Result Update October 28, 2015

Rating matrix Rating : Hold Vedanta Ltd (SESGOA) | 105 Target : | 100 Target Period : 12 months Potential Upside : -5% Domestic zinc business leads beat….

• Vedanta reported a healthy set of Q2FY16 numbers wherein the What’s Changed? topline and EBITDA came in higher than our estimates. A better-than- Target Changed from | 95 to | 100 expected performance during the quarter was primarily driven by the EPS FY16E Changed from | 12.8 to | 13.0 robust performance delivered by HZL EPS FY17E Changed from | 19.4 to | 20.0 • The topline for the quarter came in at | 16560.9 crore (down 15.3% Rating Unchanged

YoY and 2.7% QoQ) higher than our estimate of | 15272.5 crore Quarterly Performance • EBITDA for the quarter came in at | 3999.8 crore (down 36.8% YoY Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%) but up 0.2% QoQ), better than our estimate of | 3710.5 crore. The Revenue 16,560.9 19,549.4 -15.3 17,016.9 -2.7 EBITDA margin came in at 24.2% (our estimate: 24.3%) EBITDA 3,999.8 6,326.9 -36.8 3,992.0 0.2 • During the quarter, the company reported an exchange gain to the EBITDA (%) 24.2 32.4 -821 bps 23.5 69 bps tune of | 494 crore. Hence, the subsequent PAT for the period was at Rep.PAT 974.0 1,619.3 -39.8 866.0 12.5 | 974 crore (our estimate: | 521 crore)

Muted aluminium prices to limit benefits of cost rationalisation… Key Financials (|Crore) FY14 FY15 FY16E FY17E During Q2FY16, due to lower power costs and alumina cost, Balco’s Net Sales 65733 73364 71864 80085 aluminium CoP sequentially declined by US$112/tonne (from EBITDA (Core) 20360 22045 18191 21941 US$1837/tonne in Q1FY16 to US$1725/tonne in Q2FY16). The company Adj Net Profit (Attrib) 6466 5873 3859 5938 has guided for a further cost reduction of ~US$200/tonne in Balco. Adj EPS (|) 21.8 19.8 13.0 20.0 During the quarter, VAL’s aluminium CoP stayed flattish sequentially. z Going forward, aluminium’s CoP is likely to move downwards in the Valuation summary backdrop of declining alumina prices. Even though the cost saving FY14 FY15 FY16E FY17E initiatives augur well, we believe cost rationalisation will have limited PE (x) 4.8 5.3 8.1 5.2 benefit as LME has further declined to US$1450/tonne during end- Target PE (x) 4.6 5.0 7.7 5.0 October 2015 (Q2FY16 LME aluminium average was at US$1591/tonne). EV/EBITDA (x) 4.9 4.5 5.3 4.1 P/BV (x) 0.4 0.6 0.6 0.5 Re-emphasises cost saving target; cuts capex guidance RoNW (%) 8.9 10.9 6.9 9.9 The management re-emphasised the US$1.3 billion cost savings RoCE (%) 8.8 11.3 8.5 10.8 programme over the next four years. This was broken down into

production cost (US$800 million) & marketing expenses (US$ 500 million). Stock data Of this, US$147 million has been achieved in H1FY16 with a similar Particular Amount quantum (US$150 million) set to be achieved in H2FY16 as well. Vedanta Market Capitalisation | 30540 Crore has also optimised its capital expenditure for returns at lower commodity Debt (FY15) (Actual - A) | 77752 Crore price assumptions by reducing FY16 capex guidance by 30% to US$700 Cash, Liquid Invests (FY15) (A) | 46212 Crore million from US$1 billion earlier. FY17 capex stands at US$1 billion. EV | 62080 Crore 52 week H/L 264/77 Weakness in commodity prices weighs; maintain HOLD… Equity capital | 296.5 Crore The healthy performance from HZL aided Vedanta’s Q2FY16 Face value | 1 performance. HZL reported a healthy Q2FY16 performance on the back of

better-than-expected sales volumes and lower-than-expected cost of Price performance (%) production (CoP). The copper business also reported a stable Return % 1M 3M 6M 12M performance wherein the smelter operated at high capacity utilisation Hindustan Zinc 11.1 -2.9 -5.1 -3.4 while Tc/Rc and acid realisations remained strong. During the quarter, Sesa-Sterlite 9.7 -20.8 -48.8 -57.9 while healthy cost saving measures were also taken in Vedanta’s Hindalco Ind 19.6 -21.9 -34.9 -42.8 aluminium businesses, a sharp drop in LME and premiums is adversely impacting its financial and operational performance. A muted PLF (32% in Research Analyst Q2FY16) in Jharsuguda 2400 MW power plant also remains an area of Dewang Sanghavi concern. We have a positive view on the company’s domestic zinc [email protected] business (HZL) on account of strong underlying fundamentals. However,

