts of our business will be restricted and we will be unable to access cash held in HZL or BALCO except through dividend payments by HZL and BALCO which would be payable to all shareholders. This will limit our ability to make payments of interest and principal in respect of financial liabilities and obligations which we have undertaken on behalf of our consolidated group of companies. Further, pursuant to the requirements for the continued listing of the shares of HZL on the NSE and BSE, in the event we exercise our call option to acquire the Government of India’s remaining ownership interest in HZL, we would have to either divest a portion of our shareholding in HZL within a period of one year from the acquisition such that the minimum public shareholding requirement of 10% is complied with or delist HZL’s shares from the NSE and BSE by making an offer to purchase the equity shares held by the remaining HZL’s shareholders at a price determined by way of a reverse book-build process, which could adversely impact our financial condition and results of operations. See “Business — Options to Increase Interests in HZL and BALCO.”
We may be liable for additional taxes if the tax holidays, exemptions and tax deferral schemes which we currently benefit from expire without renewal, and the benefits of the tax holidays, exemptions and tax deferral schemes may be limited by the minimum alternative tax.
      We currently benefit from significant tax holidays, exemptions and tax deferral schemes. These tax holidays, exemptions and tax deferral schemes are for limited periods. For example, HZL’s captive power plant at Debari benefits from tax exemptions on the profits generated from transfers of power to HZL’s other units, which are expected to generate substantial savings through fiscal 2013. In the case of the Chanderiya captive power plant, we have not yet claimed a tax exemption that we have the option to claim for a period of ten consecutive years within the first 15 years of operations. The captive power plants in our copper business benefit from tax exemptions on the profits generated from transfers of power to the smelter which are expected to generate savings through fiscal 2015. One of our two copper refineries also enjoys tax benefits on profits generated through fiscal 2008. These tax incentives resulted in a decrease in our effective tax rate compared to the tax rate that we estimate would have applied if these incentives had not been available. Our copper refinery and copper rod plant at Tuticorin have also been awarded the status of export oriented units, under which we are eligible for tax exemptions on raw materials and capital goods procured and finished goods sold until June 1, 2011. There can be no assurance that these tax holidays or exemptions will be renewed when they expire or that any applications we make for new tax holidays or exemptions will be successful. The expiry or loss of existing tax holidays, exemptions and tax deferral schemes or the failure to obtain new tax holidays, exemptions or tax deferral schemes will likely increase our tax obligations and any increase could have a material adverse effect on our financial condition or results of operations.

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      In addition, we are subject to a minimum alternative tax which sets a minimum amount of tax we must pay each year based on our profits. The effective minimum alternative tax rate is 11.2% as of the date of this prospectus. The minimum alternative tax may prevent us from taking full advantage of any tax holidays, exemptions or tax deferral schemes that may be available to us.
Shortage of skilled labor in the metals and mining industry could increase our costs and limit our ability to maintain or expand our operations, which could adversely affect our results of operations.
      Mining and metal refining, smelting and fabrication operations require a skilled and experienced labor force. If we experience a shortage of skilled and experienced labor, our labor productivity could decrease and costs could increase, our operations may be interrupted or we may be unable to maintain our current production or increase our production as otherwise planned, which could have a material adverse effect on our results of operations, financial condition and business prospects.
Risks Relating to Our Industry
The recent increases in commodity prices and the copper TcRc may not be sustainable.
      Our recent high levels of profitability and high operating margins are in large part due to the increase in international copper, zinc and aluminum commodity prices to historical highs. In addition, there has been an increase in the market rate of the TcRc for copper smelting and refining, which has contributed to our recent increases in profitability and operating margins. There can be no assurance that such international commodity prices or the copper TcRc will continue to increase, or that they will not decline, and thus our recent growth and profitability may not be indicative of our future results. Our profitability and operating margins depend on the level of international commodity prices and the market TcRc rate for copper relative to our overall costs of production, including the costs of raw materials. Any material decline in the prices we receive without a corresponding decrease in our cost of production could adversely affect our results of operations and financial condition and reduce the value of our reserves.
Commodity prices and the copper TcRc may be volatile.
      Historically, the international commodity prices for copper, zinc and aluminum and the prevailing market TcRc rate for copper have been volatile and subject to wide fluctuations in response to relatively minor changes in the supply of, and demand for, such commodities, market uncertainties, the overall performance of world or regional economies and the related cyclicality in industries we directly serve and a variety of other factors. Commodity prices and the market TcRc rate for copper may continue to be volatile and subject to wide fluctuations in the future. A decline in the prices we receive for our copper, zinc or aluminum metals and in the market TcRc rate for copper would adversely affect our revenue and results of operations, and a sustained drop would have a material adverse effect on our revenue, results of operations and financial condition.
Our ore reserves are estimates based on a number of assumptions, any changes to which may require us to lower our estimated reserves.
      The ore reserves stated in this prospectus are estimates and represent the quantity of copper, zinc, lead and bauxite that we believed, as of March 31, 2006, could be mined, processed, recovered and sold at prices sufficient to cover the estimated future total costs of production, remaining investment and anticipated additional capital expenditures. These estimates are subject to numerous uncertainties inherent in estimating quantities of reserves and could vary in the future as a result of actual exploration and production results, depletion, new information on geology and fluctuations in production, operating and other costs and economic parameters such as metal prices, smelter treatment charges and exchange rates, many of which are beyond our control. As a result, you should not place undue reliance on the reserve data contained in this prospectus. In the event that any of these assumptions turn out to be incorrect, we may need to revise our ore reserves downwards and this may adversely affect our life-of-mine plans and

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consequently the total value of our mining asset base, which could increase our costs and decrease our profitability.
Changes in tariffs, royalties, customs duties and government assistance may reduce our domestic premium, which would adversely affect our profitability and results of operations.
      Copper, zinc and aluminum are sold in the Indian market at a premium to the international market prices of these metals due to tariffs payable on the import of such metals.
      Between March 2002 and February 2006, customs duties on imported copper, zinc and aluminum decreased from 35.0% to 7.5%. In January 2004, the special additional duty, or SAD, of 4% which was also levied on imports of copper, zinc and aluminum was abolished, reducing the effective customs duties levied on all imports. The Government of India may reduce customs duties further in the future, although the timing and extent of such reductions cannot be predicted. As we sell the majority of the commodities we produce in India, any further reduction in Indian tariffs on imports will decrease the premiums we receive in respect of those sales. Our profitability is dependent to a significant extent on the continuation of import duties and any material reduction would have a material adverse effect on our results of operations and financial condition.
      We pay royalties to the State Governments of Chhattisgarh and Rajasthan based on our extraction of bauxite and lead-zinc ore, respectively and to the State Government of Tasmania in Australia based on our extraction of copper ore. Most significant of these is the royalty that HZL is required to pay to the State Government of Rajasthan, where all of HZL’s mines are located, at a rate of 6.6% of the LME zinc metal price payable on the zinc metal contained in the ore mined and 5.0% of the LME lead metal price payable on the lead metal contained in the ore mined. The royalties we pay are subject to change. Any upward revision to the royalty rates being charged currently may adversely affect our profitability. Additionally, the Department of Mines and Geology of the State of Rajasthan has raised additional demands for payment through several show cause notices to HZL for mining minerals associated with lead and zinc such as cadmium and silver. Any upward revision to the royalty rates being charged currently or payment of additional royalty for mining of associated minerals may adversely affect our profitability. See “Business — Litigation — Royalty Demands against HZL.”
      Indian exports of copper, aluminum and zinc receive assistance premiums from the Government of India, which have been reduced since 2002. These export assistance premiums have been reduced in recent years and may be further reduced in the future. Any reduction in these premiums will decrease the revenue we receive from export sales and may have a material adverse effect on our results of operations or financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results of Operations — Government Policy.”
Risks Relating to Our Relationship with Vedanta
We are controlled by Vedanta and your ability to influence matters requiring shareholder approval will be extremely limited.
      Immediately upon the completion of this offering, we will continue to be a majority-owned and controlled subsidiary of Vedanta. Vedanta is in turn 53.8%-owned by Volcan. Volcan is owned and controlled by members of the Agarwal family, specifically Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, his father, Mr. Dwarka Prasad Agarwal, and his son, Mr. Agnivesh Agarwal, the Non-Executive Chairman of HZL. As part of Vedanta’s listing on the LSE, Volcan and Messrs. Anil Agarwal, Dwarka Prasad Agarwal and Agnivesh Agarwal entered into an agreement with Vedanta which seeks to regulate the ongoing relationship between them so that Vedanta is able to carry on its business independently of Volcan and the Agarwal family. See “Certain Relationships and Related Transactions.” However, we cannot assure you that the agreement among Vedanta, Volcan and the Agarwal family will be effective at insulating Vedanta, and in turn us, from being influenced or controlled by Volcan and the Agarwal family, which influence or control could have a material adverse effect on the holders of the ADSs and other holders of our equity shares.

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      As long as Vedanta, through its subsidiaries, owns a majority of our outstanding equity shares, Vedanta will have the ability to control or influence significant matters requiring board approval and to take shareholder action without the vote of any other shareholder, and the investors in this offering will not be able to affect the outcome of any shareholder vote. Vedanta will have the ability to control all matters affecting us.
      In the event Vedanta ceases to be our majority shareholder, we will be required to immediately repay all of the amounts outstanding under our loan agreements, which was Rs. 33,062 million ($719.6 million) as of September 30, 2006.
      Vedanta’s voting control may discourage transactions involving a change of control of us, including transactions in which you as a holder of our ADSs might otherwise receive a premium for your ADSs over the then-current market price. Subject to the lock-up agreements of Twin Star and MALCO described elsewhere in this prospectus, Vedanta is not prohibited from selling a controlling interest in us to a third party and may do so without your approval and without providing for a purchase of your ADSs. Accordingly, your ADSs may be worth less than they would be if Vedanta did not maintain voting control over us.
Vedanta may decide to allocate business opportunities to other members of the Vedanta group instead of to us, which may have a material adverse effect on our business, results of operations, financial condition and prospects.
      Vedanta’s control of us means it can determine the allocation of business opportunities among us, itself and its other subsidiaries. For example, Vedanta owns 51.0% of Konkola Copper Mines plc, or KCM, an integrated copper producer in Zambia, 80.0% of MALCO, an aluminum metals and mining company in India with which we compete, and 70.5% of Vedanta Alumina, which is seeking to develop an alumina refining and aluminum smelting business. As Vedanta controls KCM, MALCO, Vedanta Alumina and us, it determines the allocation of business opportunities between KCM, MALCO, Vedanta Alumina and us, as well as the strategies and actions of KCM, MALCO, Vedanta Alumina and us. Vedanta may determine to have KCM, MALCO, Vedanta Alumina or another of its subsidiaries, instead of us, pursue business opportunities in the copper, zinc, aluminum or commercial power generation business, or any other business, or cause such companies or us to undertake corporate strategies, the effect of which is to benefit such companies instead of us and which could be detrimental to our interests. If Vedanta were to take any such actions, our business, results of operations, financial condition and prospects could be materially and adversely affected and the value of our equity shares and the ADSs may decline.
We have issued several guarantees and a put option as security for the obligations of certain of our subsidiaries and other companies within the Vedanta group and we will have liability under these guarantees and put option in the event of any failure by such entities to perform their obligations, which could have a material adverse effect on our results of operations and financial condition.
      We have issued several guarantees and a put option in respect of the obligations of certain of our subsidiaries and other companies within the Vedanta group, including guarantees and a put option issued as security for loan obligations, credit facilities or issuance of customs duty bonds for import of capital equipment at concessional rates of duties. Our outstanding guarantees and put option cover obligations aggregating Rs. 9,393 million ($204.4 million) as of September 30, 2006, the liabilities for which have not been recorded in our consolidated financial statements. We will have a liability in the event that any of these entities fails to perform its obligations under the loan agreements, credit facilities or bonds, which could have a material adverse effect on our results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Guarantees and Put Option.”

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Any disputes that arise between us and Vedanta or other companies in the Vedanta group could harm our business operations.
      Disputes may arise between Vedanta or other companies in the Vedanta group and us in a number of areas, including:
  •  intercompany agreements setting forth services and prices for services between us and Vedanta or other companies in the Vedanta group;
 
  •  business combinations involving us;
 
  •  sales or distributions by Vedanta of all or any portion of its ownership interest in us; or
 
  •  business opportunities that may be attractive to us and Vedanta, or other companies in the Vedanta group.
      We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.
      Our agreements with Vedanta and other companies in the Vedanta group may be amended upon agreement between the parties. As we are controlled by Vedanta, Vedanta may require us to agree to amendments to these agreements that may be less favorable to us than the original terms of the agreements.
Some of our directors and executive officers may have conflicts of interest because of their ownership of Vedanta shares, options to acquire Vedanta shares and positions with Vedanta.
      Some of our directors and executive officers own Vedanta shares and options to purchase Vedanta shares, and will continue to have such interests in Vedanta after the completion of this offering, including through their continued participation in the Vedanta Long-Term Incentive Plan 2003, or the Vedanta LTIP. In addition, some of our directors and executive officers are directors or executive officers of Vedanta and will continue to hold such positions after the completion of this offering. Ownership of Vedanta shares and options to purchase Vedanta shares and the presence of an executive officer of Vedanta on our board of directors could create, or appear to create, potential conflicts of interest and other issues with respect to their fiduciary duties to us when our directors and officers are faced with decisions that could have different implications for Vedanta than for us.
      In addition, we are a party to a shared services agreement with Vedanta and certain other subsidiaries of Vedanta under which our management’s time and services are shared between the Vedanta group and us. As a result, our management, including our senior management, is not solely focused on our business and may be distracted by, or have conflicts as a result of, the demands of Vedanta or other businesses within the Vedanta group, which may materially and adversely affect our business, results of operations and financial condition. For more information on the shared services agreement, see “Certain Relationships and Related Transactions — Related Transactions.”
Risks Relating to Investments in Indian Companies and International Operations Generally
A substantial portion of our assets and operations are located in India and we are subject to regulatory, economic, social and political uncertainties in India.
      We are incorporated in India. Our primary operating subsidiaries, HZL and BALCO, as well as our associate company, Vedanta Alumina, are also incorporated in India. A substantial portion of our assets and employees are located in India and we intend to continue to develop and expand our facilities in India. Consequently, our financial performance and the market price of our ADSs will be affected by changes in exchange rates and controls, interest rates, changes in government policies, including taxation policies, social and civil unrest and other political, social and economic developments in or affecting India.
      The Government of India has exercised and continues to exercise significant influence over many aspects of the Indian economy. Since 1991, successive Indian governments have pursued policies of

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economic liberalization, including by significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant and we cannot assure you that such liberalization policies will continue. The present government, formed in May 2004, has announced policies and taken initiatives that support the continued economic liberalization policies that have been pursued by previous governments for more than a decade. However, the present government is a multiparty coalition and therefore there is no assurance that it will be able to generate sufficient cross-party support to implement such policies. The rate of economic liberalization could change, and specific laws and policies affecting metals and mining companies, foreign investments, currency exchange rates and other matters affecting investment in India could change as well. Further, government corruption scandals and protests against privatizations, which have occurred in the past, could slow the pace of liberalization and deregulation. For example, the present government changed the government’s policy on divestments and stated a new divestment policy that profit-making public sector companies will generally not be privatized, and all privatization will be considered on a transparent and consultative case-by-case basis. Given the change in government policy on divestments, there can be no assurance that any of the proposed privatizations in which we have registered expressions of interest will be implemented or completed in the near future, or at all. A significant change in India’s policy of economic liberalization and deregulation could adversely affect business and economic conditions in India generally and our business in particular if new restrictions on the private sector are introduced or if existing restrictions are increased.
As the domestic Indian market constitutes the major source of our revenue, a downturn in the rate of economic growth in India will be detrimental to our results of operations.
      In fiscal 2006, approximately 56.1% of our net sales were derived from commodities that we sold to customers in India. The performance and growth of our business are necessarily dependent on the health of the overall Indian economy. Any downturn in the rate of economic growth in India, whether due to political instability or regional conflicts, economic slowdown elsewhere in the world or otherwise, may have a material adverse effect on demand for the commodities we produce. The Indian economy has grown significantly over the past few years. The Indian economy is also largely driven by the performance of the agriculture sector, which depends on the quality of the monsoon, which is difficult to predict. In the past, such economic slowdowns have harmed manufacturing industries, including companies engaged in the copper, zinc and aluminum sectors, as well as the customers of manufacturing industries. Any future slowdown in the Indian economy could have a material adverse effect on our financial condition and results of operations.
Terrorist attacks and other acts of violence involving India or other neighboring countries could adversely affect our operations directly, or may result in a more general loss of customer confidence and reduced investment in these countries that reduces the demand for our products, which would have a material adverse effect on our business, results of operations, financial condition and cash flows.
      Terrorist attacks and other acts of violence or war involving India or other neighboring countries may adversely affect the Indian markets and the worldwide financial markets. The occurrence of any of these events may result in a loss of business confidence, which could potentially lead to economic recession and generally have an adverse effect on our business, results of operations, financial condition and cash flows. In addition, any deterioration in international relations may result in investor concern regarding regional stability which could adversely affect the price of our equity shares and ADSs.
      South Asia has also experienced instances of civil unrest and hostilities among neighboring countries from time to time, especially between India and Pakistan. In recent years, military confrontations between India and Pakistan have occurred in the region of Kashmir and along the India/ Pakistan border. There have also been incidents in and near India such as terrorist attacks in Mumbai, Delhi and on the Indian Parliament, troop mobilizations along the India/ Pakistan border and an aggravated geopolitical situation in the region. Such military activity or terrorist attacks in the future could adversely affect the Indian economy by disrupting communications and making travel more difficult. Resulting political tensions could

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create a greater perception that investments in Indian companies involve a high degree of risk. Furthermore, if India were to become engaged in armed hostilities, particularly hostilities that were protracted or involved the threat or use of nuclear weapons, we might not be able to continue our operations. Our insurance policies for a substantial part of our business do not cover terrorist attacks or business interruptions from terrorist attacks or for other reasons.
If natural disasters or environmental conditions in India, including floods and earthquakes, affect our mining and production facilities, our revenues could decline.
      Our mines and production facilities are spread across India, and our sales force is spread throughout the country. Natural calamities such as floods, rains, heavy downpours (such as the rains in Mumbai and other parts of the State of Maharashtra in 2005 and other states in 2006) and earthquakes could disrupt our mining and production activities and distribution chains and damage our storage facilities. Other regions in India have also experienced floods, earthquakes, tsunamis and droughts in recent years. In December 2004, Southeast Asia, including the eastern coast of India, experienced a massive tsunami, and in October 2005, the State of Jammu and Kashmir experienced an earthquake, both of which events caused significant loss of life and property damage. Substantially all of our facilities and employees are located in India and there can be no assurance that we will not be affected by natural disasters in the future. In addition, if there were a drought or general water shortage in India or any part of India where our operations are located, the Government of India or local, state or other authorities may restrict water supplies to us and other industrial operations in order to maintain water supplies for drinking and other public necessities.
Currency fluctuations among the Indian Rupee, the Australian dollar and the US dollar could have a material adverse effect on our results of operations.
      Although substantially all of our revenue is tied to commodity prices that are typically priced by reference to the US dollar, most of our expenses are incurred and paid in Indian Rupees or Australian dollars. In addition, in fiscal 2006, approximately 43.9% of our net sales were derived from commodities that we sold to customers outside India. The exchange rates between the Indian Rupee and the US dollar, and between the Australian dollar and the US dollar have changed substantially in recent years and may fluctuate substantially in the future. Our results of operations could be adversely affected if the US dollar depreciates against the Indian Rupee or Australian dollar or the Indian Rupee or Australian dollar appreciates against the US dollar. We seek to mitigate the impact of short-term movements in currency on our business by hedging most of our near-term exposures. Typically, all of our exposures with a maturity of less than two years are hedged completely. However, large or prolonged movements in exchange rates may have a material adverse effect on our results of operations and financial condition.
If financial instability occurs in other countries, particularly emerging market countries in Asia, our business could be disrupted and the price of our ADSs could go down.
      The Indian market and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Financial turmoil in Asia, Russia and elsewhere in the world in recent years has affected the Indian economy. Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause increased volatility in Indian financial markets and in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy. Financial disruptions may occur again and could have a material adverse effect on our business, our financial performance and the price of our equity shares and ADSs.

