creating value for shareholders - sustainably

www.sterliteoptical.com

Creating value for Shareholders

Sterlite Technologies Limited

Power to every Village


Some Definitions

Value (mathematics)

- the value of a variable in mathematics.

Value (economics)

- the market worth or estimated worth of commodities, services, assets, or work.

Value


To refer to the concept that the primary goal for a company is to enrich its shareholders (owners)

by paying dividends and/or causing the stock price to increase.

To refer to the more specific concept that planned actions by management and the returns to

shareholders should outperform certain bench-marks such as the cost of capital concept.

Shareholder Value

Some Definitions

Total ShareholderReturn

Close Price @ End of Year

Open Price @ Start of Year

Dividend Payout

Shareholder

Value

Capital Structure

Equity Debt Cost of CapitalCapital

StructureEquity Debt Cost of Capital

Corporate

Vision

Strategic

Plan

Business /

Operating Plan

Revenue /

Profit growth


Company Shareholder

You keep asking

us for more

profits and

returns! How

much more do

you want ???


Companies which can

consistently grow

shareholder value are

the ones which are

considered great by

all stakeholders.

Company

2007 2002 2006 2002 2006 2002

1 1 Wal-Mart 351,139 219,812 11,284 6,671

2 2 Exxon Mobil 347,254 191,581 39,500 15,320

6 6 General Electric 168,307 125,913 20,829 13,684

8 8 Citigroup 146,777 112,022 21,538 14,126

49 72 Microsoft 44,282 25,296 12,599 7,346

52 56 Motorola 43,739 30,004 3,661 -3,937

Revenues (mil USD) Profits (mil USD)Rank

Fortune 500 list

Consistency breeds greatness

Rank by M-Cap Business Standard Forbes Business Asia

2007 2005 2000

Reliance Industries 1 1 4

Bharti airtel 4 11 N/A

Infosys 7 15 2

L&T 12 22 26

ITC 14 14 8

Sterlite Industries 19 20 32

Satyam 31 47 11

But how can companies grow consistently?

Shar eholder Value

Shareholder Value

Shareholder Value

Shareholder Value

Shareholder Value

Shareholder Value


Introduction Growth Maturity

Time

1. Innovation

2.

Corporate Governance

Valu

e

Ideal scenario

Revenues /

Profits

Two Key Drivers for Creating Shareholder Value

Maturity -

• Corporate Governance

• Focused Messaging

• Cost Leadership

• Operating Margins

Growth -

• Sustainable Ideas

• M&A options

• IPO

• Revenues & Net Profits

Introduction -

• Business Idea / Vision

• Strategy

• Business Model

• Financing Methods

• Startups with disruptive business ideas are valued more during their growing phase.

• Mature companies which are transparent to shareholders are valued more.


-500

0

500

1000

1500

2000

2500

3000

2003-04 2004-05 2005-06 2006-07 2007-08*

M - Cap

Revenues

PAT

0

5000

10000

15000

20000

25000

30000

2003-04 2004-05 2005-06 2006-07 2007-08*

M - Cap

Revenues

PAT

Growth company v/s Mature company

Telecom – Emerging industry v/s

Auto – Maturing industry

Fiber – Disruptive technology (04)

Auto - New Brands, Promos (04)

Power - Sourcing & customer synergies

Auto - Improving governance and

transparency (Bajaj Auto etc)

Sterlite Optical Technologies

Maruti Udyog

Emerging Industry + Disruptive Technology + Cost

Leadership scope + Business Development options Consistent Shareholder Value

Creation Opportunities

* - as per Business Plan for SOTL and Q1 annualized for Maruti


Can we quantify Shareholder Value?

Cost of products sold / Revenue

Cost of goods sold / Revenue

Sales and marketing expense/ Revenue

Fixed assets / Revenue

Working capital / Revenue

General and administrative expense / Revenue

Other operational costs / Revenue

ROCE =

Margin =

Asset utilization =

Operational profit

Fixed assets + working capital

Operational profit

Revenue

Revenue


X

+

+

1 -

1 /

According to our experience

(Return On Capital Employed) is

the best indicator of creating value

for shareholdersCost of products sold / Revenue

Cost of goods sold / Revenue

Sales and marketing expense/ Revenue

Fixed assets / Revenue

Working capital / Revenue

General and administrative expense / Revenue

Other operational costs / Revenue

ROCE =

Margin =

Asset utilization =

Operational profit


Operational profit

Revenue

Revenue


X

+

+

1 -

1 /

According to our experience

(Return On Capital Employed) is

the best indicator of creating value

for shareholders

• TSR and RoCE are considered to be the best indicators for judging sustainable

shareholder value.

Total ShareholderReturn

Close Price @ End of Year

Open Price @ Start of Year

Dividend Payout


-10

-5

0

5

10

15

20

25

30

35

2003-04 2004-05 2005-06 2006-07 2007-08*

-10%

0%

10%

20%

30%

40%

50%

Basic EPS RoCE

How does SOTL stack up?

Backward integration projects for

achieving global cost leadership

New Business lines for more of customer’s

capex pie (Revenue and Profit growth)

New Geographies and Customers

targeted for Business Development.

Aggressive Push – PTB, New Sales offices,

New Backward Integration projects

0

50

100

150

200

250

2003-04 2004-05 2005-06 2006-07 2007-08*

-10%

0%

10%

20%

30%

40%

50%

TSR per share RoCE

Expansion Projects, Brand

Building, IP focus, Talent

Management, New Business Lines

* Assuming M-Cap of Rs. 2500 crores at March 31, 2008

• Historically, shareholder returns have been growing.

• In the future, shareholder returns are expected to grow faster!!!

Confidential to the

Company

Confidential to the

Company


• Targeted communication to media

• Targeted communication to investors

• Increased focus on R&D

• Continuous search for newer geographies

• Continuous search for newer product lines

• Brand building

• Regular awards

• Six sigma, lean manufacturing, etc.

Projects and Activities to ensure sustained growth

Messaging

Governance

Cost Leadership

Innovation

Biz Dvlpmt


Drivers determining Company’s Valuation / Share Price


Where/How does Investor Relations help?


Thank You