Annexure- A

Summer Internship Project Report On

OPTIMIZATION OF PRODUCT MIX

Submitted in partial fulfillment of the requirements for the Two Year Full Time Post Graduate Diploma in Management

By: Student Name: Vicky Kumar Prajapati Enrollment No: 13163 Batch: 2011-13

Under the Guidance of 1. Faculty Mentor: - Prof. Neha Zaidi I.T.S- IM 2. Industry Mentor: Mr.V.sriram Designation: Manager central Marketing Balco Korba C.G

I.T.S- Institute of Management Greater Noida 2011-13

TABLE OF CONTENTS
PAGE i. ii. iii iv 1. 1.1 1.2 1.3 1.4 2. 3. 4. 5. 6. 7. 8. Internship Certificate Authorization Acknowledgement Executive Summary Introduction Background Objective Methodology Scope & Limitations Economy Industry Analysis Company Analysis Project Specific Analysis Conclusion & Recommendation Outcome Learning from SIP References

3 4 5 6 7 7 8 8 9 10 25 45 64 65 65 66

Annexure B

CERTIFICATE OF ORIGINALITY

I hereby declare that this Summer Internship Project is my own work and that, to the best of my knowledge and belief, it reproduces no material previously published or written that has been accepted for the award of any other degree of diploma, except where due acknowledgement has been made in the text.

(Vicky Kumar Prajapati) Enrollment No. 13163 Date:

ACKNOWLEDGEMENT
First of all I would like to thank the Management of the organization Bharat Aluminium Company Ltd. (BALCO) for providing me the chance to undertake this internship study and allowing me to explore the area of Marketing which I am sure will prove to be very beneficial for me in my future assignments and my career ahead.

I am highly indebted to Mr.V.Sriram, Manager, Marketing, Balco, for his guidance and constant supervision as well as for providing necessary information regarding the project and also Mr. K. Karmakar, Head, Marketing, Balco, for his support and guidance in completing the project.

I would also like to thank other executives of Bharat Aluminium Company Ltd. (BALCO) who have provided help and given their suggestions to make this Project a success.

I am deeply grateful, to my faculty guide Prof. Neha zaidi for his invaluable support throughout the internship. I truly appreciate the kind understanding I received all along.

EXECUTIVE SUMMARY

Major driver for growth in aluminum industry in India is economic boom and growth in per capita income. Bharat Aluminium Company Ltd. enjoys a leadership position in manufacturing of primary and semi finished aluminium products in India. The companys aluminium unit encompasses the entire gamut of operations from bauxite mining, aluminium smelting to downstream wire drawing and rolling, along with the captive power plants. The company has significant market share in the entire segment in which it operates.

As a step towards expanding the market for value added products it has undertaken an ambitious expansion plan. In this expansion plan huge investment is being made for production of additional 3.5 lakh tons of molten aluminium. As the total production capacity will become 6 lakh Tons per annum additional Furnaces, Rod Mills and Ingot casting machines are being installed to handle the additional molten metal. For maximizing the profit of the Company it is essential that the Product Mix after the capacity expansion is optimized.

The Project was undertaken to optimize the Product Mix so that the profit of the Company is maximized. The existing and upcoming production capacities of the various products were studied in details. Correspondence with the Regional Marketing Offices was carried out to find out the Customer demands of the products in various regions. After studying the demand growth in various sectors Forecasting was done. Then Solver of MS-Excel was used to new Product Mix was recommended.

1. INTRODUCTION:
Globally, newer packaging applications and increased usage in automobiles is expected to keep the demand growth for aluminium over 5% in the long-term. Asia will continue to be the high consumption growth area led by China, which has been and is expected to continue to register double-digit growth rates in aluminium consumption in the medium-term. With key consuming industries forming part of the domestic core sector, the aluminium industry is sensitive to fluctuations in performance of the economy. Power, infrastructure and transportation account for almost 3/4th of domestic aluminium consumption. With the government focusing towards attaining GDP growth rates above 8%, the key consuming industries are likely to lead the way, which could positively impact aluminium consumption. Domestic demand growth is estimated to average in the region of over 8% over the longer-term. Lowering of duties reduces the net tariff protection for domestic aluminium producers. Aluminium imports are currently subject to a customs duty of 5% and an additional surcharge of 3% of the customs duty. The customs duty has been reduced in a series of steps from 15% in 2003 to 5% in January 2007. With reduction in import duties, domestic realization of aluminium majors, namely Balco, Hindalco and Nalco, are under pressure, as the buffer on international prices is reduced. Moreover, with greater linkage to international prices, volatility in financials could increase. However, producers are moving downstream to negate the higher volatility.

1.1. Background:

The per capita consumption of aluminium in India is only 1.8 kg as against 25 kg. in USA, 19kg. in Japan and 10 kg. in Europe. Even the Worlds average per capita consumption is about 10 times of that in India. One reason of such low consumption in the country is that the consumption pattern of aluminium in India is vastly different from that of developed countries. The demand of aluminium is expected to grow by about 9 percent per annum from present consumption levels.

Features of Indian Aluminium Industry: 1. Highly concentrated industry with only five primary plants in the country 2. Controlled by two private groups and one public sector unit 3. Bayer-Hall-Heroult technology used by all producers 4. Electricity, coal and furnace oil are primary energy inputs 5. All plants have their own captive power units for cheaper and un-interrupted power supply 6. Energy cost is 40% of manufacturing cost for metal and 30% for rolled products

This sector is going through a consolidation phase and existing producers are in the process of enhancing their production capacity so that a demand supply gap expected in future is bridged. Balco is also going to enhance its aluminium production capacity from 2.5 lakh Tons/annum to 6 lakh Tons/annum. In this context it is essential that the product mix of the company should be optimized.

1.2. Objective:
The objective is to develop an optimum product mix for the company after capacity expansion. This will result in maximization of the total profit earned by the company. The aim is to maximize the production of products having high Net Sales Realization.

1.3. Methodology:
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1) Studying the already existing manufacturing process and products in detail 2) Studying the new plant, the equipments, the operations and the capacity in detail 3) Interacting with the sales regions to find out the existing demand, future market growth potential and to find out their expectations from the new plant. 4) Collecting data 5) Analyzing data 6) Optimizing the product mix.

1.4. Scope & Limitations:

The scope of the project is to optimize the product mix of Balco only. This includes collecting and analyzing data related to present and future production capacity, the present product mix of Bharat Aluminium Company Ltd. and the sector wise market demand for various products.

2. ECONOMY - ALUMINIUM INDUSTRY ANALYSIS

2.1. GLOBAL SCENARIO

Aluminum represents the second largest metals market in the world. Growing demand for the lightweight metal is fuelled largely by the booming Chinese economy which already consumes a quarter of the worlds aluminium production. Analysts predict an annual growth rate of 7 to 14% in the Chinese automotive industry up to 2011, a 12% increase in construction expenditure in 2007 and a minimum of plus 16 million annual growth in urban population during the next 8 years. According to analysts these factors will combine to see China consume 36% of worlds aluminium production as early as 2010.In addition, the EU is discussing the possibility of introducing stricter CO2 emission requirements for automobiles which will inevitably boost demand for aluminium. Aluminium is lighter than steel, so its wider use in the automotive industry will make cars much more efficient. A kilo of aluminium, used as a substitute for heavier metals in car industry, reduces gas consumption by 8.5 litres and produces 20 kg less CO2 emissions. A 10% reduction of car weight results in a 9% increase of fuel consumption efficiency.Finally, rising prices for substitute metals, such as zinc and copper, stimulate a direct increase of demand for aluminium in the power, transportation and construction sectors in particular.Demand is enormous, consumers are wealthy, profitability is evident: it seems a lot of companies should be rushing to enter the aluminium sector, yet, the situation is not as simple as it may seem. Only those who can establish and manage the full production cycle (from the

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extraction of raw materials, the production of alumina, and the reduction of aluminium) in a highly efficient way can become leaders in the aluminium industry.Whoever owns resources owns the world.Resources of bauxites, the raw material for aluminium, are not widespread throughout the world. There are only seven bauxite-rich areas: Western and Central Africa (mostly, Guinea), South America (Brazil, Venezuela, Suriname), the Caribbean (Jamaica), Oceania and Southern Asia (Australia, India), China, the Mediterranean (Greece, Turkey) and the Urals (Russia). The main deposits of high-quality bauxites with high aluminium content (not less than 50%), are already divided by the main players. Other companies have to either buy alumina on the free-market and wholly depend on price movements or join forces with deposit owners.