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If India’s inflation worsens or the prices of oil or other raw materials continue to rise, we may not be able to pass the resulting increased costs to our customers and this may adversely affect our profitability or cause us to suffer operating losses.
      In 2005, India’s wholesale price inflation suggested an increasing inflation trend compared to recent years. Recently, international prices of crude oil have risen to historical highs, increasing transportation costs. Inflation, increased transportation costs and an increase in energy prices generally, which may be caused by a rise in the price of oil, or an increase in the price of thermal coal in particular, could cause our costs for raw material inputs required for production of our products to increase, which would adversely affect our financial condition and results of operations if we cannot pass these added costs along to customers.
Stringent labor laws in India may adversely affect our profitability.
      India has stringent labor legislation that protects the interests of workers, including legislation that sets forth detailed procedures for dispute resolution and employee removal and imposes financial obligations on employers upon employee layoffs. This makes it difficult for us to maintain flexible human resource policies, discharge employees or downsize, which may adversely affect our business and profitability.
  As a foreign private issuer and a “controlled company” within the meaning of the NYSE rules, we are subject to different NYSE rules than non-controlled domestic US issuers. Consequently, the corporate governance standards which we are required to adhere to are different than those applicable to such companies, which may limit the information available to, and the shareholder rights of, holders of our ADSs.
      We qualify as a “controlled company” within the meaning of the NYSE rules as Vedanta will have effective control of a majority of our equity shares after the completion of this offering. This will allow Vedanta to, among other things, control the composition of our board of directors and direct our management and policies.
      As a foreign private issuer and a “controlled company,” we are exempt from complying with certain corporate governance requirements of the NYSE, including the requirement that a majority of our board of directors consist of independent directors. As the corporate governance standards applicable to us are different than those applicable to domestic non-controlled US issuers, you may not have the same protections afforded under the NYSE rules as shareholders of companies that do not have such exemptions. It is also possible that the Agarwal family’s significant ownership interest of us as a result of their majority ownership of Vedanta’s majority shareholder, Volcan, could adversely affect investors’ perceptions of our corporate governance. For a summary of the differences between the corporate governance standards applicable to us as a listed company in India and as a foreign private issuer and “controlled company” in the United States and such standards applicable to a domestic non-controlled US issuer, see “Comparison of Corporate Governance Standards.”
There are certain differences in shareholder rights and protections between the laws of India and the United States and between governance standards for a US public company and a foreign private issuer such as us.
      We are incorporated in India and investors should be aware that there are certain differences in the shareholder rights and protections between the laws of India and the United States. There are also certain differences in the corporate governance standards for a domestic US issuer and those applicable to a foreign private issuer such as us. See “Comparison of Shareholders’ Rights.”
      In addition, there may be less information available about companies listed on Indian securities markets than companies listed on securities markets in other countries as a result of differences between the level of regulation and monitoring of the Indian securities markets and of the transparency of the activities of investors and brokers in India compared to some more developed economies.

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      The Securities and Exchange Board of India, or SEBI, and the various Indian stock exchanges are responsible for improving and setting standards for disclosure and other regulatory standards for the Indian securities markets. SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. Nevertheless, there may be less information made publicly available in respect of Indian companies than is regularly made available by public companies in the United States. Similarly, our disclosure obligations under the rules of the Indian Stock Exchanges on which our equity shares are listed may be less than the disclosure obligations of public companies on the NYSE.
Risks Relating to the ADS Offering and Our ADSs
There has been no public market for our ADSs prior to this offering, and the offering price of the ADSs may not be indicative of the value of the ADSs in the future. We cannot assure you that an active trading market or a specific ADS price will be established, and restrictions on a holder’s ability to re-deposit equity shares with the depositary could adversely affect the price of our ADSs.
      Before the ADS offering, there has been no public trading market for our ADSs. An active trading market for our ADSs may not develop or be sustained after the ADS offering, which would adversely affect the liquidity and market price of our ADSs. ADS holders are entitled to withdraw the equity shares underlying the ADSs from the depositary at any time, provided that the underlying shares are listed on the Indian Stock Exchanges. Under current Indian law, subject to certain limited exceptions, equity shares so acquired may not be eligible for redeposit with the depositary. Therefore, the number of outstanding ADSs will in all likelihood decrease to the extent that equity shares are withdrawn from the depositary, which may adversely affect the market price and the liquidity of your ADSs. The initial public offering price per ADS will be determined by negotiation between us and the representatives of the underwriters, with reference to the trading price of our equity shares on the Indian Stock Exchanges, and may not be indicative of the market price of our ADSs after our initial public offering. We cannot assure you that you will be able to resell your ADSs at or above the initial public offering price.
Because the initial public offering price per ADS is substantially higher than our book value per ADS, purchasers in the ADS offering will immediately experience a substantial dilution in net tangible book value.
      Purchasers of our ADSs will experience immediate and substantial dilution in net tangible book value per ADS from the initial public offering price per ADS. After giving effect to the sale of ADSs offered by this prospectus at an assumed public offering price of $          per ADS, based on the closing price of our shares on the BSE on                     , 2006, of Rs.                     per equity share and after deducting underwriting discounts and commissions and the estimated offering expenses payable by us in the ADS offering, our net tangible book value as of                     , 2006 would have been approximately Rs.                      million ($           million), or Rs.                     ($          ) per ADS. This represents an immediate dilution in net tangible book value of $           per ADS to investors in the ADS offering. For a calculation of the dilution purchasers in this offering will incur, see “Dilution.”
Substantial future sales of our equity shares or ADSs in the public market, or the perception of such sales, could cause the market price of our ADSs to fall.
      If our existing shareholders sell a substantial number of our equity shares in the open market, or if there is a perception that such sale or distribution could occur, the market price of our equity shares and ADSs could be adversely affected. While we have agreed with the underwriters not to issue, and our principal shareholders, Twin Star and MALCO, have agreed not to offer, sell, or contract to sell, directly or indirectly, or otherwise dispose of or hedge, any of our equity shares or ADSs or similar securities, or any economic interest therein, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, subject to certain exceptions, no assurance can be given that such equity shares or ADSs will not be sold as soon as the restrictions are lifted, which sales, or the perception that such sales may occur, could materially and adversely affect the value of our equity shares

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and ADSs. The representatives of the underwriters may release such locked-up shares in their sole discretion at any time and without prior public announcement.
      Upon the completion of this offering, we will have                     equity shares outstanding. Of these equity shares, the                     equity shares represented by ADSs offered hereby will be freely tradable without restriction in the public markets. Upon the completion of this offering, our existing shareholders will own  equity shares, which will represent      % of our outstanding share capital. If the underwriters exercise their over-allotment option in full, the number of equity shares held by our existing shareholders upon completion of this offering will be                     , which will represent      % of our outstanding share capital. Of our outstanding equity shares,                     will be freely tradable on the Indian Stock Exchanges immediately upon the completion of this offering. Also immediately upon the completion of this offering, Vedanta, through Twin Star and MALCO, will continue to have effective control over a majority of our outstanding equity shares, which will represent      % of our outstanding share capital, or approximately      % if the underwriters exercise their over-allotment option in full, which equity shares will be subject to the 180-day “lock-up” period. Immediately following the completion of this offering, the holders of approximately                     equity shares (directly or in the form of ADSs) will be entitled to dispose of their equity shares or ADSs pursuant to the volume and other restrictions of Rule 144 under the Securities Act. The holders of approximately                     equity shares (directly or in the form of ADSs) will be entitled to dispose of their equity shares or ADSs following the expiration of an initial 180-day “lock-up” period pursuant to the volume and other restrictions of Rule 144. See “Shares Available for Future Sale” for a discussion of possible future sales of our equity shares.
Fluctuations in the exchange rate between the Indian Rupee and the US dollar could have a material adverse effect on the value of our ADSs and our equity shares to be represented by such ADSs, independent of our actual operating results.
      The price of the ADSs will be quoted in dollars. Our equity shares are quoted in Rupees on the Indian Stock Exchanges. Any dividends in respect of our equity shares will be paid in Rupees and subsequently converted into dollars for distribution to ADS holders.
      Currency exchange rate fluctuations will affect the dollar equivalent of the Rupee price of our equity shares on the Indian Stock Exchanges and, as a result, the prices of our ADSs, as well as the dollar value of the proceeds a holder would receive upon the sale in India of any of our equity shares withdrawn from the depositary under the deposit agreement and the dollar value of any cash dividends we pay on our equity shares. Holders may not be able to convert Rupee proceeds into dollars or any other currency, and there is no guarantee of the rate at which any such conversion will occur, if at all. Currency exchange rate fluctuations will also affect the value received by ADS holders from any dividends paid by us in respect of our equity shares. Holders of our ADSs will bear all of the risks with respect to a decline in the value of the Indian Rupee as compared to the dollar, which would adversely affect the price of our ADSs and the dollar value of any dividends we pay that are received by ADS holders.
We will have broad discretion in how we use the proceeds of this offering and we may not use these proceeds effectively. This could affect our profitability and cause the prices of our equity shares and ADSs to decline.
      Our management will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether we are using the proceeds appropriately. We currently intend to use the net proceeds of this offering for general corporate purposes, including capital expenditures and working capital, reduction of debt and for possible acquisitions of complementary businesses and consolidation of the ownership of our subsidiaries. We have not yet finalized the amount of net proceeds that we will use specifically for each of these purposes. We may use the net proceeds for corporate purposes that do not improve our profitability or increase our market value, which could cause the prices of our equity shares and ADSs to decline.
      We retain broad discretion in our use of proceeds from this offering and may not be able to use such proceeds in the manner we have indicated in this prospectus. As a result, we may use such proceeds in a

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different manner, which may have a material adverse effect upon our business, results of operations or financial condition.
Transfers of the underlying shares by persons resident outside India to residents of India are subject to certain pricing norms.
      Under current Indian regulations, subject to certain conditions, no prior regulatory approval is required for the sale of any equity shares, including any equity shares withdrawn from the ADS facilities, by a person resident outside India to a resident of India. However, certain reporting requirements would need to be complied with by the parties to the sale transaction. Also, the prior approval of the RBI would be required in the event of a sale of the equity shares underlying our ADSs by a non-resident investor to a resident investor if the sale price is greater than the maximum price set by the RBI under Indian foreign exchange laws. Any such approval required from the RBI or any other government agency may not be obtained on terms favorable to a non-resident investor, or at all.
Holders of ADSs may be restricted in their ability to exercise preemptive rights under Indian law and thereby may suffer future dilution of their ownership positions.
      Under the Indian Companies Act, the holders of equity shares of a company incorporated in India have a preemptive right to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares by the company, unless the preemptive rights have been waived by adopting a special resolution passed by 75% of the shareholders present and voting at a general meeting. Holders of ADSs may be unable to exercise preemptive rights for the underlying equity shares of the ADSs unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to prepare and file such a registration statement and our decision to do so will depend on the costs and potential liabilities associated with any such registration statement, as well as any other factors we consider appropriate at the time. No assurance can be given that we would file a registration statement under these circumstances. If we issue any such securities in the future, such securities may be issued to the depositary, which may sell the securities for the benefit of the holders of the ADSs. The value the depositary would receive from the sale of such securities cannot be predicted. To the extent that holders of ADSs are unable to exercise preemptive rights granted in respect of our equity shares represented by their ADSs, their proportional ownership interests in us would be diluted.
We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to US Holders.
      Based on the price of the ADSs in this offering and the expected price of our ADSs and equity shares following the completion of this offering, and the composition of our income and assets, we do not expect to be considered a passive foreign investment company, or PFIC, for United States federal income tax purposes for our current taxable year ending March 31, 2007. However, we must make a separate determination each year as to whether we are a PFIC (after the close of each taxable year). Accordingly, we cannot assure you that we will not be a PFIC for our current taxable year ending March 31, 2007, or any future taxable year. A non-United States corporation will be considered a PFIC for any taxable year if either (1) at least 75% of its gross income is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. The value of our assets generally will be determined by reference to the market price of our ADSs and equity shares, which may fluctuate considerably. In addition, there are uncertainties regarding the application of the relevant rules and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in any offering. If we were to be treated as a PFIC for any taxable year during which a US Holder holds an ADS or an equity share, certain adverse United States federal income tax consequences could apply to the US Holder. See “Certain Income Tax Considerations — United States Federal Income Taxation — Passive Foreign Investment Company.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
      This prospectus contains “forward-looking statements” that are based on our current expectations, assumptions, estimates and projections about our company and our industry. These forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “project,” “seek,” “should” and similar expressions. These statements include, among other things, the discussions of our business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that, although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions could be materially incorrect. Factors which could cause these assumptions to be incorrect include but are not limited to:
  •  a decline or volatility in the prices of or demand for copper, zinc or aluminum;
 
  •  events that could cause a decrease in our production of copper, zinc or aluminum;
 
  •  unavailability or increased costs of raw materials for our products;
 
  •  our actual economically recoverable copper ore, lead-zinc ore or bauxite reserves being lower than we have estimated;
 
  •  our ability to expand our business, effectively manage our growth or implement our strategy, including our planned entry into the commercial power business;
 
  •  our ability to retain our senior management team and hire and retain sufficiently skilled labor to support our operations;
 
  •  regulatory, legislative and judicial developments and future regulatory actions and conditions in our operating areas;
 
  •  increasing competition in the copper, zinc or aluminum industry;
 
  •  political or economic instability in India or around the region;
 
  •  worldwide economic and business conditions;
 
  •  our ability to successfully consummate strategic acquisitions;
 
  •  the outcome of outstanding litigation in which we are involved;
 
  •  our ability to maintain good relations with our trade unions and avoid strikes and lock-outs;
 
  •  any actions of our controlling shareholder, Vedanta;
 
  •  our business’ future capital requirements and the availability of financing on favorable terms;
 
  •  the continuation of tax holidays, exemptions and deferred tax schemes we enjoy;
 
  •  changes in tariffs, royalties, customs duties and government assistance; and
 
  •  terrorist attacks and other acts of violence, natural disasters and other environmental conditions and outbreaks of infectious diseases and other public health concerns in India, Asia and elsewhere.
These and other factors are more fully discussed in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans, objectives or projected financial results referred to in any of the forward-looking statements. Except as required by law, we do not undertake to release revisions of any of these forward-looking statements to reflect future events or circumstances.

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ENFORCEMENT OF CIVIL LIABILITIES
      We are a limited liability company incorporated in India and our primary operating subsidiaries, HZL and BALCO, are also incorporated in India. A majority of our directors and executive officers are not residents of the United States and substantially all of our assets and the assets of those persons are located outside the United States. As a result, it may not be possible for you to effect service of process within the United States upon those persons or us. In addition, you may be unable to enforce judgments obtained in courts of the United States against those persons outside the jurisdiction of their residence, including judgments predicated solely upon US securities laws. Moreover, it is unlikely that a court in India would award damages on the same basis as a foreign court if an action were brought in India or that an Indian court would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with Indian practice.
      Section 44A of the Indian Code of Civil Procedure, 1908, as amended, or the Civil Code, provides that where a foreign judgment has been rendered by a superior court in any country or territory outside of India which the Government of India has by notification declared to be a reciprocating territory, such foreign judgment may be enforced in India by proceedings in execution as if the judgment had been rendered by an appropriate court in India. However, the enforceability of such judgments is subject to the exceptions set forth in Section 13 of the Civil Code. This section, which is the statutory basis for the recognition of foreign judgments, states that a foreign judgment is conclusive as to any matter directly adjudicated upon except:
  •  where the judgment has not been pronounced by a court of competent jurisdiction;
 
  •  where the judgment has not been given on the merits of the case;
 
  •  where the judgment appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where such law is applicable;
 
  •  where the proceedings in which the judgment was obtained were opposed to natural justice;
 
  •  where the judgment has been obtained by fraud; or
 
  •  where the judgment sustains a claim founded on a breach of any law in force in India.
      Section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of amounts payable in respect of taxes or other charges of a similar nature or in respect of fines or other penalties and does not include arbitration awards.
      If a judgment of a foreign court is not enforceable under Section 44A of the Civil Code as described above, it may be enforced in India only by a suit filed upon the judgment, subject to Section 13 of the Civil Code and not by proceedings in execution. Accordingly, as the United States has not been declared by the Government of India to be a reciprocating territory for the purposes of Section 44A, a judgment rendered by a court in the United States may not be enforced in India except by way of a suit filed upon the judgment.
      The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. Generally, there are considerable delays in the disposition of suits by Indian courts.
      A party seeking to enforce a foreign judgment in India is required to obtain prior approval from the RBI under the Indian Foreign Exchange Management Act, 1999, or FEMA, to repatriate any amount recovered pursuant to such enforcement. Any judgment in a foreign currency would be converted into Indian Rupees on the date of judgment and not on the date of payment.
      We have appointed CT Corporation System as our agent to receive service of process with respect to any action brought against us in the US District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

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USE OF PROCEEDS
      Our net proceeds from the sale of           ADSs in this offering will total approximately $           million (Rs.           million), after deducting underwriting discounts and commissions and estimated offering expenses which are payable by us, and assuming an initial public offering price of $          (Rs.          ) per ADS, based on the closing price of our equity shares on the BSE on                     , 2006 and no exercise of the underwriters’ over-allotment option. A $1.00 (Rs.          ) increase (decrease) in the assumed initial public offering price of $ (Rs.          ) per ADS would increase (decrease) the net proceeds to us from this offering by $           million (Rs.            million), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters’ over-allotment option and no other change to the number of ADSs offered by us as set forth on the cover page of this prospectus.
      We intend to use the net proceeds from this offering for general corporate purposes, including capital expenditures and working capital, reduction of debt and for possible acquisitions of complementary businesses and consolidation of the ownership of our subsidiaries. Specifically, we may use all or part of the proceeds of the ADS offering towards any of the following purposes:
  •  Our current intention to exercise our call option to acquire the Government of India’s remaining 29.5% ownership interest in HZL (or 26.0% if the Government of India exercises in full its right to sell 3.5% of HZL to HZL employees) after the call option becomes exercisable on or after April 11, 2007. However, it has been reported that the Government of India is taking steps to sell its remaining ownership interest in HZL through a public offer prior to our exercise of the call option, though we have received no communication from the Government of India on this matter. If we are able to exercise this call option, the exercise price will be equal to the fair market value of the Government of India’s shares as determined by an independent appraiser, which may take into consideration a number of factors including the current market price of HZL’s shares. Based solely on the market price of HZL’s shares on the BSE on November 20, 2006 of Rs. 893.95 ($19.44) per share and not including the other factors that the independent appraiser may consider, one possible estimation of the exercise price to acquire all of the Government of India’s 124,795,059 shares of HZL would be Rs. 105,321 million ($2,292.1 million). See “Business — Options to Increase Interests in HZL and BALCO.” If the Government of India sells its remaining ownership interest in HZL through a public offer, we may look into alternative means of increasing our ownership interest in HZL.
 
