Result Update May 4, 2015

Rating matrix Rating : Hold Vedanta Ltd (SESGOA) | 211 Target : | 200 Target Period : 12 months Potential Upside : -5% Muted performance….

• Vedanta Ltd (erstwhile Sesa Sterlite) reported a subdued set of What’s Changed? Q4FY15 numbers wherein the topline and EBITDA came in notably Target Changed from | 194 to | 200 EPS FY16E Changed from | 20.3 to | 22.5 lower than our expectations EPS FY17E Changed from | 23.7 to | 27.9 • The topline for the quarter came in at | 17804.6 crore, down 12.2% Rating Unchanged YoY and 7.4% QoQ and below our estimate of | 18354.2 crore

• The EBITDA came in at | 4014.0 crore (EBITDA margin 22.5%), down Quarterly Performance 19.5% YoY and 34.7% QoQ (our estimate: | 5443.3 crore) Q4FY15 Q4FY14 YoY (%) Q3FY15 QoQ (%) • For Q4FY15, the company reported a loss due to exceptional items. Revenue 17,804.6 19,523.0 -8.8 19,549.4 -8.9 Exceptional items in the quarter include a one-time non cash EBITDA 4,014.0 6,490.3 -38.2 6,326.9 -36.6 impairment charge of | 19956 crore largely relating to the EBITDA (%) 22.5 33.2 -1070 bps 32.4 -982 bps acquisition goodwill and the Sri Lanka block on account of a steep Adj PAT 491.4 1,868.6 -73.7 1,619.3 -69.7 fall in crude oil prices

• Reported net loss (after exceptional item) stood at | 19228 crore Key Financials while adjusted PAT (before exceptional item) stood at | 491.4 crore (|Crore) FY14 FY15E FY16E FY17E Net Sales 65733 73364 79630 84134 • Along with the subdued performance from Cairn India (oil & gas EBITDA (Core) 20360 22045 22451 23453 division), muted volume of Zinc International and one-off Adj Net Profit (Attrib) 6466 5060 6660 8258 provisioning in the power business further dented the company’s EPS (|) 21.8 17.1 22.5 27.9 financial performance z Zinc business - feather in the cap Valuation summary The company’s domestic zinc business (), on a sustainable FY14 FY15E FY16E FY17E basis, reported a robust performance with healthy EBITDA margins, PE (x) 9.8 12.5 9.5 7.6 Target PE (x) 9.2 11.7 8.9 7.2 thereby generating good cash flows for the group. With well charted EV/EBITDA (x) 6.5 6.0 5.5 5.0 growth plans, the Zinc (India) business is expected to deliver robust P/BV (x) 0.9 1.2 1.1 1.0 performances for the group, going forward. RoNW (%) 8.9 9.4 11.2 12.4 Cairn India reduces FY16 capex on lower crude oil prices RoCE (%) 8.8 11.3 11.4 11.7 In the current scenario of low crude oil prices, the company has changed

its capex strategy and reduced its planned capex for FY16E from US$1.2 Stock data billion to US$500 million. The company will now focus on its core MBA Particular Amount fields that are profitable at lower crude oil prices. It has allocated 45% of Market Capitalisation | 63155 Crore Debt (FY15) (Actual - A) | 77752 Crore the total capex to the core MBA field with focus on Mangala Polymer EOR Cash, Liquid Invests (FY15) (A) | 46212 Crore and MBA infill drilling. It has allocated 40% to growth projects with focus EV | 94695 Crore on Mangala & Aishwariya fields and on the new gas terminal and pipeline, 52 week H/L 318/178 which has been approved by the management committee. The Equity capital | 296.5 Crore exploration allocation, which is nearly 30% of FY15E capex has been Face value | 1 reduced to 15% i.e. US$75 million mainly due to low crude oil prices. The projects that have been deferred in light of lower crude oil prices include Price performance (%) satellite fields, Mangala Processing Terminal upgrade, Return % 1M3M6M12MBhagyam/Aishwariya polymer and Rajasthan exploration drilling. Hindustan Zinc 4.5 -3.2 -1.2 31.4 Sesa-Sterlite 10.7 3.9 -18.0 13.2 Disappointing performance from oil & gas, Zinc International… Hindalco Ind -0.3 -7.9 -21.4 -4.2 For the quarter, Vedanta reported a muted performance on account of the