we have a cautious view on the company due to the huge debt pile and a skewed EBITDA profile. Over the short to medium term horizon, the current scenario of muted commodity prices is likely to weigh on the financial performance of the company. We value the company using SOTP valuation and arrive at a target price of | 100. We have a HOLD recommendation on the stock.

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Variance analysis Q2FY16 Q2FY16E Q2FY15 YoY (%) Q1FY16 QoQ (%) Comments Topline came in better than our estimate on the back of better- Revenue 16,560.9 15,272.6 19,549.4 -15.3 17,016.9 -2.7 than-expected sales volume Other Income 721.1 982.8 686.1 5.1 893.4 NM Other income came in lower than our estimate Raw Material Expense 5,947.7 5,275.5 6,646.2 -10.5 5,642.0 5.4 Employee Expense 719.2 720.5 728.8 -1.3 708.8 1.5 Employee expense came in line with our estimate Power & Fuel 2,245.1 1,983.4 2,110.6 6.4 2,756.5 -18.6 Other operating Expenses 3,649.1 3,582.7 3,736.9 -2.4 3,917.5 -6.9

EBITDA 3,999.8 3,710.5 6,326.9 -36.8 3,992.0 0.2 EBITDA came in higher than our estimate EBITDA Margin (%) 24.2 24.3 32.4 -821 bps 23.5 69 bps EBITDA margin came in higher than our estimate Depreciation 1,660.2 1,760.4 2,003.3 -17.1 1,717.5 -3.3 Depreciation expense came in lower than our estimate

Interest 1,418.1 1,391.7 1,471.6 -3.6 1,357.8 4.4 Interest expense came in marginally higher than our estimate

Exchange gain 494.0 0.0 -169.7 -391.1 254.6 94.0 The company reported exchange gain during the quarter PBT 2,136.6 1,541.1 3,707.8 -42.4 2,064.7 LP Tax Outgo 204.0 308.2 560.1 -63.6 352.5 -42.1 PAT 1,932.6 1,232.8 3,147.7 -38.6 1,712.2 LP Minority Interest & others 958.6 711.8 1,528.5 -37.3 846.3 13.3 Attributable PAT 974.0 521.0 1,619.3 -39.8 866.0 LP Reported PAT came in higher than our estimate Key Metrics

HZL, Zinc Sales (tonne) 217,000 195,463 142,000 52.8 180,000 20.6 Zinc (India) sales volume came in higher than our estimates

HZL, Lead Sales (tonne) 40,000 32,372 32,000 25.0 29,000 37.9 Lead (India) sales volume came in higher than our estimates Zinc international production volume came in lower than our Zinc Int, Zinc-lead production (tonne) 63,000 65,000 79,000 -20.3 70,000 -10.0 estimate

Copper Production (tonne) 94,000 95,000 66,000 42.4 98,000 -4.1 Copper production came broadly in line with our estimae

Aluminium Production (tonne) 233,000 225,000 203,000 14.8 232,000 0.4 Aluminium production broadly came in line with our estimate Eletricity Sales (million units) 2,718 2,750 2,599 4.6 3,070 -11.5 Electricity sales came broadly in line with our estimate

Change in estimates FY16E FY17E (| Crore) Old New % Change Old New % Change Comments Revenue 71597 72244 0.9 77453 80503 3.9 Revised estimate upwards EBITDA 17491 18191 4.0 18872 21941 16.3 EBITDA Margin (%) 24.4 25.2 80 bps 24.4 27.3 290 bps PAT 3793 3859 1.7 5750 5938 3.3 EPS (|) 12.8 13.0 1.8 19.4 20.0 3.3

Source: Company, ICICIdirect.com Research

Assumptions Current Earlier Comments FY16E FY17E FY16E FY17E

HZL, Zinc Sales (tonne) 800368 818885 769505 802425 Upward revised estimate due to better than expected sales volume of Q2FY16

HZL, Lead Sales (tonne) 139906 157250 124875 133200 Upward revised estimate due to better than expected sales volume of Q2FY16

