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TO ANALYZE EXISTING, LOST AND POTENTIAL CUSTOMERS OF SIIL AND DEVELOP A STRATEGY TO INCREASE ITS
COPPER SALE

VEDANTA GROUP

Sterlite Industries (I) Ltd. Vedanta Resources

By Saurabh Rustagi 10P049

o Sterlite Industries

STERLITE INDUSTRIES (I) LTD.

Copper Cathodes
'Sterlite' Copper cathodes are produced using state-of-the-art "ISA electro-refining" technology. Applications Continuous Cast Copper Rods Copper Wire Bars, Bus bars, Billets, Ingots, Moulds and Other semis Copper based alloys and downstream products Copper tubes, strips and foils o Sterlite Plants and Capacity

STERLITE INDUSTRIES PLANTS

Continuous Cast Copper Rods

SIIL continuous cast Copper rods are produced using the Propezi technology. Applications Jelly Filled Telephone Cables Magnetic wires & Winding wires Power Cables Automobile Wire Harness Communication Cables House wiring Conductors (Rounds and Flats) Transformer

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COPPER INDUSTRY
Copper in India
Production 800 700 600 500 400 300 200 100 0 2001 2002 2003 2004 2005 2006 2007 2008 Consumption

Oligopolistic Market

RATIONALE FOR RESEARCH

Every company envisions to be the biggest in the world To do so, it plans to increase its sales using different methods and approaches In this research we have considered 4 methods that can be used to increase copper sales

In 000MT

Production always more than consumption

2009

Few players in the market High barriers to entry or exit

India Copper Refineries

In Metric Tonnes 600000 500000 400000 300000 200000 100000 0 HCL SIIL Birla Copper
Installed Capacity
Copper produced Installed Capacity Copper produced Installed Capacity Copper produced

METHODS TO INCREASE SALES

AvoidCustomerLoss

Captureimport Market

IncreaseSales
Searchpotential buyers

LOST CUSTOMER ANALYSIS

Even small customers affect our bottom line Loss of a single small customer might not affect much, but many such customers create an impact It is important to continuously sell to each and every customer, be it small or large Let us look at the customers lost, and the factors responsible

Grow with customers

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RATIONALE FOR RESEARCH

As the number of buyers in the market is not growing, loss of these small buyers affects the net sales of the company

RESEARCH QUESTIONS
Q1: Is price the only reason for buyers not procuring copper from us? Q2: What are the other factors which are responsible for customer loss? Q3: Should Sterlite focus on CRM?

One of the possible ways to increase our sales is to get back these lost buyers

o Research Questions

RESEARCH HYPOTHESES
Null Hypothesis (H0) Price is the main factor for customer loss and CRM has no effect. Alternative Hypothesis (HA) Price is not the main factor and CRM is equally responsible for customer loss

KEY POINTS IN SALES POLICIES

Total price to be paid in advance Payment options limited Material pricing options are fixed Refined copper available in only fixed standard dimensions, and no other form Delivery charges are fixed for a region The premium is fixed for all customers, discount depending on DOA, that is cases to case basis For exemption on import duty, in EOU case, the license and other forms have to be provided in advance, before making the booking

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POSSIBLE FACTORS

CUSTOMER PROFILE
AnnualConsumption
None 29%

1. 2. 3. 4. 5. 6.

Cost of procurement of copper from Sterlite is high compared to other supplier Delivery issues Communication problems Conflicts with company policies Terminated that product Switched to copper scrap due to high copper cost
Moderate (Between 500MTand 250MT) 5%

CurrentSupplier
Traders 45% Import 23%
VeryHigh (>1000MT) 9%

Low(<250MT) 38%

High (between 1000MTand 500MT) 19%

HCL 18% BirlaCopper 14%

Most of the lost customers are of low consumption, or no more purchase of copper Least of them have shifted to Birla (main competitor) Most have shifted to traders

IMPLICATIONS OF SHIFTING TO TRADERS

REASONS TO LEAVE STERLITE

MainReasontoleaveSterlite
Conflictswith your company policies 14% Delivery issues 5% Switchedto copperscrap 9%

Main reason as per Questionnaire

Before
Lost customers have mainly shifted to traders who buy from us Still it is important to worry about this change

After

HighCostof Procurement 43%

CRM is important
Communicati onproblems 0% Terminated thatproduct 29%

When asked directly, most of them pointed out higher cost of But 0% stated main reason procurement as the

Analysis of answers of questionnaire showed a different picture Most important reason is cost 2nd most important reason is communication problem, CRM This implies CRM has a hidden role in customer loss

Quantity earlier sold at low discount is now being sold at higher discount affecting bottom line Traders generating profit by being the middle man

communication as main reason conflicts with company Some have

policies

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HYPOTHESIS CONCLUSION
Fail to reject the Null Hypothesis Price is the primary reason of customer loss. Communication (CRM), though important, is not the primary reason of grievance according to any customer
it is only a supporting factor which aggravates customer grievance.