  •  Entering the commercial power generation business in India by building the first phase, totaling 2,400 MW, of a thermal coal-based power facility in the State of Orissa, India through our wholly-owned subsidiary Sterlite Energy, as described in “Business — Our Future Commercial Power Generation Business,” at a cost of approximately Rs. 87,305 million ($1,900.0 million) over four years. We expect that the proceeds from this offering will be used towards only a portion of this project as we expect that a significant part, currently estimated to be approximately 70%, of this project will be funded by external debt, the equity contribution for the project is expected to be spread out over the next four years and we intend to also use internally-generated capital towards this project.
 
  •  A reduction of debt in an amount of up to Rs. 6,893 million ($150.0 million).
 
  •  Acquiring complementary businesses that we determine to be attractive opportunities, though we have no agreements or commitments for material acquisitions of any businesses as of the date of this prospectus.

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      The amounts that we actually expend for these and other purposes and for working capital will vary significantly depending on a number of factors, including the timing and size of capital expenditures and possible exercise of our call option, future revenue growth, if any, and the amount of cash that we generate from operations. As a result, we will retain broad discretion over the allocation of the net proceeds of the ADS offering. See “Risk Factors — Risks Relating to the ADS Offering and Our ADSs — We will have broad discretion in how we use the proceeds of this offering and we may not use these proceeds effectively. This could affect our profitability and cause the prices of our equity shares and ADSs to decline.” Pending their use, we intend to invest our net proceeds in high quality interest-bearing investments.

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DIVIDENDS AND DIVIDEND POLICY
      We have paid dividends every year since fiscal 1982. The following table sets forth, for the periods indicated, the dividend per equity share and the total amount of dividends declared on the equity shares, both exclusive of dividend distribution tax. All dividends were paid in Indian Rupees.
                                 
    Dividend Per   Total Amount of
Fiscal Year   Equity Share   Dividend Declared
         
            (in millions)
2004
    Rs. 3.00     $ 0.07       Rs. 215     $ 4.7  
2005
    3.00       0.07       330       7.2  
2006(1)
    1.25       0.03       698       15.2  
2007(2)
    4.00       0.09       2,234       48.6  
 
Note:
(1)  The dividend for fiscal 2006 was recommended by our board of directors on May 30, 2006 and approved by our shareholders at the general meeting held on September 20, 2006. The dividend paid in fiscal 2006 was paid after the five-for-two stock split and one-for-one bonus issue effective May 12, 2006.
(2)  An interim dividend was declared by our board of directors on November 15, 2006 and the record date is on December 7, 2006. As a result, purchasers of ADSs in this offering will not be eligible to receive this interim dividend.
     Our dividends are generally paid in the fiscal year following the year in which they are declared. Under Indian law, a company declares dividends (including interim dividends) upon a recommendation by its board of directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months of the end of each fiscal year. However, while final dividends can be paid out by a company only after such dividends have been recommended by the board of directors and approved by shareholders, interim dividends can be paid out with only a recommendation by the board of directors, though such action is subject to subsequent sanction by the shareholders at the annual general meeting held within six months from the end of the fiscal year. The shareholders have the right to decrease but not to increase the dividend amount recommended by the board of directors.
      Under Indian law, a company is allowed to pay dividends (including interim dividends), in excess of 10.0% of its paid-up capital in any year from profits for that year only if it transfers a specified percentage of the profits of that year to reserves. We make such transfers for any dividends we pay to general reserves.
      If profits for that year are insufficient to declare dividends (including interim dividends), the dividends for that year may be declared and paid out from accumulated profits on the following conditions:
  •  the rate of dividend to be declared shall not exceed the average of the rates at which dividends were declared in the five years immediately preceding that year or 10.0% of our paid-up share capital, whichever is less;
 
  •  the total amount to be drawn from the accumulated profits earned in previous years and transferred to the reserves shall not exceed an amount equal to one-tenth of the sum of our paid-up share capital and net reserves, and the amount so drawn shall first be utilized to set off the losses incurred in the financial year before any dividend in respect of preference or equity share is declared; and
 
  •  the balance of the reserves after such withdrawal shall not fall below 15.0% of our paid-up share capital.
      Dividends (including interim dividends)must be paid within 30 days from the date of the declaration and any dividend which remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. We must transfer any money which remains unpaid or unclaimed for seven years from the date of such transfer to the Investor Education and Protection Fund established by the Government of India.

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      The tax rates imposed on us in respect of dividends paid in prior periods have varied. Currently, the effective tax rate on dividends is 14.0%, which is a direct tax paid by us. Taxes on dividends are not payable by our shareholders and are not withheld or deducted from the dividend payments set forth above.
      Future dividends will depend on our revenue, cash flows, financial condition (including capital position) and other factors. ADS holders will be entitled to receive dividends payable in respect of the equity shares represented by ADSs. Cash dividends in respect of the equity shares represented by your ADSs will be paid to the depositary in Indian Rupees and, except as otherwise described under “Description of American Depositary Shares,” will be converted by the depositary into dollars. The depositary will distribute these proceeds to you. The equity shares represented by ADSs will rank equally with all other equity shares in respect of dividends. ADS holders will bear all of the currency exchange rate risk of the conversion of any dividends from Indian Rupees to dollars, and a decline in the value of the Indian Rupee as compared to the dollar would reduce the dollar value of any dividends we pay that are received by ADS holders.

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CAPITALIZATION
      The following table sets forth our indebtedness and capitalization as of September 30, 2006:
  •  on an actual basis; and
 
  •  as adjusted to give effect to the sale by us of           ADSs (each ADS representing one equity share) offered in the ADS offering at an assumed offering price of $          (Rs.          ) per ADS, based on the closing price of our equity shares on the BSE on                     , 2006, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in this offering and further assuming no exercise of the underwriters’ over-allotment option and no other change to the number of ADSs sold by us as set forth in “Prospectus Summary,” and assuming our shareholders approve an increase in our authorized share capital to 925,000,000 equity shares.
      The as adjusted information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs in this offering and other terms of this offering determined at pricing. You should read this table in conjunction with “Use of Proceeds,” “Selected Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes that are included elsewhere in this prospectus.
                                     
    As of September 30, 2006
     
    Actual   As Adjusted   Actual   As Adjusted
                 
    (in millions)
Long-term debt, net of current portion
    Rs. 21,967     Rs.       $ 478.1     $    
Shareholders’ equity:
                               
 
Equity shares of par value Rs. 2,
                               
   
Authorized: 600,000,000, actual; 925,000,000 as adjusted
                               
   
Issued: 558,494,411, actual;           , as adjusted
    1,117               24.3          
   
Additional paid-in capital(1)
    26,220               570.6          
Retained earnings
    47,836               1,041.0          
Accumulated other comprehensive losses
    (783 )             (17.0 )        
                         
   
Total shareholders’ equity(1)
    Rs.74,390             $ 1,618.9          
                         
Total capitalization(1)
    Rs.96,357     Rs.       $ 2,097.0     $    
                         
 
Notes:
(1)  A $1.00 (Rs.         ) increase (decrease) in the assumed initial public offering price of $                                  (Rs.        ) per ADS in this offering would increase (decrease) each of additional paid-in capital, total shareholders’ equity and total capitalization by Rs.         million ($         million).

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DILUTION
      If you invest in our ADSs, your investment will be diluted to the extent the initial public offering price per ADS exceeds the net tangible book value per ADS immediately after this offering.
      Our net tangible book value as of September 30, 2006 was approximately Rs. 74,390 million ($1,618.9 million) or Rs. 133.20 ($2.90) per equity share/ADS. Net tangible book value per equity share/ADS is equal to the amount of our total tangible assets (total assets less intangible assets) less total liabilities and less minority interests, divided by the number of equity shares issued as of September 30, 2006. Assuming:
  •  the sale by us of ADSs offered by this prospectus at an assumed public offering price of $          per ADS, based on the closing price of our shares on the BSE on                     , 2006 of Rs.                    per equity share; and
 
  •  no exercise of the underwriters’ over-allotment option and no other change to the number of ADSs or equity shares set forth in “Prospectus Summary,”
and after deducting underwriting discounts and commissions and the estimated offering expenses payable by us in the ADS offering, our net tangible book value as of September 30, 2006 would have been approximately Rs.           million ($           million), or Rs. ($          ) per equity share/ADS. This represents an immediate increase in net tangible book value of $          (Rs.          ) per equity share to existing shareholders and an immediate dilution of $ (Rs.          ) per ADS to investors in the ADS offering.
      The following table illustrates this per ADS dilution:
                   
    ADS Offering
    Only
     
Assumed initial public offering price per ADS
          $    
 
Net tangible book value per equity shares/ADS as of September 30, 2006
  $            
 
Increase in net tangible book value attributable to this offering(1)
  $            
Net tangible book value per ADS after the ADS offering(1)
          $    
             
Dilution per ADS to investors in the ADS offering(1)
          $    
             
 
Note:
(1)  If the underwriters’ over-allotment option is exercised in full, the net tangible book value per ADS after this offering would be $        (Rs.         ), the increase in net tangible book value attributable to this offering would be $        (Rs.         ) per equity share and dilution per ADS to investors in the ADS offering would be $                                  (Rs.        ).
     A $1.00 increase (decrease) in the assumed initial public offering price of $          (Rs.          ) per ADS would increase (decrease) our net tangible book value after giving effect to this offering by Rs.          million ($           million), the net tangible book value per ADS after giving effect to this offering by $ (Rs.          ) per ADS and the dilution in net tangible book value per ADS to investors in the ADS offering by $          (Rs.          ) per ADS, assuming there is no change to the number of shares of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other expenses of this offering. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual offering price of our ADSs and other terms of this offering determined at pricing.

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      The following table sets forth as of September 30, 2006 the differences between existing shareholders and investors in the ADS offering with respect to the number of equity shares and ADSs purchased from us, the total consideration paid and the average price per equity share or ADS paid (before deducting the estimated underwriting discounts and commissions and our estimated offering expenses and assuming that the underwriters’ over-allotment option is not exercised), assuming an initial public offering price of $ (Rs.          ) per ADS:
                                         
    Equity Shares or        
    ADSs Purchased   Total Consideration   Average
            Price Per
    Number   Percentage   Number   Percentage   Share
                     
Existing shareholders
            %               %     $    
ADS investors
                                       
                               
Total
            100.0%               100.0%          
                               
      A $1.00 (Rs.           ) increase (decrease) in the assumed initial public offering price of $          (Rs.          ) per ADS would increase (decrease) total consideration paid by investors in the ADS offering, total consideration paid by all shareholders and the average price per ADS paid by all shareholders by $           million (Rs.           million), $           million (Rs.           million) and $           million (Rs.           million), respectively, assuming no change in the number of ADS sold by us in the ADS offering set forth above, and without deducting underwriting discounts and commissions and other expenses of this offering.

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EXCHANGE RATES
      Substantially all of our revenue is denominated or paid with reference to US dollars and most of our expenses are incurred and paid in Indian Rupees or Australian dollars. We report our financial results in Indian Rupees. The exchange rates among the Indian Rupee, the Australian dollar and the US dollar have changed substantially in recent years and may fluctuate substantially in the future. The results of our operations are affected as the Indian Rupee and the Australian dollar appreciate or depreciate against the dollar and, as a result, any such appreciation or depreciation will likely affect the market price of our ADSs in the United States.
      The following table sets forth, for the periods indicated, information concerning the exchange rates between Indian Rupees and US dollars based on the noon buying rate in New York City for cable transfers in Indian Rupees as certified by the Federal Reserve Bank of New York:
                                   
    Period End(1)   Average(1)(2)   High   Low
                 
Fiscal Year:
                               
 
2002
    Rs. 48.83       Rs. 47.71       Rs.  48.91       Rs.  46.58  
 
2003
    47.53       48.43       49.07       47.53  
 
2004
    43.40       45.96       47.46       43.40  
 
2005
    43.62       44.86       46.45       43.27  
 
2006
    44.48       44.17       46.26       43.05  
 
2007 (through November 20, 2006)
    44.89       45.65       46.83       44.39  
Month:
                               
 
February 2006
    44.21       44.23       44.54       44.10  
 
March 2006
    44.48       44.34       44.58       44.09  
 
April 2006
    44.86       44.83       45.09       44.39  
 
May 2006
    46.22       45.20       46.22       44.69  
 
June 2006
    45.87       45.89       46.25       45.50  
 
July 2006
    46.49       46.37       46.83       45.84  
 
August 2006
    46.43       46.45       46.61       46.32  
 
September 2006
    45.95       46.01       46.38       45.74  
 
October 2006
    44.90       45.36       45.97       44.90  
 
November 2006 (through November 20, 2006)
    44.89       44.79       45.26       44.46  
 
Notes:
(1)  The noon buying rate at each period end and the average rate for each period may have differed from the exchange rates used in the preparation of financial statements included elsewhere in this prospectus.
(2)  Represents the average of the noon buying rate for all days during the period.
     Although we have translated selected Indian Rupee amounts in this prospectus into US dollars for convenience, this does not mean that the Indian Rupee amounts referred to represent US dollar amounts or have been, could have been or could be, converted to US dollars at any particular rate, the rates stated above, or at all. Unless otherwise stated herein, all translations in this prospectus from Indian Rupees to US dollars are based on the noon buying rate in New York City for cable transfers in Indian Rupees as certified by the Federal Reserve Bank of New York on September 29, 2006, which was Rs. 45.95 per $1.00.

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      The following table sets forth, for the periods indicated, information concerning the exchange rates between the Australian dollar and US dollars based on the noon buying rate in New York City for cable transfers in Australian dollars as certified by the Federal Reserve Bank of New York:
                                   
    Period End(1)   Average(1)(2)   High   Low
                 
Fiscal Year:
                               
 
2002
    AUD1.88       AUD1.95       AUD2.07       AUD1.86  
 
2003
    1.65       1.78       1.90       1.62  
 
2004
    1.31       1.45       1.68       1.25  
 
2005
    1.29       1.35       1.46       1.25  
 
2006
    1.40       1.33       1.42       1.28  
 
2007 (through November 20, 2006)
    1.30       1.33       1.39       1.29  
Month:
                               
 
December 2005
    AUD1.36       AUD1.35       AUD1.38       AUD1.32  
 
January 2006
    1.32       1.33       1.36       1.32  
 
February 2006
    1.35       1.35       1.36       1.32  
 
March 2006
    1.40       1.38       1.42       1.34  
 
April 2006
    1.32       1.36       1.39       1.32  
 
May 2006
    1.33       1.31       1.33       1.29  
 
June 2006
    1.35       1.35       1.37       1.33  
 
July 2006
    1.30       1.33       1.33       1.30  
 
August 2006
    1.31       1.31       1.32       1.30  
 
September 2006
    1.34       1.32       1.34       1.30  
 
October 2006
    1.29       1.33       1.35       1.29  
 
November 2006 (through November 20, 2006)
    1.30       1.30       1.31       1.29  
 
Notes:
(1)  The noon buying rate at each period end and the average rate for each period may have differed from the exchange rates used in the preparation of financial statements included elsewhere in this prospectus.
(2)  Represents the average of the noon buying rate for all days during the period.
     Except as otherwise stated in this prospectus, all translations from Australian dollar to US dollars are based on the noon buying rate in New York City for cable transfers in Australian dollars as certified by the Federal Reserve Bank of New York on September 29, 2006, which was AUD 1.34 per $1.00. No representation is made that the Australian dollar amounts represent US dollar amounts or have been, could have been or could be converted into US dollars at such a rate or any other rate, or at all.
      Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

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MARKET INFORMATION
      Our outstanding equity shares are currently listed and traded on the National Stock Exchange of India Limited, or the NSE, and the Bombay Stock Exchange Limited, or the BSE. For information regarding conditions in the Indian securities markets, see “Risk Factors — Risks Relating to Investments in Indian Companies and International Operations Generally” and “The Indian Securities Market.” We have applied to have our equity securities delisted from the Calcutta Stock Exchange Association Limited, which application is currently pending.
      As of September 30, 2006, 558,494,411 equity shares were outstanding. The prices for equity shares as quoted in the official list of each of the Indian Stock Exchanges are in Indian Rupees.
      The following table shows:
  •  the reported high and low trading prices quoted in Indian Rupees for our equity shares on the NSE and BSE;
 
  •  the imputed high and low trading prices for our equity shares, translated into dollars, based on the noon buying rate of the Federal Reserve Bank of New York on the last business day of each period presented; and
 
  •  the average of the aggregate trading volume of our equity shares on the NSE and BSE,
all as adjusted to reflect the one-for-one bonus issue effective February 5, 2004 and the five-for-two stock split and one-for-one bonus issue adjusted for on the Indian Stock Exchanges on May 5, 2006.
                                                                                   
                    Average                   Average
        Daily Equity       Daily Equity
    NSE Price Per Equity Share(1)   Share   BSE Price Per Equity Share   Share
        Trading       Trading
Fiscal Year   High   Low   High   Low   Volume   High   Low   High   Low   Volume
                                         
2004
                                                                               
 
1st Quarter
    Rs.—       Rs.—     $     $             Rs.34.69       Rs.15.74     $ 0.75     $ 0.34       92,696  
 
2nd Quarter
                                  61.93       29.23       1.35       0.64       541,706  
 
3rd Quarter
                                  158.19       63.65       3.44       1.36       960,026  
 
4th Quarter
                                  147.57       98.59       3.21       2.15       593,954  
2005
                                                                               
 
1st Quarter
    90.46       83.89       1.97       1.82       16,214       108.26       66.70       2.36       1.45       224,903  
 
2nd Quarter
    118.07       86.81       2.57       1.89       120,115       118.16       87.69       2.57       1.91       146,310  
 
3rd Quarter
    130.26       104.91       2.83       2.28       153,630       129.70       105.02       2.82       2.29       135,213  
 
4th Quarter
    155.92       110.34       3.39       2.40       189,703       155.91       110.25       3.39       2.40       143,526  
2006
                                                                               
 
1st Quarter
    144.05       115.07       3.13       2.50       128,467       144.53       115.07       3.15       2.50       96,698  
 
2nd Quarter
    187.14       122.36       4.07       2.66       283,759       187.13       122.39       4.07       2.66       175,420  
 
3rd Quarter
    207.22       139.69       4.51       3.04       504,833       207.03       139.74       4.51       3.04       241.235  
 
4th Quarter
    350.20       258.10       7.62       5.62       945,576       349.89       214.96       7.61       4.68       416,264  
2007
                                                                               
 
1st Quarter
    600.65       264.45       13.07       5.76       3,275,359       604.05       263.85       13.15       5.74       1,227,445  
 
2nd Quarter
    474.05       348.10       10.32       7.58       2,905,384       473.90       348.40       10.31       7.58       1,168,648  
 
3rd Quarter(2)
    556.75       438.95       12.62       9.55       1,622,102       556.90       438.55       12.12       9.54       602,621  
 
Notes:
(1)  Prices unavailable for fiscal 2004 as we only commenced trading on the NSE on May 28, 2004.
(2)  Through November 20, 2006.