Silver sales(kgs) 379713 440300 362600 372960 Upward revised estimate due to better than expected sales volume of Q2FY16 Copper Production (tonne) 372600 372600 372600 372600 Maintained estimates Aluminium Production (tonne) 900000 962500 900000 962500 Maintained estimates Eletricity Sales (million units) 14338 15316 14338 15316 Maintained estimates LME Zinc (US$/tonne) 1900 1900 1800 1800 Upward revised estimate LME Lead (US$/tonne) 1750 1750 1700 1700 Upward revised estimate LME Aluminium (US$/tonne) 1700 1850 1750 1850 Maintained FY17E estimates LME Copper (US$/tonne) 5750 6000 5750 6000 Maintained estimates USD:INR 63.5 63.5 63.0 63.0 Marginally upward revised

Source: Company, ICICIdirect.com Research

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Company Analysis Hindustan Zinc (HZL) • HZL reported a healthy set of Q2FY16 numbers wherein the topline, EBITDA and PAT came in higher than our estimates. Topline for the quarter came in at | 4033.3 crore (up 6.1% YoY, 11.1% QoQ and better-than our estimate of | 3457.2 crore). The better-than-expected topline was on account of higher-than- expected sales volume. Zinc sales volume for the quarter came in at ~217000 tonnes (up 22.3% YoY and better than our estimate of 195000 tonnes). Lead sales volume came in at ~40000 tonnes (up 33.3% YoY and better than our estimate of 32000 tonnes). Silver sales volume came in at ~112500 kg (up 39.8% YoY and better than our estimate of 90000 kg). • EBITDA came in at | 2164.1 crore, better than our estimate of | 1592 crore. The EBITDA margin came in at 53.7% higher than our estimate of 46.0%. The EBITDA margin came in higher than our estimate due to lower-than-expected cost of production (CoP) and operational efficiencies. Other income was at | 868.9 crore (up 24.7% YoY, 54.1% QoQ) and higher than our estimate of | 680.9 crore. The ensuing PAT was | 2285.3 crore (up 4.7% YoY and 19% QoQ) • The zinc metal CoP per tonne before royalty declined 8% in rupee terms and 15% in US$ term to | 50236/tonne (US$771/tonne) as compared to | 54732 (US$903) a year ago. The decline in cost was driven by higher volumes, reduced fuel prices and cost reduction initiatives, partly offset by regulatory levies and higher underground mine development • During the quarter, the Government of India (GoI) notified the contribution towards DMF at 30% of royalty for existing mining leases, payable with effect from January 12, 2015. Accordingly, the company has revised its DMF liability resulting in a write-back of | 140 crore provisioned during the prior quarters, which also aided in margin expansion • At the Sindesar Khurd mine, the development of two auxiliary lenses as separate production centres is in full swing, which has helped in ramping up the mine better than the original plan and will increase the production capacity from 2 million tonnes (MT) to 3 MT by year end • For HZL, capex is expected to be US$200-225 million each year for FY16 and FY17, which includes sustaining the capex as well

Exhibit 1: Zinc sales & realisation trend Exhibit 2: Lead sales & realisation trend

128,588 128,588 1,000,000 134,938 200,000 145,000 134,938 143,457 130,627 147,632 137,533 160,000 800,000 125,000 127,404 122,891 150,000 140,000 105,000 600,000 120,000

tonne 100,000 85,000 400,000 100,000 |/tonne

65,000 157,250 tonne 818,885 |/tonne 800,368 80,000 139,906 750,000 737,614 50,000 674,500 127,188

200,000 121,500 45,000 117,500 60,000 - - 25,000 40,000 FY13 FY14 FY15E FY16E FY17E 5,000 20,000 Zinc Sales Zinc Realizations (15,000) FY13 FY14 FY15E FY16E FY17E - Lead Sales Lead Realizations

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

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Cairn India ƒ Production was up 6% YoY. Rajasthan production was 3% higher at 168,126 boepd. Ravva & Cambay production 19% higher at 37,236 boepd ƒ Gas production from Raag Deep Gas (RDG) field increased to 30 mmscfd in Q2 FY2016 from 19 mmscfd in Q1FY16, recording a peak of 34 mmscfd ƒ Rajasthan water flood opex remained low at US$ 5.5/boe ƒ Well cost was cut ~15%; realised better cost efficiency for drilling & completion of wells at Barmer Hill tight reservoir formation over a year ƒ Procurement savings of ~13% driven by negotiations & leveraging the lower service costs ƒ Mangala EOR program in full swing: Polymer injection ramped up from 80,000 blpd to 200,000 blpd QoQ; 75% of the planned wells drilled ƒ Raag Deep Gas Development: Signed an agreement with GSPL for pipeline, reduces capex by ~US$ 100 million ƒ Significant progress made on key projects: ƒ Aishwariya in fill – Six new wells brought online increasing well count to 12 wells, balance eight wells will be online in H2 ƒ Bhagyam EOR- Contracts awarded for FEED, tendering started for rigs, drilling ƒ Aishwariya Barmer Hill- FDP will be submitted to the JV partner shortly ƒ Rajasthan FY2016 production expected to remain stable at y-o-y level ƒ Routine maintenance shutdown planned at MPT in Q3FY16, rescheduled to Q1FY17 ƒ FY16 net capex guidance reduced from US$ 500 million earlier to US$ 300 million Zinc International

• For the quarter, zinc international reported production volume of 63000 tonnes, down 16.9% YoY and 13.8% QoQ. Mined metal production was lower due to Lisheen progressive closure. Lisheen is expected to end production in November 2015. Volumes were also impacted by partial industrial action and a planned 30-day maintenance shutdown at Skorpion in September • Q2FY16 CoP was at US$ 1477/tonne. Zinc International’s FY16 capex guidance has been reduced to US$40 million from US$80 million earlier • FY16 volume is likely to be in the range of ~220-230 KT. The CoP is expected to remain at current levels of ~US$1450-1500/tonne. Cost saving initiatives are underway • The Skorpion mine life extension activities are underway to extend life by three years • The company is assessing further re-phasing of the Gamsberg project, which is likely to lead to slower than planned ramp-up

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Aluminium business • High cost rolled product facility of Balco has been shut down, which had one time impact of | 120 crore (| 75 crore in Q2FY16). However, it is likely to result in | 80 crore of annual saving from FY17 • The high cost 270 MW CPP in Balco is expected to be on standby post start-up of 300 MW CPP in Q3FY16 • Start-up of additional pots in Balco has been put on hold until visibility of positive cash flow • Blended aluminium CoP was at US$ 1648/tonne. Jharsuguda CoP was at US$1599/tonne, flat QoQ due to higher coal cost offset by currency depreciation and lower alumina CoP. Balco’s CoP was at US$1674/tonne, lower due to currency depreciation, lower alumina COP and power costs • Ingot premium remained low. The company is focussing on value added product • Jharsuguda-II will witness the ramp up of its first line of 312 KT to commence in Q3FY16 and end by FY16. • The Lanjigarh alumina refinery shut one of two streams to reduce fixed costs & capacity from 1 million tonnes per annum (MTPA) to 0.8 MTPA. CoP was US$299/tonne in September 2015 against US$340/tonne in Q1FY16 • FY16 aluminium production is expected at 0.9MTPA; H2FY16 CoP is estimated at US$1500–1550/tonne • Two units of 300 MW of the 1200 MW Balco CPP would start generation in Q3FY16 and Q4FY16, respectively

Copper business • Smelter to continue operation at higher than 90% capacity utilisation • Tc/Rc and acid realisations to remain strong

Iron ore segment (erstwhile Sesa Goa) • Auctioned cargoes being imported at low double digits margins from Goa iron ore • Approvals are in place for production of 5.5 MTPA saleable ore. Mining resumed in Q2FY16 with first export shipment made on October 19, 2015. Progressive ramp up of production in Q3FY16

Energy business • Jharsuguda 2400 MW operated at 32% PLF in Q2FY16 on account of lower demand and softer power rates • Talwandi Sabo Unit-I availability of 86% was as per guidance, Unit-II commissioning activities commenced, to be synchronised in Q3FY16 • Unit I IPP of 300 MW of 1200 MW power plant at Balco has commenced operations; Unit II synchronised in October 2015 • Chotia coal block is scheduled to start in FY16 • Consolidated power operations witnessed an 8-12% reduction in imported coal prices. Import volumes increased from 18% of the coal mix in Q1 to 25% in Q2 • However, e-auction prices for CPPs remain high given higher demand and no resumption yet at auctioned mines

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Exhibit: 3 Debt profile (| crore) 30th Sept 2015 30th June 2015 Company Debt Cash & LI Net Debt Debt Cash & LI Net Debt Sesa Sterlite Standalone 39,394 2,194 37,200 40,164 1,263 38,901 Zinc India - 30,404 (30,404) - 27,519 (27,519) Zinc International - 1,041 (1,041) - 1,076 (1,076) Cairn India - 18,116 (18,116) 388 17,027 (16,639) BALCO 5,731 75 5,656 5,767 65 5,702 Talwandi Sabo 6,896 195 6,701 6,729 12 6,717 Cairn acquisition SPV 26,371 195 26,176 25,490 1 25,489 Others 1,041 108 933 992 128 864 Sesa Sterlite Consolidated 79,433 52,328 27,105 79,530 47,091 32,439

Source: Company

Other highlights

Gross debt remained flattish QoQ at | 79433 crore while net debt declined by | 5335 crore to | 27105 crore as a result of several initiatives to optimise opex, capex and working capital.

The company declared an interim dividend of | 3.5/share.

Consolidated depreciation & amortisation was lower this quarter due to re alignment of useful life of metal & mining assets and will be higher in the next quarter due to ramp up in capacity.

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Metal pricing trend LME prices of all four major base metals registered an up-tick sequentially during the quarter. Copper prices increased QoQ with a marginal decline YoY while zinc, aluminium and lead witnessed a price rise both QoQ and YoY.

Exhibit 4: LME zinc prices & inventory levels

2750 1400000

2500 1200000

On a quarterly average basis, in Q2FY16, zinc prices were at 2250 1000000 US$1846/tonne, down 15.6% QoQ and 20.1% YoY 2000 800000

1750 600000 (In tonne) (In US$/tonne) 1500 400000

1250 200000

1000 0 Jul-12 Jul-14 Oct-11 Oct-13 Apr-12 Apr-14 Feb-13 Feb-15 Jan-12 Jan-14 Sep-12 Sep-14 Dec-12 Dec-14 Aug-11 Aug-13 Aug-15 Mar-11 May-11 May-13 May-15 Inventory Prices

Source: Bloomberg, ICICIdirect.com Research Exhibit 5: LME lead prices & inventory levels

2600 500000 2400 400000 2200 On a quarterly average basis, in Q2FY16, lead prices were 2000 300000 down 21.2% YoY and 11.3% QoQ at US$1718/tonne 1800

1600 200000 (In tonne) (In US$/tonne) (In 1400 100000 1200 1000 0 Oct-13 Apr-14 Apr-12 Feb-15 Feb-13 Jan-14 Jun-14 Jun-12 Sep-14 Sep-12 Dec-14 Dec-12 Aug-15 Aug-13 May-15 May-13 Inventory Price

Source: Bloomberg, ICICIdirect.com Research Exhibit 6: LME aluminium prices & inventory levels

2400 6000000

2200 5000000 2000 On a quarterly average basis, in Q2FY16, aluminium prices 4000000 were down 19.8% YoY and 9.8% QoQ and were at 1800 US$1594/tonne 3000000 1600 (In tonne) 2000000 1400 (In US$/tonne) 1200 1000000 1000 0 Jul-12 Jul-13 Oct-12 Apr-12 Apr-13 Feb-15 Jan-12 Jan-13 Jun-14 Sep-13 Sep-14 Dec-13 Dec-14 Aug-15 Mar-14 May-15 Inventory Price

Source: Bloomberg, ICICIdirect.com Research

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Outlook and valuation Healthy performance from HZL aided Vedanta’s Q2FY16 performance. HZL reported a healthy Q2FY16 performance on the back of better-than- expected sales volume and lower-than-expected cost of production (CoP). The copper business also reported a stable performance wherein the smelter operated at high capacity utilisation and Tc/Rc and acid realisations remained strong. During the quarter, while healthy cost saving measures were also taken in Vedanta’s aluminium businesses, a sharp drop in LME and premiums is adversely impacting its financial and operational performance. Muted PLF (32% in Q2FY16) of Jharsuguda 2400 MW power plant also remains an area of concern. We have a positive view on the company’s domestic zinc business (HZL) on account of strong underlying fundamentals. However, we have a cautious view on the company due to the huge debt pile and a skewed EBITDA profile. Over the short to medium term horizon, the current scenario of muted commodity prices is likely to weigh on the financial performance of the company. We value the company using SOTP valuation and arrive at a target price of | 100. We have a HOLD recommendation on the stock.

