STERLITE INDUSTRIES (INDIA) LIMITED

F-1 1 u92827fv1.htm STERLITE INDUSTRIES (INDIA) LIMITED STERLITE INDUSTRIES (INDIA) LIMITED

As filed with the Securities and Exchange Commission on November 15, 2006

Registration No. 333-

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

CALCULATION OF REGISTRATION FEE




	Proposed Maximum
Title of Each Class of	Aggregate	Amount of
Securities to be Registered	Offering Price(1)(2)	Registration Fee

Equity shares, par value Rs. 2 per equity share, each represented by one American Depositary Share(3)	$2,000,000,000	$214,000


(1)	Includes additional equity shares represented by American Depositary Shares which may be purchased by the underwriters at their option to cover over-allotments, if any.
(2)	Estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(o) under the Securities Act.
(3)	American Depositary Shares evidenced by American Depositary Receipts issuable upon deposit of the equity shares registered hereby are being registered pursuant to a separate registration statement on Form F-6 (Registration No. 333- ).

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.

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 15, 2006

American Depositary Shares

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 14, 2006, the last closing price per equity share was Rs. 534.60 ($11.87) on the NSE and Rs. 534.50 ($11.86) on the BSE, assuming an exchange rate of Rs. 45.05 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 that date. We intend to apply to have our ADSs listed on the New York Stock Exchange under the symbol “SRL.”

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

TABLE OF CONTENTS


	Page

CONVENTIONS WHICH APPLY TO THIS PROSPECTUS		ii
PROSPECTUS SUMMARY		1
RISK FACTORS		13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		33
ENFORCEMENT OF CIVIL LIABILITIES		34
USE OF PROCEEDS		35
DIVIDENDS AND DIVIDEND POLICY		36
CAPITALIZATION		38
DILUTION		39
EXCHANGE RATES		41
MARKET INFORMATION		43
SELECTED CONSOLIDATED FINANCIAL INFORMATION		44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		50
OVERVIEW OF INDUSTRIES		81
BUSINESS		98
MANAGEMENT		160
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		168
MATERIAL CONTRACTS		174
PRINCIPAL SHAREHOLDERS		177
DESCRIPTION OF SHARE CAPITAL		179
COMPARISON OF SHAREHOLDERS’ RIGHTS		189
COMPARISON OF CORPORATE GOVERNANCE STANDARDS		197
DESCRIPTION OF AMERICAN DEPOSITARY SHARES		203
THE INDIAN SECURITIES MARKET		213
GOVERNMENT OF INDIA APPROVALS		221
REGULATIONS AND RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES		223
CERTAIN INCOME TAX CONSIDERATIONS		229
SHARES AVAILABLE FOR FUTURE SALE		236
UNDERWRITING		238
LEGAL MATTERS		245
EXPERTS		245
WHERE YOU CAN FIND MORE INFORMATION		246
GLOSSARY OF TERMS/ ABBREVIATIONS		247
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1
EX-3.1 CERTIFICATE OF INCORPORATION OF STERLITE INDUSTRIES (INDIA) LIMITED, AS AMENDED.
EX-3.2 MEMORANDUM OF ASSOCIATION OF STERLITE INDUSTRIES (INDIA) LIMITED, AS AMENDED.
EX-3.3 ARTICLES OF ASSOCIATION OF STERLITE INDUSTRIES (INDIA) LIMITED, AS AMENDED.
EX-5.1 OPINION OF AMARCHAND & MANGALDAS & SURESH A. SHROFF & CO.
EX-8.2 OPINION OF LATHAM & WATKINS LLP AS TO CERTAIN US TAX MATTERS.
EX-10.1 VEDANTA RESOURCES PLC LONG-TERM INCENTIVE PLAN.
EX-10.2 RELATIONSHIP AGREEMENT DATED DECEMBER 5, 2003 AMONG VEDANTA RESOURCES PLC, VOLCAN INVESTMENTS LIMITED, DWARKA PRASAD AGARWAL, AGNIVESH AGARWAL AND ANIL AGARWAL.
EX-10.3 SHARED SERVICES AGREEMENT DATED DECEMBER 5, 2003 AMONG VEDANTA RESOURCES PLC, STERLITE OPTICAL TECHNOLOGIES LIMITED, STERLITE GOLD LIMITED AND STERLITE INDUSTRIES (INDIA) LIMITED
EX-10.4 CONSULTANCY AGREEMENT DATED MARCH 29, 2005 BETWEEN VEDANTA RESOURCES PLC AND STERLITE INDUSTRIES (INDIA) LIMITED.
EX-10.5 REPRESENTATIVE OFFICE AGREEMENT DATED MARCH 29, 2005 BETWEEN VEDANTA RESOURCES PLC AND STERLITE INDUSTRIES (INDIA) LIMITED.
EX-10.6 SHAREHOLDERS' AGREEMENT BETWEEN THE PRESIDENT OF INDIA AND STERLITE OPPORTUNITIES AND VENTURES LIMITED DATED APRIL 4, 2002.
EX-10.7 SHAREHOLDERS' AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED, GOVERNMENT OF INDIA AND BHARAT ALUMINIUM COMPANY LIMITED DATED MARCH 2, 2001.
EX-10.8 GUARANTEE AGREEMENT BETWEEN THE PRESIDENT OF INDIA, STERLITE INDUSTRIES (INDIA) LIMITED, STERLITE OPTICAL TECHNOLOGIES LIMITED AND STERLITE OPPORTUNITIES AND VENTURES LIMITED DATED APR 4, 2002
EX-10.9 AGREEMENT BETWEEN VEDANTA ALUMINA LIMITED AND ORISSA MINING CORPORATION LIMITED DATED OCTOBER 5, 2004.
EX-10.10 MINING LEASE BETWEEN THE GOVERNMENT OF RAJASTHAN AND HINDUSTAN ZINC LIMITED DATED MARCH 13, 1980 RENEWED ON SEPTEMBER 15, 2000.
EX-10.11 $92.6 MILLION TERM FACILITY AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AS BORROWER AND CALYON, STANDARD CHARTERED BANK AND ICICI BANK LIMITED AS LENDERS DATED MARCH 22, 2006.
EX-10.12 JAPANESE YEN 3,570 MILLION AND $19.65 MILLION TERM LOAN FACILITIES AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AS BORROWER DATED SEPTEMBER 19, 2005.
EX-10.13 $125 MILLION TERM FACILITY AGREEMENT BETWEEN HINDUSTAN ZINC LIMITED AS BORROWER DATED JULY 29, 2005.
EX-10.14 RS. 7,000 MILLION RUPEE TERM FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED AUGUST 18, 2004.
EX-10.15 $50 MILLION FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED NOVEMBER 8, 2004.
EX-10.16 $50 MILLION FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED NOVEMBER 10, 2004.
EX-10.17 RS. 10,000 MILLION FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED SEPTEMBER 16, 2003.
EX-10.18 SUBSCRIPTION AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND THE LIFE INSURANCE CORPORATION OF INDIA DATED APRIL 9, 2003.
EX-10.19 OPTION AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED, INDIA FOILS LIMITED AND ICICI BANK LIMITED DATED FEBRUARY 18, 2005.
EX-10.20 CORPORATE GUARANTEE BY STERLITE INDUSTRIES (INDIA) LIMITED TO ICICI BANK LIMITED ON BEHALF OF INDIA FOILS LIMITED DATED FEBRUARY 8, 2005.
EX-10.21 CORPORATE GUARANTEE BY STERLITE INDUSTRIES (LIMITED) TO ICICI BANK LIMITED DATED DECEMBER 4, 2004.
EX-10.22 FRAME CONTRACT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND THE COPPER MINES OF TASMANIA PTY LTD DATED JULY 1, 2004, AS AMENDED ON JUL 1, 2004.
EX-10.23 COPPER CONCENTRATE PURCHASE CONTRACT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND THE COPPER MINES OF TASMANIA PTY LTD DATED JULY 1, 2005.
EX-10.24 AGREEMENT FOR SALE AND PURCHASE OF THE POWER TRANSMISSION LINE DIVISION BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND STERLITE OPTICAL LIMITED DATED AUGUST 30, 2006.
EX-10.25 AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND NAVIN AGARWAL DATED OCTOBER 8, 2003.
EX-10.26 AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND KULDIP KUMAR KAURA DATED SEPTEMBER 12, 2006.
EX-10.27 AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND TARUN JAIN DATED DECEMBER 6, 2004.
EX-21.1 LIST OF SUBSIDIARIES OF STERLITE INDUSTRIES (INDIA) LIMITED.
EX-23.1 CONSENT OF DELOITTE HASKINS & SELLS, MUMBAI, INDIA, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM WITH RESPECT TO STERLITE INDUSTRIES (INDIA) LIMITED.
EX-23.4 CONSENT OF SRK CONSULTING (SOUTH AFRICA) PTY LTD.
EX-23.5 CONSENT OF SRK CONSULTING (UK) LIMITED.
EX-23.6 CONSENT OF STEFFEN ROBERTSON AND KIRSTEN (AUSTRALASIA) PTY LTD.

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.

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. 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.

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
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

iii


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. 44.48 per $1.00 and AUD 1.40 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 March 31, 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.

IsaSmelt^tm and IsaProcess^tm are trademarks of Xstrata Plc. Ausmelt^tm is a trademark of Ausmelt Limited. ISP^tm is a trademark of Imperial Smelting Processes Ltd.

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*


	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

relative to supply, this business represents an attractive growth opportunity. We intend to invest approximately Rs. 84.512 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 ($1,124.1 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. 56,788 million in fiscal 2004 to Rs. 128,608 million ($2,891.3 million) in fiscal 2006, representing a compound annual growth rate of 50.5%, 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.


	*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

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.”

The following diagram summarizes the corporate structure of our consolidated group of companies and our relationship with Vedanta and other key entities as of October 20, 2006:

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


	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.

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 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 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.


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 the date on which a meeting of our shareholders is expected to be held to consider this offering.

		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 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 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 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		“SRL.”

Depositary for the ADSs		Citibank, N.A.

Lock-up		We have agreed with the underwriters not to issue, and our principal shareholders, Twin Star, a wholly-owned subsidiary of Vedanta, and MALCO, an 80.0%-owned subsidiary of Vedanta, 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 or 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. 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.