ANSWER TO RESEARCH QUESTIONS

Q1: Is price the only reason for buyers not procuring copper from us? Ans: Price is not the factor responsible for customer. Lack of communication is a supporting problem which has been rated as 2nd most responsible issue for customer loss. Q2: What are the other factors which are responsible for customer loss? Ans: After high cost of procurement, the 2nd most prominent issue is conflict with company policy. CRM is a hidden factor equally responsible. Q3: Should Sterlite focus on CRM? Ans: CRM is the supporting reason in almost all the primary reasons responsible for customer grievance. Communication issue has 2nd most importance in customer grievance. Thus, Sterlite should focus on improving their CRM and handling customer complaints more efficiently.

o Answers to Research Questions

RECOMMENDATIONS
Do not offer more discount to small customers to regain them from the traders
If Sterlite starts offering more discount to small buyers, this news will spread like fire and larger buyers will demand more discount, affecting Sterlites bottom line.

If possible, reduce discount offered to traders

Traders are able to mint money due to the difference in discount offered to them by Sterlite and the discount they offer to the buyers. If we reduce the discount offered, they will reduce the discount they offer, reducing the difference between Sterlites offered price and traders price to the buyer.

IMPORT COPPER MARKET

After globalization, every domestic industry has a threat via imports

Increase customer relationship management in the company

CRM has turned out to be the 2nd most important factor responsible for customer loss. It is highly likely that if the problems of these customers were handled properly, they would have not searched for alternative source for procuring copper and would still be our customer.

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RATIONALE FOR RESEARCH

OHFC, 21,823

RESEARCH HYPOTHESES
CC Rod, 34,710 Cathod, 5,474

Import of Copper

copper scrap, 80,675

Bus Bar, 31,609 Cu wire, 48,286

Null Hypothesis (H0) Price is the main factor for procurement through import

Alternative Hypothesis (HA) Price is not the main factor and companies import to reduce dependency on domestic market

Strip, 13,995

tubes, 21,547

Domestically supply is more than demand, still copper is imported. Sterlite Industries produces Cathode and CC Rod. Thus, import of these forms of copper pose a competition for Sterlite. Total amount of CC Rods imported is 34,710MT and of cathode is 5,474MT.

If Sterlite wants to increase it CC Rod sales, it is required to find the factors which in customers importing copper instead of purchasing from domestic market.

o Research Questions

RESEARCH QUESTIONS
Q1. Is procuring copper through imports cheaper than domestic market? Q2. Is there some customer need which is not fulfilled by domestic market, but by imports?

IMPORTING COPPER
Drawbacks
Book copper in advance (up to 90days), cannot get delivery within a day The money is blocked for those days, larger working capital C&F charges has higher as import duty also becomes a factor Additional license and trade formalities needed to import commodity

Advantages
Many foreign companies have a very less premium compared to domestic market, resulting in cheaper copper. Copper with certain required impurities can be obtained from foreign market If the customer can procure credit from foreign banks then importing copper provide natural hedging. Advantageous for Export Oriented Units, avoids import duty and other trade taxes

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POSSIBLE FACTORS
Total cost of procuring copper is less
Copper is procured at a lower premium Copper is purchased in dollars, providing natural hedging Credit from foreign banks is used, lower interest rate

CUSTOMER PROFILE
AnnualConsumptionofCopper
High(500 to 1000MT) 33% VeryHigh (>1000MT) 31% Moderate (250to 500MT) 22%

Quantity of Copper Imported Low

(<250MT) 58% Moderate (250 to 500MT) 11%

Low (<250MT) 14%

Annual consumption of Small quantity importers

Unsatisfied requirements
Required quality of copper is not obtained from domestic market The daily requirement is not fulfilled by domestic market

Moderate (250 to 500MT) 38%

Low (<250MT) 33%

High (500 to 1000MT) 17%

Very High (>1000MT) 14%

High (500 to 1000MT) 24%

Very High (>1000MT) 5%

Do not want to be dependent on domestic market Collaboration with a foreign refinery

Almost all sizes of companies import copper Most of them import small quantities

This shows that import of copper is attractive in some way but is not so attractive to completely depend on imports for annual requirements

LARGE WORKING CAPITAL

DifferenceinPaymentandDelivery
30days>and >7days 38% <7days 21% 60days>and >30days 29% >90days 0% 90days>and >60days 12%