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SELECTED CONSOLIDATED FINANCIAL INFORMATION
      The selected historical consolidated statements of operations, cash flows and other consolidated financial data presented below for fiscal 2004, 2005 and 2006, and the selected historical consolidated balance sheet data as of March 31, 2005 and 2006, have been derived from our audited consolidated financial statements, which have been audited by Deloitte Haskins & Sells, Mumbai, India, an independent registered public accounting firm. The selected historical condensed consolidated statements of operations, cash flows and other consolidated financial data presented below for the six-month periods ended September 30, 2005 and 2006, and the selected historical condensed consolidated balance sheet data as of September 30, 2005 and 2006, have been derived from our unaudited condensed consolidated financial statements. Our consolidated financial statements are prepared and presented in accordance with US GAAP. Our historical results do not necessarily indicate our expected results for any future period. The translations of Indian Rupee amounts to US dollars are solely for the convenience of the reader and are based on the noon buying rate of Rs. 45.95 per $1.00 in the City of New York for cable transfers of Indian Rupees as certified for customs purposes by the Federal Reserve Bank of New York on September 29, 2006. No representation is made that the Indian Rupee amounts represent US dollar amounts or have been, could have been or could be converted into US dollars at such rates or any other rates.
      We were incorporated on September 8, 1975 and since then we have prepared our financial statements in accordance with Indian generally accepted accounting principles, or Indian GAAP, which were presented in Indian Rupees. We represent that selected financial data for fiscal 2002 and fiscal 2003 cannot be prepared and presented below in accordance with US GAAP on a comparable basis without incurring unreasonable effort or expense.
      You should read the following information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements included elsewhere in this prospectus.

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    Year Ended March 31,   Six-month Period Ended September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
    (in millions)
Consolidated Statement of Operations Data:
                                                       
Net sales
    Rs.53,476       Rs.66,643       Rs.122,791     $ 2,672.3       Rs.43,160       Rs.111,328     $ 2422.8  
Other operating revenues
    679       628       1,334       29.0       370       1,248       27.2  
                                           
Total revenue
    54,155       67,271       124,125       2,701.3       43,530       112,576       2,450.0  
Cost of sales
    (39,194 )     (50,615 )     (86,981 )     (1,892.9 )     (34,115 )     (66,400 )     (1,445.0 )
Selling and distribution expenses
    (1,392 )     (1,428 )     (2,117 )     (46.1 )     (731 )     (1,572 )     (34.2 )
General and administration expenses
    (2,457 )     (2,370 )     (2,596 )     (56.5 )     (1,074 )     (1,717 )     (37.4 )
Other expenses:
                                                       
 
Voluntary retirement scheme expenses
    (611 )     (186 )                       (97 )     (2.1 )
 
Impairment of assets
          (1,276 )                              
Guarantees, impairment of investments and loans
                (1,300 )     (28.3 )                  
                                           
Operating income
    10,501       11,396       31,131       677.5       7,610       42,790       931.3  
Interest income
    1,609       2,179       2,414       52.5       1,001       2,096       45.6  
Interest expense
    (1,969 )     (1,962 )     (3,238 )     (70.5 )     (1,018 )     (1,969 )     (42.9 )
                                           
Income before income taxes, minority interests and equity in net loss of associate
    10,141       11,613       30,307       659.5       7,593       42,917       934.0  
Income taxes:
                                                       
 
Current
    (2,624 )     (2,674 )     (7,894 )     (171.8 )     (1,583 )     (11,052 )     (240.5 )
 
Deferred
    (350 )     (831 )     (1,111 )     (24.2 )     275       (1,084 )     (23.6 )
                                           
Income after income taxes, before minority interests and equity in net loss of associate
    7,167       8,108       21,302       463.5       6,285       30,781       669.9  
Minority interests
    (2,349 )     (2,764 )     (6,073 )     (132.2 )     (1,591 )     (8,795 )     (191.4 )
Equity in net loss of associate, net of taxes
                (99 )     (2.1 )     (98 )     (15 )     (0.3 )
                                           
Net income from continuing operations
    4,818       5,344       15,130       329.2       4,596       21,971       478.2  
Discontinued operations:
                                                       
 
Income from divested business, net of tax
    203       222       369       8.1       122       86       1.9  
                                           
      Rs.5,021       Rs.5,566       Rs.15,499     $ 337.3       Rs.4,718       Rs.22,057     $ 480.1  
                                           

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    Year Ended March 31,   Six-month Period Ended September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
Basic earnings per share: (1)
                                                       
 
Income from continuing operations
    Rs.13.42       Rs.11.74       Rs.27.35       Rs.0.60       Rs.8.36       Rs.39.71       Rs.0.86  
 
Income from discontinued operations
    0.57       0.48       0.67       0.01       0.22       0.16       0.01  
                                           
 
Basic earnings per share
    Rs.13.99       Rs.12.22       Rs.28.02       Rs.0.61       Rs.8.58       Rs.39.87       Rs.0.87  
                                           
Diluted earnings per share:(1)
                                                       
 
Income from continuing operations
    Rs.13.13       Rs.11.57       Rs.27.35       Rs.0.60       Rs.8.28       Rs.39.71       Rs.0.86  
 
Income from discontinued operations
    0.55       0.48       0.67       0.01       0.22       0.16       0.01  
                                           
 
Diluted earnings per share
    Rs.13.68       Rs.12.05       Rs.28.02       Rs.0.61       Rs.8.50       Rs.39.87       Rs.0.87  
                                           
Weighted average number of equity shares used in computing earnings per share:(1)
                                                       
 
Basic
    359,007,797       455,343,743       553,216,634       553,216,634       549,816,294       553,216,634       553,216,634  
 
Diluted
    367,697,507       465,108,143       553,216,634       553,216,634       552,782,694       553,216,634       553,216,634  
Dividend declared per share(2)
    Rs.3.00       Rs.3.00       Rs.1.25     $ 0.03       Rs.—       Rs.4.00     $ 0.09  
 
Notes:
(1)  Earnings per share and weighted average number of equity shares used in computing earnings per share have been adjusted for the five-for-two stock split and one-for-one bonus issue effective May 12, 2006.
 
(2)  The dividend for fiscal 2006 was recommended by our board of directors on May 30, 2006 and approved by our shareholders at the general meeting held on September 20, 2006. The dividend paid in fiscal 2006 was paid after the five-for-two stock split and one-for-one bonus issue effective May 12, 2006. The interim dividend for fiscal 2007 was declared by our board of directors on November 15, 2006 and the record date is December 7, 2006. As a result, purchasers of ADSs in this offering will not be eligible to receive this interim dividend.
                                         
    As of March 31,   As of September 30,
         
    2005   2006   2006   2006   2006
                     
    (in millions)
Consolidated Balance Sheet Data:
                                       
Cash and cash equivalents(1)
    Rs.5,909       Rs.9,258     $ 201.5       Rs.1,577     $ 34.3  
Total assets(1)
    133,197       167,539       3,646.1       203,694       4,433.2  
Long-term debt, net of current portion
    28,794       30,237       658.0       21,967       478.1  
Short term and current portion of long-term debt
    8,663       4,390       95.5       11,095       241.5  
Total shareholders’ equity(1)
    37,388       53,498       1,164.3       74,390       1,618.9  
 
Note:
(1)  A $1.00 (Rs.         ) increase (decrease) in the assumed initial public offering price of $         (Rs.         ) per ADS would increase (decrease) each of cash and cash equivalents, total assets and total shareholders’ equity by Rs.          million ($         million).

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    Year Ended March 31,   Six-month Period Ended September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
    (in millions)
Cash Flow Data:
                                                       
Net cash provided by (used in):
                                                       
 
Operating activities
    Rs.6,205       Rs.6,075       Rs.19,595     $ 426.4       Rs.(11,032 )     Rs.859     $ 18.7  
 
Investing activities
    (18,356 )     (21,391 )     (16,676 )     (362.9 )     (6,914 )     (5,195 )     (113.1 )
 
Financing activities
    13,084       17,321       375       8.2       12,868       (3,262 )     (71.0 )
                                                           
    Year Ended March 31,   Six-month Period Ended September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
    (in millions)
Other Consolidated Financial Data:
                                                       
Net sales:
                                                       
 
Copper
    Rs.27,046       Rs.34,508       Rs.67,921     $ 1,478.1       Rs.26,038       Rs.54,459     $ 1,185.2  
 
Zinc
    18,213       21,967       38,573       839.5       12,153       40,967       891.6  
 
Aluminum
    8,217       10,168       16,297       354.7       4,969       15,902       346.1  
 
Corporate and others
                                         
                                           
 
Total
    Rs.53,476       Rs.66,643       Rs.122,791     $ 2,672.3       Rs.43,160       Rs.111,328     $ 2,422.8  
                                           
Operating income:
                                                       
 
Copper
    Rs.2,853       Rs.2,440       Rs.7,659     $ 166.7       2,223       8,394       182.7  
 
Zinc
    7,097       8,309       21,287       463.3       4,551       30,427       662.3  
 
Aluminum
    591       1,824       3,496       76.1       839       3,972       86.4  
 
Corporate and others
    (41 )     (1,177 )     (1,311 )     (28.6 )     (3 )     (3 )     (0.1 )
                                           
 
Total
    Rs.10,501       Rs.11,396       Rs.31,131     $ 677.5       Rs.7,610       Rs.42,790     $ 931.3  
                                           
Segment profit(1):
                                                       
 
Copper
    Rs.4,114       Rs.3,899       Rs.8,982     $ 195.5       2,908       9,058       197.1  
 
Zinc
    8,237       9,785       23,216       505.3       5,512       31,541       686.5  
 
Aluminum
    1,818       2,504       4,752       103.4       1,175       5,106       111.1  
 
Corporate and others
    (25 )     (100 )     (8 )     (0.2 )     (3 )     (3 )     (0.1 )
                                           
 
Total
    Rs.14,144       Rs.16,088       Rs.36,942     $ 804.0       Rs.9,592       Rs.45,702     $ 994.6  
                                           
 
Note:
(1)  Segment profit is calculated by adjusting operating income for depreciation, depletion and amortization, voluntary retirement scheme expenses, impairment of assets and guarantees, impairment of investments and loans. Segment profit is not a recognized measurement under US GAAP. Our segment profit may not be comparable to similarly titled measures reported by other companies due to potential inconsistencies in the method of calculation. We have included our segment profit because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. Our segment profit should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity reported in accordance with US GAAP. We believe that the inclusion of supplementary adjustments applied in our presentation of segment profit are appropriate because we believe it is a more indicative measure of our baseline performance as it excludes certain charges that our management considers to be outside of our core operating results. In addition, our segment profit is among the primary indicators that our management uses as a basis for planning and forecasting of future periods. The following table reconciles operating income to segment profit for the periods presented:

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    Year Ended March 31,   Six-month Period Ended September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
    (in millions)
Copper:
                                                       
 
Operating income
    Rs.2,853       Rs.2,440       Rs.7,659     $ 166.7       Rs.2,223       Rs.8,394     $ 182.7  
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    1,261       1,239       1,323       28.8       685       664       14.5  
 
Impairment of assets
          220                                
                                           
   
Segment profit
    Rs.4,114       Rs.3,899       Rs.8,982     $ 195.5       Rs.2,908       Rs.9,058     $ 197.2  
                                           
Zinc:
                                                       
 
Operating income
    Rs.7,097       Rs.8,309       Rs.21,287     $ 463.3       Rs.4,551       Rs.30,427     $ 662.3  
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    1,112       1,290       1,929       42.0       961       1,017       22.1  
 
Voluntary retirement scheme expenses
    28       186                         97       2.1  
                                           
   
Segment profit
    Rs.8,237       Rs.9,785       Rs.23,216     $ 505.2       Rs.5,512       Rs.31,541     $ 686.5  
                                           
Aluminum:
                                                       
 
Operating income
    Rs.591       Rs.  1,824       Rs. 3,496     $ 76.1       Rs.839       Rs.3,972     $ 86.4  
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    644       680       1,256       27.3       336       1,134       24.7  
 
Voluntary retirement scheme expenses
    583                                      
                                           
   
Segment profit
    Rs.1,818       Rs.2,504       Rs.4,752     $ 103.4       Rs.1,175       Rs.5,106     $ 111.1  
                                           
Corporate and others:
                                                       
 
Operating income
    Rs.(40 )     Rs.(1,177 )     Rs.(1,311 )   $ (28.6 )     Rs.(3 )     Rs.(3 )   $ (0.1 )
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    15       21       3       0.1                    
 
Impairment of assets
          1,056                                
 
Guarantees, impairment of investments and loan
                1,300       28.3                    
                                           
   
Segment profit
    Rs.(25 )     Rs.(100 )     Rs.(8 )   $ (0.2 )     Rs.(3 )     Rs.(3 )   $ (0.1 )
                                           

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        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
    (in US dollars per ton, except as indicated)
Market and Cost Data:
                                       
London Metal Exchange (LME) price(1):
                                       
 
Copper
  $ 2,051     $ 2,999     $ 4,099     $ 3,579     $ 7,466  
 
Zinc
    900       1,108       1,614       1,286       3,333  
 
Aluminum
    1,496       1,779       2,028       1,810       2,565  
Treatment charge and refining charge (TcRc)(2) :
                                       
 
Copper
    8.8¢/lb       8.6¢/lb       23.1¢/lb       15.7¢/lb       37.1¢/lb  
Cost of production(3):
                                       
 
Copper smelting and refining(4)
    7.8¢/lb       7.1¢/lb       6.1¢/lb       6.5¢/lb       5.2¢/lb  
 
Zinc(5)
  $ 571     $ 695     $ 691     $ 707     $ 838  
 
Aluminum(6)
    1,239       1,347       1,497       1,551       1,555  
 
Notes:
(1)  Calculated as the daily average cash seller settlement price for the period.
(2)  Represents our average realized TcRc for the period.
(3)  Cost of production is not a recognized measure under US GAAP. We have included cost of production as a measure of effectiveness because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. Our computation of cost of production should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity reported in accordance with US GAAP. We believe that the cost of production measure is a meaningful measure of our production cost efficiency as it is more indicative of our production or conversion costs and is a measure that our management considers to be controllable. Cost of production is a measure intended for monitoring the operating performance of our operations. This measure is presented by other non-ferrous metal companies, though our measure may not be comparable to similarly titled measures reported by other companies. Cost of production as reported for our metal products consists of direct cash cost of production and excludes non-cash cost and indirect cost (such as depreciation and interest payments), and are offset for any amounts we receive upon the sale of the by-products from the refining or smelting process. In the case of copper, where cost of production relates only to our custom smelting and refining operations, cost of production is the cost of converting copper concentrate into copper cathodes. In the case of zinc, where we have integrated operations from production of zinc ore to zinc metal, cost of production is the cost of extracting ore and conversion of the ore into zinc metal. In the case of aluminum, where cost of production relates only to BALCO’s old Korba smelter, which has integrated operations from production of bauxite to aluminum metal, cost of production is the cost of producing bauxite and conversion of bauxite into aluminum metal. Cost of production is divided by the daily average exchange rate for the year to calculate US dollar cost of production per lb or per ton of metal as reported. The following table reconciles segment cost, calculated as segment sales less segment profit, to cost of production for the periods presented:

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        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
    (in millions, except Production output and Cost of production)
Copper:
                                       
 
Segment sales
    Rs. 27,046       Rs. 34,508       Rs. 67,921       Rs. 26,038       Rs. 54,459  
 
Less:
                                       
 
Segment profit
    (4,114 )     (3,899 )     (8,982 )     (2,908 )     (9,058 )
                               
 
Segment cost
    22,932       30,609       58,939       23,130       45,401  
 
Less:
                                       
 
Purchased concentrate/rock
    (18,728 )     (27,136 )     (55,132 )     (21,176 )     (41,290 )
 
By-product/free copper net sales
    (712 )     (977 )     (1,520 )     (708 )     (1,067 )
 
Cost for downstream products
    (514 )     (599 )     (722 )     (397 )     (433 )
 
Others, net
    (1,567 )     (686 )     62       (77 )     (1,888 )
                               
 
Total expenses
    Rs. 1,411       Rs. 1,211       Rs. 1,627       Rs. 772       Rs. 723  
                               
 
Production output (in tons)
    178,654       171,992       273,048       123,513       137,142  
 
Cost of production(a)
    7.8¢/lb       7.1¢/lb       6.1¢/lb       6.5¢/lb       5.2¢/lb  
Zinc:
                                       
 
Segment sales
    Rs. 18,213       Rs. 21,967       Rs. 38,573       Rs. 12,153       Rs. 40,967  
 
Less:
                                       
 
Segment profit
    (8,237 )     (9,785 )     (23,216 )     (5,512 )     (31,541 )
                               
 
Segment cost
    9,976       12,182       15,357       6,641       9,426  
 
Less:
                                       
 
Purchased metal
    (38 )     (1 )     (539 )     (114 )      
 
Cost of tolling including raw material cost
    (1,393 )     (2,140 )     (1,502 )     (1,144 )     (14 )
 
Cost of intermediary product sold
    (853 )     (620 )     (1,188 )     (150 )     (1,094 )
 
By-product net sales
    (802 )     (1,113 )     (1,253 )     (652 )     (426 )
 
Cost of lead metal sold
    (544 )     (452 )     (690 )     (200 )     (628 )
 
Others, net
    (560 )     (1,219 )     (1,536 )     (579 )     (1,115 )
                               
 
Total expenses
    Rs. 5,786       Rs. 6,638       Rs. 8,649       Rs. 3,802       Rs. 6,149  
                               
 
Production output (in tons)
    220,664       212,445       282,668       123,229       159,671  
 
Cost of production (per ton)(a)
  $ 571     $ 695     $ 691     $ 707     $ 838  
Aluminum:
                                       
 
Segment sales
    Rs. 8,663       Rs. 10,453       Rs. 17,721       Rs. 5,450       Rs. 16,785  
 
Less:
                                       
 
Segment profit
    (1,818 )     (2,504 )     (4,752 )     (1,175 )     (5,106 )
                               
 
Segment cost
    6,845       7,949       12,969       4,275       11,679  
 
Less:
                                       
 
Cost of intermediary product sold
    (82 )     (151 )     (154 )           (68 )
 
By-product net sales
    (110 )     (291 )     (408 )     (208 )     (163 )
 
Cost for downstream products
    (768 )     (742 )     (822 )     (413 )     (449 )
 
Cost for new Korba plant
          (210 )     (4,773 )           (8,015 )
 
Others, net
    (375 )     (558 )     186       (165 )     876  
                               
 
Total expenses
    Rs. 5,510       Rs. 5,997       Rs. 6,998       Rs. 3,489       Rs. 3,860  
                               
 
Production output (hot metal) (in tons)
    96,827       99,031       105,593       51,547       54,011  
 
Cost of production (per ton)(a)
  $ 1,239     $ 1,347     $ 1,497     $ 1,551     $ 1,555  