subdued performance from Zinc International and Cairn India. However, Research Analyst we were positively surprised by the aluminium business wherein QoQ, Dewang Sanghavi cost of production (CoP) declined ~10% in Balco and ~3% in [email protected] Jharsuguda. Reduced capex across the group provides support to higher free cash flow generation, which augurs well for the company. 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. We have valued the company using SOTP valuation and arrived at a target price of | 200. We have a HOLD rating on the stock.

ICICI Securities Ltd | Retail Equity Research

Variance analysis Q4FY15 Q4FY15E Q4FY14 YoY (%) Q3FY15 QoQ (%) Comments The topline came in below expectations primarily on the back Revenue 17,804.6 18,237.8 19,523.0 -8.8 19,549.4 -8.9 of subdued sales volume of Zinc International Other Income 41.1 998.0 389.9 -89.4 686.1 -94.0 Raw Material Expense 6,192.8 6,350.5 7,325.9 -15.5 6,646.2 -6.8 Employee Expense 812.1 689.4 796.9 1.9 728.8 11.4 Power & Fuel 2,134.6 2,125.8 1,372.9 55.5 2,110.6 1.1 Other operating Expenses 4,651.2 3,508.9 3,537.0 31.5 3,736.9 24.5

EBITDA came in notably lower than our expectation on account of the muted performance from Cairn India, Zinc EBITDA 4,014.0 5,563.2 6,490.3 -38.2 6,326.9 -36.6 International and one-off provisioning in the power business EBITDA Margin (%) 22.5 30.5 33.2-1070 bps 32.4 -982 bps Depreciation 763.5 2,223.4 2,004.1 -61.9 2,003.3 -61.9 Interest 1,320.8 1,399.8 1,529.8 -13.7 1,471.6 -10.2

The company reported a loss due to exceptional items. Exceptional items during the quarter include a one-time non- cash impairment charge of | 19956 crore largely relating to the Cairn India acquisition goodwill and the Sri Lanka block on account of a steep fall in crude oil prices. Exceptional item Exceptional Item 20,139.6 293.9 -81.8 NM -169.7 NM also includes forex loss during the quarter PBT -18,168.8 2,644.1 3,428.1 -630.0 3,707.8 3,557.7 Tax Outgo 549.4 587.6 -138.5 -496.5 560.1 -1.9 PAT -18,718.1 2,056.5 3,566.6 -624.8 3,147.7 -694.7 PAT was notably impacted by exceptional item Attributable PAT 513.8 808.9 1,698.0 -69.7 1,528.5 -66.4 Adj Attributable PAT -19,232.0 1,247.6 1,868.6 -1,129.2 1,619.3 -1,287.7 Key Metrics HZL, Zinc Sales (tonne) 223,000 216,000 184,000 21.2 193,000 15.5 Zinc (India) volume came in higher than estimate HZL, Lead Sales (tonne) 37,000 32,000 37,000 0.0 30,000 23.3 Lead (India) volume came in higher than estimate Zinc International volumes came in notably lower than Zinc Int, Metal Production (tonne) 69,000 80,000 83,000 -16.9 80,000 -13.8 estimate

Copper Production (tonne) 97,000 99,000 98,000 -1.0 99,000 -2.0 Copper volumes came in broadly in line with estimates

Aluminium Production (tonne) 229,000 224,000 200,000 14.5 224,000 2.2 Aluminium volumes came in marginally lower than estimate

Eletricity Sales (million units) 2,547 2,660 2,093 21.7 2,663 -4.4 Electricity volumes came in marginally lower than estimate

Source: Company, ICICIdirect.com Research

Change in estimates FY16E FY17E (| Crore) Old New % Change Old New % Change Comments Revenue 84707 80,010 -5.5 85,850 84,552 -1.5 Marginally downward revised revenue estimates EBITDA 23381 22,451 -4.0 23,977 23,453 -2.2 Marginally downward revised revenue estimates EBITDA Margin (%) 27.6 28.1 50 bps 27.9 27.7 (20) bps Upward revised PAT estimates on higher Zinc and Lead prices and lower CoP for PAT 6028 6,660 10.5 7,034 8,258 17.4 Aluminium Business EPS (|) 20.3 22.5 10.5 23.7 27.9 17.4