MAIN REASON FOR IMPORT OF COPPER

PrimaryreasonforImport
Unsatisfied demandand requirements 17% TotalCostis less 33%

Not dependent onlyon domestic market 50%

Mostly book in 1month advance Money blocked higher working capital lesser ROI

When asked directly 50% replied main reason for import is to reduce dependence on domestic market When analyzed answers on questionnaire lower cost of imported copper is the most important reason for import, main advantage of import Dependence issue is the least important reason.
Customers believe that domestic market is sustainable and sufficient to meet their requirements

Main reason to avoid importing copper

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HYPOTHESIS CONCLUSION
Fail to reject the null hypothesis. As per the responses to the questions by the companies, price plays an important role when deciding on import. But the quantity imported will always be less as it involves very large working capital. If companies can afford a large working capital, they can afford to import large amounts of copper. This is the main reason why large companies import large amounts of copper. Small companies cannot afford to block their cash for a long time.
o Answers to Research Questions

ANSWER TO RESEARCH QUESTIONS

Q1. Is procuring copper through imports cheaper than domestic market? Ans. Yes, as per the primary data gathered and the understanding of an oligopolistic market we can confidently say that procuring copper through imports is cheaper than buying from domestic market. This is mainly due to the high premium charged by domestic suppliers. But this lower cost comes at a price of larger working capital. Now, it is the responsibility of the management of the company to decide on whether lower procurement cost is enough to offset the larger working capital. Q2. Is there some customer need which is not fulfilled by domestic market, but by imports? Ans. As per the primary research the unsatisfied requirement is mainly in pricing options. Domestic market, Sterlite and Birla Copper, do not allow buying copper on already disclosed LME price, they always book at undisclosed price. Also the companies who face such issues are EOUs who need to match the pricing options offered in the countrys market where they export. Also, as discussed in Literature review, EOUs prefer to import copper as they get rebate on import duty, thus, lowering the cost of procurement of copper.

RECOMMENDATION
The main area of trouble is that companies can procure copper at a lower cost from international market with the cost of a larger working capital Lowering our premium is a solution to reduce imports, but it will reduce profits The recommendation for Sterlite in this scenario is to continue what is going on and do nothing at present Taking any preemptive action against this threat from import will not help in increasing the profits of the company

OXYGEN FREE COPPER MARKET

Explore new avenues in copper market With development in technology variants of refined copper are facing increased demand

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VARIANTS OF COPPER
Electrolytic tough pitched Copper (ETP)
99.99% Cu 150 to 400 ppm oxygen content High conductivity and ductility Oxygen content poses problems in extreme conditions

APPLICATIONS OF OFE AND OF COPPER

Industrial Applications Power Distribution System Heavy Gauge PCBs Wave Guide tubes Heat sinks for Semiconductor bases Magnetic windings for particle accelerator Transformer coil windings Consumer applications Stereo Systems High end Speakers Headphones A/V Cables HDMI Cables

Oxygen free Electrolytic Copper (OFE):

99.99% Cu 5 ppm oxygen content Very high conductivity and ductility No hydrogen embrittlement and other oxygen based problem

Oxygen Free Copper (OF)

99.95% Cu 10 ppm Oxygen content Very high ductility No hydrogen embrittlement and other oxygen based problem

o Applications of OFE and OF Copper

RATIONALE FOR RESEARCH

Oxygen free copper market is growing Currently no domestic refinery is producing this variant of copper and the whole demand is satisfied through imports If Sterlite enters this market, it will quickly capture over imports Thus, it is important to understand the market, its size and future prospects
o Research Questions

RESEARCH QUESTIONS
Q1. What is the size of this market in India, total oxygen free copper used? Q2. What is the main sector which employees this variant of copper? Q3. Will it be profitable for Sterlite to enter this market?

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SIZE OF OXYGEN FREE COPPER

Types of Copper Imported
Scrap Copper 31% Refined copper 60%
8.000% 6.000% 4.000%

%ageofOFEcopperintotal CopperConsumption
7.409% 6.522% 3.859% 3.636% 3.230%

3.011%
2.000% 0.000%

2.817%

OFHC Copper 9%

200304 200405 200506 200607 200708 200809 200910

400

9% of import is OFE and OF Copper It is around 3 to 4% of total copper consumption in India Total OFE and OF copper imported is about 6.5% of Sterlites production, in 2010 Size is large enough to generate profits But market is unsteady
In'000MT

350 300 250 200 150 100 50 0

21.82335

334.174

Sterlite OxygenFreeCopperDemand CurrentProduction

GROWTH OF THIS MARKET

GrowthofImportofOxygenFree Copper
35000 30000 25000 20000 15000 10000 5000 0 31804.59 50000 40000 30000 20000 10000 0 43349.80316