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  (a)  Exchange rates used in calculating cost of production were based on the daily RBI reference rates for the years ended March 31, 2004, 2005 and 2006 of Rs. 45.92 per $1.00, Rs. 44.96 per $1.00 and Rs. 44.28 per $1.00, respectively and for the periods ended September 30, 2005 and September 30, 2006 of Rs. 43.65 per $1.00 and Rs. 45.95 per $1.00, respectively.
(4)  Cost of copper smelting and refining includes cost of freight of copper anodes from Tuticorin to Silvassa and excludes the benefit of the phosphoric acid plant. Revenues earned from the sale of sulphuric acid and copper metal recovered in excess of paid copper metal are deducted from the cash costs. The total cash costs are divided by the total number of pounds of copper metal produced to calculate the cost of production per pound of copper metal produced.
(5)  Cost of production of zinc consists of total direct cost of producing zinc from the mines and smelters. Revenue earned from the sale of sulphuric acid is deducted from the total costs to calculate the total cash costs to HZL of producing zinc metal. Royalties paid are included in the cost of production of zinc. The total cash cost is divided by the total number of tons of zinc metal produced to calculate the cost of production per ton of zinc metal produced.
(6)  Cost of production of aluminum relates to cost of production for BALCO’s old Korba smelter and excludes cost of production for BALCO’s new Korba smelter. Cost of production of aluminum consists of total direct cash costs. Revenue earned from the sale of by- products, such as vanadium, reduces the total cash costs. The total cost is divided by the total quantity of hot metal produced at the old Korba smelter to calculate the cost of production per ton of aluminum hot metal produced. Hot metal production output is used instead of the cast metal production output disclosed elsewhere in this prospectus in calculating cost of production as the hot metal production, which excludes the value-added cost of casting, is the measure generally used in the aluminum metal industry for calculating cost of production.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      You should read the following discussion in conjunction with “Selected Consolidated Financial Information” and our consolidated financial statements and the related notes included elsewhere in this prospectus. Some of the statements in the following discussion are forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this prospectus and those set forth below.
Overview
      We are India’s largest non-ferrous metals and mining company based on net sales and are one of the fastest growing large private sector companies in India based on the increase in net sales from 2005 to 2006. In India, one of the fastest growing large economies in the world with an 8.5% increase in real gross domestic product from 2004 to 2005, we are one of the two leading custom copper smelters by volume, the leading and only integrated zinc producer and the third largest aluminum producer by volume. We also have a minority interest in Vedanta Alumina, an alumina refining and aluminum smelting company, and intend to develop a commercial power generation business in India that leverages our experience in building and operating captive power plants used to support our copper, zinc and aluminum businesses. We have experienced significant growth in recent years through various expansion projects which have expanded our copper smelting business, by acquiring our zinc and aluminum businesses in 2002 and 2001, respectively, through Government of India privatization programs and by successfully growing our acquired businesses. We believe our experience in operating and expanding our business in India will allow us to capitalize on attractive growth opportunities arising from India’s large mineral reserves, relatively low cost of operations and large and inexpensive labor and talent pools. We believe we are also well positioned to take advantage of the significant growth in industrial production and investments in infrastructure in India, China, Southeast Asia and the Middle East, which we expect will continue to create strong demand for metals.
      Our net sales and operating income increased from Rs. 53,476 million and Rs. 10,501 million in fiscal 2004 to Rs. 122,791 million ($2,672.3 million) and Rs. 31,131 million ($677.5 million) in fiscal 2006, representing compound annual growth rates of 51.5% and 72.2%, respectively.
      The following tables are derived from our selected consolidated financial data and set forth:
  •  the net sales for each of our business segments as a percentage of our net sales on a consolidated basis;
 
  •  the operating income for each of our business segments as a percentage of our operating income on a consolidated basis; and
 
  •  the segment profit, calculated by adjusting operating income for depreciation, depletion and amortization, voluntary retirement scheme expenses, impairment of assets and guarantees, impairment of investments and loans, for each of our business segments as a percentage of our segment profit on a consolidated basis.
                                             
        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
Net Sales:
                                       
 
Copper
    50.5 %     51.7 %     55.3 %     60.3 %     48.9 %
 
Zinc
    34.1       33.0       31.4       28.2       36.8  
 
Aluminum
    15.4       15.3       13.3       11.5       14.3  
 
Corporate and others
                             
                               
   
Total
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                               

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        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
Operating income:
                                       
 
Copper
    27.2 %     21.4 %     24.6 %     29.2 %     19.6 %
 
Zinc
    67.6       72.9       68.4       59.8       71.1  
 
Aluminum
    5.6       16.0       11.2       11.0       9.3  
 
Corporate and others
    (0.4 )     (10.3 )     (4.2 )            
                               
   
Total
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                               
Segment profit(1):
                                       
 
Copper
    29.1 %     24.2 %     24.3 %     30.3 %     19.8 %
 
Zinc
    58.2       60.8       62.8       57.5       69.0  
 
Aluminum
    12.9       15.6       12.9       12.2       11.2  
 
Corporate and others
    (0.2 )     (0.6 )                  
                               
   
Total
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                               
 
Note:
(1)  Segment profit is calculated by adjusting operating income for depreciation, depletion and amortization, voluntary retirement scheme expenses, impairment of assets and guarantees, impairment of investments and loans. Segment profit is not a recognized measurement under US GAAP. Our segment profit may not be comparable to similarly titled measures reported by other companies due to potential inconsistencies in the method of calculation. We have included our segment profit because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. Our segment profit should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity reported in accordance with US GAAP. We believe that the inclusion of supplementary adjustments applied in our presentation of segment profit are appropriate because we believe it is a more indicative measure of our baseline performance as it excludes certain charges that our management considers to be outside of our core operating results. In addition, our segment profit is among the primary indicators that our management uses as a basis for planning and forecasting of future periods. The following table reconciles operating income to segment profit for the periods presented:
                                                             
        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
    (in millions)
Copper:
                                                       
 
Operating income
    Rs.2,853       Rs.2,440       Rs.7,659     $ 166.7       Rs.2,223       Rs.8,394     $ 182.7  
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    1,261       1,239       1,323       28.8       685       664       14.5  
 
Impairment of assets
          220                                
                                           
   
Segment profit
    Rs.4,114       Rs.3,899       Rs.8,982     $ 195.5       Rs.2,908       Rs.9,058     $ 197.2  
                                           
Zinc:
                                                       
 
Operating income
    Rs.7,097       Rs.8,309       Rs.21,287     $ 463.3       Rs.4,551       Rs.30,427     $ 662.3  
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    1,112       1,290       1,929       42.0       961       1,017       22.1  
 
Voluntary retirement scheme expenses
    28       186                         97       2.1  
                                           
   
Segment profit
    Rs.8,237       Rs.9,785       Rs.23,216     $ 505.2       Rs.5,512       Rs.31,541     $ 686.5  
                                           

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        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2006   2005   2006   2006
                             
    (in millions)
Aluminum:
                                                       
 
Operating income
    Rs.591       Rs.1,824       Rs.3,496     $ 76.1       Rs.839       Rs.3,972     $ 86.4  
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    644       680       1,256       27.3       336       1,134       24.7  
 
Voluntary retirement scheme expenses
    583                                      
                                           
   
Segment profit
    Rs.1,818       Rs.2,504       Rs.4,752     $ 103.4       Rs.1,175       Rs.5,106     $ 111.1  
                                           
Corporate and Others:
                                                       
 
Operating income
    Rs.(40 )     Rs.(1,177 )     Rs.(1,311 )   $ (28.6 )     Rs.(3 )     Rs.(3 )   $ (0.1 )
 
Plus:
                                                       
 
Depreciation, depletion and amortization
    15       21       3       0.1                    
 
Impairment of assets
          1,056                                
 
Guarantees, impairment of investments and loans
                1,300       28.3                    
                                           
   
Segment profit
    Rs.(25 )     Rs.(100 )     Rs.(8 )   $ (0.2 )     Rs.(3 )     Rs.(3 )   $ (0.1 )
                                           
Business Summary
      Our company is comprised of the following business segments:
  •  Copper. Our wholly-owned copper business is principally one of custom smelting and includes a smelter, refinery, phosphoric acid plant, sulphuric acid plant and copper rod plant at Tuticorin in Southern India and a refinery and two copper rod plants at Silvassa in Western India. In addition, we own the Mt. Lyell copper mine in Tasmania, Australia, which provides a small percentage of our copper concentrate requirements. Our primary products are copper cathodes and copper rods. Net sales and operating income of our copper business have increased from Rs. 27,046 million and Rs. 2,853 million in fiscal 2004 to Rs. 67,921 million ($1,478.1 million) and Rs. 7,659 million ($166.7 million) in fiscal 2006, representing compound annual growth rates of 58.5% and 63.8%, respectively.
 
  •  Zinc. Our zinc business is owned and operated by HZL, India’s leading and only integrated zinc producer with a 73% market share by volume of the Indian zinc market in fiscal 2006, according to ILZDA. We have a 64.9% ownership interest in HZL. The remainder of HZL is owned by the Government of India (29.5%) and institutional and public shareholders (5.6%). HZL is a fully integrated zinc producer with operations including three lead-zinc mines, two zinc smelters, one lead smelter and one lead-zinc smelter in Northwest India and one zinc smelter in Southeast India. HZL’s primary products are zinc and lead ingots. Net sales and operating income of our zinc business have increased from Rs. 18,213 million and Rs. 7,097 million in fiscal 2004 to Rs. 38,573 million ($839.5 million) and Rs. 21,287 million ($463.3 million) in fiscal 2006, representing compound annual growth rates of 45.5% and 73.2%, respectively.
 
  •  Aluminum. Our aluminum business is primarily owned and operated by BALCO. We have a 51.0% ownership interest in BALCO. The remainder of BALCO is owned by the Government of India. We have exercised our option to acquire the Government of India’s remaining 49.0% ownership interest, though the exercise of this option has been contested by the Government of India and the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. BALCO’s operations include two bauxite mines, one refinery, two smelters, a fabrication facility and two captive power plants in Central India. BALCO’s primary products are aluminum ingots, rods and rolled products. Net sales and operating income of our aluminum business have increased from Rs. 8,217 million and Rs. 591 million in fiscal 2004 to

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  Rs. 16,297 million ($354.7 million) and Rs. 3,496 million ($76.1 million) in fiscal 2006, representing compound annual growth rates of 40.8% and 143.2%, respectively.
 
  •  Corporate and Others. Our corporate and other business segment primarily includes our equity investment in Vedanta Alumina and our guarantees, investments and loans with respect to India Foils Limited, or IFL. We hold a 29.5% minority interest in Vedanta Alumina, which is not consolidated into our financial results and which is accounted for as an equity investment.

      We also intend to develop a commercial power generation business which we anticipate will be a separate business segment.
Factors Affecting Results of Operations
      Our results of operations are primarily affected by commodity prices, our cost of production, our production output, government policy in India and exchange rates.
Metal Prices and Copper TcRc
Overview
      Our results of operations are significantly affected by the TcRc of copper in our copper business and the commodity prices of the metals that we produce, which are based on LME prices, in our zinc and aluminum businesses. Both the TcRc of copper and the commodity prices of the metals we produce can vary significantly when supply of and demand for copper smelting and refining capacity and the metals we produce fluctuate. While copper smelters and metal producers are unable to influence the market rate of the TcRc or commodity prices directly, events such as changes in copper smelting or commodity production capacities, temporary price reductions or other attempts to capture market share by individual smelters and metal producers, including by our consolidated group of companies, may have an effect on market prices. Moreover, the prices realized by us can, to some extent, be affected by the particular terms we are able to negotiate for the contractual arrangements we enter into with buyers. Price variations and market cycles, including recent volatility for both LME prices and the copper TcRc, have historically influenced, and are expected to continue to influence, our financial performance.
Copper
      The net sales of our copper business fluctuate based on the volume of our sales and the LME price of copper. However, as our copper business is primarily one of custom smelting and refining, with only a small percentage of our copper concentrate requirements sourced from our own mine, the profitability of our copper business is significantly dependent upon the market rate of the TcRc. We purchase copper concentrate at the LME price for the relevant quotational period less a TcRc that we negotiate with our suppliers but which is influenced by the prevailing market rate for the TcRc. The market rate for the TcRc is significantly dependent upon the availability of copper concentrate, worldwide copper smelting capacity and transportation costs. Some of our contracts for the purchase of copper concentrate include a provision under which a component of TcRc is variable and is determined based on the LME price for copper. The TcRc that we are able to negotiate is also substantially influenced by the TcRc terms established by certain large Japanese custom smelters. The profitability of our copper business as to the portion of our copper business where we source copper concentrate from third parties, which accounted for 89% of our copper concentrate requirements in fiscal 2006, is thus dependent upon the amount by which the TcRc we are able to negotiate exceeds our smelting and refining costs. The following table sets forth

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the average TcRc that we have realized for each of the last three fiscal years and for the six-month periods ended September 30, 2005 and 2006:
                                         
        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
    (in US cents per pound)
Copper TcRc
    8.8¢/lb       8.6¢/lb       23.1¢/lb       15.7¢/lb       37.1¢/lb  
      In addition to affecting the variable component of TcRc included in some of our contracts for the purchase of copper concentrate, the LME price of copper affects our profitability as to the portion of our copper business where we source copper concentrate from our own mine, which accounted for 11% of our copper concentrate requirements in fiscal 2006 and which is expected to decrease as a percentage in the future as the reserves of our sole remaining copper mine, Mt. Lyell in Tasmania, Australia, are expected to be exhausted by fiscal 2010 and to the extent we seek to increase our copper smelting and refining capacity. The following table sets forth the daily average copper LME price for each of the last three fiscal years and for the six-month periods ended September 30, 2005 and 2006:
                                         
        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
    (in US dollars per ton)
Copper LME
  $ 2,051     $ 2,999     $ 4,099     $ 3,579     $ 7,466  
Zinc and Aluminum
      The net sales of our zinc and aluminum businesses fluctuate based on the volume of our sales and the respective LME prices of zinc and aluminum. Our zinc business is fully integrated, so its profitability is dependent upon the difference between the LME price of zinc and our cost of production, which includes the costs of mining and smelting. BALCO was a fully integrated producer in fiscal 2005 and prior years, with all of its alumina requirements being supplied by its own bauxite mines and alumina refinery. However, following the completion of a large expansion project at Korba to increase aluminum smelting capacity, BALCO sourced approximately 40% of its alumina requirements from the international markets in fiscal 2006. Going forward, we expect BALCO to source a majority of its alumina requirements from third parties. For the portion of our aluminum business where the alumina is sourced internally, profitability is dependent upon the LME price of aluminum less our cost of production, which includes the costs of bauxite mining, the refining of bauxite into alumina and the smelting of alumina into aluminum. For the portion of our aluminum business where alumina is sourced from third parties, profitability is dependent upon the LME price of aluminum less the cost of the sourced alumina and our cost of production. The following table sets forth the daily average zinc and aluminum LME prices for each of the last three fiscal years and for the six-month periods ended September 30, 2005 and 2006:
                                         
        Six-month Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
    (in US dollars per ton)
Zinc LME
  $ 900     $ 1,108     $ 1,614     $ 1,286     $ 3,333  
Aluminum LME
    1,496       1,779       2,028       1,810       2,565  
India Market Premium
      Generally, our products sold in India are sold at a premium to the LME market price due to a number of factors including the customs duties levied on imports by the Government of India, the costs to transport metals to India and regional market conditions. See “— Government Policy.” As a result, we endeavor to sell as large a quantity of our products as possible domestically.

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Hedging
      We have historically engaged in hedging strategies to partially mitigate our exposure to fluctuations in commodity prices, as further described in “— Quantitative and Qualitative Disclosures About Market Risk — Qualitative Analysis — Commodity Price Risk.”
Cost of Production
      Our results of operations are, to a significant degree, dependent upon our ability to efficiently run our operations and maintain low costs of production. Efficiencies relating to recovery of metal from the ore, process improvements, by-product management and increasing productivity help drive our costs down. Costs associated with mining and metal production include energy costs, ore extraction and processing costs at our captive mines, labor costs and other manufacturing expenses. Cost of production also includes cost of alumina for our aluminum business, as described under “— Metal Prices and Copper TcRc.” Cost of production does not include the cost of copper concentrate for our copper business, though such cost is included in our cost of sales.
      Energy cost is the most significant component of the cost of production in all our businesses. Most of our power requirements are met by captive power plants, which are primarily coal-fueled. Thermal coal, diesel fuel and fuel oil, which are used in the running of our power plants, and metcoke, which is used in the zinc smelting process, are currently sourced from a combination of long-term contracts and the open market. Our aluminum business, which has high energy consumption due to the power-intensive nature of aluminum smelting, sources 60-70% of its thermal coal requirement from Coal India. The quantity of the coal supplied by Coal India to all its customers is subject to a maximum amount fixed by Coal India from time to time based on percentage of each customer’s power plant capacity. Subject to such maximum amount, the quantity of coal to be supplied by Coal India to any customer is reset quarterly and is determined based on the performance of such customer’s power plant. In addition, shortages of coal at Coal India may require that a greater amount of higher priced imported coal be utilized. For example, in April 2005, a shortage of coal led Coal India to reduce the amount of coal supplied to all its customers, including BALCO, except utilities, forcing BALCO to utilize higher priced imported coal. Any change in coal prices or the mix of coal that is utilized, primarily whether the coal is sourced locally or imported, can affect the cost of generating power.
      For our zinc business and the portions of our copper and aluminum businesses where we source the ore from our own mines, ore extraction and processing costs affect our cost of production. In our zinc and copper businesses, the ore extraction and processing costs to produce concentrates are generally a small percentage of our overall cost of production of the finished metals. In our aluminum business, the bauxite ore extraction cost is not significant but the refining cost to produce alumina from bauxite ore represents approximately one-third of the cost of production of aluminum. In addition, a significant cost of production in our zinc business is the royalty that HZL pays on the lead-zinc ore that is mined, which royalty is a function of the LME prices of zinc and lead. See “— Government Policy — Taxes and Royalties.”
      Labor costs are principally a function of the number of employees and increases in compensation from time to time. Improvements in labor productivity in recent years have resulted in a decrease in the per-unit labor costs. We outsource a majority of BALCO’s and Copper Mines of Tasmania Pty Ltd’s, or CMT’s, mining operations and a limited number of functions at our copper, zinc and aluminum smelting operations to third party contractors.
      Other manufacturing expenses include, among other things, additional materials and consumables that are used in the production processes and routine maintenance to sustain ongoing operations. None of these represents a significant portion of our costs of production.
      Cost of production as reported for our metal products includes an offset for any amounts we receive upon the sale of the by-products from the refining or smelting processes. We divide our cost of production by the daily average exchange rate for the year to calculate the US dollar cost of production per lb or ton of metal as reported.

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Production Output
      Production output has a substantial effect on our results of operations. We are generally able to sell all of the products we can produce, so our net sales generally fluctuate as a result in changes of production output. Production output is dependent on our production capacity, which has increased in recent years across all of our businesses. For our mining operations, production output is also dependent upon the quality and consistency of the ore. Per-unit production costs are also significantly affected by changes in production output in that higher volumes of production generally reduce the production costs. Therefore, our production levels are a key factor in determining our overall cost competitiveness. We have benefited from significant economies of scale as we have increased production volumes in recent years. The following table summarizes our production volumes for our primary products for the last three fiscal years and for the six-month periods ended September 30, 2005 and 2006:
                                             
            Six-month Period Ended
        Year Ended March 31,   September 30,
             
Segment   Product   2004   2005   2006   2005   2006
                         
        (tons)
Copper
  Copper cathode(1)     178,654       171,992       273,048       123,513       137,142  
    Copper rods     122,713       125,406       166,497       79,648       86,542  
Zinc
  Zinc(2)(3)     220,664       212,445       283,698       123,229       160,701  
    Lead(4)     25,089       15,727       23,636       7,199       19,938  
Aluminum
  Ingots(5)     13,149       8,609       58,750       9,093       76,757  
    Rods(6)     48,243       48,045       64,602       29,926       34,153  
    Rolled Products     35,631       43,618       50,391       24,267       25,075  
                                   
      Total Aluminum     97,023       100,272       173,743       63,286       135,985  
 
Notes:
(1)  Copper cathode is used as a starting material for copper rods. Approximately one ton of copper cathode is required for the production of one ton of copper rods.
(2)  Includes production capitalized in fiscal 2006 and in the six-month period ended September 30, 2005 of 1,030 tons.
(3)  Excludes tolled metal in fiscal 2004, 2005 and 2006 of 40,562 tons, 53,479 tons and 34,890 tons, respectively, and in the six-month periods ended September 30, 2005 and 2006 of 25,582 tons and 251 tons, respectively.
(4)  Excludes production capitalized in fiscal 2006 of 153 tons.
(5)  Includes production capitalized in fiscal 2006 of 12,288 tons and in the six-month period ended September 30, 2005 of 7,648 tons.
(6)  Includes production capitalized in fiscal 2006 of 1,300 tons and in the six-month period ended September 30, 2005 of 575 tons.
     In addition, the mix of products we produce can have a substantial impact on our results of operations as we have different operating margins in each of our businesses, and within each business our operating margins vary between the lower margins of primary metals and the higher margins of value-added products such as copper rods and aluminum rolled products. As the production outputs of our various products fluctuate primarily based on market demand and our production capacity for such products, the percentage of our revenues from those products will also fluctuate between higher and lower margin products, which will in turn cause our operating income and operating margins to fluctuate.
      Periodically, our facilities are shut down for planned and unplanned repairs and maintenance which temporarily reduces our production output.