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. 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. 44.48 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 March 31, 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,

			2004			2005			2006			2006

			(in millions, except share and per share data)
Consolidated Statement of Operations Data:
Net sales				Rs. 56,788			Rs. 71,183			Rs. 128,608		$	2,891.3
Other operating revenues				682			652			1,362			30.6

Total revenue				57,470			71,835			129,970			2,921.9
Cost of sales				(42,119	)		(54,640	)		(92,041	)		(2,069.3	)
Selling and distribution expenses				(1,544	)		(1,620	)		(2,330	)		(52.4	)
General and administration expenses				(2,452	)		(2,402	)		(2,605	)		(58.6	)
Other expenses:
	Voluntary retirement scheme expenses			(611	)		(186	)		—			—
	Impairment of assets			—			(1,276	)		—			—
	Guarantees, impairment of investments and loans			—			—			(1,300	)		(29.2	)

Operating income				10,744			11,711			31,694			712.4
Interest income				1,609			2,181			2,419			54.4
Interest expense				(1,997	)		(2,007	)		(3,331	)		(74.9	)

Income before income taxes, minority interests and equity in net loss of associate				10,356			11,885			30,782			691.9
Income taxes:
		Current		(2,636	)		(2,724	)		(8,000	)		(179.9	)
		Deferred		(350	)		(831	)		(1,111	)		(25.0	)

Income after income taxes, before minority interests and equity in net loss of associate				7,370			8,330			21,671			487.0
Minority interests				(2,349	)		(2,764	)		(6,073	)		(136.5	)
Equity in net loss of associate, net of taxes				—			—			(99	)		(2.2	)

Net income				Rs. 5,021			Rs. 5,566			Rs. 15,499		$	348.3


		Year Ended March 31,

		2004		2005		2006		2006

		(in millions, except share and per share data)
Earnings per share⁽¹⁾:
	Basic		Rs. 13.99		Rs. 12.22		Rs. 28.02	$	0.63
	Diluted		Rs. 13.68		Rs. 12.05		Rs. 28.02	$	0.63
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
	Diluted		367,697,507		465,108,143		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,

	2005		2006		2006

	(in millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents⁽¹⁾		Rs.5,909		Rs.9,258	$	208.1
Total assets⁽¹⁾		133,197		167,539		3,766.6
Long-term debt, net of current portion		28,794		30,237		679.8
Short-term and current portion of long-term debt		8,663		4,390		98.7
Total shareholders’ equity⁽¹⁾		37,388		53,498		1,202.6

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).

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

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.


	•	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 67.2% 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.


	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. 13,344 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 and our investment of approximately Rs. 1,000 million ($22.5 million) to achieve operational efficiency improvements at our Tuticorin facility.

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. 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. 84,512 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 ($1,124.1 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 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.

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 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 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 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.


	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 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.”


	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 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 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 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.

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 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.

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. 34,627 million ($778.5 million) as of March 31, 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. 11,422 million ($256.8 million) as of March 31, 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.”


	*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 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 57.4% 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 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 42.6% 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.


	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 under US securities laws and a “controlled company” within the meaning of the NYSE rules, we are subject to different US securities laws and 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.

As a foreign private issuer, we are subject to requirements under the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are different from the requirements applicable to domestic US issuers. For example, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder with respect to their purchases and sales of our ADSs. The periodic disclosure required of foreign private issuers is more limited than that required of domestic US issuers and there may therefore be less publicly available information about us than is regularly published by or about US public companies. See “Where You Can Find More Information.”

In addition, 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 US law and 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.

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 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 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.”

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;

	•	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.

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.

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. 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. 84,512 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. 6,672 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.

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.

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	$	4.8
2005		3.00		0.07		330		7.4
2006⁽¹⁾		1.25		0.03		698		15.7

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.

Our dividends are generally paid in the fiscal year following the year in which they are declared. Under Indian law, a company pays 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. 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 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, 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 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.

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.

CAPITALIZATION

The following table sets forth our indebtedness and capitalization as of March 31, 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.”

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 March 31, 2006

			Actual			As Adjusted		Actual			As Adjusted

			(in millions)
Long-term debt, net of current portion				Rs. 30,237			Rs.	$	679.8		$
1% cumulative mandatorily redeemable preference shares of par value Rs. 10, Authorized: 30,000,000 Issued: 21,875,000				1,947					43.8
Shareholders’ equity:
	Equity shares of par value Rs. 2,
		Authorized: 600,000,000
		Issued: 558,494,411⁽¹⁾		559					12.5
		Additional paid-in capital⁽²⁾		26,883					604.4
Retained earnings				26,575					597.5
Accumulated other comprehensive losses				(519	)				(11.8	)

		Total shareholders’ equity⁽²⁾		Rs.53,498				$	1,202.6

Total capitalization⁽²⁾				Rs.85,682			Rs.	$	1,926.2		$

Notes:


(1)	The number and par value of authorized and issued equity shares have been adjusted for the five-for-two stock split and one-for-one bonus issue effective May 12, 2006.
(2)	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).

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 March 31, 2006 was approximately Rs. 53,498 million ($1,202.6 million) or Rs. 95.79 ($2.15) 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 March 31, 2006, adjusted for the five-for-two stock split and one-for-one bonus issue effective May 12, 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 March 31, 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 March 31, 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.

The following table sets forth as of March 31, 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%

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.

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 14, 2006)		45.05		45.26		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 14, 2006)		45.05		44.73		45.05		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 March 31, 2006, which was Rs. 44.48 per $1.00.

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 14, 2006)		1.31		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 14, 2006)		1.31		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 March 31, 2006, which was AUD 1.40 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.

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	$	0.78	$	0.35		92,696
	2nd Quarter		—		—		—		—		—		61.93		29.23		1.39		0.66		541,706
	3rd Quarter		—		—		—		—		—		158.19		63.65		3.56		1.43		960,026
	4th Quarter		—		—		—		—		—		147.57		98.59		3.32		2.22		593,954
2005
	1st Quarter		90.46		83.89		2.03		1.89		16,214		108.26		66.70		2.43		1.50		224,903
	2nd Quarter		118.07		86.81		2.65		1.95		120,115		118.16		87.69		2.66		1.97		146,310
	3rd Quarter		130.26		104.91		2.93		2.36		153,630		129.70		105.02		2.92		2.36		135,213
	4th Quarter		155.92		110.34		3.51		2.48		189,703		155.91		110.25		3.51		2.48		143,526
2006
	1st Quarter		144.05		115.07		3.24		2.59		128,467		144.53		115.07		3.25		2.59		96,698
	2nd Quarter		187.14		122.36		4.21		2.75		283,759		187.13		122.39		4.21		2.75		175,420
	3rd Quarter		207.22		139.69		4.66		3.14		504,833		207.03		139.74		4.65		3.14		241.235
	4th Quarter		350.20		258.10		7.87		5.80		945,576		349.89		214.96		7.87		4.83		416,264
2007
	1st Quarter		600.65		264.45		13.50		5.95		3,275,359		604.05		263.85		13.58		5.93		1,227,445
	2nd Quarter		474.05		348.10		10.66		7.83		2,905,384		473.90		348.40		10.65		7.83		1,168,648
	3rd Quarter⁽²⁾		556.75		438.95		12.52		9.87		1,523,173		556.90		438.55		12.52		9.86		568,260

Notes:


(1)	Prices unavailable for fiscal 2004 as we only commenced trading on the NSE on May 28, 2004.
(2)	Through November 14, 2006.

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. 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. 44.48 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 March 31, 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.


		Year Ended March 31,

		2004			2005			2006			2006

		(in millions)
Consolidated Statement of Operations Data:
Net sales			Rs.56,788			Rs.71,183			Rs.128,608		$	2,891.3
Other operating revenues			682			652			1,362			30.6

Total revenue			57,470			71,835			129,970			2,921.9
Cost of sales			(42,119	)		(54,640	)		(92,041	)		(2,069.3	)
Selling and distribution expenses			(1,544	)		(1,620	)		(2,330	)		(52.4	)
General and administration expenses			(2,452	)		(2,402	)		(2,605	)		(58.6	)
Other expenses:
	Voluntary retirement scheme expenses		(611	)		(186	)		—			—
	Impairment of assets		—			(1,276	)		—			—
Guarantees, impairment of investments and loans			—			—			(1,300	)		(29.2	)

Operating income			10,744			11,711			31,694			712.4
Interest income			1,609			2,181			2,419			54.4
Interest expense			(1,997	)		(2,007	)		(3,331	)		(74.9	)

Income before income taxes, minority interests and equity in net loss of associate			10,356			11,885			30,782			691.9
Income taxes:
	Current		(2,636	)		(2,724	)		(8,000	)		(179.9	)
	Deferred		(350	)		(831	)		(1,111	)		(25.0	)


	Year Ended March 31,

	2004			2005			2006			2006

	(in millions)
Income after income taxes, before minority interests and equity in net loss of associate		7,370			8,330			21,671			487.0
Minority interests		(2,349	)		(2,764	)		(6,073	)		(136.5	)
Equity in net loss of associate, net of taxes		—			—			(99	)		(2.2	)

Net income		Rs.5,021			Rs.5,566			Rs.15,499		$	348.3


		Year Ended March 31,

		2004		2005		2006		2006

Earnings per share:⁽¹⁾
	Basic		Rs.13.99		Rs.12.22		Rs.28.02	$	0.63
	Diluted		Rs.13.68		Rs.12.05		Rs.28.02	$	0.63
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
	Diluted		367,697,507		465,108,143		553,216,634		553,216,634
Dividend declared per share⁽²⁾			Rs.3.00		Rs.3.00		Rs.1.25	$	0.03

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.


	As of March 31,

	2005		2006		2006

	(in millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents⁽¹⁾		Rs.5,909		Rs.9,258	$	208.1
Total assets⁽¹⁾		133,197		167,539		3,766.6
Long-term debt, net of current portion		28,794		30,237		679.8
Short term and current portion of long-term debt		8,663		4,390		98.7
Total shareholders’ equity⁽¹⁾		37,388		53,498		1,202.6

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).


		Year Ended March 31,

		2004			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		$	440.3
	Investing activities		(18,356	)		(21,391	)		(16,676	)		(375.0	)
	Financing activities		13,084			17,321			375			8.4


		Year Ended March 31,

		2004		2005			2006			2006

		(in millions)
Other Consolidated Financial Data:
Net sales:
	Copper		Rs.27,046		Rs.34,508			Rs.67,921		$	1,527.0
	Zinc		18,213		21,967			38,573			867.2
	Aluminum		8,217		10,168			16,297			366.4
	Corporate and others		3,312		4,540			5,817			130.7

	Total		Rs.56,788		Rs.71,183			Rs.128,608		$	2,891.3

Operating income:
	Copper		Rs.2,853		Rs.2,440			Rs.7,659		$	172.2
	Zinc		7,097		8,309			21,287			478.5
	Aluminum		591		1,824			3,496			78.5
	Corporate and others		203		(862	)		(748	)		(16.8	)

	Total		Rs.10,744		Rs.11,711			Rs.31,694		$	712.4

Segment profit⁽¹⁾:
	Copper		Rs.4,114		Rs.3,899			Rs.8,982		$	201.9
	Zinc		8,237		9,785			23,216			521.9
	Aluminum		1,818		2,504			4,752			106.7
	Corporate and others		238		242			591			13.3

	Total		Rs.14,407		Rs.16,430			Rs.37,541		$	843.8

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:


			Year Ended March 31,

			2004		2005		2006		2006

			(in millions)
Copper:
	Operating income			Rs.2,853		Rs.2,440		Rs.7,659	$	172.2
	Plus:
	Depreciation, depletion and amortization			1,261		1,239		1,323		29.7
	Impairment of assets			—		220		—		—

		Segment profit		Rs.4,114		Rs.3,899		Rs.8,982	$	201.9

Zinc:
	Operating income			Rs.7,097		Rs.8,309		Rs.21,287	$	478.5
	Plus:
	Depreciation, depletion and amortization			1,112		1,290		1,929		43.4
	Voluntary retirement scheme expenses			28		186		—		—

		Segment profit		Rs.8,237		Rs.9,785		Rs.23,216	$	521.9


			Year Ended March 31,

			2004		2005			2006			2006

			(in millions)
Aluminum:
	Operating income			Rs.591		Rs. 1,824			Rs. 3,496		$	78.5
	Plus:
	Depreciation, depletion and amortization			644		680			1,256			28.2
	Voluntary retirement scheme expenses			583		—			—			—

		Segment profit		Rs.1,818		Rs.2,504			Rs.4,752		$	106.7

Corporate and others:
	Operating income			Rs.203		Rs.(862	)		Rs.(748	)	$	(16.8	)
	Plus:
	Depreciation, depletion and amortization			35		48			39			0.9
	Impairment of assets			—		1,056			—			—
	Guarantees, impairment of investments and loan			—		—			1,300			29.2

		Segment profit		Rs.238		Rs.242			Rs.591		$	13.3


		Year Ended March 31,

		2004		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
	Zinc		900		1,108		1,614
	Aluminum		1,496		1,779		2,028
Treatment charge and refining charge (TcRc)⁽²⁾:
	Copper		8.8¢/lb		8.6¢/lb		23.1¢/lb
Cost of production⁽³⁾:
	Copper smelting and refining⁽⁴⁾		7.8¢/lb		7.1¢/lb		6.1¢/lb
	Zinc⁽⁵⁾	$	571	$	695	$	691
	Aluminum⁽⁶⁾		1,239		1,347		1,497

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:


		Year Ended March 31,

		2004			2005			2006

		(in millions, except Production output and
		Cost of production)
Copper:
	Segment sales		Rs. 27,046			Rs. 34,508			Rs. 67,921
	Less:
	Segment profit		(4,114	)		(3,899	)		(8,982	)

	Segment cost		22,932			30,609			58,939
	Less:
	Purchased concentrate/rock		(18,728	)		(27,136	)		(55,132	)
	By-product/free copper net sales		(712	)		(977	)		(1,520	)
	Cost for downstream products		(514	)		(599	)		(722	)
	Others, net		(1,567	)		(686	)		62

	Total expenses		Rs. 1,411			Rs. 1,211			Rs. 1,627

	Production output (in tons)		178,654			171,992			273,048
	Cost of production^(a)		7.8¢/lb			7.1¢/lb			6.1¢/lb
Zinc:
	Segment sales		Rs. 18,213			Rs. 21,967			Rs. 38,573
	Less:
	Segment profit		(8,237	)		(9,785	)		(23,216	)

	Segment cost		9,976			12,182			15,357
	Less:
	Purchased metal		(38	)		(1	)		(539	)
	Cost of tolling including raw material cost		(1,393	)		(2,140	)		(1,502	)
	Cost of intermediary product sold		(853	)		(620	)		(1,188	)
	By-product net sales		(802	)		(1,113	)		(1,253	)
	Cost of lead metal sold		(544	)		(452	)		(690	)
	Others, net		(560	)		(1,219	)		(1,536	)

	Total expenses		Rs. 5,786			Rs. 6,638			Rs. 8,649

	Production output (in tons)		220,664			212,445			282,668
	Cost of production (per ton)^(a)	$	571		$	695		$	691


		Year Ended March 31,

		2004			2005			2006

		(in millions, except Production output and
		Cost of production)
Aluminum:
	Segment sales		Rs. 8,663			Rs. 10,453			Rs. 17,721
	Less:
	Segment profit		(1,818	)		(2,504	)		(4,752	)

	Segment cost		6,845			7,949			12,969
	Less:
	Cost of intermediary product sold		(82	)		(151	)		(154	)
	By-product net sales		(110	)		(291	)		(408	)
	Cost for downstream products		(768	)		(742	)		(822	)
	Cost for new Korba plant		—			(210	)		(4,773	)
	Others, net		(375	)		(558	)		186

	Total expenses		Rs. 5,510			Rs. 5,997			Rs. 6,998

	Production output (hot metal) (in tons)		96,827			99,031			105,593
	Cost of production (per ton)^(a)	$	1,239		$	1,347		$	1,497


	(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.


(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.

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. 56,788 million and Rs. 10,744 million in fiscal 2004 to Rs. 128,608 million ($2,891.3 million) and Rs. 31,694 million ($712.4 million) in fiscal 2006, representing compound annual growth rates of 50.5% and 71.8%, 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.


			Year Ended March 31,

			2004			2005			2006

Net Sales:
	Copper			47.6	%		48.5	%		52.8	%
	Zinc			32.1			30.9			30.0
	Aluminum			14.5			14.3			12.7
	Corporate and others			5.8			6.3			4.5

		Total		100.0	%		100.0	%		100.0	%


			Year Ended March 31,

			2004			2005			2006

Operating income:
	Copper			26.6	%		20.8	%		24.2	%
	Zinc			66.1			71.0			67.2
	Aluminum			5.5			15.6			11.0
	Corporate and others			1.8			(7.4	)		(2.4	)

		Total		100.0	%		100.0	%		100.0	%

Segment profit⁽¹⁾:
	Copper			28.6	%		23.7	%		23.9	%
	Zinc			57.2			59.6			61.8
	Aluminum			12.6			15.2			12.7
	Corporate and others			1.6			1.5			1.6

		Total		100.0	%		100.0	%		100.0	%

Note:

(1)


			Year Ended March 31,

			2004		2005		2006		2006

			(in millions)
Copper:
	Operating income			Rs.2,853		Rs.2,440		Rs.7,659	$	172.2
	Plus:
	Depreciation, depletion and amortization			1,261		1,239		1,323		29.7
	Impairment of assets			—		220		—		—

		Segment profit		Rs.4,114		Rs.3,899		Rs.8,982	$	201.9

Zinc:
	Operating income			Rs.7,097		Rs.8,309		Rs.21,287	$	478.5
	Plus:
	Depreciation, depletion and amortization			1,112		1,290		1,929		43.4
	Voluntary retirement scheme expenses			28		186		—		—

		Segment profit		Rs.8,237		Rs.9,785		Rs.23,216	$	521.9

Aluminum:
	Operating income			Rs.591		Rs.1,824		Rs.3,496	$	78.5
	Plus:
	Depreciation, depletion and amortization			644		680		1,256		28.2
	Voluntary retirement scheme expenses			583		—		—		—

		Segment profit		Rs.1,818		Rs.2,504		Rs.4,752	$	106.7


			Year Ended March 31,

			2004		2005			2006			2006

			(in millions)
Corporate and Others:
	Operating income			Rs.203		Rs.(862	)		Rs.(748	)	$	(16.8	)
	Plus:
	Depreciation, depletion and amortization			35		48			39			0.9
	Impairment of assets			—		1,056			—			—
	Guarantees, impairment of investments and loans			—		—			1,300			29.2

		Segment profit		Rs.238		Rs.242			Rs.591		$	13.3

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 ($1,527.0 million) and Rs. 7,659 million ($172.2 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 ($867.2 million) and Rs. 21,287 million ($478.5 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 Rs. 16,297 million ($366.4 million) and Rs. 3,496 million ($78.5 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 is primarily comprised of our aluminum conductor business, which is engaged in the manufacture and sale of aluminum-based transmission conductors used by power transmission companies and also includes our equity investment in Vedanta Alumina and our guarantees, investments and loans with respect to India Foils Limited, or IFL. We have entered into an agreement to sell our aluminum conductor business to Sterlite Optical Technologies Limited, or SOTL, a company owned and controlled by Volcan, for Rs. 1,485 million ($33.4 million). The sale of this non-core business was approved by our shareholders on September 30, 2006 and remains subject to approval by statutory and regulatory

authorities, and the estimated loss on account of this sale will be Rs. 52 million ($1.2 million) based on a June 30, 2006 valuation. 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 the average TcRc that we have realized for each of the last three fiscal years:

Year Ended March 31,

2004

2005

2006

(in US cents per pound)

Copper TcRc

8.8¢/lb

8.6¢/lb

23.1¢/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:


	Year Ended March 31,

	2004		2005		2006

	(in US dollars per ton)
Copper LME	$	2,051	$	2,999	$	4,099


	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:


	Year Ended March 31,

	2004		2005		2006

	(in US dollars per ton)
Zinc LME	$	900	$	1,108	$	1,614
Aluminum LME		1,496		1,779		2,028


	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.


	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.


	*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:


		Year Ended March 31,

Segment	Product	2004		2005		2006

		(tons)
Copper	Copper cathode⁽¹⁾		178,654		171,992		273,048
	Copper rods⁽²⁾		122,713		125,406		166,497
Zinc	Zinc⁽³⁾⁽⁴⁾		220,664		212,445		283,698
	Lead⁽⁵⁾		25,089		15,727		23,636
Aluminum	Ingots⁽⁶⁾		13,149		8,609		58,750
	Rods⁽⁷⁾		48,243		48,045		64,602
	Rolled Products		35,631		43,618		50,391

	Total Aluminum		97,023		100,272		173,743

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 of copper rods produced by third parties using copper cathode supplied by us in fiscal 2004, 2005 and 2006 of 744 tons, 2,802 tons and 336 tons, respectively.
(3)	Includes production capitalized in fiscal 2006 of 1,030 tons.
(4)	Excludes tolled metal in fiscal 2004, 2005 and 2006 of 40,562 tons, 53,479 tons and 34,890 tons, respectively.
(5)	Excludes production capitalized in fiscal 2006 of 153 tons.
(6)	Includes production capitalized in fiscal 2006 of 12,288 tons.
(7)	Includes production capitalized in fiscal 2006 of 1,300 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.


	*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.

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

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)

Number of Australian dollars equal to

one US dollar (April 1, 2003 to

September 30, 2006)

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.

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

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:


		Year Ended March 31,

		2004			2005			2006

Consolidated Statement of Operations Data:
Net sales			100.0	%		100.0	%		100.0	%
Other operating revenues			1.2			0.9			1.1

Total revenue			101.2			100.9			101.1
Cost of sales			(74.2	)		(76.8	)		(71.6	)
Selling and distribution expenses			(2.7	)		(2.3	)		(1.8	)
General and administration expenses			(4.3	)		(3.4	)		(2.0	)
Other expenses:
	Voluntary retirement scheme expenses		(1.1	)		(0.2	)		—
	Impairment of assets		—			(1.7	)		—
	Guarantees, impairment of investments and loans		—			—			(1.0	)

Operating income			18.9			16.5			24.7
Interest income			2.8			3.1			1.9
Interest expense			(3.5	)		(2.8	)		(2.6	)

Income before income taxes, minority interests and equity in net loss of associate			18.2			16.8			24.0
Income taxes			—			—			—
	Current		(4.6	)		(3.8	)		(6.2	)
	Deferred		(0.6	)		(1.2	)		(0.9	)

Income after income taxes, before minority interests and equity in net loss of associate			13.0			11.8			16.9
Minority interests			(4.1	)		(3.9	)		(4.7	)
Equity in net loss of associate, net of taxes			—			—			(0.1	)

Net income			8.9	%		7.9	%		12.1	%


	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, 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. 42,648		75.1	%		Rs. 48,334		67.9	%		Rs. 73,847	$	1,660.2		57.4	%
Far East⁽¹⁾			9,168		16.1			14,269		20.0			22,660		509.4		17.6
Other⁽²⁾			4,972		8.8			8,580		12.1			32,101		721.7		25.0

	Total		Rs. 56,788		100.0	%		Rs. 71,183		100.0	%		Rs. 128,608	$	2,891.3		100.0	%

Note:


(1)	Far East includes a number of countries, primarily including China, 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		17.4	%		16.8	%		19.1	%
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.


	*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. 71,183 million in fiscal 2005 to Rs. 128,608 million ($2,891.3 million) in fiscal 2006, an increase of Rs. 57,425 million, or 80.7%. 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 58.2%, 28.9% and 10.7% of our increase in net sales, respectively.