ANSWER TO RESEARCH QUESTIONS

GrowthofImportofOxygenFree Copper

OFECopperinMT OFECopperinMT GDPRs.100Million

CopperConsumptionin20MTs

Forecast wrt GDP and Copper consumption show good growth, attractive market But sudden dip of 2006-07 shows vulnerability Consumer appliances are the biggest source of vulnerability
OFE copper is not needed in those products, but are selling on sentimental value

o Answers to Research Questions

Q1. What is the size of this market in India, total oxygen free copper used? Ans. In 2010, the total consumption of Oxygen free copper was 21823.35MT, approximately 3.9% of the whole copper industry and 6.5% of Sterlites production in that year. The market is large enough to generate sufficient profits. Q2. What is the main sector which employees this variant of copper? Ans. The main sector which consumes this variant of copper is entertainment. The audio Video industry appliances are the ones having maximum demand for oxygen free copper wires. This is that sector which can do equally well with ETP copper wires. Q3. Will it be profitable for Sterlite to enter this market? Ans. The market is attractive and appears profitable to enter. But we should consider different scenarios before commenting on profitability for Sterlite to enter this market.

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RECOMMENDATIONS
NOT Manufacture own OFE & OF Copper Needs different method of refining New plant for it, costly No other domestic supplier Capture full market, large sales But market is unstable, risky Thus, not recommended Initial investment is high and risk of return is also high If market fails, like 2006-07, heavy losses Switch domestic use customers from OFE copper to ETP Copper Advertise properties of ETP copper comparing it with OFE Copper It is important for customers to understand that there is no advantage in using OFE cable Customers will themselves switch to ETP Copper increasing copper consumption increasing Sterlites sale Thus, recommended Better if one of the high end music cable manufacturer advertises

STUDY ON EXISTING CUSTOMERS

OF STERLITE
One of the best methods for growth is Organic growth If its customers are growing, Sterlite will also grow

COPPER CONSUMPTION IN INDIA

RATIONALE FOR RESEARCH

To be able to forecast its growth accurately we need to understand the parameters on which this company depends to growth, and the factors influencing the growth. For this we study the growth of Sterlites major customers

We see that copper consumption has been growing a lot in India, specially after 1991 Copper consumption per capita is also a parameter to measure economic growth of a country

o Research Questions

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RESEARCH QUESTIONS
Q1. What is the growth of the copper industry in India? Q2. What is the growth of the different markets involved in copper industry? Q3. How much will the growth in copper industry and the markets involved affect the growth of Sterlite Industries?

MARKETS INVOLVED IN COPPER INDUSTRY

COMPANIES CONTACTED
Growth %
30 Axis Title 20 10 0 -10 13%

GROWTH IN MARKET

Apart from 2 transformer companies, other have an average growth of around 10% p.a. IMP Power has a higher rate as it is a new company and growing fast CGL is the market leader with maximum share

From the research we get growth in transformer Industry to be 11% and wire industry to be 15% Main factors for growth are 12th 5 year plan and expected increase in GDP

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FORECASTED COPPER CONSUMPTION

Forecasted Copper Consumption
1200 1000
in '000 MT

ANSWERS TO RESEARCH QUESTIONS

Q1. What is the growth of the copper industry in India? Ans. From the secondary research we get the growth rate of copper industry as 10%, but from primary research we get the growth rate of industry as 13%. But the companies shortlisted by us might not be a good representative of the whole copper industry and this might be the reason of getting such high growth rates. Q2. What is the growth of the different markets involved in copper industry? Ans. There are many markets involved in copper industry. In this research we studied the two main markets, transformers and wires. We developed a growth structure for these markets and calculated their respective growth rates. Transformer market is expected to growth at a rate of 11% per annum, whereas wire industry is expected to grow at a rate of 15% per annum.

800 600 400 200 0 2009 2010 2011 2012 2013 2014 2015

Forecasted with GDP

Forecasted @10% growth

Forecasted @13% growth

Q3. How much will the growth in copper industry and the markets involved affect the growth of Sterlite Industries? Ans. With the forecast of growth in markets involved and that in copper industry, Sterlite Industrys sales are also expected to grow at a similar rate. Considering that these companies do not change the share of material procured by us, the growth in sales of Sterlite Industries will also be high. Growth in sales of Sterlite Industries is expected to be around 13% considering the growth in wire industry and transformer market.

Consumption of copper in India will increase by around 10% as per secondary resources and by around 13% by our primary resources. Thus, Sterlite industries can grow organically at a good pace if it continues to sell to its existing clients.

o Answers to Research Questions

THANK YOU

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