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Government Policy
Customs Duties
      We sell our products in India at a premium to the LME price, due in part to the customs duties payable on imported products. Our profitability is affected by the levels of customs duties as we price our products sold in India generally on an import-parity basis. We also pay a premium on certain raw materials that we import or which are sourced locally but which are priced on an import-parity basis as a result of customs duties, with copper concentrate, coal, petroleum products, alumina, carbon and caustic soda being the primary examples. The following table sets forth the customs duties that were applicable for the periods indicated:
                                                 
        March 1,   January 9,   July 8,   March 1,    
        2002   2004   2004   2005   March 1,
    As of   to   to   to   to   2006
    February 28,   January 8,   July 7,   February 28,   February 28,   to
    2002   2004   2004   2005   2006   Present
                         
Copper
    35.0%       25.0%       20.0%       15.0%       10.0%       7.5%  
Copper concentrate
    5.0%       5.0%       5.0%       5.0%       5.0%       2.0%  
Zinc
    35.0%       25.0%       20.0%       15.0%       10.0%       7.5%  
Aluminum
    25.0%       15.0%       15.0%       15.0%       10.0%       7.5%  
      In addition, the Finance Act (2 of 2004), which has been in effect since July 8, 2004, levies an additional surcharge at the rate of 2% of the total customs duty payable. Effective January 9, 2004, the SAD of 4% which had until that time been levied on imports was abolished, reducing the effective customs duties levied on all imports. The Government of India may further reduce customs duties in the future, which could adversely affect our results of operations.
Export Incentives
      The Government of India provides a variety of export incentives to Indian companies. Indian exports of copper, aluminum and zinc receive assistance premiums from the Government of India, which have been progressively reduced since 2002, and which is consistent with a similar reduction in custom duties. Export incentives do not outweigh the Indian market price premiums. Accordingly, notwithstanding the export incentives, we endeavor to sell as large a quantity of our products as possible domestically.
      In fiscal 2004, 2005 and 2006, exports accounted for 41.5%, 53.2% and 63.7%, respectively, of our copper business’ net sales. The following table sets forth the export assistance premiums, either as Indian Rupees per ton of exports or as a percentage of the Free on Board, or FOB, value of exports, on copper cathode and copper rods for the periods indicated:
                                         
    Prior to   January 19, 2005   May 5, 2005 to   November 21, 2005 to   July 15, 2006 to
    January 19, 2005   to May 4, 2005   November 20, 2005   July 14, 2006   Present
                     
    (per ton of exports)   (percentage of FOB value in exports)
Copper cathode
    Rs. 13,300       Rs. 6,500       4.5%(1 )     5.0%(3 )     2.2%(4 )
Copper rods
    Rs. 18,100       Rs. 9,000       5.0%(2 )     5.0%(2 )     2.2%(5 )
 
Notes:
(1)  Subject to a cap of Rs. 7,700 per ton.
(2)  Subject to a cap of Rs. 10,050 per ton.
(3)  Subject to a cap of Rs. 9,000 per ton.
(4)  Subject to a cap of Rs. 7,500 per ton.
(5)  Subject to a cap of Rs. 7,760 per ton.

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     In fiscal 2004, 2005 and 2006, exports accounted for 14.3%, 17.9% and 24.0%, respectively, of our zinc business’ net sales. The following table sets forth the export assistance premiums, as a percentage of the FOB value of exports, on zinc concentrate, zinc ingots and lead concentrate for the periods indicated:
                         
    Prior to   May 26, 2005 to   July 3, 2006 to
    May 26, 2005   July 2, 2006   Present
             
    (percentage of FOB value of exports)
Zinc concentrate
    3.0%       2.0%       2.0%  
Zinc ingots
    9.0%       6.0%       4.0%  
Lead concentrate
    3.0%       2.0%       2.0%  
      In fiscal 2004, 2005 and 2006, exports accounted for 1.1%, 2.4% and 8.7%, respectively, of our aluminum business’ net sales. The following table sets forth the export assistance premiums, as a percentage of the FOB value of exports, on aluminum ingots, aluminum rods and aluminum rolled products for the periods indicated:
                         
    Prior to   May 26, 2005 to   July 3, 2006 to
    May 26, 2005   July 2, 2006   Present
             
    (percentage of FOB value of exports)
Aluminum ingots
    3.0%       2.0%       2.0%  
Aluminum rods
    3.0%       2.0%       2.0%  
Aluminum rolled products
    7.0%       4.0%       3.0%  
      The Government of India may further reduce customs duties and export incentives in the future, which would adversely affect our results of operations.
Taxes and Royalties
      Income tax on Indian companies is presently charged at a statutory rate of 30.0% plus a surcharge of 10.0% and has an additional charge of 2.0% on the tax including surcharge, which resulted in an effective tax rate of 33.7% for fiscal 2006. We have in the past had an effective tax rate lower than the statutory rate, benefiting from capital allowances permitted under Indian tax law, as well as tax incentives in infrastructure projects and in specific locations. However, Indian companies are subject to a minimum alternative tax, the effective rate of which as of the date of this prospectus is 11.2% on the book profits as determined under the Indian Companies Act. Amounts paid as minimum alternative tax may be applied towards regular income taxes payable in any of the succeeding seven years.
      A tax on dividends declared and distributed by Indian companies is charged at an effective tax rate of 14.0%. This tax is payable by the company distributing the dividends. Dividends from our subsidiaries to us are also subject to this tax, though we do not pay income tax upon the receipt of any such dividends.
      We currently pay an excise duty of 16.0% based on all of our domestic production intended for domestic sale and charge this excise duty to our domestic customers.
      We are also subject to other government royalties. We pay royalties to the State Governments of Chhattisgarh and Rajasthan, India, based on our extraction of bauxite and lead-zinc ore. Most significant of these is the royalty that HZL is currently required to pay to the State of Rajasthan, where all of HZL’s mines are located, at a rate of 6.6% of the LME zinc metal price payable on the zinc metal contained in the ore mined and 5.0% of the LME lead metal price payable on the lead metal contained in the ore mined. The royalties paid by BALCO on extraction of bauxite are not material to our results of operations. We also pay royalties to the State Government of Tasmania in Australia based on the operations at CMT at a rate equal to the sum of 1.6% of the net sales plus 0.4 times the profit multiplied by the profit margin over net sales, subject to a cap of 5.0% of net sales.
Exchange Rates
      We sell commodities that are typically priced by reference to US dollar prices. However, a majority of our direct costs in our zinc and aluminum businesses and our smelting and refining costs in our copper

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business are incurred in Indian Rupees and to a much lesser extent in Australian dollars. Also, all costs with respect to imported material for all our businesses are generally incurred in US dollars. As a result, an increase in the value of the US dollar compared to the Indian Rupee, and to a lesser extent the Australian dollar is generally beneficial to our results of operations, except to the extent that the increase results in increased costs of copper concentrate, alumina and other imported materials for our businesses. A decrease in the value of the US dollar relative to the Indian Rupee or Australian dollar has the opposite effect on our results of operations.
      The following table sets forth the fluctuations in the value of the Indian Rupee against the US dollar for the Australian dollar against the US dollar and the periods indicated:
Number of Indian Rupees equal to
one US dollar (April 1, 2003 to
September 30, 2006)
(GRAPH)
Number of Australian dollars equal to
one US dollar (April 1, 2003 to
September 30, 2006)
(GRAPH)
 
Source: Federal Reserve Bank of New York.
Power Business
      We expect our future results of operations to be affected by our plan to enter the commercial power generation business. The effect of this new business will depend on the timing of and our success in executing this plan. See “Business — Our Future Commercial Power Generation Business” for additional details on our plans for this future business.
Critical Accounting Estimates
      The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. In the course of preparing these financial statements, our management has made estimates based on, and assumptions that impact, the amounts recognized in our consolidated financial statements. For a discussion of our significant accounting policies, see note 2 to our consolidated financial statements. We believe the critical accounting estimates described below are those that are both important to reflect our financial condition and results and require difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
     Mine Properties
      The carrying value of mine properties is determined by depleting the assets over the life of the respective mine using the unit of production method based on proven and probable reserves. The estimation of our proven and probable reserves is subject to assumptions and may change when new information becomes available. Changes in reserve estimates as a result of factors such as production cost, recovery rates, grade of reserves or commodity prices could impact depleting rates, asset carrying values and environmental and restoration accruals.

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     Useful Economic Lives of Assets and Impairment
      Property, plant and equipment, other than mine properties, are depreciated over their useful economic lives. Management reviews the useful economic lives at least once a year and any changes could affect the depreciation rates prospectively and hence the asset carrying values.
      We also review our property, plant and equipment, including mine properties, for possible impairment if there are events or changes in circumstances that indicate that the carrying value of an asset may not be recoverable and exceeds its fair value. In assessing property, plant and equipment for impairment, factors leading to significant reductions in profits such as changes in commodity prices, our business plans and significant downward revisions in the estimated mining reserves are taken into consideration. The carrying value of the assets and associated mining reserves is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. This involves management estimate of commodity prices, market demand and supply, economic and regulatory climates, long-term mine plans and other factors. Any subsequent changes to cash flow due to changes in the above mentioned factors could impact on the carrying value of the assets.
     Asset Retirement Obligations
      Liabilities have been recognized for costs associated with restoration and rehabilitation of mine sites as the obligation to incur such costs arises and when a reasonable estimate of such costs can be made. Such costs are typical of extractive industries and they are normally incurred at the end of the life of the mine. The costs are estimated on the basis of mine closure plans and the estimated discounted costs of dismantling and removing these facilities. The costs of restoration are capitalized when incurred, reflecting our obligations at that time, and a corresponding liability is created. The capitalized asset is charged to the income statement over the life of the asset through depreciation and the accretion of the discount on the liability over the life of the operation. Management estimates are based on local legislation and/or other agreements. The actual costs and cash outflows may differ from estimates because of changes in laws and regulations, changes in prices, analysis of site conditions and changes in restoration technology.
     Commitments, Contingencies and Guarantees
      We also have significant capital commitments in relation to various capital projects which are not recognized on the balance sheet. In the normal course of business, contingent liabilities may arise from litigation and other claims against us. Guarantees are also provided in the normal course of business. There are certain obligations which management has concluded, based on all available facts and circumstances, are not probable of payment or are very difficult to quantify reliably, and such obligations are treated as contingent liabilities and disclosed in the notes but are not reflected as liabilities in the consolidated financial statements. Although there can be no assurance regarding the final outcome of the legal proceedings in which we are involved, it is not expected that such contingencies will have a materially adverse effect on our financial position or profitability.
     Deferred Tax
      In preparing our consolidated financial statements, we recognize income taxes in each of the jurisdictions in which we operate. In each jurisdiction, we estimate the actual amount of taxes currently payable or receivable. We also estimate the tax bases of assets and liabilities based on estimates, and such estimates may change when the tax returns are prepared. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to the year when the asset is realized or the liability is settled based on tax rates (and tax laws) that have been enacted as of the balance sheet date. We do not record deferred taxes on unremitted earnings of subsidiaries, associates and joint ventures based on timing of the reversal of the temporary differences where it is probable that the temporary differences will not reverse in the foreseeable future or management intends to reinvest such unremitted earnings indefinitely. Deferred tax assets are reviewed for recoverability and a valuation allowance is recorded against deferred tax assets to the extent that it is more likely than not that the deferred tax asset will not be realized. If we

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determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a credit to income tax expense.
Results of Operations
Overview
Consolidated Statement of Operations Data
      The following table is derived from our selected consolidated financial data and sets forth our historical operating results as a percentage of net sales for the periods indicated:
                                           
                Six-month
        Period Ended
    Year Ended March 31,   September 30,
         
    2004   2005   2006   2005   2006
                     
Consolidated Statement of Operations Data:
                                       
Net sales
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
Other operating revenues
    1.3       0.9       1.1       0.9       1.1  
                               
Total revenue
    101.3       100.9       101.1       100.9       101.1  
Cost of sales
    (73.3 )     (75.9 )     (70.8 )     (79.0 )     (59.6 )
Selling and distribution expenses
    (2.6 )     (2.1 )     (1.7 )     (1.7 )     (1.4 )
General and administration expenses
    (4.6 )     (3.6 )     (2.1 )     (2.5 )     (1.5 )
Other expenses:
                                       
 
Voluntary retirement scheme expenses
    (1.1 )     (0.3 )                 (0.1 )
 
Impairment of assets
          (1.9 )                  
 
Guarantees, impairment of investments and loans
                (1.1 )            
                               
Operating income
    19.7       17.1       25.4       17.7       38.5  
Interest income
    3.0       3.3       2.0       2.3       1.9  
Interest expense
    (3.7 )     (2.9 )     (2.6 )     (2.4 )     (1.8 )
                               
Income before income taxes, minority interests and equity in net loss of associate
    19.0       17.5       24.8       17.6       38.6  
Income taxes
                                       
 
Current
    (4.9 )     (4.0 )     (6.4 )     (3.7 )     (9.9 )
 
Deferred
    (0.7 )     (1.2 )     (0.9 )     0.6       (1.0 )
                               
Income after income taxes, before minority interests and equity in net loss of associate
    13.4       12.3       17.5       14.5       27.7  
Minority interests
    (4.4 )     (4.1 )     (4.9 )     (3.7 )     (7.9 )
Equity in net loss of associate, net of taxes
                (0.1 )     (0.2 )      
                               
Net income from continuing operations
    9.0       8.2       12.5       10.6       19.8  
Discontinued Operations:
                                       
 
Income from divested business, net of tax
    0.3       0.3       0.3       0.3       0.1  
                               
Net income
    9.3 %     8.5 %     12.8 %     10.9 %     19.9 %
                               

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Net Sales by Geographic Location
      The primary markets for our products are India and the Far East. Our exports to the Far East are primarily to China, South Korea, Singapore and Thailand. Other markets include a variety of countries mostly in the Middle East and Europe. While we endeavor to sell as large a quantity of our products as possible domestically due to the Indian market premium that we receive on domestic sales, our domestic sales as a percentage of our total sales have decreased in recent years as our production volume increased more rapidly than demand in the domestic market. The following table sets forth our net sales from each of our primary markets and our net sales from each of our primary markets as a percentage of our total net sales for the periods indicated:
                                                           
    Year Ended March 31,
     
    2004   2005   2006
             
        % of       % of       % of
    Net Sales   Net Sales   Net Sales   Net Sales   Net Sales   Net Sales
                         
    (in millions, except percentages)
India
    Rs. 39,558       74.0 %     Rs. 44,208       66.3 %     Rs. 68,852     $ 1,498.6       56.1 %
Far East(1)
    9,168       17.1       14,269       21.4       22,654       493.0       18.4  
Other(2)
    4,750       8.9       8,166       12.3       31,285       680.8       25.5  
                                           
 
Total
    Rs. 53,476       100.0 %     Rs. 66,643       100.0 %     Rs. 122,791     $ 2,672.3       100.0 %
                                           
 
Note:
(1)  Far East includes a number of countries, primarily including China, South Korea, Singapore and Thailand.
 
(2)  Other includes Kenya, Nigeria, Ethiopia, Algeria, Sudan, Morocco, Namibia, Egypt, Oman, United Arab Emirates, or U.A.E., Turkey, Jeddah, Qatar, Saudi Arabia, Syria, Dubai, Israel, Bangladesh, Sri Lanka, Pakistan, Belgium, France, Germany, Italy, Jordan, UK, The Netherlands, Luxembourg, Rotterdam, Spain, Sweden, Switzerland and Australia.
Customer Concentration
      The following table sets forth for the periods indicated:
  •  the percentage of our net sales accounted for by our ten largest customers on a consolidated basis; and
 
  •  for each of our three primary businesses, the percentage of the net sales of such business accounted for by the ten largest customers of such business.
                         
    Year Ended March 31,
     
    2004   2005   2006
             
Consolidated
    18.5 %     17.9 %     20.0 %
Copper
    26.3       25.0       32.0  
Zinc
    39.2       35.5       27.6  
Aluminum
    46.9       38.1       42.1  
      No single customer accounted for 10% or more of our net sales on a consolidated basis or for any of our primary businesses in any of the periods indicated, except that JSW Limited accounted for 11% of the net sales of our zinc business in fiscal 2004.

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     Comparison of the Six-month Periods Ended September 30, 2005 and September 30, 2006
     Net Sales, Other Operating Revenues and Operating Income
          Consolidated
      Net sales increased from Rs. 43,160 million in the six-month period ended September 30, 2005 to Rs. 111,328 million ($2,422.8 million) in the six-month period ended September 30, 2006, an increase of Rs. 68,168 million, or 157.9%. Net sales increased primarily as a result of higher metal prices across all our businesses and higher sales volumes enabled by the commissioning of our new capacities at Tuticorin for copper smelting, at Chanderiya for zinc smelting and at Korba for aluminum smelting. Our copper, zinc and aluminum businesses contributed 41.7%, 42.3% and 16.0% of our increase in net sales, respectively.
      Other operating revenues increased from Rs. 370 million in the six-month period ended September 30, 2005 to Rs. 1,248 million ($27.2 million) in the six-month period ended September 30, 2006, an increase of Rs. 878 million, or 237.3%. The increase was due to sales of surplus power by BALCO to state electricity boards, or SEBs, as the captive power plant for the Korba expansion was completed and fully operational while the new smelter was still being ramped-up and did not use all of the available power capacity. These sales of surplus power were due to temporary situations that are not expected to occur in future periods as to this particular Korba expansion, though similar situations may occur with respect to any of our future expansion projects as a result of captive power plants being completed in advance of the facilities for which they were built to provide power.
      Operating income increased from Rs. 7,610 million in the six-month period ended September 30, 2005 to Rs. 42,790 million ($931.3 million) in the six-month period ended September 30, 2006, an increase of Rs. 35,180 million, or 462.3%. The increase was primarily as a result of increased operating income in our zinc, copper and aluminum businesses. Operating margin increased from 17.6% in the six-month period ended September 30, 2005 to 38.4% in the six-month period ended September 30, 2006 as a result of increased operating margins in all of our businesses, and particularly in our zinc business. Contributing factors to our consolidated operating income were as follows:
  •  Cost of sales increased from Rs. 34,115 million in the six-month period ended September 30, 2005 to Rs. 66,400 million ($1,445.0 million) in the six-month period ended September 30, 2006, an increase of Rs. 32,285 million, or 94.6%. Cost of sales increased primarily in our copper business as a result of higher copper concentrate prices and an increase in volume in our aluminum business due to the phased commissioning of our new Korba smelter. Cost of sales as a percentage of net sales, however, decreased from 79.0% in the six- month period ended September 30, 2005 to 59.6% in the six-month period ended September 30, 2006, primarily due to higher commodity prices relative to the costs of production, which were relatively unchanged except for the cost of copper concentrate.
 