The richest sources of bauxite belong to the United Company RUSAL (UC RUSAL), which was established in 2007 as a result of a merger between RUSAL, SUAL and the alumina assets of Glencore (3.3 bln m.t. of bauxites), and to the mining and metallurgical giants: Rio Tinto (3.29 bln. M.t.), and CVRD (2.73 bln. M.t.). Chalco of China comes fourth with its 1.92 bln. M.t. Alcoa and Alcan, which are among the three largest producers, control deposits worth 1.89

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and 0.38 bln. M.t. respectively.These same companies make up the ten largest manufacturers of alumina. Analysts estimate that Alcoa World Alumina and Chemicals (Alcoas alumina business, with 60% belonging to the American company and 40% to the Australian Alumina Limited) will produce 19% of the worlds total alumina production in 2007, UC RUSAL will produce slightly over 14%, Chalco will produce 12%, Alcan will produce 8%, Rio Tinto will produce 4% and CVRD 3%. BHP Billiton (2007 estimate is 6%) and Norwegian Hydro Aluminium (3%) are also among the leaders of alumina production.The limited supply of raw materials is a factor behind the major consolidation trend of world aluminium industry. In 2007 the merger of RUSAL, SUAL and alumina assets of Glencore was completed. Rio Tinto proposed to take over Alcan, which, in turn, has already taken over the French aluminium manufacturer Pechiney in 2004. The US-based Alcoa is also named by the press as a potential merger and takeover participant. According to analysts, the Chinese aluminium industry is on the verge of changes: small manufacturers (amounting to more than a hundred in China), will either merger with each other, or join Chalco.

The Big Ten of the world

Today the Big Ten aluminium manufacturers of the world are:

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United Company RUSAL is the leader of the worlds aluminium industry. Its products are exported to clients in 70 countries of the world. The Company incorporates bauxite and nepheline ore producers, manufacturers of alumina, aluminium, alloys, foil and packaging materials, as well as power assets. The United Company holds 12.5% of the worlds aluminium market and 16% of the worlds alumina market, which allows the company to produce 3.9 mlllion m.t. of aluminium and 10.6 mln m.t. of alumina per annum. The company was established in March 2007, as a result of merger of RUSAL, SUAL and alumina assets of Glencore. UC RUSAL provides employment for 100,000 individuals and is operating in 17 countries on 5 continents.Alcoa is one of the worlds leading manufacturers of primary aluminium, aluminium products and alumina. The company is involved in aerospace, automotive, packing and construction industries, as well as in the field of commercial transportation and engineering solutions. Alcoa has 129,000 employees in 44 countries of the world. In 2006 the company has produced 3.55 mln m.t. of primary aluminium. In Russia, Alcoa owns OJSC Samara Metallurgical Plant and OJSC Belaya Kalitva Metallurgical Industrial Amalgamation. Chalco or Aluminium Corporation of China Limited is the largest manufacturer of aluminium in China and the only manufacturer of alumina in China. The company was founded in 2001 during the privatization of Chinese aluminium industry. In 2011 Chalco has produced 9.2 mln m.t. of alumina and 1.6 mln. M.t. of aluminium. All the assets of the company 4 plants, manufacturing both alumina and aluminium, one purely aluminium and two purely alumina plants, plus, an R&D Institute are located in China. Chalco does not have representation in Russia. Hydro Aluminium is one of the two main business units of Norsk Hydro. Its second line of business is the oil and power industry. Hydro Aluminium is a downstream-integrated company with major alumina assets in Brazil and Jamaica, and aluminium smelters in Australia, Canada, Germany, Norway and Slovakia. The company has also announced its intention to build an aluminium smelter in Russia. Hydro Aluminium has 26,000 employees. In 2006 they have produced 1.8 mln m.t. of primary aluminium. At present, Hydro has offices in Moscow and Saint Petersburg.

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BHP Billiton is the largest mining company in the world. The company acquired its present configuration in 2001, when it was created through the merger of the Australian Broken Hill Proprietary Company (BHP) and the British listed Billiton. Aluminium production is just one of ten businesses run by this Australian giant. As of today, overall production capacities of the company are over 1 mln m.t. of aluminium and over 4 mln m.t. of alumina per annum. BHP Billiton owns industrial sites in South Africa, Australia and South America. BHP Billiton does not have a representation in Russia. Dubal or Dubai Aluminium is the largest aluminium manufacturer in the UAE. Starting in 1979 with a single pot line, producing only 136,000 m.t.p.a., Dubal today is one of the leaders of world aluminium industry, having production capacity of 900,000 m.t.p.a. of aluminium. 3240 people work for the company. The main markets for Dubal are: the Far East, Europe, Asia, the Middle East, the Mediterranean and North America. Dubal does not have representation in Russia. Rio Tinto Group is another diversified mining company among the top ten aluminium producers in the world. It got its present configuration in 1997 after a series of takeovers and mergers. Aluminium production is one of the groups seven lines of business. Rio Tinto Aluminium mines bauxites, produces alumina and primary aluminium, accounting for 26% of all aluminium, manufactured in Australia. The head-office of its aluminium operation is located in Brisbane, Australia, with representations in New Zealand, Australia and Great Britain. Rio Tinto Aluminium employs 5,000 people. Rio Tinto has recently taken over lcan, which is over 100 years old Canadian aluminium manufacturer. Today, the company is one of the leaders in the worlds aluminium industry, producing bauxites, alumina and aluminium. It is one of the three largest manufacturers of structural and packaging materials. Its production volume for primary aluminium in 2006 was 3.4 mln m.t. The company has 68,000 employees, including joint ventures. Alcan operates in 61 countries. In Russia, Alcan sells aluminium packaging materials, including products for the tobacco and cosmetics industries. It has representative offices in Moscow and Leningrad regions. The new company has become the absolute leader in terms of volume. Aluminium Bahrain B.S.C. or Alba is one of the largest aluminium smelters in the world. Since it was built in 1971 in the Knaff District of Bahrain, the smelter has increased its

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production capacity from 144K to 850K m.t.p.a. of aluminium, thus entering the Big Ten aluminium manufacturers and becoming the worlds third largest aluminium smelter. In 2006 Alba has produced 2.3% of the worlds aluminium. Century Aluminum was founded by the Swiss company Glencore International, as a holding for its aluminium assets, in 1995. A year later Glencore completed an IPO of Century Aluminium stock, leaving a 30% package. The company employs 1,750 people. It controls or holds shares of several aluminium smelters in the US and Iceland, as well as a number of mining assets in Jamaica and in the US. Last year, Century Aluminium produced 660K m.t. of aluminium, which accounts for 1.9% of the worlds production. Its head-office is located in Monterey, CA. Century Aluminium has no representation in Russia.
The Power of Success

The reduction of aluminium from alumina by means of electrolysis is a power-consuming process, hence most vertically integrated companies are generating their own power. Accessibility and the price of power drives the second trend of aluminium industry development. Aluminium production leaves industrially developed countries and shifts to countries that are reach in resources and able to produce their own cheap energy. Thus, in the last 18 months, growing power rates, lack of local resources and a tightening of ecological regulations have resulted in the shut-down or closing of European production facilities manufacturing a total of 354,000 m.t.p.a of aluminium. In the next year and a half, 3 more plants will be closed in Europe, with a total production capacity of 206,000 m.t.p.a. At the same time, countries like India, Iceland, China, Russia, and UAE enjoy growth and development of aluminium production. Analysts believe that in the next four years each of these countries will increase overall production capacity by at least 500K m.t.p.a. China will be the absolute champion, adding a total of 7.6 mln. M.t.p.a. of aluminium production capacities by 2011. Aluminium has been used for for just over 150 years, yet it has already gone from being purely decorative, used by jewelers alone, to being a material which allows us to travel faster, live more comfortably, use all the advantages of progress and study the worlds around us. The corporate history of aluminium production is an interesting story. Companies which were

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considered world leaders merely five years ago have become divisions of larger competitors, while plants that started as pilot shops for manufacturing aluminium have become the largest manufacturers of the flying metal. And this is just the beginning!

2.2. OUTLOOK OF THE ALUMINIUM INDUSTRY

Aluminum prices averaged around US$2,530/t in first eight months of 2011 but with a slight downward trend since May 2011. The heavy sell-off in late September gave a beating to the aluminum prices which went below US$2,200/t for the first time in 12 months and averaged US$2,171 in October before slipping below US$2,000 in November. The reasons for the drop in prices were a reflection of deepening fears of recession in US and uncertainties of Eurozone market and looks more like been sentimentally driven rather than by traditional supply and demand factors.

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Fig ure 1: Aluminum prices over years

Accordingly the average price for Aluminum is expected to settle at US$2,420/t for full year 2011. Average price for 2012 is expected to fall down to US$2,300/t in response to the gloomy economic outlook. Growth in production levels in China, the Middle East and the United States is expected to outpace the growth expected from the consumption side. As per EIUs World Commodity Forecasts, 2013 would have improved global demand and higher production costs which will provide support for higher aluminum prices. Thus the average price is expected to be around US$2,380/t.

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Figure 2: Aluminum price forecasts

Figure 3: Aluminum production history

It is generally said that 4 tons of bauxite is required to get 2 tons of Alumina which in turn will result in 1 ton of Aluminum. Figure 3 throws more light on what has been happening historically.

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China saw an expansion of 25.6% in aluminum production in 2010. A number of smelter expansions and new projects are scheduled to be completed in 2011 and 2012. But at the same time, the production may be hampered by the government policies aimed at shutting down inefficient, energy intensive operations. Chinese government are also limiting future approvals for new projects as it has committed to lower energy usage by 16% in 2015 from 2010 levels. Thus the production is expected to grow albeit at a slow pace as compared to 2010. Thus the output for 2011 is expected to reach ~17.3Mt (Actual production till November 2011 was 16.3Mt) at 7% growth rate and further the growth rate is expected to decline to ~3% for 2012, 2013. Russian production increased by only 1.2% year on year basis in January-September 2011. But with Brownfield and Greenfield expansions, in the form of Boguchansk energy and metals complex (BEMO) and Taishet smelter respectively by UC Rusal, progressing on time, the output is expected to grow at a faster rate in the coming years. Accordingly aluminum output is expected to grow by ~4% a year in 2012-13. Production remained strong in Middle East throughout 2011 with output growth expected to cross 8% for the year. With recently commissioned Qatalum smelter (Norsk Hydro and Qatar

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Aluminum) reaching its full capacity of 585kt and Maadens Ras As Zawr and Emirates Aluminiums aluminum complex well on progress, the aluminum production growth rate is expected to sustain over next few years. Growth in Aluminum consumption in the near future is expected to be largely supported by consumption growth in emerging economies. Growth in transportation, infrastructure, housing construction activity and demand for packaging applications is expected to drive the growth in these economies. Chinese 2010 consumption saw an increase of 10.5% to 15.8Mt. As per EIU, the corresponding figure is expected to be around 6.7% for 2011; BREE expects it to be at 17% whereas Alcoa expects it to be at 15%. The growth is expected to be supported by residential and non residential property construction, expansion of countrys high speed rail infrastructure and electricity transmission network construction. The growth in 2012-13 is expected to lower down a bit at around 6% a year with support coming from manufacture of aluminum intensive products for both domestic and export markets. European Union growth was robust for the first nine months of 2011 standing at 8.9% year on year basis. It was majorly because of expansion in Germanys automotive sector. But the full year growth rate is expected to clock 7% with consumer and business confidence hit badly by the Eurozone crisis. The growth is expected to slow down to 0.5% in 2012 constrained by weak GDP growth outlook and fiscal tightening. According to EIU, Indias consumption for January to September 2011 rose 7.4% year on year basis but due to a slowdown in the car production in the recent months, the full year growth is expected to reduce to 6.8%. But with commencing of Indians 12th five-year plan, the Government is planning to invest heavily in the countrys urbanization and infrastructure development. At the same time, car production growth is also expected to continue albeit at a slower pace. With large scale investment expected in energy and infrastructure, the growth in Indias consumption is expected to range between 9-10% a year in 2012-13. With Football world cup in 2014 and the Olympic Games in 2016, Brazil looks like a growth story to be told. The consumption increased by an estimated 11.7% in 2011 and it is expected to be fuelled further by rapid growth in car ownership along with the construction boom ahead

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of the events. There would be a curb on the demand because of the slowness in the economy seen in the recent months, but the growth, as per EIU, is expected to average more than 15% a year in 2012-13. Aluminum has a diverse range of end uses which can be highlighted by Figure 6 below. But at the same time Transport and construction activity consumed 49% of aluminum in 2010 and they are expected to drive the future demand as well with stable demand from other activities. Key developments Ownership changesIn the fourth quarter of 2011, no deal was announced in the aluminum industry and there was no deal in the corresponding quarter last year as well, as can be seen from Figure 7. Number of deals announced in the fourth quarter of 2011 decreased from one to zero as against the third quarter.

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2.3. ALUMINIUM SCENARIO IN INDIA

The global economy has withstood the recession though its recovery has been rather sluggish. World growth decelerated to nearly 3.8% during the second half of 2010 from 5.3% during the first half. The IMF forecasts a 4.3% global growth in 2011.The US economy grew at 3% last year. Growth in the Euro zone was muted at around 2%. In sharp contrast emerging economies have grown briskly - in excess of 7%. China and India are the clear standouts, peaking at over 10% and 9% growth respectively. With the global economic growth slowing, Growth levels in India are likely to be impacted. Nevertheless, as we know, the fundamentals of the Indian economy remain strong. Over the past few years Indias track record has been impressive. The country recorded almost twice the global growth rate. Whilst the country does face roadblocks in the short term, the medium to long term growth prospects for India are bright. The Indian market for aluminium has expanded and is directing towards further growth in the coming years. Both the public and the private sector are engaged in the production of alumina and aluminium. With the change in time, the industry has witnessed drastic changes. Earlier, the government played an important role in fixing the regulations in trading of aluminium as it had monopoly in the production of the metal. But, today, it has lost control over the price and distribution due to the emergence of the private sector. With the takeover of INDAL in the year 2000, HINDALCO has emerged as the largest producer of aluminium in India. India is the fifth largest producer of aluminium in the world. India has 5 per cent of the total bauxite deposits in the world, which can last for approximately 350 years at the present consumption rate. The consumption of this metal is also rising, with the figure estimated to have touched 1.8 million tonne mark in 2012. In early 1990s when the Indian economy was liberalized, India identified its export potential and emerged as a net exporter of aluminium. India is considered to be the fifth largest producer of aluminium in the world. It accounts for around 5 per cent of the total deposits and produces about 0.8 million tons of aluminium in a year. It is estimated that if the countrys aluminium consumption rate maintains, it would be having the reserves for over 350 years. India has

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confirmed 3 billion tons of bauxite reserves out of the global reserves of 65 billion tons. The worldwide alumina production competence is around 58 million tons, of which India has 2.7 million tons. Most of the bauxite mines lie in Bihar, Karnataka and Orissa. In India, the production of aluminium is highly concentrated in the hands of the following four companies:

1. Bharat Aluminium Co. Ltd (BALCO),

2. Vedanta Aluminium Co. Ltd.(VALCO) 3. Hindustan Aluminium Co. Ltd (HINDALCO). 4. National Aluminium Co. Ltd (NALCO),

Per Capita Consumption of Aluminium in India

The consumption of aluminium in India is very low at 1.8 kg per person in 2011 in keeping with the countrys low GDP. However, the low per capita consumption of aluminium in India is, in fact, an opportunity for growth in aluminium consumption against the backdrop of fastgrowing economic conditions in India.

3. COMPANY ANALYSIS
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3.1. BASIC DESCRIPTION OF THE COMPANY:

Bharat Aluminium Company Ltd. (BALCO) has been closely associated with the growth of Indian aluminium industry. It has played a pivotal role in making aluminium one of the leading metals of the 21st century with myriad uses ranging from house hold and industrial requirements to strategic defence and aerospace applications. BALCO was established in the year 1965 as a Public Sector Undertaking by the Government of India and was the first major PSU disinvestments in the country. Sterlite group, one of the fast growing and professionally managed companies of India, has acquired managerial control over the company by purchasing 51% shares from the Government of India in February 2001. After acquiring management control the new management has modernized and expanded Alumina, Smelter and Fabrication Plants. Various improvement projects have been taken up for maximizing productivity, optimizing capacity utilization and minimizing energy consumption. The Company consists of an integrated Aluminium Complex situated at Korba in Chhattisgarh. It is vertically integrated from sourcing of bauxite from its captive mines, refining and smelting to producing primary aluminium and various semi finished products. It has two Captive Power Plants of 270 MW and 540 MW capacities in a region having coal resources of over 9000 million tons. BALCO has a production capacity of 200,000 tons per annum of alumina, 350,000 tons per annum of aluminium and has expanded its fabrication facility to include five Properzi Rod Mills, ingot and continuous strip casting machines, integrated hot and cold rolling mills. BALCO has contributed significantly as a primary producer by providing sustenance to vital industries and has proved its mettle by developing and supplying special aluminium alloys for the Intermediate Range Ballistic Missile `Agni` and surface Missile `Prithvi`. BALCO is bringing up another Captive Power Plant of 1200 MW capacity and has already obtained clearance to expand its Smelter for producing another 6,50,000 tons of aluminium. This will enable BALCO to produce 10 lakhs of aluminium every year. It is expected that within a few years BALCO would emerge as one of the front runners among the global players of the aluminium industry.

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3.2. NATURE OF BUSINESS (Product Categories):

1. Electrical conductor grade Ingots and wire rods 2. Commercial grade ingots and wire rods. 3. Alloy ingots and wire rods. 4. Fabricated products: (a) Hot rolled products (b) Cold rolled products

Electrical conductor grade Ingots

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Hot Rolled plate 3.3. MAJOR MARKETS AND CUSTOMER FOCUS:

Ingots, rods and rolled product users constitute the key customer base of BALCO. While the major customers are based in India, BALCO, over the last few years has developed a strong export customer base. The requirements of our domestic as well as export customers are proper communication, on-time delivery, low defect levels in products, and suitability for end-use. While BALCO caters to a lot of actual users, OEM customers, a part of the product is also supplied through dealers, who in turn supply to the end-users. The following table shows the main types of finished products and the major customers of BALCO:
SEGMENT/ PRODUCT SECTOR END USE MAJOR CUSTOMERS

Rolled

Foil Stock Packaging medicines/ tablets India Foil, Kolkata, Indo Foils, Korba (Soft Coils with for pharmaceutical industries, Raviraj Foils, Ahmedabad, Marudhar cores to prevent food packing/ wrapping Industires, Ahmedabad, RS Hygiene, bore collapse) AMCO PP Caps - HR Coils Pharmaceutical Industry, Beverages Industry Manish Aluminium, Bangalore, Alcon Foils Pvt Ltd, Delhi, Rajasthan Foils Ltd, Bhiwadi Manaksia Ltd, Haldia

Products

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Insulation

Boiler Tubes, Other insulation uses

Lloyd Insulations, Mumbai, Delhi, Chennai, Cauvery Engg. Works, Pudukottai, Thermax Ltd, Pune, IBP, Nasik BHEL, Jhansi, Trichy, Control & Switchgear, New Delhi, Al-Fab, Nasik, NALCO, Thyssenkrupp, Germany, Reynolds, France, Jade Aluminium, France, Profilglass, Italy

Fabrication

Different Products

Transport & Railways

Vehicle Body, Bus flooring, RCF, Kapurthala, MSRTC, APSRTC, Windows and water tanks of KSRTC, ICF, Chennai, Tata Motors Railway coaches Ltd, Jamshedpur Domestic Fans Bajaj Electricals, Pune, Polar Fans, New Delhi, Uttaranchal Industries, Hardwar Hardware Point, Kolkata, India Foils, Kolkata, Almex, Delhi, Laxmi Wire Netting, Delhi, Star Aluminium, Kolkata Ordnance Factories Mainly through Dealers

Fan Blade

PP Cap stock (CR coils)

Pharmaceutical Industry, Beverages Industry

Defence Sector General

Missiles, Shells Architectural use, hoardings, Cooler body, and other miscellaneous use Overhead Power Transmission

Conductor Manufacturing

Wire Cable Manufacturing Rod Underground Power Transmission

Sterlite Industries (I) Ltd, Silvassa, Havell's (I) Ltd., Ravin Cables Ltd., Apar Industries, Silvassa, Universal Cables Ltd., Galaxy Cables Industries, Shakti Cables, Hyderabad, Hindustan Vidyut Pvt Ltd., Faridabad Rakhi Agencies Ltd., Prem Cables Pvt Ltd., Venkateswara Wire Pvt Ltd., Excellent Power Cable Pvt Ltd., Polycab Industries, Daman Minex, Nagpur, Sarthak Metals Pvt Ltd, Sunflag Iron & Steel Co Ltd.

Steel manufacturing industries

Killing of steel

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Ingot

Remelting

Cable/Conductor manufacturing, remelting/extrusion

Sterlite Technologies Ltd., Silvassa, JP Engineers, Delhi, Jindal Aluminium Ltd., Bangalore, Deepak Cables (I) Ltd., Pondicherry, Jammu

Vikram Sarabhai Space Centre (VSSC), Thiruvananthapuram, has invested Rs. 70 crores for setting up most advanced casting, rolling, heat treatment and finishing facilities at BALCO for producing high strength aluminium alloys for space applications. So far these alloys were being imported. Very soon BALCO would start producing aerospace grade products for VSSC and other aerospace customers.