Source: Company, ICICIdirect.com Research

Assumptions Current Earlier Comments FY16E FY17E FY16E FY17E HZL, Zinc Sales (tonne) 760246 779793 760246 779793 Maintained estimates HZL, Lead Sales (tonne) 129500 133200 129500 133200 Maintained estimates Silver sales(kgs) 362600 372960 362600 372960 Maintained estimates Copper Production (tonne) 344250 372600 344250 372600 Maintained estimates Aluminium Production (tonne) 900000 962500 800000 862500 Upward revised estimates Eletricity Sales (million units) 14338 15316 14338 15316 Maintained estimates LME Zinc (US$/tonne) 2250 2300 2200 2225 Upward revised estimates LME Lead (US$/tonne) 2000 2050 1950 2000 Upward revised estimates LME Aluminium (US$/tonne) 2000 2050 2000 2100 Maintained estimates LME Copper (US$/tonne) 6000 6500 6796 6728 Revised downward USD:INR 60.0 60.0 60.0 60.0 Maintained estimates

Source: Company, ICICIdirect.com Research

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Company Analysis Hindustan Zinc (HZL) • During the quarter, zinc metal CoP before royalty stood at | 50831/tonne (US$ 820/tonne), down 8% YoY (in US$ terms). The YoY decline in cost was due to higher production volume, lower diesel cost and higher acid credits, partly offset by higher landed coal cost and increased employee expenses on account of long-term wage agreement signed in mid-year. For FY15, net zinc metal cost per tonne before royalty was | 53,228/tonne (US$870/tonne) compared to | 50,654/tonne (US$837/tonne) in the previous year. The increase was primarily on account of long term wage agreement and higher landed coal cost, partly offset by higher acid realisation and lower diesel cost

• In FY16, mined metal production is expected to be higher from FY15 while integrated refined metal production, including silver, will be significantly higher as HZL will also process the available mined metal inventory

• For FY16, the management has guided at capex to the tune of | 1400 crore (~US$200-225 million). The quarterly run rate of employee expense and depreciation is likely to be ~| 210-220 crore and ~| 175 crore, respectively. The management has guided for a mined metal production of 1 MT for FY16E

• The cash and cash equivalents increased 6% from the end of Q3FY15 and 21% from a year ago. As on March 31, 2015, cash and cash equivalents were | 30,785 crore, out of which | 23,333 crore was invested in mutual funds, | 3,921crore in bonds and | 3,502 crore in fixed deposits. The company follows a conservative investment policy and invests in high quality debt instruments

• Pursuant to the introduction of “The Mines and Mineral (Development and Regulation) Amendment Act, 2015”, effective January 12, 2015 the company has created additional provision amounting to | 120 crore in the quarter based on management estimates. The amount is calculated on the basis of 35% royalty with effect from January 12, 2015 wherein DMF is 33% and NMET is 2% of royalty. The notification for DMF contribution under the MMDR Act is still awaited Exhibit 1: Zinc sales & realisation trend Exhibit 2: Lead sales & realisation trend

1,000,000 200,000 135,000 160,000 800,000 130,000 140,000 150,000 125,000 120,000 600,000 100,000 100,000 120,000 80,000 tonne tonne |/tonne 400,000 |/tonne 115,000 133,200 60,000 129,500 779,793 760,246 750,000 737,614 127,188

674,500 50,000 200,000 40,000 110,000 121,500

117,500 20,000 - - 105,000 - FY13 FY14 FY15E FY16E FY17E FY13 FY14 FY15E FY16E FY17E Zinc Sales Zinc Realizations Lead Sales Lead Realizations