Exhibit 7: Valuation matrix Sales YoY Growth EPS YoY Growth PE EV/EBITDA P/ BV RoNW RoCE ( | Crore) (%) (|) (%) (x) (x) (x) (%) (%) FY14 65733.3 NA 21.8 NA 4.8 4.9 0.4 8.9 8.8 FY15E 73364.1 11.6 19.8 -9.2 5.3 4.5 0.6 10.9 11.3 FY16E 71864.3 -2.0 13.0 -34.3 8.1 5.3 0.6 6.9 8.5 FY17E 80084.6 11.4 20.0 53.9 5.2 4.1 0.5 9.9 10.8 Source: Company, ICICIdirect.com Research

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Company snapshot

500 450 400 350 300 Target Price: | 100 250 200 150 100 50 0 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date Event Mar-08 The company reports iron ore sales of 11.4 MT for FY08 Aug-08 The company issues bonus shares in the ratio of 1:1 and also splits its shares, thereby reducing the face value from | 10 to | 1 per share Jun-09 The company acquires VS Dempo & Co. Pvt Ltd for | 1750 crore. VS Dempo holds 100% stake in Dempo Mining Corporation Pvt Ltd & 50% stake in Goa Maritime Pvt Ltd. Dempo Mining is engaged in mining of iron ore with resources of ~ 70 MT in Goa Aug-10 Sesa Goa acquires 20% stake in Cairn India for US$3 billion Dec-10 The company raises US$500 million through FCCB route Mar-11 The company acquires stake in Bellary Steel & Alloys Ltd (BSAL) for | 220 crore. BSAL was building a 0.5 MTPA steel plant project Jul-11 Supreme Court imposes mining ban in Karnataka (Sesa Goa mine also included ; capacity 6 MTPA) Feb-12 The promoter group of Sesa Goa (Vedanta Plc) announces the group consolidation exercise in India; Sterlite Industries to be merged with Sesa Goa with the new entity being proposed as Sesa Sterlite. Sesa Sterlite would be the single entity holding all business interest of the group in India including Cairn India, Hindustan Zinc, Balco, Vedanta Aluminium & Sterlite Energy. Three Sesa Goa shares would be issued for every five existing Sterlite shares Apr-12 Supreme Court lifts iron ore mining ban in Karnataka with only Category A mines allowed to restart operations. (Sesa Goa mine categorised as Category B Mine and capacity reduced to 2.3 MTPA; mine still not operational) Sep-12 State government suspends all mining operations in Goa with immediate effect Dec-12 Sesa Goa acquires remaining 49% stake in Western Cluster Ltd (WCL) for US$33.5 million. Sesa Goa's stake in WCL now stands at 100% Aug-13 Post obtaining all requisite approvals, the Sesa-Sterlite merger finally becomes effective with August 28, 2013 being fixed as the record date for the proposed merger. The new listed entity was named Sesa Sterlite Nov-13 Supreme Court allows sale of already mined iron ore in Goa. However, it is yet to set the guidelines for the same. Goa mining ban prevails Source: Company, ICICIdirect.com Research

Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m) (in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 1 Vedanta Resources PLC 30-Jun-15 45.96 1,362.7 0.0 Promoter 59.2 59.5 59.5 59.5 59.5 2 Finsider International Co., Ltd. 30-Jun-15 13.54 401.5 0.0 FII 17.1 17.0 17.4 16.3 17.4 3 Citibank NA New York S/A Intel Corporation 30-Jun-15 7.51 222.8 1.5 DII 5.9 5.9 5.7 6.8 5.7 4 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-15 2.32 68.7 -1.2 Others 17.8 17.6 17.5 17.4 17.5 5 Templeton Asset Management Ltd. 30-Sep-15 2.32 68.7 0.0 6 Life Insurance Corporation of India 30-Jun-15 2.19 65.0 12.6 7 Shalika (Bhadram Janhit) 30-Jun-15 1.44 42.6 0.0 8 The Vanguard Group, Inc. 30-Sep-15 1.13 33.6 -1.0 9 HDFC Asset Management Co., Ltd. 30-Sep-15 1.10 32.6 21.7 10 Dimensional Fund Advisors, L.P. 31-Aug-15 0.85 25.1 0.0

Source: Reuters, ICICIdirect.com Research

Recent Activity Investor name Investor name Investor name Value Shares Investor name Value Shares HDFC Asset Management Co., Ltd. 34.39m 21.72m Mellon Capital Management Corporation -16.05m -11.08m Life Insurance Corporation of India 28.08m 12.56m Eastspring Investments (Singapore) Limited -14.32m -5.86m Reliance Capital Asset Management Ltd. 9.51m 7.36m GMO LLC -11.46m -3.77m ICICI Prudential Asset Management Co. Ltd. 8.96m 6.03m Goldman Sachs Asset Management International -9.52m -3.48m Birla Sun Life Asset Management Company Ltd. 5.51m 4.26m Fidelity Management & Research Company -3.12m -2.10m

Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 9

Financial summary

Profit and loss statement (| crore) Cash flow statement (| crore) (Year-end March) FY14 FY15 FY16E FY17E (Year-end March) FY14 FY15 FY16E FY17E Net Sales 65733.3 73364.1 71864.3 80084.6 Profit after Tax 6,298.8 -15,645.8 3,859.0 5,938.2 Other Operating Income 419.1 345.4 379.9 417.9 Add: Depreciation 6,882.3 7,159.2 6,728.9 7,000.1 Total operating Income 66,152.4 73,709.5 72,244.3 80,502.5 (Inc)/dec in Current Assets -2,501.6 -4,667.4 -4,570.9 -2,951.7 Growth (%) NM 11.4 -2.0 11.4 Inc/(dec) in CL and Provisions 6,716.4 -3,822.0 3,795.1 2,752.1 Total Operating Expenditure 45,792.8 51,665.0 54,053.5 58,561.7 Others -205.2 571.0 0.0 0.0 EBITDA 20,359.7 22,044.6 18,190.8 21,940.8 CF from operating activities 17,190.7 -16,405.0 9,812.1 12,738.7 Growth (%) NM 8.3 -17.5 20.6 (Inc)/dec in Investments -11,201.0 -1,691.7 -6,500.0 -6,500.0 Depreciation & Amortization 6,882.3 7,159.2 6,728.9 7,000.1 (Inc)/dec in Fixed Assets -3,873.1 -771.0 -4,500.0 -6,000.0 Interest 5,094.4 5,658.8 5,477.6 5,712.4 Others -4,238.3 21,449.0 0.0 0.0 Other Income 2,073.5 2,366.5 3,397.7 3,681.1 CF from investing activities -19,312.4 18,986.3 -11,000.0 -12,500.0 PBT 10,456.4 11,593.1 9,382.0 12,909.4 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0 Exceptional Items -963.9 -22,128.9 748.6 0.0 Inc/(dec) in loan funds 6,879.0 -2,814.0 1,000.0 -1,000.0 Total Tax -846.9 1,448.4 1,554.0 2,323.7 Dividend paid & dividend tax -1,127.4 -1,127.4 -1,734.5 -1,734.5 PAT before MI 10,339.7 -11,373.5 8,576.6 10,585.7 Inc/(dec) in Sec. premium 1,270.6 -2,360.2 0.0 0.0 Growth (%) 11.8 PL LP 23.4 Others 2,747.5 1,732.6 3,020.7 3,020.7 Minorities, Associates, etc -4040.9 -4272.3 -4717.6 -4647.5 CF from financing activities 9,769.7 -4,569.1 2,286.2 286.2 PAT after MI 6,298.8 -15,645.8 3,859.0 5,938.2 Net Cash flow 7,648.0 -1,987.8 1,098.2 524.9 Growth (%) 3.9 PL LP 53.9 Opening Cash 36.1 7,684.1 5,696.3 6,794.6 Adjusted PAT after MI 6,465.6 5,872.6 3,859.0 5,938.2 Closing Cash 7,684.1 5,696.3 6,794.6 7,319.5 Growth (%) 4.0 -9.2 LP 53.9 Source: Company, ICICIdirect.com Research Adj EPS (|) 21.8 19.8 13.0 20.0

Source: Company, ICICIdirect.com Research

Balance sheet (| crore) Key ratios (Year-end March) FY14 FY15 FY16E FY17E (Year-end March) FY14 FY15 FY16E FY17E Liabilities Per share data (|) Equity Capital 296.5 296.5 296.5 296.5 Adj EPS 21.8 19.8 13.0 20.0 Reserve and Surplus 72,712.2 53,578.8 55,703.3 59,907.0 Cash EPS 45.0 44.0 35.7 43.6 Total Shareholders funds 73,008.7 53,875.3 55,999.8 60,203.5 BV 246.2 181.7 188.9 203.0 Total Debt 80,566.0 77,752.0 78,752.0 77,752.0 DPS 3.3 3.3 5.0 5.0 Deferred Tax Liability 2,760.4 3,331.4 3,331.4 3,331.4 Cash Per Share 25.9 19.2 22.9 24.7 Minority Interest / Others 33,797.4 35,530.0 38,550.7 41,571.4 Operating Ratios (%) Total Liabilities 190,132.6 170,488.7 176,633.9 182,858.3 EBITDA Margin 30.8 29.9 25.2 27.3 PBT / Total Operating income 15.8 15.7 13.0 16.0 Assets PAT Margin 9.8 8.0 5.3 7.4 Gross Block 102,074.0 112,274.0 121,774.0 132,774.0 Inventory days 50.2 50.0 55.0 55.0 Less: Acc Depreciation 24,768.3 31,927.5 38,656.4 45,656.4 Debtor days 25.8 30.0 25.0 25.0 Net Block 77,305.7 80,346.6 83,117.7 87,117.6 Creditor days 103.2 105.0 100.0 100.0 Capital WIP 20,149.0 10,720.0 5,720.0 720.0 Return Ratios (%) Total Fixed Assets 97,454.7 91,066.6 88,837.7 87,837.6 RoE 8.9 10.9 6.9 9.9 Goodwill 39,238.3 17,789.3 17,789.3 17,789.3 RoCE 8.8 11.3 8.5 10.8 Investments 37,701.0 39,392.7 45,892.7 52,392.7 RoIC 9.2 11.8 9.0 11.4 Inventory 9,033.8 8,725.0 10,828.9 12,067.5 Valuation Ratios (x) Debtors 4,653.7 3,605.1 4,922.2 5,485.2 P/E 4.8 5.3 8.1 5.2 Loans and Advances 17,214.6 21,231.2 22,231.2 23,231.2 EV / EBITDA 4.9 4.5 5.3 4.1 Other Current Assets 1,163.2 3,171.5 3,321.5 3,471.5 EV / Net Sales 1.5 1.4 1.3 1.1 Cash 7,684.1 5,696.3 6,794.6 7,319.5 Market Cap / Sales 0.5 0.4 0.4 0.4 Total Current Assets 39,749.5 42,429.1 48,098.3 51,574.9 Price to Book Value 0.4 0.6 0.6 0.5 Creditors 18,583.6 16,393.8 19,688.9 21,941.0 Solvency Ratios Provisions 5,427.3 3,795.1 4,295.1 4,795.1 Debt/EBITDA 4.0 3.5 4.3 3.5 Total Current Liabilities 24,010.9 20,188.9 23,984.0 26,736.1 Debt / Equity 1.1 1.4 1.4 1.3 Net Current Assets 15,738.6 22,240.2 24,114.3 24,838.8 Current Ratio 1.7 2.1 2.0 1.9 Others Assets 0.0 0.0 0.0 0.0 Source: Company, ICICIdirect.com Research Application of Funds 190,132.6 170,488.7 176,633.9 182,858.3 Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 10

ICICIdirect.com coverage universe (Metals & Mining) CMP M Cap EPS (|) P/E (x) EV/EBITDA (x) ROCE(%) ROE(%) Company (|) TP (|) Rating (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Coal India 360 425 Buy 227389 21.7 23.7 28.7 15.6 14.3 11.8 9.9 8.2 6.5 34.0 36.5 40.8 35.7 39.9 43.4 Hindalco Industries 85 85 Hold 17635 13.5 3.4 9.2 6.1 24.0 9.0 7.9 8.9 6.9 5.0 3.8 5.3 2.2 1.8 4.7 Hindustan Zinc 157 170 Hold 66459 19.4 18.4 18.9 8.3 8.7 8.5 5.0 4.9 4.4 15.6 13.1 12.3 18.9 16.2 15.2 JSW Steel 909 950 Hold 21968 76.3 38.8 78.8 11.9 23.3 11.5 5.8 7.4 5.9 10.3 7.4 9.5 8.0 3.9 7.5 NMDC 98 100 Hold 38738 16.2 10.1 11.0 6.1 9.7 8.9 2.6 4.9 5.3 23.6 12.9 14.1 19.9 12.0 12.4 SAIL 56 55 Hold 23131 5.1 1.1 5.2 9.3 44.2 9.0 10.1 11.6 5.9 4.0 2.6 5.8 4.9 1.0 4.9 Vedanta 105 100 Hold 31088 19.8 13.0 20.0 5.3 8.1 5.3 4.5 5.3 4.2 11.3 8.5 10.8 10.9 6.9 9.9

Tata Steel 240 260 Hold 23314 NM 20.0 23.0 NM 12.0 10.4 7.5 7.8 6.3 5.8 5.3 6.9 0.0 5.6 6.3 Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 11

RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]

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