3.4. EMPLOYEE BASE:

Human resource is a vital asset for any Organization. At present there are 5291 employees working in BALCO. Best possible measures have been taken by BALCO to enhance and maintain the high morale of its employees and these have resulted in higher capacity utilization, production turn over, productivity and profitability. The break-up of the work-force is shown below in tabular & pie chart form:
Group Executives Officers Workmen Trainees Total Total No. of employees 1004 192 3518 577 5291

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Level-wise Break-up

11%

19% 4% Executives Officers Workmen Trainees

66%

BALCO is an equal opportunity employer and injects fresh talent from business schools, engineering colleges and technical institutes. Educational Level of employees:
1. Scientific & Technical (having graduate degree in engineering/technology/Science: 1699

2. Administrative (non-technical) 3. Others (including workmen)

3592

Total

5291

3.5. MAJOR EQUIPMENTS, FACILITIES AND TECHNOLOGY USED:

The company has an established structure and clearly identifies the key processes required for product realization. This includes Manufacturing (Production/Maintenance) processes, and Support processes including, HR, Commercial, Logistics, Marketing, Quality Assurance, Finance, Administration, Security and Environment & Occupational Health & Safety.

A. Key Value creation processes

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Key value creation processes based on the criticality are identified to add value to the business resulting in success and growth. These key processes create value for our customers and our stakeholders also.
Inbound Logistics Aluminium Production Outbound Logistics Marketing & sales After Sales Service Value Creation

The complete manufacturing process along with the raw materials and products is described below:

Alumina Refinery Plant

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The Alumina Plant of Vedanta is situated at Lanjigarh, Orissa. The manufacturing of alumina is done by Bayers Process. This is an important intermediate stage in making aluminum metal from bauxite received from the mines. Bauxite is crushed and is wet ground in ball mill with spent liquor (caustic soda) from the process to make the slurry. The slurry is preheated in lowpressure heaters and subjected to desilication to remove undesired silica content from slurry. After that, it is again heated in high-pressure pre-heaters and pumped into a series of digesters operated at high temperature and pressure. Bauxite dissolves giving sodium aluminate and the other oxides from compounds of soda, alumina and silica. The alumina from bauxite is chemically transferred in to liquor that is known as pregnant liquor or green liquor. The pressure and temperature of the slurry is subsequently brought down in a series of flash tanks where steam is liberated and used for preheating the ground slurry before it is sent to digestion tanks. The slurry from the last tank is then pumped to settlers for separating out the red mud.

The settled mud is subsequently washed to recover caustic soda in a series of washers. The caustic soda so recovered is pumped to the settlers to join the main stream with green liquor. The washed mud from the last washer is filtered and pumped out to a mud pond wherefrom the clear liquor is decanted and pumped both to the main stream thereby effecting maximum recovery of caustic soda. The Green Liquor still contains fine mud particles. This liquor is filtered through pressure filters to remove the same. After that the green liquor passes through a heat exchanging system where it is cooled by transferring the heat to the spent liquor being recycled in the process. The cooled green liquor is then pumped to precipitators where a calculated quantity of 'seed' alumina hydrate is added and alumina hydrate is precipitated from the green liquor by the process of crystallization. The slurry is then pumped into vacuum drum filter in two parts where coarser particles of alumina hydrate separate out as seed and product. The filtrate is pumped to thickener for separating fine hydrate particles. The overflow from the thickener, which is pure spent liquor, is heated in the heat exchange system, evaporated and pumped to the ball mills from where the process is again repeated. The underflow of the primary thickener i.e. alumina hydrate is pumped back to filter working under vacuum and the seed is separated from caustic soda.

33

The product filtered hydrate of alumina {Al2(OH)3} has to be calcined at high temperature of 1200oC to drive away the combined water. For this purpose it is fed into a rotary kiln where the alumina hydrate is converted to alumina. The hot alumina, which is discharged from the kiln, is cooled through cooler and conveyed to storage silo for using as raw material in Smelter Plant.

Smelter Plant
Alumina received from the alumina plant is reduced to aluminium in electrolytic cells by fused salt electrolysis following Hall-Heroult process. Alumina, which is an oxide of aluminium, gets dissociated into aluminium and oxygen in the cells according to the following reaction:

2Al2O3

4Al + 3O2

3C + 3O2

3 CO2

Aluminium deposits at the cathode i.e. bottom of the cell and oxygen goes to the anode where it reacts with the carbon of the anode and forms CO and CO2 depending on the operating conditions.

BALCO has prebaked cells with vertical studs mechanism. Aluminium fluoride is added to compensate for any loss of fluoride due to volatilization during the operation and to neutralize the Na2O coming with the alumina. Calcium fluoride, which is maintained at around 4 5 % concentration in the bath, reduces the melting point of cryolite enabling maintaining lower operating temperature without loss in the conductivity of bath. Cryolite is required to compensate for the loss of electrolyte in the carbon linings (cathodes), bath skimming etc. The two polarities (cathode and anode) of the cells where the alumina is reduced to aluminium are made of carbonaceous material. Anode Paste is required to be changed after a definite time interval since it gets consumed due to its reaction with gases evolved during continuous reduction of alumina. Cathode lining is also changed after about four years of life.

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Molten aluminium metal deposits on the Cathode carbon under molten electrolyte layer. The metal is then tapped by vacuum ladle. Alumina is charged at suitable intervals after breaking the crust that is formed on the bath layer.

The aluminium industry is one of the most energy-intensive industries. In BALCO the operation is being carried out at a current intensity of 100 KA in Sodergberg plant and at a current intensity of 350 KA in Prebaked Plant. Cathode is a rectangular pot made of mild steel sheets, closed at the bottom. Side and bottom walls of the pots are made of heat resistant insulating bricks and baked carbon blocks. Steel collector bars are fixed at the bottom of carbon blocks that are connected with the cathode bus bar to carry electricity to the next cell. BALCO plant has so far been the single plant, which is provided with three-stage insulation to avoid electric current hazard.

Anode Paste Plant & Anode Rodding Plant:

Carbon Electrode Paste, consisting of anode paste and cathode ramming paste, plays an important role in the manufacture of aluminium by electrolytic reduction of alumina. While the anode paste takes active part in the reduction reaction and gets consumed, the cathode ramming paste is required for cementing the pre-baked carbon cathode blocks of the electrolytic cell to have a single mass at the bottom of the electrolytic cells as well as uniform current distribution. In the Soderberg electrolytic cells the continuous self-baking Soderberg anode is produced from a paste of Calcined Petroleum Coke (CPC) and Coal Tar Pitch (CTP) while the anode goes downwards through the rectangular steel anode casing, the heat generated during the electrolysis of alumina to aluminium bakes the paste. But in Prebaked electrolytic cells prebaked anodes are assembled in Anode rodding Plant.

Fabrication Plant
The downstream units at Korba include rod mills, an aluminium foundry, a strip caster, a hot rolling mill, two cold rolling mills and heat treatment furnaces and finishing lines.

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Cast House: The Cast Houses are designed for producing Properzi wire rods and EC grade pigs for direct sale in the market. The production facilities include melting furnaces, metal filtration systems, casting stations, Properzi wire rod mills and coilers. Pure molten aluminium received in ladles from the Cell House is the basic charge in the oilfired furnaces of the Cast House. Scrap and alloying additives (for alloy rods) are added to it to make the required composition. It is then cast through either ingot casters or Properzi continuous casters. Properzi mill and finally coiled in the form of wire rods. Foundry Shop: The foundry Shop is designed for producing slabs required for the Sheet Rolling Shop and also for producing The production facilities provided in the shop consist of melting/alloying furnaces, refining/holding furnaces, casting machines, ingot cutting and mechanical treatment line and homogenizing furnaces. Pure molten aluminium received in ladles from the Cell House is the basic charge in the oilfired furnaces of the Foundry. Scrap and alloying additives are added to it to make the required alloy composition. The refined metal is tapped to casting machines for casting wrought aluminium slabs. The slabs are inspected, and cleared by Quality Assurance before sending to Sheet Rolling Shop for further rolling. There is also a continuous caster (strip caster) which produces cast coils, which are further rolled in the Sheet Rolling Shop.

Sheet Rolling Shop: The Sheet Rolling Shop is designed to produce sheets and strips of aluminium and its alloys. Slab or rolling ingots from the Foundry, homogenized if required, would be delivered to the Sheet Rolling Shop. After scalping, these slabs are heated and hot rolled on a 4-high mill. Hot rolled finished coils and plates (finished to required sizes) are sold as such to customers. The hot rolled coils meant for cold rolling are further rolled to lower gauges in either of the two cold rolling mills, heat treated to achieve required properties and cut to required sizes in one of

36

the three slitting lines or in the cut-up line. These are then inspected by Quality Assurance department and materials cleared by them is packed appropriately and shifted to the warehouse. From the warehouse products are dispatched to the customers.

3.6. ATTRIBUTES OF UTMOST IMPORTANCE TO TARGET CUSTOMERS:

1. Improved communication with Customers: BALCO has a central Marketing department based at Korba. To facilitate customer interaction and to set up establishments nearer to our actual customers, four regional marketing offices have been set up. These are Northern Region at Delhi, Western Region at Mumbai, Eastern Region at Kolkata and Southern Region at Bangalore. To facilitate delivery of finished goods to customers, there are depots in different regions apart from the warehouse based at Korba. The depots are at Kolkata, Nagpur, Faridabad, Jaipur, New Delhi and Ahmedabad. .

Overall Customer & Market Focus .

Strategy DeploymentMarketing & Sales BSC

Start Customer & Market Focus Processes

Customer Segmentati on

Order Generation & Fulfillment Process

Listening & Learning

Business Development Process

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Order Generation & Fulfillment Process VCP 02 (Sales)

Prepare monthly sales plan

Seek and analyze inputs from ABP

Start
_ Business-wise

a. Downstream Opportunities Management (both)

Process Zone-wise _ VCP 01(Marketing) _ Product-wise

_ Domestic / Exports _ Customer Specific Dispatch stockyard, direct, exports Manage complaints (CCHP) Manage Customer Contacts to achieve Sales Plan (CRM) Credit Control Management Process (CCMP) Customer Satisfaction Determination Process Review Sales Performance Monthly Assessment and Review: Regular inputs thru Khabar & International Market News Customer Satisfaction Index, Overall Sales, Domestic share, Export Sales Ref. Input / Output measure of VCP-02 for full list a. Downstream Opportunities Management (both) Assessment and Review: No of Solutions developed b. Business Promotion Process (both) % Sales through Solution Centre/ downstream c. Solution and Market Development in India (Dom) b. Business Promotion Process (both)

c. Solution and Market Development in India (Dom)

Strategic Challenges

d. Country Development (Exp)

e. Regulatory environment focus in India (Dom)

Strategic Development

d. Country Development (Exp)

Annual / month reviews by CEO

e. Regulatory environment focus in India (Dom)

So they have ample exposure to all varieties of finished products and their end uses. This helps them in approaching customers and customer groups who use such products. Market segments are also identified similarly based on product and end use knowledge. BALCO also has engaged consultants who carry out survey of our potential customers and collect all relevant information using which our regional officers approach those customers for trying out our material.

2. Dedicated Product Development Cell:

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BALCO has a dedicated Product Development Cell. It develops new alloys/customizes existing products as per the recent trends and requirements arising in the market.

3.

Availability of detailed Product brochure:

BALCO has a detailed Product Brochure which is available to all potential customers. One such Product Brochure is enclosed with this application. BALCO also invites potential customers and visit its facility so as to get a feel and understand its capabilities from first-hand experience.

4. BALCO has defined its SALES AND MARKETING POLICY, based on the following tenets: In all our businesses, our aim is to become preferred supplier for all our customers through high level of customer satisfaction. Market leadership and market development remains our continuous focus.

All sales to customers are made on secured basis.

Prices are approved by the Pricing Committee and are LME linked.

The focus is on securing major sales quantities through Memorandum of Understanding (tieups) with major customers.

Annual Marketing Plan outlines key strategies, operating principles and initiatives (e.g. spot versus MoU sale, structure and guidelines for premium / discounts, market development initiatives etc.)

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 Sales are made to end users and sales to traders / commission agents / middlemen are discouraged.

Ad-hoc and case-to-case discounts are not given. Prices as on date of dispatch are applicable.

The weight of the product dispatched from our location is final.

No discount due to quality issue is given to customers. Material is replaced in case of a genuine quality issue. Any deviation requires specific approval. In case of quality complaint, material is taken back in the original form and not in any other form (e.g. scraps).

In case of sale against tax concessional form, the same is collected before dispatch of material.

A system of customer satisfaction measurement is in place.

Customer accounts are settled promptly. All customer accounts are reconciled and confirmation is obtained from customers at least on a quarterly basis.

BALCO works towards increase of per capita consumption of base metals through application development and marketing efforts.

BALCOs sales terms and condition specify that it would not be responsible for any consequential damages.

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 System of continuous benchmarking with global leaders/competitors is in place for premium/ prices and marketing practices.

3.7. TYPE AND NUMBER OF SUPPLIERS OF GOODS & SERVICES:

BALCO realizes that Total Quality starts right from procurement stage and hence goes only for reputed suppliers for purchase of raw materials and process consumables. Criteria for selection and evaluation of suppliers are defined. BALCOs procurement comes under four major categories viz. Raw materials, consumables, services and consultancies.

Some of our key suppliers in each of these categories and their addresses are listed below.

Type

Key Products/Services Caustic Soda Lye

Key Consumer Alumina Alumina

Key Suppliers Kanoria Chemicals & Industries Ltd., Binaikia Park Plaza, Park St., Kolkata I.O.C.L., (Lube Div.), VIP Road, Telibandha, Raipur

Raw-materials Furnace Oil

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Coal

Alumina

S.E.C.L., SECL Bhavan, Seepat Road, Bilaspur India Carbon Limited,4th Floor, Temple Chambers, Old Post Office St.,Kolkata

C.P.Coke

Alumina Foundry & Cast House

Foundry Chemicals Gas Collection Hoods Magnesium Metal Ingots Roll Coolant Oil Security Service Cable Laying Services Catering & House Keeping Heavy Equipments Mines Consultant Consultants Civil Construction Aluminium Refinery

Scottish Chemicals, Span Centre South Avenue, Mumbai

Consumables

Smelter Foundry & Cast House

Hindustan Foundry & Engg Works, Industrial Area, Rajgamar Rd., Korba

Sanjay Chemical Company,5th Floor, FMC Fortuna, AJC Bose Rd., Kolkata

Sheet Rolling Shop Eastern Petroleum Pvt Ltd., Swastik Chambers, CST Rd, Chembur, Mumbai Plant Services Plant Services SDB CISCO (I) Ltd.,14, Avenue Rd, Nungambakkam, Chennai Universal Cables Limited,Birla Vikas, Satna (M.P) Radhakrishna Hospitality Services,Jyoti WireHouse,Shah Ind. Estate, Andheri, Mumbai Nizami Crane Service, Ravishankar Nagar, Korba SRK Consulting, West Perth WA 6872, West Perth, Australia S. Kumar & Associates,Vishwa Deep Tower, Dist. Centre, Janakpuri, Delhi Tushar Kanti Sen,Shantikunj New Park, Kolkata

Plant Services Plant Services Mines Civil Refinery

3.8. CRITICAL SUCCESS FACTORS THAT THE ORGANISATION

HAS IDENTIFIED AS COMPETITIVE FACTORS:

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As per volume of production, BALCO ranks second in the domestic market. However, we have recently started to export our ingots and rolled products. There are 2 major domestic competitors in the national aluminium market viz. Hindalco and Nalco. Capacity expansion and modernization, dynamic leadership by top management, focus on productivity and cost of production are the three principal factors that determine our success relative to our competitors. The key changes that may affect our competitive situation are capacity expansion of alumina manufacturing, ingot and rod manufacturing, power generation and modernization in rolled product manufacturing. Periodic results published by competitors, media reports, technical journals and individual knowledge from employees who have shifted from other industries. This is also applicable to comparative data for analogous processes outside the aluminum industry. Our key business related strategic challenge is to continually reduce our cost of production and be the lowest cost producer. In view of the above, our operational strategic challenge is to obtain the right product mix and to benchmark against the worlds best for reduction in specific consumption of raw materials and consumables. Our human resource strategic challenge is to build and retain a young motivated talent pool of employees to achieve our operational and business goals. The above-mentioned business strategic challenge is also associated with organizational sustainability. BALCOs strategic plans are built upon Vedantas 4 pillars of strategy: Optimize the performance of our existing assets improving production and reducing costs. The overall result of several ongoing efficiency initiatives has helped maintain stability in operating costs and increase in productivity and volumes. Pursue organic growth opportunities BALCO delivers projects at industry-leading benchmark capital costs, within budget and ahead of schedule.

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 Consolidation of minorities and further rationalization of the Group structure. Significant progress has been achieved in 2007 in respect of acquisition of the Indian Governments remaining stake in BALCO which is 49%. Leverage our established skills and seek additional investment opportunities. The abundance of bauxite and coal in India, combined with the proven track record of Vedanta in project delivery, presents an exciting growth opportunity. The top management identifies challenging areas/areas which need improvement, assesses the organizational performance in those areas, sets stretched goals for those areas based on benchmarking/ realistic assessment / business requirements. These targets are given as deliverables for the relevant process owner of that area. These targets are cascaded down to other executives/officers of that area. The performance of the executive/ officer of that area is measured against the performance of the deliverables. BALCO follows the following framework in planning our strategies in all our business processes. Based on our vision and mission and identified internal and external analysis we formulate strategies that helps us to achieve our vision. In the view of achieving the business goals and ambitions of the company we have strategic plans and other implementation plans for achieving the desired results. We have a Business plan exercise, in which the details about the forthcoming year are clearly planned and actions to be taken are mentioned. Strategic inputs from shareholders, customers, suppliers and employees and other interested parties e.g. the community are considered in the development of business level strategies. The Strategic Planning process of BALCO is a dynamic and flexible one to meet out strategic challenges and to accommodate any changes as the business environment changes. In the strategic planning exercise the company sketches the needs and the goals within a specified time limit. The important business aspects are given more focus to enable the company perform better. DEVELOPMENT / INTRODUCTION OF NEW TECHNOLOGIES AND LIKELY CHANGES IN STRATEGIES: BALCO is bringing up another Captive Power Plant of 1200 MW capacity and has already expanding its Smelter for producing another 3,50,000 tons of aluminium. This will enable BALCO

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to produce 6 lakhs of aluminium every year. It is expected that within a few years BALCO would emerge as one of the front runners among the global players of the aluminium industry.

4. PROJECT SPECIFIC ANALYSIS

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4.1. GLOBAL FLOW OF ALUMINUM 2006-2025

46

World primary and secondary aluminum consumption, 2011

Aluminum consumption in developing economies

47

Variation in end uses of consumption in these countries likely reflects in part their stage of development.

48

49

Aluminum consumption in developed economies

Transportation is a major end use in developed countries.

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Model of End Use and GDP/capita:

The data are not robust enough to propose a model at present However, a hypothesis may be formed based on the available data: as countries begin to develop their use of aluminum is first in the electrical power infrastructure and for durable goods as development proceeds aluminum is used in construction and then in fabricated metal and machinery finally as the country becomes fully developed transportation becomes the major end use

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GDP, aluminum, and electrical uses

GDP, aluminum, and transportation

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4.2. PREDICTING FUTURE CONSUMPTION:

We have developed a logistic model relating aluminum consumption per capita to GDP per capita We use this model to estimate the consumption of aluminum in the 20 most populous countries and the rest of the world in 2025

Aluminum consumption and GDP:

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GLOBAL MARKET SEGMENTATION (Sectorwise use of aluminium)

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DOMESTIC MARKET SEGMENTATION(Sectorwise use of Aluminium in India)

Indian sectorwise consumption of aluminium

8

17

machinery transport packaging consumer durables

41

construction

electrical

14

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4.3. DEMAND FORECAST

YEAR 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (IN mn.) 1.73 1.75 1.89 2.06 2.23 2.38 2.50 2.64 2.81 2.96 3.10 DEMAND 1730000 1745714 1891837 2056356 2227480 2381197 2503111 2637376 2809349 2956702 3098933 Electrical 692000 698286 756735 822542 890992 952479 1001244 1054951 1123740 1182681 1239573 Transportation 346000 349143 378367 411271 445496 476239 500622 527475 561870 591340 619787 Construction 259500 261857 283776 308453 334122 357179 375467 395606 421402 443505 464840 Machinery 173000 174571 189184 205636 222748 238120 250311 263738 280935 295670 309893 Consumer Durables 173000 174571 189184 205636 222748 238120 250311 263738 280935 295670 309893 packaging 86500 87286 94592 102818 111374 119060 125156 131869 140467 147835 154947

REGIONWISE CONSUMPTION AND DEMAND FORECAST

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

China 5.9 7.08 8.74 12.3 12.73 13.84 16.72 18.18 20.06 21.75 23.28 25.34 27.19 28.78 30.61 32.38 34.18

N.America 7.19 7.22 7.26 6.46 5.82 4.58 5.29 6.26 6.26 6.26 6.26 6.26 6.26 6.26 6.26 6.26 6.26

Europe 8.38 8.48 8.8 9.2 8.82 7.18 9.06 8.48 8.36 8.20 8.10 8.20 8.35 7.97 8.01 7.99 7.97

Asia China 4.59 4.93 5.1 5.17 5.4 5.09 5.89 5.81 5.93 6.10 6.28 6.46 6.68 6.73 6.94 7.12 7.28

Ex. Latin America 1.17 1.19 1.24 1.33 1.39 1.31 1.65 1.59 1.67 1.75 1.83 1.91 2.00 2.04 2.14 2.21 2.29

Others 0.82 0.77 0.83 0.89 0.99 0.97 1.09 1.10 1.18 1.23 1.28 1.34 1.40 1.45 1.51 1.56 1.62

Global 28.05 29.67 31.97 35.35 35.15 32.97 39.70 41.43 43.46 45.29 47.03 49.50 51.88 53.23 55.46 57.51 59.60

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4.4. CURRENT PRODUCT MIX OF BALCO

WIRE ROD AND INGOTS

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ROLLED PRODUCTS (PRODUCT MIX) for the last 4 years

58

4.5. COMPETITOR ANALYSIS:

ROLLED PRODUCTS

PRODUCTION(KMT) DOMESTIC(KMT) EXPORT(KMT) Vedanta 70 Hindalco 207 Nalco 24 Secondary re-rollers 50 Imports 100 70 157 24 50 100 50

454

404

50

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4.6. PRODUCT MIX COMPARISON

Hindalco mix is mostly CRP, whereas Balco mix is 42% hot rolled product Balco needs to leverage capabilities in producing hard alloy hot rolled plates in 2012-13 in order to increase NSR.