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

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Cairn India ƒ Commencement of three major development projects in Rajasthan including the first polymer injection at Mangala field under the EOR programme ƒ Aishwariya production volume was enhanced to 30,000 boepd as per the approval ƒ The RE-6 exploration well was drilled and completed within the RE block resulting in a new commercial discovery with an estimated production of ~4000 bopd ƒ Gas development continues to remain on track with work on execution planning ongoing. The capacity of the planned gas infrastructure considers 1-3 tcf gas resource base expected to be found through the ongoing exploration programme ƒ Target to double gas production through existing gas pipeline ƒ Average price realisation for Rajasthan block during the fiscal was US$76.4 per barrel, with an implied 10.6% discount to dated Brent ƒ The overall operating expense of Rajasthan block stood at US$5.8 per barrel ƒ The Ravva field reported a production increase of 431% YoY crossing the 30,000 bopd mark for the first time in 3.5 years driven by 4d seismic, infill drilling and RE-6 discovery ƒ The Cambay field reported 8% YoY production growth in FY15 as the company continues to optimise efforts to enhance production ƒ The Sri Lankan asset has been declared commercially unviable and the company has written it off as an exceptional item in the current quarter ƒ The South African government wants to renegotiate the fiscal terms, which may be a concern for the company, going forward. The company has changed the method of depreciation from straight line to unit of production method

Exhibit 3: Gross oil & gas production from Rajasthan fields (boepd)

220000

200000 190881 180010 186359 181483183164 173517175478 163262 174206175144 176666 180000 169390 173832

160000 boepd 140000

120000

100000 FY13 FY14 FY15E FY16E FY17E Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

Source: Company, ICICIdirect.com Research

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Exhibit 4: Net crude oil & gas production (boepd) trend

150000 142797 140830 136701 132664 137094137907 140000 132929 133179 132088 132862 123178 132097 127831 130000

boepd 120000

110000

100000 FY13 FY14 FY15E FY16E FY17E Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

Source: Company, ICICIdirect.com Research

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Zinc International

• For the quarter, zinc international reported subdued volumes and higher than expected CoP. Production volumes for the quarter stood at 69000 tonnes, notably lower than our expectation of 85000 tonnes. Volumes were impacted due to fire related disruption in Skorpion during January 2015 and muted volume from Lisheen • Lower volumes couple with higher stripping ratio (in Skorpion mines) resulted in a 10% increase in CoP to US$1505/tonne • The 250 KT Gamsberg mine and 150 KT Skorpion zinc refinery conversion as integrated zinc project have been approved by the company. The company is planning for mine life extension of Skorpion from FY17 to FY19 • The is expected to end in Q2FY16. The management has guided for 220-230 KT of volumes with CoP in the range of US$1450-1500/tonne in FY16

Aluminium business • On a QoQ basis, CoP declined ~10% in Balco and ~3% in Jharsuguda. Subsequently, the EBITDA for the aluminium segment stood at | 650 crore • The company has guided for 1 MT of production in FY16 with CoP of US$1650-1700/tonne. Going forward, the company expects coal costs to decline due to falling international coal prices • The company has indicated an FY16 exit capacity of 1.7 million tonnes per annum (MTPA) of aluminium (Balco and Jharsuguda combined) and 2 MT of alumina • A softening trend was witnessed in aluminium premiums and the management expects the softening trend to continue for one more quarter. Laterite mine and Chotia coal block is likely to commence production in FY16 • The management expects a decline in bauxite cost in FY16 on account of expected auctions post the MMDR Act Copper business • The company has guided for a Tc/Rc of 24 cents/lb in FY16 • The Australian mining operations remained under care and maintenance while the management is undertaking drilling and exploration at newly identified ore bodies to enable re-opening after FY16

Iron ore segment (erstwhile Sesa Goa)

• The company has recommenced mining at a run-rate of 2.3 MTPA in February 2015. While Karnataka mine life now stands at 2032, Goa mine life is now valid till 2027 • For Goan operations, the company has received allocation of interim capacity of 5.5 MTPA of saleable ore and is expected to commence operations post monsoon • The government has cut the export duty on low-grade iron ore (which have Fe content upto 58%) to 10% from 30% earlier. The new duty structure will be applicable from June 1. This is a positive development for miners in Goa as about 90% of the Goan output is of lower-grade ore. Being the largest producer in Goa, Vedanta Ltd (erstwhile Sesa Sterlite) would be the biggest beneficiary

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Energy business • For the quarter, the power business reported an EBITDA of | 21 crore. EBITDA for the quarter was impacted largely due to | 270 crore power dispute related provisioning made during the quarter • The company is going to commence supplying power to the 1.25 MTPA Jharsuguda smelter from May 2015 • Talwandi Sabo (TSPL) produced 690 MU in FY15 including trial production. Unit II and III are expected to start in H1FY16. The management expects a margin of around | 1 per unit in the near term from TSPL

Exhibit: 5 Debt profile (| crore) 31th December 2014 31st March 2015 Company Debt Cash & LI Net Debt Debt Cash & LI Net Debt Sesa Sterlite Standalone 38,480 693 37,787 37,636 840 36,796 Zinc India - 26,355 (26,355) - 27,192 (27,192) Zinc International - 1,398 (1,398) - 857 (857) Cairn India 158 18,079 (17,921) - 17,040 (17,040) BALCO 5,508 2 5,506 5,456 2 5,454 Talwandi Sabo 6,343 20 6,323 6,541 152 6,389 Cairn acquisition SPV 27,145 116 27,029 26,850 54 26,796 Others 1,462 143 1,319 1,269 75 1,194 Sesa Sterlite Consolidated 79,096 46,806 32,290 77,752 46,212 31,540 Source: Company

The company has increased dividend by 26% to | 4.1/share for FY15. The management has indicated a strategy towards possible higher dividend in future.

The revised capex guidance given by the company stands at US$1 billion, which is 50% lower than the original guidance while US$500 million would be the capex for Cairn India. The Gamsberg project capex has been re-phased from US$250 million to US$80 million in FY16.

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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 6: LME zinc prices & inventory levels

2750 1400000 2500 1200000

On a quarterly average basis, in Q4FY15, zinc prices were up 2250 1000000 2,6% YoY but down 7.0% QoQ at US$2079/tonne. Zinc price 2000 800000 as of April 13, 2015 was US$2200/tonne 1750 600000 (In tonne) (In (In US$/tonne)(In 1500 400000 1250 200000 1000 0 Jul-14 Jul-12 Oct-13 Oct-11 Apr-14 Apr-12 Feb-15 Feb-13 Jan-14 Jan-12 Sep-14 Sep-12 Dec-14 Dec-12 Mar-11 Aug-13 Aug-11 May-13 May-11 Inventory Prices

Source: Bloomberg, ICICIdirect.com Research Exhibit 7: LME lead prices & inventory levels

2600 500000 2400 400000 2200 On a quarterly average basis, in Q4FY15, lead prices were 2000 300000 lower by 13.9% YoY and 9.5% QoQ at US$1810/tonne. Lead 1800

price as of April 13, 2015 was US$1985/tonne 1600 200000 tonne) (In (In US$/tonne)(In 1400 100000 1200 1000 0 Jul-13 Oct-13 Feb-13 Feb-15 Jan-12 Jun-12 Jun-14 Sep-12 Sep-14 Dec-13 Nov-12 Nov-14 Mar-12 Mar-14 May-13 Inventory Price

Source: Bloomberg, ICICIdirect.com Research Exhibit 8: LME aluminium prices & inventory levels

2400 6000000

2200 5000000 2000 On a quarterly average basis, in Q4FY15, aluminium prices 4000000 were down 8.5% QoQ but up 5.4% YoY at US$ 1801/tonne 1800 3000000 1600

2000000 US$/tonne)(In

(In tonne) (In 1400 1200 1000000 1000 0 Jul-12 Jul-13 Oct-12 Apr-12 Apr-13 Feb-15 Jan-12 Jan-13 Jun-14 Sep-14 Sep-13 Dec-14 Dec-13 Mar-14 Inventory Price

Source: Bloomberg, ICICIdirect.com Research

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Outlook and valuation For the quarter, Vedanta reported a muted performance on account of the subdued performance from Zinc International and Cairn India. However, we were positively surprised by the aluminium business wherein on a QoQ basis, cost of production (CoP) declined ~10% in Balco and ~3% in Jharsuguda. Reduced capex across the group provides support to higher free cash flow generation, which augurs well for the company. 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. We have valued the company using SOTP valuation and arrived at a target price of | 200. We have a HOLD rating on the stock.

Exhibit 9: SOTP valuation EBITDA Vauation Implied Attributable Equity Company (FY17E) parameter Multiple EV Equity Value SIIL Stake Value Value per Share Hindustan Zinc 6980 EV/EBITDA 5.5 38391 77310 64.9 40139 135 Zinc International 974 EV/EBITDA 5.5 5357 9563 100.0 9563 32 Sterlite Standalone 1844 EV/EBITDA 5.5 10140 6398 100.0 6398 22 BALCO 937 EV/EBITDA 5.5 5152 2648 51.0 1080 4 VAL 3484 EV/EBITDA 5.5 19163 1586 100.0 1586 5 Sesa Goa 604 EV/EBITDA 5.5 3323 -726 100.0 -726 -2 Cairn India DCF 42222 59.9 20233 68

Cairn India Acquisition Debt -26796 -26796 -90

Others 27 SOTP Target Price 200 Source: ICICIdirect.com Research Balco's EBITDA also includes the contribution from 270+1200 MW Power plant,; accounted under SEL by the company Acquisition debt of Cairn India (US$ 5.1 Billion) 20% Holding company discount is given for Hindustan Zinc, Cairn India and BALCO Others inclues SEL , Talwandi Sabo, MALCO

Exhibit 10: 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 9.8 6.5 0.9 8.9 8.8 FY15E 73364.1 11.6 17.1 -21.7 12.5 6.0 1.2 9.4 11.3 FY16E 79630.0 8.5 22.5 31.6 9.5 5.5 1.1 11.2 11.4 FY17E 84133.9 5.7 27.9 24.0 7.6 5.0 1.0 12.4 11.7 Source: Company, ICICIdirect.com Research FY13P numbers are of Sesa Goa, FY14 onwards numbers are for the merged entity Sesa-Sterlite

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Company snapshot

500 450 400 350 300 Target Price: | 200 250 200 150 100 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 & 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 & . 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 %) Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 1 PLC 31-Mar-15 45.96 1,362.7 0.0 Promoter 55.0 57.1 59.2 59.5 59.5 2 Finsider International Co., Ltd. 31-Mar-15 13.54 401.5 0.0 FII 18.0 17.5 17.1 17.0 17.4 3 Citibank NA New York S/A Intel Corporation 31-Mar-15 7.46 221.3 221.3 DII 7.5 6.6 5.9 5.9 0.7 4 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar-15 2.36 69.9 0.0 Others 19.6 18.9 17.8 17.6 22.5 5 Templeton Asset Management Ltd. 31-Mar-15 2.36 69.9 0.0 6 Life Insurance Corporation of India 31-Mar-15 1.77 52.4 0.0 7 Shalika (Bhadram Janhit) 31-Mar-15 1.44 42.6 0.0 8 The Vanguard Group, Inc. 31-Mar-15 1.21 35.9 -0.4 9 BlackRock Institutional Trust Company, N.A. 31-Mar-15 0.96 28.4 4.7 10 Dimensional Fund Advisors, L.P. 31-Mar-15 0.74 22.1 1.6

Source: Reuters, ICICIdirect.com Research

Recent Activity Investor name Investor name Investor name Value Shares Investor name Value Shares Citibank NA New York S/A Intel Corporation 673.43m 221.33m Reliance Capital Asset Management Ltd. -7.35m -2.40m BlackRock Institutional Trust Company, N.A. 14.28m 4.69m T. Rowe Price Associates, Inc. -7.30m -1.98m State Street Global Advisors (US) 6.69m 2.20m FIL Investment Management (Hong Kong) Limited -6.74m -1.67m Fidelity Management & Research (Hong Kong) Limited 6.21m 2.04m Sundaram Asset Management Company Limited -4.74m -1.56m Investec Asset Management Ltd. 5.05m 1.66m Canara Robeco Asset Management Company Ltd. -3.71m -1.22m

Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 10

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 79630.0 84133.9 Profit after Tax 6,298.8 -15,645.8 6,660.2 8,258.0 Other Operating Income 419.1 345.4 379.9 417.9 Add: Depreciation 6,882.3 7,159.2 7,066.4 7,082.6 Total operating Income 66,152.4 73,709.5 80,010.0 84,551.8 (Inc)/dec in Current Assets -2,501.6 -4,667.4 -6,273.0 -2,137.1 Growth (%) NM 11.4 8.5 5.7 Inc/(dec) in CL and Provisions 6,716.4 -3,822.0 7,013.5 1,795.6 Total Operating Expenditure 45,792.8 51,665.0 57,559.2 61,098.7 Others -205.2 571.0 0.0 0.0 EBITDA 20,359.7 22,044.6 22,450.8 23,453.1 CF from operating activities 17,190.7 -16,405.0 14,467.1 14,999.0 Growth (%) NM 8.3 1.8 4.5 (Inc)/dec in Investments -11,201.0 -1,691.7 -6,500.0 -6,500.0 Depreciation & Amortization 6,882.3 7,159.2 7,066.4 7,082.6 (Inc)/dec in Fixed Assets -3,873.1 -771.0 -6,000.0 -6,000.0 Interest 5,094.4 5,658.8 5,602.9 5,456.9 Others -4,238.3 21,449.0 0.0 0.0 Other Income 2,073.5 2,366.5 4,430.3 5,198.9 CF from investing activities -19,312.4 18,986.3 -12,500.0 -12,500.0 PBT 10,456.4 11,593.1 14,211.8 16,112.5 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0 Exceptional Items -963.9 -22,128.9 0.0 0.0 Inc/(dec) in loan funds 6,879.0 -2,814.0 -2,000.0 -2,000.0 Total Tax -846.9 1,448.4 2,842.4 3,222.5 Dividend paid & dividend tax -1,127.4 -1,127.4 -1,214.2 -1,214.2 PAT before MI 10,339.7 -11,373.5 11,369.4 12,890.0 Inc/(dec) in Sec. premium 1,270.6 -2,360.2 0.0 0.0 Growth (%) 11.8 PL LP 13.4 Others 2,747.5 1,732.6 3,020.7 3,020.7 Minorities, Associates, etc -4040.9 -4272.3 -4709.2 -4632.0 CF from financing activities 9,769.7 -4,569.1 -193.5 -193.5 PAT after MI 6,298.8 -15,645.8 6,660.2 8,258.0 Net Cash flow 7,648.0 -1,987.8 1,773.7 2,305.6 Growth (%) 3.9 PL LP 24.0 Opening Cash 36.1 7,684.1 5,696.3 7,470.0 Adjusted PAT after MI 6,465.6 5,060.1 6,660.2 8,258.0 Closing Cash 7,684.1 5,696.3 7,470.0 9,775.6 Growth (%) 4.0 -21.7 LP 24.0 Source: Company, ICICIdirect.com Research EPS (|) 21.8 17.1 22.5 27.9

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 EPS 21.8 17.1 22.5 27.9 Reserve and Surplus 72,712.2 53,578.8 59,024.8 66,068.6 Cash EPS 44.5 -28.6 46.3 51.7 Total Shareholders funds 73,008.7 53,875.3 59,321.3 66,365.1 BV 246.2 181.7 200.1 223.8 Total Debt 80,566.0 77,752.0 75,752.0 73,752.0 DPS 3.3 3.3 3.5 3.5 Deferred Tax Liability 2,760.4 3,331.4 3,331.4 3,331.4 Cash Per Share 25.9 19.2 25.2 33.0 Minority Interest / Others 33,797.4 35,530.0 38,550.7 41,571.4 Operating Ratios (%) Total Liabilities 190,132.6 170,488.7 176,955.4 185,020.0 EBITDA Margin 30.8 29.9 28.1 27.7 PBT / Total Operating income 15.8 15.7 17.8 19.1 Assets PAT Margin 9.5 -21.2 8.3 9.8 Gross Block 102,074.0 112,274.0 123,274.0 134,274.0 Inventory days 50.2 50.0 50.0 50.0 Less: Acc Depreciation 24,768.3 31,927.5 38,993.9 46,076.5 Debtor days 25.8 30.0 30.0 30.0 Net Block 77,305.7 80,346.6 84,280.1 88,197.5 Creditor days 103.2 105.0 105.0 105.0 Capital WIP 20,149.0 10,720.0 5,720.0 720.0 Return Ratios (%) Total Fixed Assets 97,454.7 91,066.6 90,000.1 88,917.5 RoE 8.9 9.4 11.2 12.4 Goodwill 39,238.3 17,789.3 17,789.3 17,789.3 RoCE 8.8 11.3 11.4 11.7 Investments 37,701.0 39,392.7 45,892.7 52,392.7 RoIC 9.2 11.8 12.1 12.6 Inventory 9,033.8 8,725.0 10,908.2 11,525.2 Valuation Ratios (x) Debtors 4,653.7 3,605.1 6,544.9 6,915.1 P/E 9.8 12.5 9.5 7.6 Loans and Advances 17,214.6 21,231.2 22,231.2 23,231.2 EV / EBITDA 6.5 6.0 5.5 5.0 Other Current Assets 1,163.2 3,171.5 3,321.5 3,471.5 EV / Net Sales 2.0 1.8 1.6 1.4 Cash 7,684.1 5,696.3 7,470.0 9,775.6 Market Cap / Sales 1.0 0.9 0.8 0.8 Total Current Assets 39,749.5 42,429.1 50,475.8 54,918.5 Price to Book Value 0.9 1.2 1.1 1.0 Creditors 18,583.6 16,393.8 22,907.3 24,202.9 Solvency Ratios Provisions 5,427.3 3,795.1 4,295.1 4,795.1 Debt/EBITDA 4.0 3.5 3.4 3.1 Total Current Liabilities 24,010.9 20,188.9 27,202.4 28,998.0 Debt / Equity 1.1 1.4 1.3 1.1 Net Current Assets 15,738.6 22,240.2 23,273.4 25,920.5 Current Ratio 1.7 2.1 1.9 1.9 Others Assets 0.0 0.0 0.0 0.0 Source: Company, ICICIdirect.com Research Application of Funds 190,132.6 170,488.7 176,955.4 185,020.0 Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 11

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 363 425 Buy 229113 20.7 28.7 35.6 17.6 12.7 10.2 12.7 8.6 6.7 28.9 37.2 39.3 32.7 41.8 44.1 Hindalco Industries 129 142 Hold 26556 12.0 13.9 16.5 10.7 9.3 7.8 8.6 7.6 7.0 4.5 5.4 5.8 5.4 5.8 6.3 Hindustan Zinc 169 183 Hold 71572 16.3 19.4 18.3 10.4 8.8 9.3 6.5 5.4 5.5 16.5 15.6 11.3 18.5 18.9 14.6 JSW Steel 932 1,025 Hold 22533 102.5 90.7 113.4 9.1 10.3 8.2 5.9 6.4 5.9 11.2 9.5 10.1 10.3 8.5 9.7 NMDC 128 125 Hold 50851 16.0 11.2 11.5 8.0 11.4 11.1 4.0 6.8 6.4 23.5 15.8 17.7 19.5 13.5 13.9 SAIL 69 65 Hold 28686 5.9 6.6 8.3 11.7 10.5 8.4 10.8 8.9 7.1 4.8 5.3 6.1 5.6 6.1 7.2 Sesa Sterlite 210 200 Hold 62221 17.1 22.5 27.9 12.3 9.3 7.5 6.0 5.5 5.0 11.3 11.4 11.7 9.4 11.2 12.4 Tata Steel 360 335 Hold 35004 22.5 17.4 24.4 16.0 20.7 14.8 7.5 7.4 6.4 6.5 5.9 6.4 4.9 3.7 5.1 Source: Company, ICICIdirect.com Research *Sesa-Sterlite: FY13 numbers are of Sesa Goa, FY14 onwards numbers are for the merged entity Sesa Sterlite

ICICI Securities Ltd | Retail Equity Research Page 12

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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