  •  Selling and distribution expenses increased from Rs. 731 million in the six-month period ended September 30, 2005 to Rs. 1,572 million ($34.2 million) in the six-month period ended September 30, 2006, an increase of Rs. 841 million, or 115.0%. This increase was due to increased sales volumes across all our businesses as most of the selling and distribution expenses are proportional to the sales volume. As a percentage of net sales, however, selling and distribution expenses decreased from 1.7% in the six-month period ended September 30, 2005 to 1.4% in the six-month period ended September 30, 2006 as a result of higher metal prices.
 
  •  General and administrative expenses increased from Rs. 1,074 million in the six-month period ended September 30, 2005 to Rs. 1,717 million ($37.4 million) in the six-month period ended September 30, 2006, an increase of Rs. 643 million, or 59.9%, and as a percentage of net sales decreased from 2.5% in the six-month period ended September 30, 2005 to 1.5% in the six-month period ended September 30, 2006. As these expenses are of a relatively fixed nature, as a percentage of net sales such expenses decreased between the six-month period ended September 30,

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  2005 and the six-month period ended September 30, 2006 as a result of the increase in net sales by Rs. 68,168 million.
 
  •  We incurred voluntary retirement scheme expenses in the six-month period ended September 30, 2006 of Rs. 97 million ($2.1 million) for a voluntary retirement package offered to employees of HZL, with no voluntary retirement scheme expenses in the six-month period ended September 30, 2005.
 
  •  Depreciation, depletion and amortization increased from Rs. 1,982 million in the six-month period ended September 30, 2005 to Rs. 2,815 million ($63.0 million) in the six-month period ended September 30, 2006, an increase of Rs. 833 million, or 42.0%. This increase is related primarily to capitalization of our expanded capacities in our aluminum business.

          Copper
      Net sales in the copper segment increased from Rs. 26,038 million in the six-month period ended September 30, 2005 to Rs. 54,459 million ($1,185.2 million) in the six-month period ended September 30, 2006, representing an increase of Rs. 28,421 million, or 109.2%. This increase was primarily due to a 108.6% increase in the average copper LME price and an 11.7% increase in sales volume between the six-month periods ended September 30, 2005 and 2006. Specifically:
  •  Copper cathode production increased from 123,513 tons in the six-month period ended September 30, 2005 to 137,142 tons in the six-month period ended September 30, 2006, an increase of 11.0%, enabled by a capacity expansion at our Tuticorin facility which increased the smelter’s copper anode capacity from 180,000 tpa to 300,000 tpa and the addition of a refinery at our Tuticorin facility with a capacity of 120,000 tpa of copper cathode. Copper cathode sales increased from 43,187 tons in the six-month period ended September 30, 2005 to 49,623 tons in the six-month period ended September 30, 2006, an increase of 14.9%. Copper cathodes are converted in our copper rod plant into copper rods, a value-added product which has a higher margin than copper cathodes. As copper rods have higher margin, we endeavor to sell as large a quantity of copper rods as possible.
 
  •  Production of copper rods increased from 79,648 tons in the six-month period ended September 30, 2005 to 86,542 tons in the six-month period ended September 30, 2006, an increase of 8.7%. This resulted from the increase in our rod mill capacity at Tuticorin. Copper rod sales increased from 77,794 tons in the six-month period ended September 30, 2005 to 85,563 tons in the six-month period ended September 30, 2006, an increase of 10.0%. The increase in sales was due to our increase in production.
 
  •  The daily average copper cash settlement prices on the LME increased from $3,579 per ton in the six-month period ended September 30, 2005 to $7,466 per ton in the six-month period ended September 30, 2006, an increase of 108.6%.
 
  •  Sales of copper in the Indian market increased from 49,446 tons in the six-month period ended September 30, 2005 to 51,141 tons in the six-month period ended September 30, 2006, an increase of 3.4%, and our exports increased from 71,535 tons in the six-month period ended September 30, 2005 to 84,045 tons in the six-month period ended September 30, 2006, an increase of 17.5%. Our increase in exports was enabled by our increased production levels and growth in nearby export markets. While we endeavor to sell as large a quantity of our products as possible domestically, our domestic sales as a percentage of total sales declined between the six-month periods ended September 30, 2005 and September 30, 2006 as our production volume increased more rapidly than demand in the domestic market.
      Operating income in the copper segment increased from Rs. 2,223 million in the six-month period ended September 30, 2005 to Rs. 8,394 million ($182.7 million) in the six-month period ended September 30, 2006, an increase of Rs. 6,171 million, or 277.6%. This was achieved as a result of higher

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TcRc rates, lower cost of production and higher sales volumes, as well as increased profitability from our captive copper mines due to higher copper LME prices. In particular:
  •  TcRc rates increased from an average of 15.7¢/lb realized in the six-month period ended September 30, 2005 to an average of 37.1¢/lb realized in the six-month period ended September 30, 2006 as a result of favorable market conditions.
 
  •  Cost of production, which consists of cost of smelting and refining costs, decreased from 6.5¢/lb in the six-month period ended September 30, 2005 to 5.2¢/lb in the six-month period ended September 30, 2006, due to improved productivity and improved by-product management together with the higher realization for free metal, partially offset by higher energy costs.
 
  •  Higher copper LME prices contributed to increased profitability of our mining operations, which was partially offset by reduced production due to the closure of one of our two mines in Australia in July 2005.
          Zinc
      Net sales in the zinc segment increased from Rs. 12,153 million in the six-month period ended September 30, 2005 to Rs. 40,967 million ($891.6 million) in the six-month period ended September 30, 2006, an increase of Rs. 28,814 million, or 237.1%. This increase was primarily due to a 159.2% increase in the average zinc LME price, an 8.3% increase in sales volumes and sales of surplus zinc and lead concentrate between the six-month periods ended September 30, 2005 and 2006. Specifically:
  •  The daily average zinc cash settlement prices on the LME increased from $1,286 per ton in the six-month period ended September 30, 2005 to $3,333 per ton in the six-month period ended September 30, 2006, an increase of 159.2%.
 
  •  Zinc ingot production increased from 123,229 tons in the six-month period ended September 30, 2005 to 160,701 tons in the six-month period ended September 30, 2006, an increase of 30.4%, as a result of the progressive commissioning of HZL’s new 170,000 tpa hydrometallurgical zinc smelter at Chanderiya in May 2005. The new zinc smelter at Chanderiya produced 60,506 tons in the six-month period ended September 30, 2006 as compared to 21,164 tons of zinc in the six-month period ended September 30, 2005.
 
  •  Zinc ingot sales increased from 148,233 tons in the six-month period ended September 30, 2005 to 160,567 tons in the six-month period ended September 30, 2006, an increase of 8.3%, enabled by higher production and strong market demand.
 
  •  Zinc ingot sales in the domestic market decreased from 145,135 tons in the six-month period ended September 30, 2005 to 91,669 tons in the six-month period ended September 30, 2006, a decrease of 36.8%. This decrease is mainly due to lower consumption in the domestic market by end-users. Export sales increased from 3,098 tons in the six-month period ended September 30, 2005 to 68,898 tons in the six-month period ended September 30, 2006, an increase of 65,800 tons, due to lower consumption in the domestic market and development of new export markets.
 
  •  HZL’s sales were augmented in the six-month period ended September 30, 2005 by the tolling of zinc concentrate. Our tolling arrangements involve sending surplus zinc concentrate from our mines to third party smelters who return the zinc metal post-conversion to us. We engage in tolling from time to time to take advantage of domestic demand. HZL tolled 25,582 tons of zinc in the six-month period ended September 30, 2005 and 251 tons the in six-month period ended September 30, 2006. The decrease in tolling was due to the increase in production from HZL’s new zinc smelter at Chanderiya.
 
  •  HZL also sold surplus zinc concentrate of 27,614 dry metric tons, or dmt, in the six-month period ended September 30, 2005 and 146,047 dmt in the six-month period ended September 30, 2006. Lead concentrate sales were 29,573 dmt in the six-month period ended September 30, 2006 and none in the six-month period ended September 30, 2005.

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  •  Lead ingot production increased from 7,199 tons in the six-month period ended September 30, 2005 to 19,938 tons in the six-month period ended September 30, 2006, an increase of 177.0%, as a result of commissioning of our new lead smelter at Chanderiya. Sales of lead ingots increased from 10,690 tons in the six-month period ended September 30, 2005 to 19,924 tons in the six-month period ended September 30, 2006, an increase of 86.4%.
      Operating income in the zinc segment increased from Rs. 4,551 million in the six-month period ended September 30, 2005 to Rs. 30,427 million ($662.3 million) in the six-month period ended September 30, 2006, an increase of Rs. 25,876 million, or 568.6%. Operating margin increased from 37.4% in the six-month period ended September 30, 2005 to 74.3% in the six-month period ended September 30, 2006. Operating income and margin increased as a result of higher zinc LME prices and higher zinc ingot and zinc concentrate sales volumes, while cost of production remained higher due to high royalties which are LME-linked. Unit cost of production excluding royalties was $600 per ton in the six-month period ended September 30, 2006, which was marginally lower than the six-month period ended September 30, 2005 level of $608 per ton. The reduced cost of production was enabled by increased volumes, improved operating efficiencies and reduced raw material costs. Royalties, which are LME-linked, amounted to $238 per ton in the six-month period ended September 30, 2006 compared with $99 per ton in the six-month period ended September 30, 2005, leading to total unit costs of production at $838 per ton in the six-month period ended September 30, 2006 as against $707 per ton in the six-month period ended September 30, 2005.
          Aluminum
      Net sales in the aluminum segment increased from Rs. 4,969 million in the six-month period ended September 30, 2005 to Rs. 15,902 million ($346.1 million) in the six-month period ended September 30, 2006, an increase of Rs. 10,933 million, or 220.0%, due to an increase in sales volume by 119.3% and an increase in the average aluminum LME price by 41.7% between the six-month periods ended September 30, 2005 and 2006. Primary and contributing factors to the increase include the following:
  •  Aluminum production increased from 63,286 tons in the six-month period ended September 30, 2005 to 135,985 tons in the six-month period ended September 30, 2006, an increase of 114.9%, as our new Korba smelter of 245,000 tpa commenced phased and progressive commissioning in the six-month period ended September 30, 2006. The new smelter at Korba produced 85,249 tons of aluminum in the six-month period ended September 30, 2006 as compared to 11,787 tons of aluminum in the six-month period ended September 30, 2005.
 
  •  Aluminum sales increased from 60,245 tons in the six-month period ended September 30, 2005 to 132,096 tons in the six-month period ended September 30, 2006, an increase of 119.3%. Sales of aluminum ingots increased from 8,305 tons in the six-month period ended September 30, 2005 to 74,632 tons in the six-month period ended September 30, 2006, an increase of 798.6%, as production from the new Korba smelter was primarily sold in ingot form. Wire rod sales increased from 29,299 tons in the six-month period ended September 30, 2005 to 33,730 tons in the six-month period ended September 30, 2006, an increase of 15.1%. Rolled product sales increased from 22,641 tons in the six-month period ended September 30, 2005 to 23,734 tons in the six-month period ended September 30, 2006, an increase of 4.8%. The increases in sales of wire rods and rolled products reflect increased demand for these products, particularly in the electrical and construction sectors, and our focus on the sale of value-added products.
 
  •  Aluminum sales in the domestic market increased from 59,696 tons in the six-month period ended September 30, 2005 to 100,839 tons the six-month period ended September 30, 2006, an increase of 68.9%, as a result of increased production from our new Korba smelter which was progressively getting commissioned. Our new Korba smelter was fully commissioned in November 2006.
 
  •  We exported 31,257 tons of aluminum in the six-month period ended September 30, 2006 and 549 tons in the six-month period ended September 30, 2005. Our exports in the six-month period ended September 30, 2006 increased due to increased production as our new Korba smelter

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  commenced phased and progressive commissioning, and as production continues to increase, we anticipate increased sales to the export markets. The remainder of our sales was to the domestic market where we are able to sell our products at a higher price.
 
  •  The daily average aluminum cash settlement prices on the LME increased from $1,810 per ton in the six-month period ended September 30, 2005 to $2,565 per ton in the six-month period ended September 30, 2006, an increase of 41.7%.

      Operating income in the aluminum segment increased from Rs. 839 million in the six-month period ended September 30, 2005 to Rs. 3,972 million ($86.4 million) in the six-month period ended September 30, 2006, an increase of Rs. 3,133 million, or 373.4%. Operating margin improved from 16.9% in the six-month period ended September 30, 2005 to 25.0% in the six-month period ended September 30, 2006. Operating income and margin improvements were achieved due to higher sales volume and higher aluminum LME prices in the six-month period ended September 30, 2006, despite pressure in costs for the new Korba smelter due to higher prices of the alumina sourced from third party vendors as follows:
  •  Cost of production of the existing smelter marginally increased from $1,551 per ton in the six-month period ended September 30, 2005 to $1,555 per ton in the six-month period ended September 30, 2006, an increase of 0.3%. In spite of a sharp increase in input costs, mainly carbon and fluoride, cost of production was steady primarily due to savings from improved operational efficiencies and a reduction in power generation costs.
 
  •  Cost of production of the new smelter at Korba was $2,051 per ton in the six-month period ended September 30, 2006. Cost of production was higher than the existing smelter on account of high alumina prices as the new Korba smelter uses alumina sourced from external suppliers. Average cost of alumina per ton of aluminum was $1,239. Other manufacturing costs at the new Korba smelter was $812 per ton in the six-month period ended September 30, 2006 and were progressively reduced due to the increase in production volume and stabilization of operating parameters at the smelter despite the increase in carbon and fluoride costs.
          Corporate and Others
      Operating loss in our corporate and other business segment was Rs. 3 million in both the six-month periods ended September 30, 2005 and 2006. This was primarily related to general and administrative expenses of a paper company which never became operational and which we determined not to pursue further.
     Interest Income
      Interest income increased from Rs. 1,001 million in the six-month period ended September 30, 2005 to Rs. 2,096 million ($45.6 million) in the six-month period ended September 30, 2006, an increase of Rs. 1,095 million, or 109.4%, due to higher levels of term investments and deposits, primarily in zinc and copper business.
     Interest Expense
      Interest expense increased from Rs. 1,018 million in six-month period ended September 30, 2005 to Rs. 1,969 million ($42.9 million) in six-month period ended September 30, 2006, an increase of Rs. 951 million, or 93.4%. The increase in interest expense was due to the borrowing costs related to our capacity expansions at Korba, which had previously been capitalized, being charged to the income statement with the phased commissioning of the new Korba smelter and high working capital in our copper business due to higher LME prices.

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     Income Taxes
      Income taxes increased from Rs. 1,308 million in the six-month period ended September 30, 2005 to Rs. 12,136 million ($264.1 million) in the six-month period ended September 30, 2006. Our effective income tax rate, calculated as income taxes owed divided by our income before income taxes, minority interests and equity in net loss of associate, was 17.2% in the six-month period ended September 30, 2005 and 28.3% in the six-month period ended September 30, 2006. The effective income tax rate was lower in the six-month period ended September 30, 2005 due to a credit of deferred tax resulting from a change in statutory tax rates from 36.6% to 33.7% in that period. A lower amount of tax exemptions available at our copper and zinc operations in India also increased the effective tax rates in the six-month period ended September 30, 2006 as not all increased profits were covered by tax exemptions.
     Minority Interests
      Minority interests as a percentage of net profits increased from 25.3% in the six-month period ended September 30, 2005 to 28.6% in the six-month period ended September 30, 2006. This increase was as a result of a change in the profit mix between subsidiaries, with a greater percentage of profits coming from our zinc business in the six-month period ended September 30, 2006.
     Equity in Net Loss of Associate, Net of Taxes
      Equity in net loss of associate was Rs. 98 million in the six-month period ended September 30, 2005 as compared to a net loss of Rs. 15 million ($0.3 million) in the six-month period ended September 30, 2006, which primarily related to foreign exchange loss and the interest income and expenditure on project funds temporarily deployed and being utilized in a phased manner on the Vedanta Alumina project.
Income from Divested Business, Net of Tax
      Income from divested business, net of tax decreased from Rs. 122 million in the six-month period ended September 30, 2005 to Rs. 86 million ($1.9 million) in the six-month period ended September 30, 2006, a decrease of Rs. 36 million, or 29.5%. This was due to the sale of our aluminum conductor business to Sterlite Optical Technologies Limited, or SOTL, a company owned and controlled by Volcan, for Rs. 1,485 million ($32.3 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 $(2.3 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.
Comparison of Years Ended March 31, 2005 and March 31, 2006
Net Sales, Other Operating Revenues and Operating Income
Consolidated
      Net sales increased from Rs. 66,643 million in fiscal 2005 to Rs. 122,791 million ($2,672.3 million) in fiscal 2006, an increase of Rs. 56,148 million, or 84.3%. Net sales increased primarily as a result of higher sales volumes, enabled by the commissioning of our new capacities at Tuticorin for copper smelting, at Korba for aluminum smelting and at Chanderiya for zinc smelting, and by higher metal prices. Our copper, zinc and aluminum businesses contributed 59.5%, 29.6% and 10.9% of our increase in net sales, respectively.
      Other operating revenues increased from Rs. 628 million in fiscal 2005 to Rs. 1,334 million ($29.0 million) in fiscal 2006, an increase of Rs. 706 million, or 112.4%. The increase was due to sales of surplus power by BALCO and HZL to SEBs, as the captive power plants for their respective Korba and Chanderiya expansions were completed and fully operational while the new smelters were still being ramped-up and did not use all of the available power capacity. These sales of surplus power were due to temporary situations that are not expected to occur in future periods as to these particular Korba and Chanderiya expansions, though similar situations may occur with respect to any of our future expansion

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projects as a result of captive power plants being completed in advance of the facilities for which they were built to provide power.
      Operating income increased from Rs. 11,396 million in fiscal 2005 to Rs. 31,131 million ($677.5 million) in fiscal 2006, an increase of Rs. 19,735 million, or 173.2%. The increase was primarily as a result of increased operating income in our zinc and copper businesses. Operating margin increased from 17.1% in fiscal 2005 to 25.4% in fiscal 2006 as a result of increased operating margins in all of our businesses, and particularly in our zinc business. Contributing factors to our consolidated operating income were as follows:
  •  Cost of sales increased from Rs. 50,615 million in fiscal 2005 to Rs. 86,981 million ($1,892.9 million) in fiscal 2006, an increase of Rs. 36,366 million, or 71.8%. Cost of sales increased primarily in our copper business as we purchased significantly more copper concentrate to support the increased production at our Tuticorin smelter and as a result of higher copper concentrate prices. Cost of sales as a percentage of net sales, however, decreased from 75.9% in fiscal 2005 to 70.8% in fiscal 2006, primarily due to the increase in selling prices due to higher commodity prices relative to the cost of production, which was relatively unchanged except for the cost of copper concentrate.
 
  •  Selling and distribution expenses increased from Rs. 1,428 million in fiscal 2005 to Rs. 2,117 million ($46.1 million) in fiscal 2006, an increase of Rs. 689 million, or 48.2%. This increase was due to increased sales volumes across all our businesses as most of the selling and distribution expenses are proportional to sales volume. As a percentage of net sales, however, selling and distribution expenses decreased from 2.1% in fiscal 2005 to 1.7% in fiscal 2006 as a result of higher metal prices.
 