Other operating revenues increased from Rs. 652 million in fiscal 2005 to Rs. 1,362 million ($30.6 million) in fiscal 2006, an increase of Rs. 710 million, or 108.9%. The increase was due to sales of surplus power by BALCO and HZL to state electricity boards, or 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 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. 11,711 million in fiscal 2005 to Rs. 31,694 million ($712.4 million) in fiscal 2006, an increase of Rs. 19,983 million, or 170.6%. The increase was primarily as a result of increased operating income in our zinc and copper businesses. Operating margin increased from 16.5% in fiscal 2005 to 24.7% 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. 54,640 million in fiscal 2005 to Rs. 92,041 million ($2,069.3 million) in fiscal 2006, an increase of Rs. 37,401 million, or 68.4%. 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 76.8% in fiscal 2005 to 71.6% 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. 1,620 million in fiscal 2005 to Rs. 2,330 million ($52.4 million) in fiscal 2006, an increase of Rs. 710 million, or 43.8%. 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 2.3% in fiscal 2005 to 1.8% in fiscal 2006 as a result of higher metal prices.

	•	General and administrative expenses increased from Rs. 2,402 million in fiscal 2005 to Rs. 2,605 million ($58.6 million) in fiscal 2006, an increase of Rs. 203 million, or 8.5%, and as a percentage of net sales decreased from 3.4% in fiscal 2005 to 2.0% 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

($5.4 million) in relation to preference share investment, Rs. 276 million ($6.2 million) in relation to loans and Rs. 784 million ($17.6 million) in relation to corporate guarantees, totaling Rs. 1,300 million ($29.2 million).

• Depreciation, depletion and amortization increased from Rs. 3,257 million in fiscal 2005 to Rs. 4,547 million ($102.2 million) in fiscal 2006, an increase of Rs. 1,290 million, or 39.6%. This increase related primarily to capitalization of our expanded capacities in our aluminum and zinc businesses.


	*Copper*

Net sales in the copper segment increased from Rs. 34,508 million in fiscal 2005 to Rs. 67,921 million ($1,527.0 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 declined between fiscal 2005 and fiscal 2006 as a percentage of total sales 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 ($172.2 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 ($867.2 million) in fiscal 2006, an increase of Rs. 16,606 million, or 75.6%. This increase was primarily 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 dry metric tons, or 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 ($478.5 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 ($366.4 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.

	•	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 ($78.5 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*

Net sales in our corporate and other business segment increased from Rs. 4,540 million in fiscal 2005 to Rs. 5,817 million ($130.7 million) in fiscal 2006, an increase of 28.1%. This increase was mainly due to increased sales volume in the aluminum conductor business.

Operating loss in our corporate and other business segment decreased from Rs. 862 million in fiscal 2005 to Rs. 748 million ($16.8 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. These losses were offset by increased profitability of our aluminum conductor business from fiscal 2005 to fiscal 2006, which business is being divested.


	Interest Income

Interest income increased from Rs. 2,181 million in fiscal 2005 to Rs. 2,419 million ($54.4 million) in fiscal 2006, an increase of Rs. 238 million, or 10.9%, due to higher levels of term deposits and investments.


	Interest Expense

Interest expense increased from Rs. 2,007 million in fiscal 2005 to Rs. 3,331 million ($74.9 million) in fiscal 2006, an increase of Rs. 1,324 million, or 66.0%. 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. 3,555 million in fiscal 2005 to Rs. 9,111 million ($204.9 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 29.9% in fiscal 2005 and 29.6% 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 profits decreased from 33.2% in fiscal 2005 to 28.0% 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 ($2.2 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.


	*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. 56,788 million in fiscal 2004 to Rs. 71,183 million in fiscal 2005, an increase of Rs. 14,395 million, or 25.3%. 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. 682 million in fiscal 2004 to Rs. 652 million in fiscal 2005, a decrease of Rs. 30 million, or 4.4%. 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.

Operating income increased from Rs. 10,744 million in fiscal 2004 to Rs. 11,711 million in fiscal 2005, an increase of Rs. 967 million, or 9.0%. The increase was attributable to increased sales volume in the zinc segment and higher metal prices. Operating margin decreased from 18.9% in fiscal 2004 to 16.5% 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. 42,119 million in fiscal 2004 to Rs. 54,640 million in fiscal 2005, an increase of Rs. 12,521 million, or 29.7%. 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 74.2% in fiscal 2004 to 76.8% in fiscal 2005.

	•	Selling and distribution expenses increased from Rs. 1,544 million in fiscal 2004 to Rs. 1,620 million in fiscal 2005, an increase of Rs. 76 million, or 4.9%. 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 2.7% in fiscal 2004 to 2.3% in fiscal 2005 as a result of higher metal prices.

	•	General and administrative expenses decreased from Rs. 2,452 million in fiscal 2004 to Rs. 2,402 million in fiscal 2005, a decrease of Rs. 50 million, or 2.0%, and as a percentage of net sales, they decreased from 4.3% in fiscal 2004 to 3.4% 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. 3,052 million in fiscal 2004 to Rs. 3,257 million in fiscal 2005, an increase of Rs. 205 million, or 6.7%. 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:


	•	Copper cathode production decreased from 178,654 tons in fiscal 2004 to 171,992 tons in fiscal 2005, a decrease of 3.7%. This decrease was due to lower production in the first quarter of fiscal 2005 at the Tuticorin smelter as a result of a planned shutdown of 20 days after 24 months of operation. Copper cathode sales decreased from 57,802 tons in fiscal 2004 to 48,476 tons in fiscal 2005, a decrease of 16.1% as a result of lower production.

	•	Production of higher margin copper rods increased slightly from 122,713 tons in fiscal 2004 to 125,406 tons in fiscal 2005, an increase of 2.2%. Copper rod sales increased marginally from 121,200 tons in fiscal 2004 to 123,384 tons in fiscal 2005, an increase of 1.8%.

	•	The daily average copper cash settlement prices on the LME increased from $2,051 per ton in fiscal 2004 to $2,999 per ton in fiscal 2005, an increase of 46.2%.

	•	Sales of copper in the domestic market decreased from 94,708 tons in fiscal 2004 to 82,564 tons in fiscal 2005, a decrease of 12.8%, while our exports increased from 84,294 tons in fiscal 2004 to 89,296 tons in fiscal 2005, an increase of 5.9%. Sales in the domestic market decreased due to a reduction of demand for primary copper as a result of an increase in duty free imports from Sri Lanka and other neighboring countries under free trade agreements.

Operating income in the copper segment decreased from Rs. 2,853 million in fiscal 2004 to Rs. 2,440 million in fiscal 2005, a decrease of Rs. 413 million, or 14.5%. The decrease in operating income was mainly attributable to lower volumes, reduction in import tariffs and export incentives, an appreciation of the Indian Rupee against the US dollar and impairment of assets of Rs. 220 million, partially offset by increase in profitability of our Australian mining operations due to an increase in copper LME price and lower cost of production. This was partially offset by a reduction in the cost of production. In particular:


	•	TcRc rates marginally decreased from an average of 8.8¢/lb realized in fiscal 2004 to an average of 8.6¢/lb realized in fiscal 2005 due to adverse market conditions in the first half of fiscal 2005 where we realized TcRc of 6.6¢/lb and then improved in the second half of fiscal 2005.

	•	Cost of production decreased from 7.8¢/lb in fiscal 2004 to 7.1¢/lb in fiscal 2005 due to better recovery of metal and improved by-product management, notably with respect to sulphuric acid.


	*Zinc*

Net sales in the zinc segment increased from Rs. 18,213 million in fiscal 2004 to Rs. 21,967 million in fiscal 2005, an increase of Rs. 3,754 million, or 20.6%. This increase was due to a 23.1% increase in average zinc LME prices and an 11.5% increase in sales volume between fiscal 2004 and fiscal 2005. This was partially offset by reduced premiums to the LME prices as a result of lower tariff rates on both zinc and lead. Specifically:


	•	The daily average zinc cash settlement prices on the LME increased from $900 per ton in fiscal 2004 to $1,108 per ton in fiscal 2005, an increase of 23.1%.

	•	Zinc ingot production reduced marginally from 220,664 tons in fiscal 2004 to 212,445 tons in fiscal 2005, a decrease of 3.7%. This was due to inconsistent qualities of metcoke, caused by short supply, which adversely impacted the production process at HZL’s Chanderiya pyrometallurgical smelter.

	•	Zinc ingot sales increased from 259,130 tons in fiscal 2004 to 288,866 tons in fiscal 2005, an increase of 11.5%, due to liquidation of inventory and tolling of zinc concentrates notwithstanding the reduced production.

	•	Zinc ingot sales in the domestic market increased from 253,529 tons in fiscal 2004 to 266,586 tons in fiscal 2005, an increase of 5.1%, enabling an increase of HZL’s domestic market share from 62.4% in fiscal 2004 to 70.6% in fiscal 2005. Export sales increased from 5,601 tons in fiscal 2004 to 22,280 tons in fiscal 2005, an increase of 16,679 tons, as we focused on developing the export

market for HZL’s zinc products since we expected HZL’s production capacity to increase more rapidly than the demand in the domestic market starting in fiscal 2006 when HZL’s new Chanderiya smelter commenced production.

• HZL’s sales were augmented by the tolling of zinc concentrate. HZL tolled 40,562 tons of zinc in fiscal 2004 and 53,479 tons in 2005. The increase in tolling was as a result of the increase in production capacity of HZL’s Rampura Agucha mine ahead of the commissioning of the new Chanderiya hydrometallurgical smelter, which resulted in excess zinc concentrate production, and also as a result of our advantage of increased domestic demand for zinc.

• HZL also sold surplus zinc concentrate of 145,714 dmt in fiscal 2004 and 57,699 dmt in fiscal 2005. Lead concentrate sales were 10,293 dmt in fiscal 2004 and 52,039 dmt in fiscal 2005.

• Lead ingot production was 25,089 tons in fiscal 2004 and 15,727 tons in fiscal 2005, a decrease of 37.3%. Sales of lead ingots were 25,489 tons in fiscal 2004 and 14,622 tons in fiscal 2005, a decrease of 42.6% as a majority of the lead produced in fiscal 2005 was consumed internally for making anodes for HZL’s new Chanderiya hydrometallurgical smelter.

Operating income in the zinc segment increased from Rs. 7,097 million in fiscal 2004 to Rs. 8,309 million in fiscal 2005, an increase of Rs. 1,212 million, or 17.1%. The increase in operating income was due to increased zinc prices, partially offset by increases in the cost of production and reduction of tariffs on zinc and lead. Cost of production of zinc increased from $571 per ton in fiscal 2004 to $695 per ton in fiscal 2005, an increase of 21.7%. The increase was largely due to an increase in the prices of metcoke by almost 100%, which affected the cost of production at the pyrometallurgical smelter at Chanderiya, and increased energy costs and royalty costs linked to zinc LME prices. The increases in cost of production, voluntary retirement scheme expenses and reduced tariffs resulted in the operating margin declining from 39.0% in fiscal 2004 to 37.8% in fiscal 2005.


	*Aluminum*

Net sales in the aluminum segment increased from Rs. 8,217 million in fiscal 2004 to Rs. 10,168 million in fiscal 2005, an increase of Rs. 1,951 million, or 23.7%. This increase was due to higher LME prices and a marginal increase in sales volume, partially offset by the reduction in the premium over LME prices as a result of removal of the 4% SAD in January 2004, which adversely impacted our results of operations for the entire fiscal 2005, as compared to only three months at the end of fiscal 2004. Primary contributing factors to the increase include:


	•	Aluminum production increased from 97,023 tons in fiscal 2004 to 100,272 tons in fiscal 2005, an increase of 3.3%. The introduction of a fifth boiler at the 270 MW captive power plant at BALCO allowed more stable power output with fewer interruptions in power supply, which together with better control of management processes helped to increase output.

	•	Aluminum sales increased from 96,835 tons in fiscal 2004 to 100,142 tons in fiscal 2005, an increase of 3.4%. Sales of aluminum ingots decreased from 13,232 tons in fiscal 2004 to 8,625 tons in fiscal 2005, while wire rods remained largely the same and rolled products increased from 35,093 tons in fiscal 2004 to 43,334 tons in fiscal 2005. The increase in sales of rolled products was achieved as a result of the commissioning by BALCO of a new cold rolling facility of 36,000 tpa during the end of fiscal 2004.

	•	The daily average aluminum cash settlement prices on the LME increased from $1,496 per ton in fiscal 2004 to $1,779 per ton in fiscal 2005, an increase of 18.9%.

Operating income in the aluminum segment increased from Rs. 591 million in fiscal 2004 to Rs. 1,824 million in fiscal 2005, an increase of Rs. 1,233 million, or 208.6%. Operating margin also improved from 7.2% in fiscal 2004 to 17.9% in fiscal 2005. The increases were due to higher aluminum LME prices and a marginal increase in sales volume, which were partially offset by a reduction in the premium over LME prices that could be realized on sales as a result of a lowering of tariffs, increases in

the cost of production and no voluntary retirement scheme expenses in fiscal 2005 as compared to fiscal 2004 where voluntary retirement scheme expenses were Rs. 583 million. Cost of production increased from $1,239 per ton in fiscal 2004 to $1,347 per ton in fiscal 2005, an increase of 8.7%, primarily due to the increased prices of all key inputs, particularly petroleum products, non-coking coal and caustic soda.


	*Corporate and Others*

Net sales in our corporate and other business segment increased from Rs. 3,312 million in fiscal 2004 to Rs. 4,540 million in fiscal 2005, an increase of 37.1%. This increase was mainly due to increased sales volume in the aluminum conductor business.

Operating income of Rs. 203 million in fiscal 2004 changed to an operating loss of Rs. 862 million in fiscal 2005. Operating loss in fiscal 2005 was due to impairment of assets.


	Interest Income

Interest income increased from Rs. 1,609 million in fiscal 2004 to Rs. 2,181 million in fiscal 2005, an increase of 35.6%. This increase was due to the interest earned on funds borrowed to finance expansion projects but before making disbursements towards such projects.


	Interest Expense

Interest expense increased slightly from Rs. 1,997 million in fiscal 2004 to Rs. 2,007 million in fiscal 2005, an increase of Rs. 10 million.


	Income Taxes

Income taxes increased from Rs. 2,986 million in fiscal 2004 to Rs. 3,555 million in fiscal 2005. 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 28.8% in fiscal 2004 and 29.9% in fiscal 2005, a moderate increase of 1.2%, primarily as a result of increase in the statutory corporate tax rate from 35.9% in fiscal 2004 to 36.6% in fiscal 2005. Credits to income tax provisions based on completed tax assessments decreased the effective tax rate in fiscal 2004. A lower tax charge in our Australian operations on account of reversal of valuation allowance and higher non-taxable income decreased the tax charge in fiscal 2005.


	Minority Interests

Minority interests as a percentage of net profits increased from 31.9% in fiscal 2004 to 33.2% in fiscal 2005 as a result of a change in the profit mix with a higher share of profits coming from our aluminum business in which the minority interest is 49.0%.

Liquidity and Capital Resources


	*Capital Requirements*

Our principal financing requirements primarily include:


	•	capital expenditures, towards expansion of capacities in existing businesses including modernization of facilities;

	•	consolidation of our ownership in our various subsidiaries, including acquisition of the Government of India’s residual ownership interest in HZL;

	•	the establishment of our planned commercial power generation business; and

	•	acquisitions of complementary businesses that we determine to be attractive opportunities.

We continue to consider increasing capacities of our existing businesses through greenfield and brownfield projects and through acquisitions as one of our major growth strategies. Historically, funding of

this strategy came from cash flows from existing operations, external financing sources and our shareholders in the form of contributions to our share capital. We intend to finance acquisitions and our capital expenditures in the future through cash flow generated by our business, as well as external debt, and from the proceeds of this offering.

Our business is heavily dependent on plant and machinery for the production of our copper, zinc and aluminum products, as well as investments in our mining operations and our planned commercial power generation business. Investments to maintain and expand production facilities are, accordingly, an important priority and have a significant effect on our cash flows and future results of operations. We spent Rs. 14,374 million in fiscal 2004, Rs. 22,225 million in fiscal 2005 and Rs. 15,919 million ($357.9 million) in fiscal 2006, largely on our capacity expansion projects at Korba, Chanderiya and Tuticorin. We do not expect to incur any additional significant capital expenditures on these projects. In fiscal 2007 and 2008, we expect capital expenditures of approximately Rs. 13,344 million ($300.0 million) for the expansion of our zinc business. Further, we currently expect capital expenditures of approximately Rs. 84,512 million ($1,900.0 million) over the next four years by our wholly-owned subsidiary Sterlite Energy for the first phase, totaling 2,400 MW, of a planned thermal coal-based power facility and, subject to the outcome of feasibility studies and the approval of BALCO’s lenders, its board of directors and shareholders, including the specific consent of the Government of India, and the amendment of its memorandum of association, Rs. 50,000 million ($1,124.1 million) over a period of time not yet determinable by BALCO to build a thermal coal-based 1,200 MW power facility, both as part of our plan to develop a commercial power generation business. We plan to finance our capital expenditures out of our cash flows from operations and financing activities, including the proceeds of this offering. Our failure to make planned expenditures could adversely affect our ability to maintain or enhance our competitive position and develop higher margin products.

Consistent with our strategy to consolidate our ownership interests in our key subsidiaries, and assuming the Government of India does not exercise its right prior to the exercise of our call option to sell its remaining ownership interest in HZL through a public offer, which it is reportedly taking steps towards making, we intend to exercise our call option to acquire the Government of India’s 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). See “Business — Options to Increase Interests in HZL and BALCO” for more information. The option value will be the fair market value determined by an independent appraiser, and will entail significant capital requirements. In fiscal 2004, we acquired an additional 18.9% shareholding in HZL at a purchase consideration of Rs. 3,239 million from the Government of India through the exercise of our call option.

We have consistently paid dividends and have increased dividends declared from Rs. 215 million for fiscal 2004 to Rs. 330 million for fiscal 2005 and Rs. 698 million ($15.7 million) for fiscal 2006.


	*Capital Resources*

We plan to finance our capital requirements through a mix of cash flows from operating and financing activities. Historically, our major sources of cash have been cash provided by operations and external debt, and we expect that these sources will continue to be our principal sources of cash in the next few years. Accordingly, in addition to the proceeds from this offering, we intend to continue to rely primarily on cash provided by operations and borrowings to meet our working capital and other capital requirements. We do not depend on off-balance sheet financing arrangements.


	*Net Cash Provided by Operating Activities*

Net cash provided by continuing operating activities was Rs. 19,595 million ($440.3 million) in fiscal 2006 compared to Rs. 6,075 million in fiscal 2005 and Rs. 6,205 million in fiscal 2004. Cash generation increased in fiscal 2006 primarily on account of higher operating income across all our businesses, with our zinc business accounting for a substantial portion of this increase. The cash used in operating assets and liabilities in fiscal 2006 was Rs. 8,731 million ($196.3 million), of which Rs. 5,919 million

($133.1 million) was towards short-term investments and deposits. Cash used for working capital purposes was Rs. 2,812 million ($63.2 million), which consisted of an increase in accounts receivables, other current and non-current assets, and inventories which were partially offset by an increase in accounts payable and accrued expenses and other current and non-current liabilities. For fiscal 2005, cash used in operating assets and liabilities was Rs. 7,397 million, of which Rs. 4,885 million was towards short-term investments and deposits, and Rs. 2,512 million was cash used for working capital purposes. The increase in working capital was primarily due to an expansion in the volume of our business through capacity expansions and also due to substantial increases in prices across all our products for fiscal 2005. For fiscal 2004, cash used in operating assets and liabilities was Rs. 4,624 million, consisting of an increase in short-term investments and deposits of Rs. 9,371 million, partially offset by an increase in cash from working capital of Rs. 4,747 million primarily as a result of an increase in accounts payable for our copper business in India.


	*Net Cash Provided by or Used in Investing Activities*

Net cash used in investing activities was Rs. 18,356 million in fiscal 2004, Rs. 21,391 million in fiscal 2005 and Rs. 16,676 million ($375.0 million) in fiscal 2006. The major part of the cash used in investing activities for fiscal 2004, 2005 and 2006 was towards our three expansion projects across our copper, aluminum and zinc businesses where we spent Rs. 27,141 million ($610.2 million) towards BALCO’s new aluminum smelter and captive power plant and Rs. 14,084 million ($316.6 million) towards HZL’s Chanderiya smelter and captive power plant and Rampura Agucha expansion. We spent Rs. 3,931 million ($88.4 million) towards our Tuticorin expansion project. We also used cash to meet ongoing maintenance capital expenditure requirements.

In fiscal 2006, we spent Rs. 15,919 million ($357.9 million) on capital expenditures, mainly on BALCO’s expansion program. In fiscal 2005, we spent Rs. 22,225 million on capital expenditures which included the capital expenditures at HZL as well as BALCO. In fiscal 2004, we spent Rs. 14,374 million on capital expenditures at BALCO, HZL and Tuticorin. In fiscal 2004, we also spent Rs. 3,239 million on acquisition of an 18.9% minority interest in HZL from the Government of India and Rs. 485 million on acquisition of the minority interest in SOVL to make SOVL our wholly-owned subsidiary.


	*Net Cash Provided by or Used in Financing Activities*

Net cash provided by financing activities was Rs. 375 million ($8.4 million) in fiscal 2006, primarily as a result of an increase in debt of Rs. 1,056 million ($23.7 million), partially offset by payment of dividends of Rs. 672 million ($15.1 million). In fiscal 2005, net cash provided by financing activities was Rs. 17,321 million, which consisted primarily of Rs. 19,723 million in proceeds from the issuance of additional equity shares to existing shareholders in a rights issue in September 2004, partially offset by reduction in debt of Rs. 1,870 million and payment of dividends of Rs. 539 million. In fiscal 2004, net cash provided by financing activities was Rs. 13,084 million, which was primarily as a result of an increase in short-term and long-term debt.

Besides existing facilities, we had undrawn facilities in excess of Rs. 23,656 million ($531.8 million) available to us as of March 31, 2006.

We tap both the domestic and offshore markets for our long-term funding needs. Since we have sizeable imports and exports, we access both import and export credits, based on cost effectiveness, both in the Indian Rupee and in foreign currencies, to finance our short-term working capital requirements. We have in place both secured and unsecured borrowings, with our secured borrowings being generally Indian Rupee denominated bonds.

We have tapped different segments of borrowing resources, including banks and capital markets, both in India and overseas. We have credit ratings of above investment grade from the local rating agencies such as Credit Rating Information Services of India Limited, or CRISIL, and ICRA Limited. We therefore have not had, and do not believe that we will have, difficulty in gaining access to short-term and long-term financing sufficient to meet our current requirements.

Outstanding Loans

The principal loans held by us and our subsidiaries, and the amounts outstanding thereunder, as of March 31, 2006 were as follows:


	•	US dollar foreign currency term loan facility with $92.6 million (Rs. 4,119 million) outstanding, consisting of a $67.6 million (Rs. 3,007 million) tranche repayable in June 2007 and a $25.0 million (Rs. 1,112 million) tranche repayable in September 2008. Interest on this facility is based on London Inter-Bank Offer Rate, or LIBOR, plus 44 basis points.

	•	Japanese Yen and US dollar foreign currency term loan facility with Rs. 2,165 million ($48.7 million) outstanding, to be repaid between August 2006 and August 2008 in five tranches. Interest on the Japanese Yen facility is based on JPY LIBOR plus 42 basis points and interest on the US dollar facility is based on LIBOR plus 42 basis points.

	•	US dollar foreign currency syndicated loan with $125.4 million (Rs. 5,576 million) outstanding. This $125.0 million (Rs. 5,560 million) loan is repayable in the amounts of $30.0 million in November 2006, $65.0 million in November 2008 and $30.0 million in November 2010. Interest on this loan is based on LIBOR plus 61 basis points. HZL has given notice under the loan that it intends to repay the full amount of $125 million on November 24, 2006.

	•	Indian Rupee fixed-rate term loan facilities with Rs. 15,904 million ($357.6 million) outstanding. The first loan, under which Rs. 10,002 million ($224.9 million) is outstanding, is repayable in 12 quarterly installments beginning January 2007 and the second loan, under which Rs. 5,902 million ($132.7 million) is outstanding, is repayable in eight quarterly installments beginning on May 2009. The average interest rate on these facilities is 7.3% per annum. These facilities are secured by a first charge on the movable and immovable properties, present and future tangible or intangible assets and other than current assets of BALCO.

	•	Indian Rupee non-convertible debentures of Rs. 1,000 million ($22.5 million). The debentures were established in two tranches, with Rs. 400 million ($9.0 million) due in April 2010 and Rs. 600 million ($13.5 million) due in April 2013. Interest rates are linked to annualized Indian Government Security rates. The applicable interest rates have varied from 7.9% to 8.0% per annum. These debentures are secured by certain of our immovable properties.

Contractual Obligations

The following table sets out our total future commitments to settle contractual obligations as of March 31, 2006:


		Payment Due by Period

																		More than
		Total				Less than 1 Year				1-3 Years				3-5 Years				5 Years

		(in millions)
Bank loans and borrowings			Rs. 34,627	$	778.5		Rs. 4,390	$	98.7		Rs. 19,156	$	430.7		Rs. 10,199	$	229.3		Rs. 882	$	19.8
Capital commitments			6,304		141.7		6,304		141.7		—		—		—		—		—		—

	Total		Rs. 40,931	$	920.2		Rs. 10,694	$	240.4		Rs. 19,156	$	430.7		Rs. 10,199	$	229.3		Rs. 882	$	19.8

We also have commitments to purchase copper concentrate for our copper custom smelting operations. These commitments are based on future copper LME prices which are not ascertainable as of the date of this prospectus.

Export Obligations

We have export obligations of Rs. 34,225 million ($769.5 million) over the next eight years on account of concessional rates received on import duties paid on capital goods under the Export Promotion Capital Goods Scheme enacted by the Government of India. If we are unable to meet these obligations, the liability would be Rs. 4,920 million ($110.6 million), reduced in proportion to actual exports. We do

not anticipate any liability on these obligations and hence have not recorded any liability in our consolidated financial statements.

Guarantees and Put Option

We have given the following guarantees:


	•	Guarantees on the issuance of customs duty bonds amounting to Rs. 1,153 million ($25.9 million) for import of capital equipment at concessional rates of duty. The obligations under the bonds have been fulfilled and procedural formalities are yet to be completed by the authorities for releasing the bonds. Our management does not anticipate any liability on these guarantees.

	•	Guarantees on behalf of IFL against its loan obligations to the extent of Rs. 1,820 million ($40.9 million) and the outstanding amounts against these guarantees as of March 31, 2006 is Rs. 1,664 million ($37.4 million). For loan obligations of Rs. 1,270 million ($28.6 million) of IFL guaranteed by us, we have also granted a put option to a bank under which the bank may require us to purchase the loan from the bank in lieu of looking to the guarantee. We would have a liability under these guarantees and the put option in the event IFL fails to fulfill its loan obligations. The maximum potential amount of future payments which we would be required to pay is Rs. 1,664 million ($37.4 million) as of March 31, 2006. We reviewed our liabilities under the guarantees and put option taking into consideration the financial position of IFL and estimated that the fair value of the guarantees and put option as of March 31, 2006 was Rs. 880 million ($19.8 million). As a result, we recognized a liability of Rs. 784 million ($17.6 million) for the guarantees and put option in fiscal 2006.

	•	Corporate guarantee to MALCO for using various credit facilities from different banks to the extent of Rs. 1,100 million ($24.7 million). MALCO in turn has issued a corporate guarantee with us as the beneficiary in the event of any default by MALCO in fulfilling its obligations to the banks. As of March 31, 2006, MALCO had completed all its obligations under the guarantee and hence our management has determined that no liability would arise for us.

	•	Corporate guarantee of Rs. 3,000 million ($67.4 million) on behalf of Vedanta Alumina for obtaining credit facilities. We also issued a corporate guarantee of Rs. 1,571 million ($35.3 million) for importing capital equipment at concessional rates of duty under the Export Promotion Capital Goods scheme enacted by the Government of India. Vedanta Alumina is obligated to export goods worth eight times the value of concessions enjoyed in a period of eight years following the date of import, failing which we will be liable to pay the dues to the Government of India. With respect to the corporate guarantee of Rs. 1,571 million ($35.3 million), Vedanta Alumina has issued a counter guarantee to us indemnifying us for any liability on such guarantee. Vedanta Alumina is still in its development stage and is expected to commence its operational activities in fiscal 2007, after which it is expected to start fulfilling its obligations under this scheme. As of March 31, 2006, our management determined that we have no liability on either of these corporate guarantees.

	•	Corporate guarantee of Rs. 271 million ($6.1 million) on behalf of CMT for credit and banking facilities or for entering into any other treasury-related transaction as defined in and covered by an International Swaps and Derivatives Association, or ISDA, master agreement. This guarantee was cancelled on August 17, 2006.

	•	Bank guarantee of AUD 5.0 million (Rs. 159 million or $3.6 million) in favor of the Ministry for Economic Development, Energy and Resources of Australia as a security against rehabilitation liability on behalf of CMT. This bank guarantee is backed up by the issuance of a corporate guarantee of Rs. 320 million ($7.2 million). These liabilities are fully recognized in our consolidated financial statements. Our management does not anticipate any liability on these guarantees.

	•	Bank indemnity guarantees amounting to AUD 6.8 million (Rs. 223 million or $5.0 million) in favor of the State Government of Queensland, Australia, as a security against rehabilitation

liabilities that are expected to occur at the closure of the mine. The environmental liability has been fully recognized in our consolidated financial statements. Our management does not anticipate any liability on these guarantees.

• Performance bank guarantees amounting to Rs. 2,268 million ($51.0 million) as of March 31, 2006. These guarantees are issued in the normal course of business while bidding for supply contracts or in lieu of advances received from customers. The guarantees have varying maturity dates normally ranging from six months to three years. These are contractual guarantees and are enforceable if the terms and conditions of the contracts are not met and the maximum liability on these contracts is the amount mentioned above. Our management does not anticipate any liability on these guarantees.

• Bank guarantees for securing supplies of materials and services in the normal course of business. The value of these guarantees as of March 31, 2006 was Rs. 525 million ($11.8 million). Bank guarantees have also been issued in the normal course of business for an aggregate value of Rs. 334 million ($7.5 million) for litigations, against provisional valuation and for other liabilities. Our management does not expect any liability on these guarantees.

Our outstanding guarantees and put option cover obligations aggregating Rs. 11,422 million ($256.8 million) as of March 31, 2006, the liabilities for which have not been recorded in our consolidated financial statements.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into certain capital commitments and also give certain financial guarantees. The aggregate amount of indemnities and other guarantees, on which we do not expect any material losses, was Rs. 16,022 million ($360.2 million) as of March 31, 2006. Details of our guarantees are set out in “— Guarantees and Put Option.” Details of our capital commitments and contingencies are as follows:

Capital Commitments

We have a number of continuing operational and financial commitments in the normal course of business, including completion of the construction and expansion of certain assets. Significant capital commitments as of March 31, 2006 amounted to Rs. 6,304 million ($141.7 million). These commitments related primarily to capacity expansion projects through both the construction of new facilities and expansion of existing facilities.


	*Contingencies*

We are from time to time subject to litigation and other legal proceedings. Certain of our operating subsidiaries have been named as parties to legal actions by third party claimants and by the Indian sales tax, excise and related tax authorities for additional sales tax, excise and indirect duties. These claims primarily relate either to the assessable values of sales and purchases or to incomplete documentation supporting our tax returns. We have ongoing disputes with income tax authorities relating to the tax treatment of certain items. These mainly include disallowed expenses, tax treatment of certain expenses claimed by us as deductions, and the computation of, or eligibility of, certain tax incentives or allowances. Some of the disputes relate to the year in which the tax consequences of financial transactions were recognized, and in the event these disputes are not resolved in our favor, the tax consequences may be reflected in the tax year allowed by the income tax authorities and are therefore timing differences. Most of these disputes and disallowances, being repetitive in nature, have been raised by the department consistently in most of the years. We have a right of appeal to the High Court or the Supreme Court of India against adverse initial assessments by the appellate authorities for matters involving questions of law. The tax authorities have similar rights of appeal. The total claims related to these tax liabilities is Rs. 2,186 million ($49.1 million) of which Rs. 1,609 million ($36.2 million) has been recorded as current liabilities as of March 31, 2006.

The approximate claims by third party claimants amounted to Rs. 1,853 million ($41.7 million) as of March 31, 2006, of which Rs. 73 million ($1.6 million) has been recorded as current liabilities.

We intend to vigorously defend these claims as necessary. Although the results of legal actions cannot be predicted with certainty, it is the opinion of our management, after taking appropriate legal advice, that the resolution of these actions will not have a material adverse effect, if any, on our business, financial condition or results of operations. Therefore, we have not recorded any additional liability in relation to litigation matters in the accompanying consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk


	*Qualitative Analysis*


	Currency Risk

The results of our operations may be affected by fluctuations in the exchange rates between the Indian Rupee and Australian dollar against the US dollar. This table illustrates the effect of a 10% movement in exchange rates between these currencies on our operating income for fiscal 2006.


10% movement in currency		For Rs./US$				For AUD/US$

		(in millions)
Copper			Rs.744	$	16.7		Rs.324	$	7.3
Zinc			2,798		62.9		—		—
Aluminum			1,250		28.1		—		—

	Total		Rs.4,792	$	107.7		Rs.324	$	7.3

We use hedging instruments to manage the currency risk associated with the fluctuations in the Indian Rupee and Australian dollar against the US dollar in line with our risk management policy. Typically all exposures for maturity of less than two years are managed using simple instruments such as forward contracts. As long-term exposures draw nearer, we hedge them progressively to insulate these from the fluctuations in the currency markets. In our Australian operations, apart from funds to meet local expenses which are denominated in Australian dollars, we strive to retain our surplus funds in US dollar terms. These exposures are reviewed by appropriate levels of management on a monthly basis.

Hedging activities in India are governed by the RBI with whose policies we must comply. The policies under which the RBI regulates these hedging activities can change from time to time and these policies affect the effectiveness with which we manage currency risk.

We have in the past held or issued instruments such as options, swaps and other derivative instruments for purposes of mitigating our exposure to currency risk. We do not enter into hedging instruments for speculative purposes.


	Interest Rate Risk

Our short-term debt is principally denominated in Indian Rupees with fixed rates of interest. Typically, our foreign currency debt has floating rates of interest linked to US dollar LIBOR. The costs of floating rate borrowings may be affected by the fluctuations in the interest rates. We have selectively used interest rate swaps, options and other derivative instruments to manage our exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a monthly basis.

Borrowing and interest rate hedging activities in India are governed by the RBI and we have to comply with its regulations. The policies under which the RBI regulates these borrowing and interest rate hedging activities can change from time to time and can impact the effectiveness with which we manage our interest rate risk.

We have in the past held or issued instruments such as swaps, options and other derivative instruments for purposes of mitigating our exposure to interest rate risk. We do not enter into hedging instruments for speculative purposes. This table illustrates the impact of a 0.5% to 2.0% movement in interest rates on interest payable on loans for fiscal 2006.


	US Dollar				Indian Rupee
Movement in interest rates	Interest Rates				Interest Rates				Total

	(in millions)
0.5%		Rs. 83.1	$	1.9		Rs. 79.5	$	1.8		Rs. 162.6	$	3.7
1.0%		166.2		3.7		159.0		3.6		325.3		7.3
2.0%		332.5		7.5		318.1		7.1		650.5		14.6


	Commodity Price Risk

We use commodity hedging instruments such as forwards, swaps, options and other derivative instruments to manage our commodity price risk in our copper and zinc businesses. Currently, we use commodity forward contracts to partially hedge against changes in the LME prices of copper and zinc. We enter into these hedging instruments for the purpose of reducing the variability of our cash flows on account of volatility in commodity prices. These hedging instruments are typically of a maturity of less than one year and almost always less than two years.

Hedging activities in India are governed by the RBI and we have to comply with its regulations. The policies under which the RBI regulates these hedging activities can change from time to time and can impact on the effectiveness with which we manage commodity price risk.

We have in the past held or issued derivative instruments such forwards, options and other derivative instruments for purposes of mitigating our exposure to commodity price risk. We do not enter into hedging instruments for speculative purposes.

This table illustrates the impact of a $100 movement in LME prices based on fiscal 2006 volumes, costs and exchange rates and provides the estimated impact on operating income assuming all other variables remain constant.


$100 movement in LME price		Change in Operating Income

		(in millions)
Copper			Rs. 151	$	3.4
Zinc			1,832		41.2
Aluminum			829		18.6

	Total		Rs. 2,812	$	63.2

Quantitative Analysis

The fair value of our open derivative positions (excluding normal purchase and sale contracts), recorded within other current assets and current financial liabilities is as follows:


		March 31,

		2005				2006				2006

		Asset		Liability		Asset		Liability		Asset		Liability

		(in millions)
Cash Flow Hedge:
Commodity contracts			Rs.—		Rs.—		Rs.103		Rs.325	$	2.3	$	7.3
Forward foreign currency contracts			—		—		—		18		—		0.4
Interest rate swap (floating to fixed)			—		—		41		—		0.9		—
Fair Value Hedge:
Commodity contracts			—		—		434		197		9.7		4.4
Forward foreign currency contracts			—		—		44		13		1.0		0.3
Other			—		—		48		—		1.1		—
Non-qualifying Hedges:
Commodity contracts			45		268		1,033		997		23.2		22.4
Forward foreign currency contracts			2		795		103		451		2.3		10.1
Interest rate swap			6		—		—		—		—		—
Other			—		15		—		21		—		0.5

	Fair value		Rs.53		Rs.1,078		Rs.1,806		Rs.2,022	$	40.6	$	45.5


	Recently Issued Accounting Pronouncements


	Financial Accounting Standards Board, or FASB Staff Position, or FSP Nos. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”

In March 2004, the Emerging Issue Task Force, or EITF, issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF Issue No. 03-1 provides guidance for evaluating whether an investment is other-than-temporarily impaired and requires disclosures about unrealized losses on investments in debt and equity securities. In September 2004, the FASB issued FSP on EITF Issue 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1,” which deferred the effective date of the recognition and measurement provisions of the consensus until further guidance is issued.

In November 2005, the FASB issued FSP Nos. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” revising the recognition and measurement provisions of EITF Issue No. 03-1. This FSP clarified and reaffirmed existing guidance as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. Certain disclosures about unrealized losses on available-for-sale debt and equity securities that have not been recognized as other-than-temporary impairments are required under the FSP. The FSP is effective for fiscal years beginning after December 15, 2005. The adoption of the FSP did not have a significant impact on our financial position, operating results or cash flows.


	*SFAS No. 154, “Accounting Changes and Error Corrections — replacement of APB Opinion No. 20 and FASB Statement No. 3”*

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a replacement of the Accounting Principles Board, or APB, Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 generally requires retroactive application to prior periods’ financial statements of all voluntary changes in accounting principle and changes required when a new pronouncement does not

include specific transition provisions. The statement applied to us beginning January 1, 2006 and did not have a material impact on our financial position, operating results or cash flows.


	*EITF Issue No. 05-6, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination”*

In June 2005, the EITF reached a consensus on Issue No. 05-6, or EITF No. 05-6, determining the amortization period for leasehold improvements. EITF No. 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF No. 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. We do not expect the adoption of EITF No. 05-6 to have a material effect on our results of operations or financial condition.


	*Financial Accounting Interpretations 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, “Accounting for Income Taxes” (FIN 48)”*

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, “Accounting for Income Taxes” (FIN 48),” which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires us to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006 with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The adoption of this statement is not expected to have a material impact on our consolidated financial position or results of operations.

OVERVIEW OF INDUSTRIES

Unless otherwise indicated, all data relating to the copper, zinc and aluminum industries contained in this prospectus is primarily derived from Brook Hunt, CRISIL Research & Information Services Ltd., or CRIS INFAC, and other industry sources.

Unless otherwise indicated, all financial and statistical data relating to the power industry in India in the following discussion is derived from the Ministry of Power’s Annual Report (2004-05 & 2005-06), the Central Electricity Authority’s General Review (2004-2005), and the Ministry of Power website (last updated on July 31, 2006). The data may have been re-classified for the purpose of presentation. Unless otherwise indicated, the data presented excludes captive power generation capacity and captive power generation. The term “units” as used herein refers to kilowatt-hours (kWh).

Copper Industry


	*Global Copper Market*


	Background

Copper is a non-magnetic, reddish-colored metal with a high electrical and thermal conductivity (among pure metals at room temperature, only silver has a higher electrical conductivity), tensile strength and resistance to corrosion.

Copper consumption has three main product groups: copper rods, copper alloy products and other copper products. Over the last ten years, the predominant intermediate use of copper has been the production of copper rods, which accounted for approximately half of total copper production in 2005. Copper rods are used in wire and cable products such as energy cables, building wires and magnet wires. Copper alloy products were the next largest users of copper in 2005, followed by other copper products, which include non-electrical applications such as tubes for air conditioners and refrigerators, foils for printed circuit boards and other industrial and consumer applications.

In the copper market in the western world in 2004, the construction segment accounted for 37% of copper consumption, followed by the electronic products segment (26%), the industrial machinery segment (15%), the transportation equipment segment (11%) and the consumer products segment (11%). In the Indian copper market in fiscal 2005, the building and construction segment accounted for only 7% of copper consumption, while the electrical and electronic products segment accounted for 57%, the consumer and general products segment for 20%, the general engineering segment for 9% and the transportation equipment segment for 7%, according to “Copper Update — May 2006,” a publication of CRIS INFAC. In addition to direct applications, copper is also used in a number of alloys, including brass (copper and zinc), bronze (copper and tin), nickel silver, phosphor bronze and aluminum bronze.

The copper industry has three broad categories of producers:


	•	Miners, which mine the copper ore and produce copper concentrate;

	•	Custom smelters, which smelt and refine copper concentrate to produce copper metal; and

	•	Integrated producers, which mine copper ore from captive mines and produce copper metal either through smelting and refining or through leaching.


	Copper Consumption

Global copper consumption increased from 15.5 million tons in 2003 to 17.0 million tons in 2004, an increase of 9.7%, and then decreased to 16.9 million tons in 2005. The 0.6% decrease from 2004 to 2005 was primarily due to copper users drawing down their existing inventories instead of making new purchases. Growth in consumption is expected to resume in 2006 with an increase to 17.7 million tons, or 4.8%, over the 2005 consumption, driven mainly by demand from the construction and power sectors.

Asia (including the Middle East), Western Europe and North America together account for nearly 85% of global copper consumption. Europe and North America accounted for over 60% of copper consumption during the 1980s, but strong growth in Asia, led by China and Japan, has since significantly changed global consumption patterns. With a compound annual growth rate of 7.3% between 2003 and 2005, Asia has been the fastest growing copper market in the world. Strong growth in Asia (including the Middle East) is expected to continue over the next five years.

The following table sets forth the regional consumption pattern of refined copper from 2003 to 2006 (estimated):


		Year Ended December 31,

		2003					2004					2005					2006⁽¹⁾

Region		Volume		%			Volume		%			Volume		%			Volume		%

		(thousands of tons, except percentages)
Rest of Asia⁽²⁾			3,959		25.5	%		4,269		25.1	%		4,195		24.9	%		4,248		24.0	%
China			3,020		19.4			3,565		21.0			3,815		22.6			3,975		22.5
Western Europe			3,716		23.9			3,796		22.3			3,559		21.1			3,809		21.6
North America			2,497		16.1			2,737		16.1			2,549		15.1			2,630		14.9
CEE and CIS⁽³⁾			840		5.4			1,001		5.9			1,066		6.3			1,210		6.8
Latin America			837		5.4			909		5.4			939		5.6			978		5.5
India			319		2.0			342		2.0			396		2.3			435		2.5
Africa			172		1.1			196		1.2			205		1.2			232		1.3
Oceania			184		1.2			169		1.0			155		0.9			156		0.9

	Total		15,544		100.0	%		16,984		100.0	%		16,879		100.0	%		17,672		100.0	%

Notes:


(1)	Estimated.
(2)	Rest of Asia is Asia excluding China and India but including the Middle East.
(3)	Central and Eastern Europe and Commonwealth of Independent States.

Source: Brook Hunt, September 2006.


	Copper Supply

Global mine production is the principal source of copper, with scrap recycling accounting for only a minor part of the aggregate supplies. The five largest copper mining countries are Chile (36.1%), the United States (7.8%), Indonesia (7.1%), Peru (6.6%) and Australia (6.0%), which together accounted for approximately 63.6% of the total copper mined worldwide in 2005. Approximately two-thirds of global copper mine production is integrated, with the remainder sold in the custom smelting market. The five largest copper mining companies are Corporación Nacional del Cobre, Chile, or Codelco, the BHP Billiton Group, the Phelps Dodge Corporation, or Phelps Dodge, Rio Tinto plc and Grupo México SA de CV, or Grupo Mexico.

The major custom smelting locations include China (15.2%), Chile (12.6%), Japan (10.7%), the Russian Federation (5.9%) and Germany (4.3%), which together accounted for 48.7% of global production and thus are major importers of copper concentrate in 2005. The five largest copper producing countries are Chile (17.1%), China (16.0%), Japan (8.4%), the United States (7.5%) and the Russian Federation (5.6%), which together accounted for about 54.6% of the total copper produced worldwide in 2005. The five largest copper smelting companies are Codelco, Grupo Mexico, KGHM Polska Miedz, Mitsubishi Materials Corporation and Nippon Mining & Metals Co., Ltd while the five largest copper refining companies are Codelco, Phelps Dodge, Grupo Mexico, KGHM Polska Miedz and Norddeutsche Affinerie AG.

Global copper production increased from 15.3 million tons in 2003 to 15.9 million tons in 2004, an increase of 3.9%, and then further increased to 16.7 million tons in 2005, an increase of 5.0% over 2004.

Global copper production lagged behind global copper consumption during all three years. Asian markets witnessed a supply deficit of 2.5 million tons in 2005, a significant proportion of which occurred in China.

The following table sets forth the regional production pattern of refined copper from 2003 to 2006 (estimated):


		Year Ended December 31,

		2003					2004					2005					2006⁽¹⁾

Region		Volume		%			Volume		%			Volume		%			Volume			%

		(thousands of tons, except percentages)
Latin America			3,920		25.7	%		3,968		24.9	%		3,985		24.0	%		4,005			22.5	%
Rest of Asia⁽²⁾			2,630		17.2			2,569		16.1			2,770		16.7			3,077			17.3
China			1,836		12.0			2,199		13.8			2,600		15.7			3,040			17.1
CEE and CIS⁽³⁾			1,968		12.9			2,108		13.2			2,145		12.9			2,156			12.1
North America			1,762		11.5			1,845		11.6			1,771		10.7			1,866			10.5
India			386		2.5			420		2.6			504		3.0			647			3.6
Western Europe			1,821		11.9			1,817		11.4			1,841		11.1			1,886			10.6
Africa			464		3.1			516		3.2			511		3.1			612			3.5
Australia			489		3.2			504		3.2			460		2.8			489			2.8

Production Total			15,276		100.0	%		15,946		100.0	%		16,587		100.0	%		17,778			100.0	%

Market Driven Adjustment⁽⁴⁾			—					—					—					(171	)

	Total		15,276					15,946					16,587					17,607

Notes:


(1)	Estimated.
(2)	Rest of Asia is Asia excluding China and India but including the Middle East.
(3)	Central and Eastern Europe and Commonwealth of Independent States.
(4)	Market driven adjustment is an allowance for strikes and production disruptions.

Source: Brook Hunt, September 2006.


	Pricing

Copper is traded on the LME. Although prices are determined by LME price movements, producers normally charge a regional premium that is market driven. The following table sets forth the movement in copper prices from 1996 to 2005:


	Year Ended December 31,

Copper Prices	1996		1997			1998			1999			2000			2001			2002			2003			2004			2005

	($ per ton, except percentages)
LME Cash Price	$	2,290	$	2,276		$	1,653		$	1,574		$	1,814		$	1,578		$	1,558		$	1,780		$	2,868		$	3,684
% Change				(0.6	)%		(27.4	)%		(4.8	)%		15.2	%		(13.0	)%		(1.3	)%		14.2	%		61.1	%		28.5	%

Source: LME.

For custom smelters, TcRc rates have a significant impact on profitability as prices for copper concentrate are equal to the LME price net of TcRc and prices of copper finished products are equal to the LME price plus a premium. A significant proportion of concentrates are sold under frame contracts and TcRc is negotiated annually. The TcRc rates are influenced by the demand-supply situation in the concentrate market, prevailing and forecasted LME prices and mining and freight costs.

The following table sets forth the movement in copper TcRc from 1996 to 2005:


	Year Ended December 31,

Copper TcRc	1996		1997			1998			1999			2000			2001			2002			2003			2004			2005

	(¢/lb, except percentages)
TcRc		24.5		28.2			23.6			15.3			15.9			17.4			15.5			13.9			13.0			29.6
% Change				15.1	%		(16.3	)%		(35.2	)%		3.9	%		9.4	%		(10.9	)%		(10.3	)%		(6.5	)%		127.7	%

Source: Brook Hunt, June 2006.


	*Indian Copper Market*


	Background

The Indian copper industry consists primarily of custom smelters as there are limited copper deposits in the country. The available deposits are owned by the government-owned Hindustan Copper, which was the only producer in India until 1995. Since then, the industry has transformed significantly with our entry and the entry of Birla Copper, now owned by Hindalco. We, together with Hindalco, accounted for 84% of the primary market share by volume in fiscal 2006. Over the last ten years, industry capacity in India has grown nearly 18 times from a modest 47,500 tons in fiscal 1996 to 847,500 tons in fiscal 2006, according to CRIS INFAC’s “Copper Update — May 2006.”


	Consumption Pattern

From 2000 to 2004, consumption in the Indian primary copper market increased at a compound annual growth rate of 5.6%, which was lower than the growth rates in prior periods as a result of a sharp decline in demand for jelly filled telecom cables, the largest use of copper in India. Decreased demand for jelly filled telecom cables was driven by increased penetration by the cellular telecommunications industry as well as a decrease in optic fiber prices. This led to reduced demand from government-owned purchasers, impacting copper consumption growth adversely. However, supported by strong growth in other user segments such as winding wires, power cables and other applications, industry demand is expected to rebound. The total domestic demand for primary copper increased from 342,000 tons in 2004 to 396,000 tons in 2005, an increase of 15.8%.


	Pricing and Tariff

Indian copper prices track global prices as the metal is priced on the basis of landed costs of imported metal. Copper imports in India are currently subject to a customs duty of 7.5% and an additional surcharge of 2.0% of the customs duty. The customs duty has been reduced in a series of steps from 25.0% in 2003 to 7.5% in the recent Indian Union Budget of 2006. Indian producers are also able to charge a regional premium, which is market driven.


	*Market Outlook*


	Global Copper Outlook

The rapidly developing Asian market is expected to drive copper consumption growth. The countries from Asia that are contributing to this rapid growth are primarily China and India. Copper demand is expected to continue to be dominated by its use in electric wires and cables. Total consumption of copper is expected to increase from 16.9 million tons in 2005 to 17.7 million tons in 2006, an increase of 4.7%. Asia is expected to contribute 42.6% of this incremental growth. This will translate into a compound annual consumption growth rate from 2003 to 2006 of 6.3% for Asia, compared to 4.4% for the world and 2.7% for the world excluding Asia.

Anticipated production capacity expansions are barely sufficient to match the forecasted demand and the world is expected to remain in a copper supply deficit for at least the next few years. China is rapidly expanding its copper smelting and refining capacities. However, its domestic mining supplies fall well short

of its smelter demands and thus China will continue to remain a major importer of copper concentrate. Apart from China, major smelting and refining capacity expansions are expected in India, Chile, Mexico, Peru, Brazil, Russia, Zambia, the Philippines, Japan and Australia.

To meet the forecast copper demand, copper smelting capacity is expected to grow until 2008. The major projects expected to contribute to copper smelting capacity include Jinchuan (China), Ilo (Peru), Toyo (Japan) and Camacari (Brazil).


	Indian Copper Outlook

The Indian market outlook is expected to remain positive, with strong growth in key user segments such as power, construction and engineering. Domestic consumption is expected to increase from 396,000 tons in 2005 to an estimated 434,000 tons in 2006, an increase of 9.6%. This growth is significantly lower than the historical averages, largely on account of negative growth in the telecom cable segment which continues to suffer from increasing penetration of the cellular telecommunication industry and low prices of optic fibers in the international markets.

Indian producers, however, benefit from attractive opportunities in the regional markets, which had reported an aggregate supply deficit of 2.5 million tons in 2005. This Asian deficit is expected to continue for the next few years.

Zinc Industry


	*Global Zinc Market*


	Background

Zinc is a moderately reactive bluish-white metal that tarnishes in moist air, producing a layer of carbonate. It reacts with acids and alkalis and other non-metals. Zinc is the fourth most common metal in worldwide annual production, trailing only iron, aluminum and copper in worldwide annual production.

The principal use for zinc in the western world is galvanizing, which involves coating steel with zinc to guard against corrosion. Galvanizing, including sheet, tube, wire and general galvanizing, accounts for approximately 54% of total western world consumption of zinc in 2005. The main end-use industries for galvanized steel products are the manufacture of automobiles and domestic appliances and the construction industry, and it is these industries on which zinc consumption ultimately depends. Other major uses for zinc include brass semis and castings (15%), die-casting alloys (13%), oxides and chemicals (7%), rolled and extruded products (7%) and other uses (4%). Alloys are principally used in toys, vehicles and hardware.

The zinc industry has three broad categories of producers:


	•	Miners, which mine the lead-zinc ore and produce zinc concentrate for sale to smelters, and usually receive payment for 85% of the zinc contained in the concentrate less a treatment charge, or TC;

	•	Smelters, which purchase concentrate and sell refined metal, with some smelters also having some integrated production downstream; and

	•	Integrated producers, which are involved in both the mining and smelting of zinc.

Most integrated producers are only partially integrated and therefore need to either buy or sell some concentrate. Only approximately one-third of total western world zinc production can be attributed to integrated producers.


		market for HZL’s zinc products since we expected HZL’s production capacity to increase more rapidly than the demand in the domestic market starting in fiscal 2006 when HZL’s new Chanderiya smelter commenced production.

	•	HZL’s sales were augmented by the tolling of zinc concentrate. HZL tolled 40,562 tons of zinc in fiscal 2004 and 53,479 tons in 2005. The increase in tolling was as a result of the increase in production capacity of HZL’s Rampura Agucha mine ahead of the commissioning of the new Chanderiya hydrometallurgical smelter, which resulted in excess zinc concentrate production, and also as a result of our advantage of increased domestic demand for zinc.

	•	HZL also sold surplus zinc concentrate of 145,714 dmt in fiscal 2004 and 57,699 dmt in fiscal 2005. Lead concentrate sales were 10,293 dmt in fiscal 2004 and 52,039 dmt in fiscal 2005.

	•	Lead ingot production was 25,089 tons in fiscal 2004 and 15,727 tons in fiscal 2005, a decrease of 37.3%. Sales of lead ingots were 25,489 tons in fiscal 2004 and 14,622 tons in fiscal 2005, a decrease of 42.6% as a majority of the lead produced in fiscal 2005 was consumed internally for making anodes for HZL’s new Chanderiya hydrometallurgical smelter.


		liabilities that are expected to occur at the closure of the mine. The environmental liability has been fully recognized in our consolidated financial statements. Our management does not anticipate any liability on these guarantees.

	•	Performance bank guarantees amounting to Rs. 2,268 million ($51.0 million) as of March 31, 2006. These guarantees are issued in the normal course of business while bidding for supply contracts or in lieu of advances received from customers. The guarantees have varying maturity dates normally ranging from six months to three years. These are contractual guarantees and are enforceable if the terms and conditions of the contracts are not met and the maximum liability on these contracts is the amount mentioned above. Our management does not anticipate any liability on these guarantees.

	•	Bank guarantees for securing supplies of materials and services in the normal course of business. The value of these guarantees as of March 31, 2006 was Rs. 525 million ($11.8 million). Bank guarantees have also been issued in the normal course of business for an aggregate value of Rs. 334 million ($7.5 million) for litigations, against provisional valuation and for other liabilities. Our management does not expect any liability on these guarantees.