HINDALCO Product CRP HRP HRC TOTAL % of GEQ in CRP

BALCO (2011-12) NEP (USD) 582 1132 351 539

Qty (MT per Qty (MT per NSR Rs. PMT NEP (USD) NSR Rs. PMT Annum) Annum) 203000 149342 795 39506 138102 4000 163125 1057 3676 164880 0 0 0 20759 127133 207000 149609 800 63941 136080 18% 70% HINDALCO BALC0 BP 2012-13

Product CRP HRP HRC TOTAL % of GEQ in CRP

Qty (MT per Qty (MT per NSR Rs. PMT NEP (USD) NSR Rs. PMT Annum) Annum) 203000 149342 795 50050 143980 4000 163125 1057 8950 168201 0 0 0 19000 131611 207000 149609 800 78000 143746 18% 65%

NEP (USD) 692 1154 457 688

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DOMESTIC MARKET MAPPING 2011-12

Mkt Size 122000 40000 25000 14000 16000 24000 13000 15600 24600 1700 6000 29300 5000 93000 429200 Segment Foils Closure* Transportation Insulation Fan Blades Lithographic Utensils Roofing Bus Duct Consumer Durables Smelter Projects Hindalco 36000 20000 10000 1000 8000 18000 12000 20000 4000 6000 0 Balco 3000 15000 6000 5000 4000 0 0 600 600 500 2000 1800 5000 Nalco 2000 0 3000 3000 2000 0 0 0 0 0 0 0 0 Secondary 0 5000 5000 4000 1500 0 0 3000 3000 0 0 1500 0 Imports 62000 0 0 0 0 6000 10000 0 0 1200 0 20000 0 0 99200

Composite Panels 3000

Hard Alloy Plates 0

GEQ - Others 22000 28500 14000 28500 TOTAL 160000 72000 24000 51500 * BALCO supplies HRC to re-rollers for closure stock production

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RODS AND INGOTS

KEY PARAMETERS Rolled Products Production Melt Loss Furnace Oil Steam Power Less Dross realization Net Variable Conversion Costs Manufacturing Expenses Manpower Cost Admin Expenses Packing Expenses Allocated Exp Total fixed cost Rep & maint Depreciation TOTAL OVERHEADS S & D Cost other income Total COP Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT 5465 0 -222 5,243 3727 102 0 3,829 UNITS MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Rs/MT Balco Korba 167969 382 1002 0 176 -192 1,717 1368 1504 324 89 463 3748 Remarks VAL 99528 421 0 0 232 -72 1,146 1002 571 418 590 0 2581 1264 106 63 3366 5,299 -1061 7,604 4354 0 0 4,354 673 219 14 134 0 1,933 336 928 529 -297 3,462 372 287 1082 667 HINDALCO STL 10156 475 2670

Oil rates of Hindalco and STL are not relevant in todays scenerio

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4.7. OPTIMIZATION OF PRODUCT MIX

Current product mix(in Tons):

Wire rod: 1,86,000 Ingots: 7,500 HRC: 20759 CRP: 39506 HRP: 3676

UNIT NEP (in Rs.):

Wire rods: 10000 Ingots: 5000 HRC:19656 CRP: 32592 HRP: 63392

NEP (Total):
Rs. 3826147448

CONSTRAINTS (POST EXPANSION):

1. Wire rods<=4,20,000 tons(as both the cast house 1,2 and 3(expansion planned) have a capacity of 4.20,000 tons per annum) 2. Ingots<=2,00,000 tons(ingot making capacity) 3. (Wire rods+ingots)<=5,20,000 tons 4. (HRP+CRP+HRC)<80,000 tons 5. (Wire rods+ingots+HRC+CRP+HRP)<=6,00,000 tons(total molten aluminium) 6. CRP<=60000 tons

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7. HRC<=80000 tons 8. HRP<=12000 tons

AFTER EXPANSION (optimized values):-using solver function in Ms-excel

New product mix(in tons):

WIRE RODS:4,20,000(considering the demand in India, the exports and the constraints, wire rods should be maximized to 4,20,000 ) INGOTS:1,00,000(ingots fetch less profit but have huge demand in the market) HRC:8000(having the minimum NEP amongst rolled products but a good market due to the demand of the secondary producers) CRP:60000(these have the largest market in rolled products(worldwide and domestic) and have a great potential for expansion with the transportation sector using more and more aluminium. But given the limitation of product capacity and we can produce maximum 60000 tons per annum there is also intense competition in the market with Hindalco) HRP:12000(highest NEP product, with a lot of smelters coming up the demand of bus bars will increase(Balco being the only producer of bus bars in India) and thus demand of HRP shall be increased to 12000)
TONS MADE product Unit NEP 4,20,000 Wire rod 10000 100000 Ingots 5000 8000 HRC 19656 60000 CRP 32592 12000 HRP 63392

Optimized product mix New NEP(total): Rs. 7573472000

Domestic demand (2012) (in tons):

Rods: 6,92,000 HRP: 12,700

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HRC: 1,62,000

CRP: 2,54,500 Domestic supply by balco (2012) (in tons):

Wire rod: 1,86,000 Ingots: 7,500 HRC: 20759 CRP: 39506 HRP: 3676

Domestic market share(Balco):

Rods: 27% HRP: 28% HRC: 13% CRP :15.5%

5. CONCLUSION AND RECOMMENDATION:

It is concluded that after capacity expansion increasing the production of EC rods, Hot Rolled Plates and Cold Rolled Products the profit of the Company would be substantially enhanced. Using the Solver function in Ms Excel it is being recommended that the Company should produce the following products to maximize profit.
TONS MADE product Unit NEP 4,20,000 Wire rod 10000 100000 Ingots 5000 8000 HRC 19656 60000 CRP 32592 12000 HRP 63392

The ability to deal with constant fluctuations in LME prices of aluminium would be the great challenge going forward, along with the economies of scale, regular supply of feedstock and environmental issues. The Aluminium industry is expected to grow. The substitution threat of

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Aluminium from various metals and materials will continue but may not be a huge threat. Key end-user segments in the region would contribute significantly to macro and micro growth are Construction, electrical, packaging and industrial based applications which are expected to play a significant role during the forecast period.

6. OUTCOME:
As Bharat Aluminium Company has undertaken ambitious Expansion plans, i.e. to increase the production capacity from 2.5 lakh tons to 6 lakh tons per annum it was essential to optimize the Product Mix after capacity expansion. Elaborate study was carried out to find out the present sector wise market demand and demand forecast (both Global and Domestic). The present production capacities of various products were assessed and accordingly a Product Mix was recommended to maximize the Profit of the Company.

7. LEARNING FROM SIP:

During working on this Project a lot of things were learned. The learnings are given below: 1. Manufacturing process of various aluminium products.
2. Production Planning Process. 3. Process of collecting Data from various regional sales Offices. 4. Analyzing Data. 5. Studying Demand Supply of a commodity. 6. Optimization of Product Mix by using Solver.

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8. REFERENCES:
1. 2. 3. 4. 5. 6. 7.
8. 9. 10. 11. 12.

KPMG Reports 2012 Aluminium India, 2011 Vision 2012 Aluminium Association of India Light Metal Age Harbor Intelligence Report (2011) International Aluminium Institution
http://www.aluminum.org www.transportationforamerica.org http://www.aluminumintransportation.org/ Wikipedia INCAL 2011

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