BUSINESS Overview Vedanta is an LSE-listed globally diversified metals and mining, oil and gas and power generation company. Its businesses are principally located in India. India is one of the fastest growing large economies in the world with a 7.1% increase in GDP during fiscal 2017 (at constant fiscal 2012 prices), according to the Central Statistical Organisation of the GoI’s Ministry of Statistics and Programme Implementation. In addition, Vedanta has assets and operations in jurisdictions such as Zambia, Namibia, South Africa and UAE and a workforce of 70,000 people worldwide. Vedanta is primarily engaged in oil and gas, zinc, copper, iron ore, aluminium and commercial power generation businesses and is also developing port operation businesses and infrastructure assets. Vedanta has experienced significant growth in recent years through the expansion of projects for its oil and gas, copper, zinc, aluminium and iron ore businesses. Vedanta believes its experience in operating and expanding its businesses in India will allow it to capitalise on attractive growth opportunities arising from India’s large mineral reserves, relatively low cost of operations and large and inexpensive labour and talent pools. The board of directors of Vedanta Limited and Cairn India, on 14 June 2015, announced the merger of Cairn India with Vedanta Limited pursuant to the Scheme. The Scheme was sanctioned by the Mumbai Bench of the National Company Law Tribunal on 23 March 2017 and an in-principle approval was granted by the Ministry of Petroleum and Natural Gas, GoI on 27 March 2017. Consequent to the receipt of all substantive approvals for merger of Cairn India Limited with Vedanta Limited on 27 March 2017, the merger has been accounted for in the fiscal year 2017. Cairn India Limited ceased to be a separate legal entity with effect from 11 April 2017 and Vedanta’s equity interest in Vedanta Limited reduced to 50.1% from 62.9%. As per the terms of the scheme, upon the merger becoming effective, non-controlling i.e. public shareholders of Cairn India Limited received, one equity share in Vedanta Limited of face value Re 1 each and four 7.5% Redeemable Preference Shares in Vedanta Limited with a face value of Rs. 10 each for each equity share held in Cairn India Limited. No shares were issued to Vedanta Limited or any of its subsidiaries for their shareholding in Cairn India Limited. For fiscal years 2015, 2016 and 2017, Vedanta reported total revenue of $12,878,7 million, $10,737.9 million and $11,520.1 million, respectively, and Vedanta EBITDA of $3,741.2 million, $2,336.4 million and $3,191.1 million, respectively. 142 Group Structure The following chart depicts Vedanta’s corporate structure as of 31 March 2017(1). Vedanta owns other subsidiaries that are not material and are not shown in the chart below. (1) Skorpion & Lisheen - 100% 74% BMM 74% Notes: (1) Consequent to the receipt of all substantive approvals for merger of Cairn India Limited with Vedanta Limited on 27 March 2017, the merger has been accounted for in the Fiscal year 2017 as shown in the corporate structure above. Cairn India Limited ceased to be a separate legal entity with effect from 11 April 2017 and Vedanta’s holding in Vedanta Limited became 50.1% which was earlier 62.9%. Competitive Strengths Vedanta believes it has the following competitive strengths: Large, low-cost and diversified asset base A low cost production profile, in the lowest quartile at its major assets, enables Vedanta to generate positive free cash flow even at low commodity prices. Competitive cost base combined with portfolio of large, high quality, diversified assets enables Vedanta to deliver value throughout the commodity cycle. Vedanta is a leading diversified natural resources company with assets primarily located in India. The Company believes that its business comprises of high quality assets of global size and scale. • Zinc: According to Wood Mackenzie, HZL is the second largest zinc miner globally with first quartile cost position. HZL owns six zinc mines of which Rampura Agucha mine is the largest zinc-lead mine globally. HZL assets sit in the first quartile of zinc mine cost curve, as per Wood Mackenzie. Under Zinc International operations, Vedanta operates the Black Mountain Mine and smelter operations in Namibia. It is also developing the Gamsberg mine, which is one of the world’s largest undeveloped zinc deposits. The development of Gamsberg is being done in a modular and flexible manner to maximise value. According to Wood Mackenzie, the Zinc International operations is currently in the second quartile of zinc mines cost curve. 143 • Oil and gas: Vedanta Limited is one of the largest independent oil and gas exploration and production companies in India. Vedanta Limited operates approximately 26% of India’s domestic crude oil production according to the Ministry of Petroleum and Natural Gas statistics as of March 2017. Oil & Gas assets of Vedanta Limited are in the first quartile of cost curve, as per Wood Mackenzie. In fiscal 2017, Vedanta Limited produced approximately gross 184,734 bopd of oil (working interest production of 67.4 mmboe) and gross 31.2 mmscfd of gas (working interest production of 1.9 mmboe). ● Aluminium: Vedanta, through its subsidiaries BALCO and Vedanta Limited, is the largest primary producer of aluminium in India. Vedanta expects to reach an aluminium design capacity of 2,320,000 tpa, for which capex is largely invested. Group is currently in the second quartile of aluuminium cost curve, according to the CRU Aluminium business cost curve. • Copper: Vedanta Limited is one of the only two custom copper smelters in India with highest primary market share by sales volume in India in fiscal 2016, according to ICPCI. According to Wood Mackenzie, the Tuticorin smelter is currently amongst the lowest quartile cost custom smelters in the world benefiting from economies of scale, low labour cost, and a captive power plant. Vedanta’s Copper Zambia assets, includes the underground copper mine at Konkola which, according to Wood Mackenzie, contains one of the world’s highest grade large-scale (defined as containing approximately 1.5 mt of contained copper) copper ore bodies in active production. Vedanta’s Copper Zambia assets is in the fourth quartile of copper mines cost curve, as per Wood Mackenzie. • Iron ore : Vedanta Limited has been the largest exporter of iron ore in the private sector by volume since 2003. In fiscal 2017, iron ore production was 10.9 million dmt and pre ban capacity was 20.5 mtpa. On a 58% Fe cost basis, Vedanta Limited is in the first quartile of cost curve, as per Wood Mackenzie. • Power: Vedanta has a total power portfolio of 9,000 MW, including 3,600 MW of commercial power generation capacity. This includes a new coal-fired power plant at Talwandi Sabo with a design capacity of 1,980 MW. The projects are strategically located with easy access to fuel and water, and are well connected by railways and roads. Vedanta has reduced production and pricing risks with long-term power off-take arrangements with state electricity boards and state-owned utilities. Attractive commodity mix Vedanta’s operations cover a range of attractive commodities with strong fundamentals and this has enabled the Company to deliver strong margins through the commodity cycle. During fiscal year 2017, markets have seen an upturn driven by improved demand and supply side constraints, which has benefited the commodities sector, particularly zinc, and Vedanta expects to see a continuing upward trend going forward. The diversified nature of Vedanta’s portfolio has helped in times of volatility and enabled us to maintain strong margins through the cycle. Vedanta’s commodity mix is well diversified compared to its peers. Commodity mix Peers % Revenue (CY2016) Zinc-Lead-Silver Oil & Gas Aluminium Copper Iron Ore Power Coal Precious Other 144 Source: Company filings Peers include BHP Billiton, Rio Tinto, Anglo American, Glencore, Teck Resources and Freeport All companies have been calendarised to a Dec YE; Glencore revenue split accounts only for their ‘Industrial activities’; Revenues from copper smelting for Vedanta is based on benchmark Tc/Rc Vedanta’s portfolio is weighted towards zinc, with 48.9% of Vedanta EBITDA coming from zinc operations for the fiscal year ended 31 March 2017. Zinc market has strong fundamentals, as global zinc concentrate and refined zinc market remain in deficit. Supply of zinc concentrate continues to be constrained, due to continued closure of mines, the latest being the Century and Vedanta’s Lisheen mines in 2015. Ideally positioned to capitalise on India’s growth and natural resource potential Vedanta is ideally positioned to take advantage of the strength in this market, given the scale, high quality and low-cost nature of its assets. Vedanta believes that its experience in operating and expanding its business in India will allow it to capitalise on attractive growth opportunities arising from factors including: India’s economic growth. India is one of the fastest growing large economies in the world with a 7.1% increase in GDP during fiscal 2017 (at constant (2011-12) prices), according to the Central Statistical Organisation of the GoI’s Ministry of Statistics and Programme Implementation. According to the EIU, India’s GDP per capita is expected to grow at a cumulative average growth rate of 8.3% during the period of 2016 to 2021 from USD 6,550 to USD 9,780. Expected cumulative average growth rate in the urban population is expected to be at the rate of 2.3% during the period of 2016 to 2021 from 33% to 35% of the total population, as per BMI.