  •  General and administrative expenses increased from Rs. 2,370 million in fiscal 2005 to Rs. 2,596 million ($56.5 million) in fiscal 2006, an increase of Rs. 226 million, or 9.5%, and as a percentage of net sales decreased from 3.6% in fiscal 2005 to 2.1% in fiscal 2006. As these expenses are of a relatively fixed nature, as a percentage of net sales such expenses decreased between fiscal 2005 and fiscal 2006 as a result of the increase in net sales.
 
  •  We incurred voluntary retirement scheme expenses in fiscal 2005 of Rs. 186 million for a voluntary retirement package offered to employees of HZL, with no voluntary retirement scheme expenses in fiscal 2006.
 
  •  We recorded impairment of assets relating to certain plants, machinery and buildings as part of our annual impairment review and recognized an expense of Rs. 1,276 million in fiscal 2005. This expense consisted primarily of the impairment of the inactive assets of a paper company that we had previously invested in but which never became operational and which we determined not to pursue further. We intend to dispose of these assets and expect to realize their remaining net book value upon disposal. We had no impairment of assets charges in fiscal 2006.
 
  •  In fiscal 2006, we reviewed the corporate guarantees we had given to certain banks in relation to debts of IFL, a company in which MALCO owns 38.8%. We also reviewed the investments in preference shares of and loans we provided to IFL. We recorded impairments of Rs. 240 million ($5.2 million) in relation to preference share investment, Rs. 276 million ($6.0 million) in relation to loans and Rs. 784 million ($17.1 million) in relation to corporate guarantees, totaling Rs. 1,300 million ($28.3 million).
 
  •  Depreciation, depletion and amortization increased from Rs. 3,230 million in fiscal 2005 to Rs. 4,511 million ($98.2 million) in fiscal 2006, an increase of Rs. 1,281 million, or 39.7%. This increase related primarily to capitalization of our expanded capacities in our aluminum and zinc businesses.

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Copper
      Net sales in the copper segment increased from Rs. 34,508 million in fiscal 2005 to Rs. 67,921 million ($1,478.1 million) in fiscal 2006, representing an increase of Rs. 33,413 million, or 96.8%. This increase was primarily due to a 58.0% increase in sales volume and a 36.7% increase in the average copper LME price between fiscal 2005 and 2006. Specifically:
  •  Copper cathode production increased from 171,992 tons in fiscal 2005 to 273,048 tons in fiscal 2006, an increase of 58.8%, enabled by a capacity expansion at our Tuticorin facility which increased the smelter’s copper anode capacity from 180,000 tpa to 300,000 tpa and the addition of a refinery at our Tuticorin facility with a capacity of 120,000 tpa of copper cathode. Copper cathode sales increased from 48,476 tons in fiscal 2005 to 105,268 tons in fiscal 2006, an increase of 117.2%. Copper cathodes are converted in our copper rod plant into copper rods, a value-added product which has a higher margin than copper cathodes. As copper rods have higher margin, we endeavor to sell as large a quantity of copper rods as possible.
 
  •  Production of copper rods increased from 125,406 tons in fiscal 2005 to 166,497 tons in fiscal 2006, an increase of 32.8%. This resulted from the increase in our rod mill capacity at Tuticorin. Copper rod sales increased from 123,384 tons in fiscal 2005 to 166,356 tons in fiscal 2006, an increase of 34.8%. The increase in sales was due to our increase in production.
 
  •  The daily average copper cash settlement prices on the LME increased from $2,999 per ton in fiscal 2005 to $4,099 per ton in fiscal 2006, an increase of 36.7%.
 
  •  Sales of copper in the Indian market increased from 82,564 tons in fiscal 2005 to 106,270 tons in fiscal 2006, an increase of 28.7%, and our exports increased from 89,296 tons in fiscal 2005 to 165,354 tons in fiscal 2006, an increase of 85.2%. In the domestic market, we increased our market share from 38% in fiscal 2005 to 43% in fiscal 2006 for primary copper due to our increased production levels enabling us to fill much of the increased market demand. Our increase in exports was enabled by our increased production levels, and growth in nearby export markets. While we endeavor to sell as large a quantity of our products as possible domestically, our domestic sales as a percentage of total sales declined between fiscal 2005 and fiscal 2006 as our production volume increased more rapidly than demand in the domestic market.
      Operating income in the copper segment increased from Rs. 2,440 million in fiscal 2005 to Rs. 7,659 million ($166.7 million) in fiscal 2006, an increase of Rs. 5,219 million, or 213.9%. This was achieved as a result of higher sales volume, higher TcRc rates and lower cost of production, as well as increased profitability from our captive copper mines due to higher copper LME prices. In particular:
  •  TcRc rates increased from an average of 8.6¢/lb realized in fiscal 2005 to an average of 23.1¢/lb realized in fiscal 2006 as a result of favorable market conditions.
 
  •  Cost of production, which consists of cost of smelting and refining costs, decreased from 7.1¢/lb in fiscal 2005 to 6.1¢/lb in fiscal 2006, due to higher volumes and improved realization of by-products, partially offset by higher energy costs.
 
  •  Higher copper LME prices contributed to increased profitability of our mining operations, which was partially offset by reduced production due to the closure of one of our two mines in Australia in July 2005.
Zinc
      Net sales in the zinc segment increased from Rs. 21,967 million in fiscal 2005 to Rs. 38,573 million ($839.5 million) in fiscal 2006, an increase of Rs. 16,606 million, or 75.6%. This increase was primarily

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due to a 45.7% increase in the average zinc LME price and an 11.7% increase in sales volumes between fiscal 2005 and fiscal 2006. Specifically:
  •  The daily average zinc cash settlement prices on the LME increased from $1,108 per ton in fiscal 2005 to $1,614 per ton in fiscal 2006, an increase of 45.7%.
 
  •  Zinc ingot production increased from 212,445 tons in fiscal 2005 to 283,698 tons in fiscal 2006, an increase of 33.5%, as a result of the commissioning of HZL’s new 170,000 tpa hydrometallurgical zinc smelter at Chanderiya in May 2005. The new zinc smelter at Chanderiya produced 71,049 tons of zinc in fiscal 2006.
 
  •  Zinc ingot sales increased from 288,866 tons in fiscal 2005 to 322,744 tons (including 1,030 tons capitalized) in fiscal 2006, an increase of 11.7%, enabled by higher production and strong market demand.
 
  •  Zinc ingot sales in the domestic market increased from 266,586 tons in fiscal 2005 to 309,128 tons in fiscal 2006, an increase of 16.0%, enabling an increase of HZL’s domestic market share from 71% in fiscal 2005 to 73% in fiscal 2006. Export sales decreased from 22,280 tons in fiscal 2005 to 13,616 tons in fiscal 2006, a decrease of 38.9%, due to increased sales in the domestic market as a result of higher demand.
 
  •  HZL’s domestic sales were augmented by the tolling of zinc concentrate. Our tolling arrangements involve sending surplus zinc concentrate from our mines to third party smelters who return the zinc metal post- conversion to us. We engage in tolling from time to time to take advantage of domestic demand. HZL tolled 53,479 tons of zinc in fiscal 2005 and 34,890 tons in fiscal 2006. The decrease in tolling was due to the increase in production from HZL’s new zinc smelter at Chanderiya.
 
  •  HZL also sold surplus zinc concentrate of 57,699 dmt in fiscal 2005 and 194,704 dmt in fiscal 2006. Lead concentrate sales were 52,039 dmt in fiscal 2005 and none in fiscal 2006.
 
  •  Lead ingot production increased from 15,727 tons in fiscal 2005 to 23,636 tons in fiscal 2006, an increase of 50.3%. Sales of lead ingots increased from 14,622 tons in fiscal 2005 to 26,928 tons in fiscal 2006, an increase of 84.2%. The sales were higher than production as we sold our lead ingot inventory remaining from the previous fiscal year.
      Operating income in the zinc segment increased from Rs. 8,309 million in fiscal 2005 to Rs. 21,287 million ($463.3 million) in fiscal 2006, an increase of Rs. 12,978 million, or 156.2%. Operating margin increased from 37.8% in fiscal 2005 to 55.2% in fiscal 2006. Operating income and margin increased as a result of higher zinc ingot and zinc concentrate sales volumes and higher zinc LME prices, while cost of production remained stable. Unit cost of production was $691 per ton in fiscal 2006, which was marginally lower than the fiscal 2005 level of $695 per ton. The reduced cost of production was enabled by increased volumes, improved operating efficiencies and reduced raw material costs, primarily metcoke and thermal coal. This was partially offset by higher zinc LME-linked royalties which adversely impacted cost of production by $35 per ton.
Aluminum
      Net sales in the aluminum segment increased from Rs. 10,168 million in fiscal 2005 to Rs. 16,297 million ($354.7 million) in fiscal 2006, an increase of Rs. 6,129 million, or 60.3%, due to an increase in sales volume by 71.0% and an increase in the average aluminum LME price by 14.0% between fiscal 2005 and fiscal 2006. Primary and contributing factors to the increase include the following:
  •  Aluminum production increased from 100,272 tons in fiscal 2005 to 173,743 tons in fiscal 2006, an increase of 73.3%, as our new Korba smelter of 245,000 tpa commenced phased commissioning in fiscal 2006. The new smelter at Korba produced 69,014 tons of aluminum in fiscal 2006. The existing smelter production increased from 100,272 tons in fiscal 2005 to 104,729 tons in fiscal 2006, an increase of 4.4% achieved through improved operational efficiencies.

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  •  Aluminum sales increased from 100,142 tons in fiscal 2005 to 171,206 tons (including 13,588 tons capitalized) in fiscal 2006, an increase of 71.0%. Sales of aluminum ingots increased from 8,625 tons in fiscal 2005 to 57,100 tons in fiscal 2006, an increase of 562.0%, as production from the new Korba smelter was primarily sold in ingot form. Wire rod sales increased from 48,183 tons in fiscal 2005 to 64,499 tons in fiscal 2006, an increase of 33.9%. Rolled product sales increased from 43,334 tons in fiscal 2005 to 49,607 tons in fiscal 2006, an increase of 14.5%. The increases in sales of wire rods and rolled products reflect increased demand for these products in the domestic market, particularly in the electrical and construction sectors, and our increased focus on the sale of value-added products.
 
  •  We exported 12,418 tons of aluminum in fiscal 2006 and none in fiscal 2005. Our exports in fiscal 2006 were due to increased production as our new Korba smelter commenced phased commissioning, and as production continues to increase, we anticipate increased sales to the export markets. The remainder of our sales were to the domestic market where we are able to sell our products at a higher price.
 
  •  The daily average aluminum cash settlement prices on the LME increased from $1,779 per ton in fiscal 2005 to $2,028 per ton in fiscal 2006, an increase of 14.0%.
      Operating income in the aluminum segment increased from Rs. 1,824 million in fiscal 2005 to Rs. 3,496 million ($76.1 million) in fiscal 2006, an increase of Rs. 1,672 million, or 91.7%. Operating margin improved from 17.9% in fiscal 2005 to 21.5% in fiscal 2006. Operating income and margin improvements were achieved due to higher sales volume and higher aluminum LME prices in fiscal 2006, which offset increases in the cost of production as follows:
  •  Cost of production of the existing smelter increased from $1,347 per ton in fiscal 2005 to $1,497 per ton in fiscal 2006, an increase of 11.1%. Cost of production increased on account of higher power cost due to a change in coal mix to higher-priced imported coal as well due to higher coal prices generally. Starting April 1, 2005, a shortage of coal led Coal India to reduce the amount of coal supplied to all its customers, including BALCO, except utilities, forcing BALCO to utilize higher-priced imported coal and increasing its total power generation costs. The cost of some of the other key raw materials also increased, in particular caustic soda, fluoride and carbon.
 
  •  Cost of production of the new smelter at Korba was $2,045 per ton in fiscal 2006. Cost of production was higher than the existing smelter on account of high alumina prices as the new Korba smelter uses alumina sourced from external suppliers. Average cost of alumina per ton of aluminum was $1,160. Other manufacturing costs at the new Korba smelter were progressively reduced during fiscal 2006 due to the increase in production volume, stabilization of operating parameters at the smelter and the addition of the new 540 MW captive power plant, though the increase in the cost of coal has increased the cost of production at the new Korba smelter.
Corporate and Others
      Operating loss in our corporate and other business segment increased from Rs. 1,177 million in fiscal 2005 to Rs. 1,311 million ($28.6 million) in fiscal 2006. Operating loss in fiscal 2006 was due to impairment of investment, loans and guarantees of Rs. 1,300 million pertaining to IFL, while operating loss in fiscal 2005 was due to impairment of Rs. 1,056 million of the inactive assets of a paper company that we had previously invested in but which never became operational and which we determined not to pursue further.
Interest Income
      Interest income increased from Rs. 2,179 million in fiscal 2005 to Rs. 2,414 million ($52.5 million) in fiscal 2006, an increase of Rs. 235 million, or 10.8%, due to higher levels of term deposits and investments.

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Interest Expense
      Interest expense increased from Rs. 1,962 million in fiscal 2005 to Rs. 3,238 million ($70.5 million) in fiscal 2006, an increase of Rs. 1,276 million, or 65.0%. The increase in interest expense was due to the borrowing costs related to our capacity expansions at Korba and Chanderiya, which had previously been capitalized, being charged to the income statement with the partial commissioning of the new Korba smelter and the full commissioning of the new Chanderiya smelter in fiscal 2006.
Income Taxes
      Income taxes increased from Rs. 3,505 million in fiscal 2005 to Rs. 9,005 million ($196.0 million) in fiscal 2006. Our effective income tax rate, calculated as income taxes owed divided by our income before income taxes, minority interests and equity in net loss of associate, was 30.2% in fiscal 2005 and 29.7% in fiscal 2006. During this period, the statutory corporate tax rate decreased from 36.6% in fiscal 2005 to 33.7% in fiscal 2006, a decrease of 2.9%. Disallowed expenses towards impairment of assets, guarantees, impairment of investments and loans in fiscal 2005 and fiscal 2006 also increased the effective tax rate. Though the amount of disallowed expenses did not change much, its impact was lower in fiscal 2006 due to increased profits. A lower amount of tax exemptions available at our copper and zinc operations in India also increased the effective tax rates as not all increased profits were covered by tax exemptions.
Minority Interests
      Minority interests as a percentage of net income from continuing operations decreased from 34.1% in fiscal 2005 to 28.5% in fiscal 2006. This decrease was as a result of a change in the profit mix between subsidiaries, with a greater percentage of profits coming from our wholly-owned copper business in fiscal 2006.
Equity in Net Loss of Associate, Net of Taxes
      Equity in net loss of associate was none in fiscal 2005 as compared to a net loss of Rs. 99 million ($2.1 million) in fiscal 2006, which was related to foreign exchange loss and the interest income and expenditure on the project funds temporarily deployed pending utilization on the project for Vedanta Alumina.
Income from Divested Business, Net of Tax
      Income from divested business, net of tax increased from Rs. 222 million in fiscal 2005 to Rs. 369 million ($8.1 million) in fiscal 2006, an increase of Rs. 147 million, or 66.2%. This increase was primarily attributable to increased operational efficiencies and higher realization for the aluminum conductor division, which was sold on June 30, 2006 to SOTL for Rs. 1,485 million ($32.3 million).
Comparison of Years Ended March 31, 2004 and March 31, 2005
Net Sales, Other Operating Revenues and Operating Income
Consolidated
      Net sales increased from Rs. 53,476 million in fiscal 2004 to Rs. 66,643 million in fiscal 2005, an increase of Rs. 13,167 million, or 24.6%. Net sales increased as a result of price increases in all of our major businesses and volume increases in the zinc business, partially offset by the effects of a reduction in the import tariff, the removal of the SAD and appreciation of the Indian Rupee against the US dollar.
      Other operating revenues decreased from Rs. 679 million in fiscal 2004 to Rs. 628 million in fiscal 2005, a decrease of Rs. 51 million, or 7.5%. This was primarily a result of a decrease in income from the sale of excess power in fiscal 2005 at BALCO resulting from increased power consumption as production was ramped-up at the new Korba smelter.

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      Operating income increased from Rs. 10,501 million in fiscal 2004 to Rs. 11,396 million in fiscal 2005, an increase of Rs. 895 million, or 8.5%. The increase was attributable to increased sales volume in the zinc segment and higher metal prices. Operating margin decreased from 19.6% in fiscal 2004 to 17.1% in fiscal 2005 largely as a result of asset impairment and voluntary retirement scheme expenses. Contributing factors to our consolidated operating income were as follows:
  •  Cost of sales increased from Rs. 39,194 million in fiscal 2004 to Rs. 50,615 million in fiscal 2005, an increase of Rs. 11,421 million, or 29.1%. Cost of sales increased primarily in the copper segment as a result of higher copper concentrate prices in fiscal 2005 as compared to fiscal 2004. Cost of sales in the zinc segment also increased as a result of increased cost of production. As a result, cost of sales as a percentage of net sales increased from 73.3% in fiscal 2004 to 75.9% in fiscal 2005.
 
  •  Selling and distribution expenses increased from Rs. 1,392 million in fiscal 2004 to Rs. 1,428 million in fiscal 2005, an increase of Rs. 36 million, or 2.6%. This increase was due to increased sales volumes across all our businesses as most of the selling and distribution expenses are proportional to sales volume. However, as a percentage of net sales, they decreased from 2.6% in fiscal 2004 to 2.1% in fiscal 2005 as a result of higher metal prices.
 
  •  General and administrative expenses decreased from Rs. 2,457 million in fiscal 2004 to Rs. 2,370 million in fiscal 2005, a decrease of Rs. 87 million, or 3.5%, and as a percentage of net sales, they decreased from 4.6% in fiscal 2004 to 3.6% in fiscal 2005. As these expenses are of a relatively fixed nature, such expenses decreased as a percentage of net sales between fiscal 2005 and fiscal 2006 as a result of the increase in net sales.
 
  •  We incurred voluntary retirement scheme expenses of Rs. 611 million in fiscal 2004, comprising a Rs. 583 million package offered to employees of BALCO and Rs. 28 million to employees of HZL. In fiscal 2005, we incurred Rs. 186 million for a voluntary retirement package offered to employees of HZL.
 
  •  We recorded asset impairments relating to certain plants, machinery and buildings as part of our annual impairment review and recognized an expense of Rs. 1,276 million in fiscal 2005. This expense consisted primarily of the impairment of the inactive assets of a paper company that we had previously invested in but which never became operational and which we determined not to pursue further. We intend to dispose of these assets and expect to realize their remaining net book value upon disposal. We had no asset impairment charges in fiscal 2004.
 
  •  Depreciation, depletion and amortization increased from Rs. 3,032 million in fiscal 2004 to Rs. 3,230 million in fiscal 2005, an increase of Rs. 198 million, or 6.5%. This increase primarily related to the partial capitalization of capital expenditures for capacity expansions in our zinc business.
Copper
      Net sales in the copper segment increased from Rs. 27,046 million in fiscal 2004 to Rs. 34,508 million in fiscal 2005, an increase of Rs. 7,462 million, or 27.6%. This increase was primarily due to higher copper LME prices in fiscal 2005 as compared to fiscal 2004, partially offset by a reduction in sales volumes in fiscal 2005. There was a reduction in the premium over LME prices on domestic sales due to the change in customs duties on imports in July 2004 and further in March 2005. The removal of the 4% SAD in January 2004 adversely impacted our results of operations for all of fiscal 2005, as compared to only the last three months of fiscal 2004. Other factors which contributed to our net sales during the period include the following: