Steady performance...

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1 z e svv Result Update Rating matrix Rating : Buy Target : 375 Target Period : 12 months Potential Upside : % What s Changed? Target Unchanged EPS FY18E Changed from 26.7 to 25.3 EPS FY19E Changed from 39.7 to 35.9 EPS FY20E Introduced at 41.0 Rating Unchanged Quarterly Performance Q3FY18 Q3FY YoY (%) Q2FY18 QoQ (%) Revenue 24, , , EBITDA 6, , , EBITDA (%) bps bps Rep.PAT 2,3.0 1, , Key Financials ( Crore) FY FY18E FY19E FY20E Net Sales EBITDA (Core) Adj Net Profit (Attrib) Adj EPS ( ) Valuation summary FY FY18E FY19E FY20E PE (x) Target PE (x) EV/EBITDA (x) P/BV (x) RoNW (%) RoCE (%) Stock data Particular Amount Market Capitalisation 1182 Crore Debt (FY) Crore Cash, Liquid Invests (FY) Crore EV Crore 52 week H/L 356 / 218 Equity capital 372 Crore Face value 1 Price performance (%) Return % 1M 3M 6M 12M Hindustan Zinc Vedanta Hindalco Ind Research Analyst Dewang Sanghavi dewang.sanghavi@icicisecurities.com Akshay Kadam akshay.kadam@icicisecurities.com Steady performance... February 6, 2018 Vedanta Ltd (VEDLIM) 322 The consolidated topline stood at crore (up 25.5% YoY, 12.8% QoQ, our estimate: crore) EBITDA for the quarter came in at 6763 crore (up 15% YoY, 19.3% QoQ) as against our estimate of crore. The EBITDA margin came in at 27.8% (vs. our estimate: 29.0%, Q3FY: 30.3% and Q2FY18: 26.3%). The ensuing reported attributable PAT of 23 crore. Management iterates healthy production guidance for Oil & gas... The company is incurring a capex of US$1085 million towards the growth oriented projects. The incremental peak production from these projects is expected at 1 kboepd, wherein the Enhanced Oil Recovery (from Bhagyam and Aishwarya) is likely to be 19 kboepd, Tight Oil & Gas projects in Rajasthan to be 45 kboepd, while other projects (Mangala Infill, Liquid handling upgrade and CB/OS-2 infill) to contribute 53 kboepd. The ultimate recovery is estimated to be ~218 mmboe. The projected IRR generation is over 20% estimated at Brent price of US$40/bbl indicating a positive free cash flow post capex every year. Going forward, the management has guided a production of kboepd for FY18E, kboepd for FY19E and kboepd for FY20E. Zinc vertical to chart growth prospects Vedanta s expansion of zinc mines at both Indian operations [Hindustan Zinc (HZL)] and Zinc International (ZI) operations will be a key growth driver, going forward. At the Indian operations, the company envisages mined metal capacity of 1.2 MT to be achieved by FY20. At ZI, the expansion at the Gamsberg project is likely to be kick-started in mid-cy18 with 100 KT of likely volume in FY19 and further ramped up to 250 kilotonne (KT) by FY20. Within other facilities of ZI, in Skorpion and BMM also, the company plans to reach 0 KTPA in FY18 and 200 KTPA in FY19 and FY20. Overall, for the consolidated ZI operations for FY19, the company expects volume of KT at less than US$1200/tonne CoP. For FY20, Vedanta expects volume of KT at less than US$1100/tonne CoP. Aluminium CoP to moderate in Q4FY18 Aluminium segment reported operational improvement during Q3FY18, the aluminium production stood at 445 kilo tonne (KT) (up 39.5% YoY, 11% QoQ). The profitability was however constrained by higher cost of production on a QoQ basis (CoP: US$1945/tonne), primarily due to increase in power cost on account of coal shortages, high import alumina prices and carbon cost. Going forward, the management has maintained aluminium production guidance of MT (excluding trial runs) for FY18 with a CoP estimate of US$ /tonne for Q4FY18. The CoP is likely to moderate in Q4FY18 with materialisation of coal linkages and elimination of one-off impacts of power imports and revival costs. To benefit from strength in commodity prices, maintain BUY We believe Vedanta would be a key beneficiary of the up-tick in global commodity prices. For 9MFY18, the average prices of zinc, lead, aluminium and copper increased 32%, 22%, 23% and 28% on a YoY basis. We expect the company to report healthy performance over the next couple of years on the back of volume growth and strength in the base metal prices. Furthermore, Vedanta s healthy balance sheet and prudent capital allocation strategy augurs well over a longer term horizon. We value the company using SOTP valuation and arrive at a target price of 375. We maintain our BUY recommendation on the stock. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY18 Q3FY18E Q3FY YoY (%) Q2FY18 QoQ (%) Comments Revenue 24, , , , Revenue came in marginally lower than our estimates Other Income , , Raw Material Expense 8, , , , Employee Expense Power & Fuel 3, , , , Other op. Exp. 4, , , , EBITDA 6, , , , EBITDA came in lower than our estimates EBITDA Margin (%) bps bps EBITDA margin came in lower than our estimates Depreciation 1, , , , Interest 1, , , , Exceptional item (158.0) LP PBT 4, , , , Tax Outgo 1, , PAT 2, , , , Minority Interest & others , , NA Attributable PAT 2,3.0 2, , , Adjusted PAT 2,3.0 2, , , PAT came in lower than our estimates Key Metrics Gross Production (bopd) 184, , , , Net Production (bopd) 1, , , , Rajasthan Production (bopd) 157, , , , HZL, Zinc Sales (tonne) 2,000, , , , HZL, Lead Sales (tonne) 46, , , , Zinc Int, Zinc-lead production (tonne) 47, , , , Copper Production (tonne) 101, , , , Aluminium Production (tonne) 445, , , , Eletricity Sales (million units) 3,4.0 3, , , Change in estimates FY18E FY19E FY20E ( Crore) Old New % Change Old New % Change Introduced Comments Revenue , Downward revised topline estimates for FY18E, upward revised for 105,211.6 FY19E, introduced FY20E Downward revised EBITDA estimates for FY18E and FY19E, EBITDA , ,7.0 introduced FY20E EBITDA Margin (%) bps bps Downward revised EBITDA margin estimates for FY18E and FY19E, 30.1 introduced FY20E PAT , Downward revised PAT estimates for FY18E and FY19E, introduced 15,252.0 FY20E EPS ( ) Assumptions Current Earlier FY18E FY19E FY20E FY18E FY19E HZL, Zinc Sales (tonne) HZL, Lead Sales (tonne) Silver sales(kgs) Copper Production (tonne) Aluminium Production (tonne) Eletricity Sales (million units) LME Zinc (US$/tonne) LME Lead (US$/tonne) LME Aluminium (US$/tonne) LME Copper (US$/tonne) Brent Prices ($/bbl) Comments ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Hindustan Zinc (HZL) Mined metal production during the quarter was up 10% QoQ to ~240 KT on account of higher ore treatment. The YoY decline of 13% was driven by a decline in overall ore grades due to mine mix and lower production from Rampura Agucha open cast mine, even as total ore treated was higher. For the nine-month period (April-December), mine metal production was up ~% YoY to 693 KT on account of higher ore production from underground mines, partly offset by lower open cast mine production For Q3FY18, integrated zinc metal production was at 200 KT (up 4% QoQ, down 3% YoY). Integrated lead metal production was at 46 KT (up 20% QoQ, 18% YoY). Zinc-lead production was in line with availability of mined metal & smelters. Integrated silver production was at 132 tonnes, down 6% QoQ primarily due to accumulation of WIP but up 12% YoY in line with higher lead production For 9MFY18, integrated zinc, lead and silver production was up ~28%, 26% and 24% on a YoY basis, respectively, in line with higher availability of mined metal Capital mine development during the quarter increased 55% YoY and was flat QoQ at 9685 metre across all mines. For 9MFY18, the capital mine development was metre, up 69% YoY Rampura Agucha Mine: Mine development of 5958 metre was achieved during the quarter. The underground mine has crossed ore production of run rate of ~2 MT. The main shaft hoisting system was commissioned during the quarter and is now in operation for waste hoisting. South primary ventilation system is progressing on fast track and is expected to be commissioned by the end of January Off shaft development is on track while production from the shaft is expected to start as per schedule from Q3FY19 Sindesar Khurd: The mine achieved mine development of 4527 meters during the quarter. The mine crossed 4.5 MT run rate for ore production during the quarter. Main shaft equipping is progressing as per schedule and on track for completion in Q4FY18, with production from the shaft expected to start as per schedule in Q3FY19. Civil and structure erection for the new 1.5 MT mill is going on at full swing and is expected to be commissioned in Q2FY19 Zawar mine achieved mine development of 6555 metre during the quarter. Post commissioning of the Zawar mill debottlenecking to 2.7 MT, detailed engineering and site construction work for the new mill of 2 MT has commenced. The new mill is expected to be commissioned in Q3FY19 Kayad and Rajpura Dariba: The Expert Appraisal Committee of MoEF has approved expansion of ore production at Rajpura Dariba from 0.9 MT to 1.08 MT and at Kayad from 1.0 MT to 1.2 MT. This will pave the way for higher production from these mines in the near future Fumer projects at Chanderiya are progressing as per schedule. Civil construction work is 70% complete while the project is on track to get commissioned by mid-fy19 Production guidance for FY18 is reiterated with mined metal to be higher than FY, refined zinc-lead production of ~950 KT, refined silver of 500 tonnes. Zinc CoP for FY18 is projected to be in the range of ~US$ /tonne due to continued increase in commodity prices offsetting benefits of higher volume and cost efficiency measures. The company is on track to achieve 1.2 MT mined metal production capacity by FY20. ICICI Securities Ltd Retail Equity Research Page 3

4 750, , , , , , , , , , ,000 6, , ,550 tonne /tonne tonne During 9MFY18, ~85% of the volumes came from underground mining. The same is likely to reach 100% from Q1FY19 For 9MFY18, cost of production (CoP) of 64079/tonne (US$994/tonne) was up 12% YoY (% in dollar terms) primarily on account of an increase in coal and input commodity prices The management has indicated that by FY20 as hauling activity commences through shafts, the long term CoP is likely to decline to US$800/tonne (from US$ /tonne currently) The company has won bids in coal auctions held recently, which is likely to normalise prices. The management indicated coal contribution from linkages will go up ~20% in Q4FY18 (vs. nil currently) The other income during the quarter was lower primarily on account of smaller corpus and unfavourable treasury rates. The lower corpus was due to special interim dividend payout, reduced customer advances and repayment of all issued commercial paper Depreciation during the quarter increased on account of increased integrated metal production (MIC), capitalisation of mills and some other equipment The management indicated the tax rate for full year FY18 would be ~24% (as witnessed during 9MFY18) The management indicated the company s capacity levels can possibly reach 1.2 MT by FY20 As on December 31, 20, the company s cash and cash equivalents was at 196 crore invested in high quality debt instruments Exhibit 1: Zinc sales & realisation trend Exhibit 2: Lead sales & realisation trend 1,000, , , , ,000 - FY14 FY15 FY FY FY18E FY19E FY20E Zinc Sales Zinc Realizations 250, , , ,000 50, , , , ,000 50,000 - FY14 FY15 FY FY FY18E FY19E FY20E Lead Sales Lead Realizations 200, ,000 0, , , ,000 80,000 60,000 40,000 20,000 - ICICI Securities Ltd Retail Equity Research Page 4

5 Cairn - Oil & Gas For Q3FY18, the gross average production stood at boepd. The Rajasthan production came in at boepd while the offshore production came in at boepd The Rajasthan Q3FY18 waterflood operating cost at US$4.3/boe, the blended cost including EOR stood at US$6.4/boe The production to ramp-up in Q4 as per planned o Of the 15 infill wells at Mangala: 8 wells have been brought online, balance 7 will be online in Q4FY18 o The satellite fields of 8 well campaign has been commenced o RDG phase I has been successfully ramped up to 45mmscfd o The upgradation of liquid handling facilities for 1.2 bn bbls is progressing as per plan o At Cambay, 3 well infill drilling campaign has been commenced in January FY 2018 outlook Rajasthan production expected at 5 kboepd Net capex estimate at US$250 million. o 90% for development including EOR, Tight oil and Tight gas projects o 10% for Exploration and Appraisal Execution of growth projects Enhanced oil recovery Contracts awarded for Bhagyam & Aishwarya EOR Rigs to be mobilised during Q4FY18 Tight Oil & Gas project Contracts awarded for tight oil and gas wells Rigs to be mobilised during Q4FY18 Contracts for RDG tight gas facilities to be awarded in Q4FY18 Exploration Rajasthan prospects identified to drill in FY19, drilling tenders to be awarded in Q4FY18 KG offshore drilling of 2 exploration wells to commence in Q4FY18; contracts has been awarded. OLAP Expression of Interest submitted in prioritised blocks Evaluating opportunities for bid submission ICICI Securities Ltd Retail Equity Research Page 5

6 Zinc International Q3FY18 production stood at 47 kt, the Skorpion production stood at 26 kt (highest in last 6 quarters due to higher blended grades and refinery performance), while the BMM production stood at 21 kt (highest quarterly production in the last 4 years, driven higher grades and plant improvement initiatives). The cost of production (CoP) at US$1383/tonne was lower driven by higher production and targeted improvement projects In terms of projects, for the Skorpion pit 112 extensions. The contractor mining has fully ramped up; 25% of waste stripping completed, full completion by Q4FY19, first ore extraction in Nov was before schedule. The project to extend mine life by further 2.5 years and produce 250 kt metal For FY18, management reiterated production guidance of ~0kt. YTD CoP at US$1495/tonne, the Q4 CoP to be temporarily higher at US$00/tonne due to early production from Pit 112 and currency appreciation Gamsberg project The company has made significant progress at 250kt Gamsberg project. It is on target for first production by mid CY18 with ramp-up to its full capacity in the next 9-12 months. On budget for a capex target of US$400 million. The CoP expected at $ /tonne. 70% or pre stripping completed with record 12.3 MT of waste achieved in the quarter, 500 kt ore stockpile targeted ahead of 1 st feed Construction of concentrator is underway. The ball mill shell and crusher mechanical erection completed. Power and water line infrastructure is 90% completed. Plant cold commissioning to commence in Q1FY19 Aluminium business The alumina and aluminium production during the quarter stood at 287 kt and 445 kt respectively o The current run rate of aluminium ~1.8 mtpa o The aluminium CoP was at US$1945/tonne, higher on a QoQ due to increase in power cost on account of continued coal shortages, high import alumina prices and carbon cost. o The Alumina CoP was at US$327/tonne vs. US$430/tonne for imported alumina 500 kt Jharsuguda I smelter: restart of pots impacted by outage in April 20, currently full ramped up Ramp up at 1.25 mt Jharsuguda II smelter: o 1 st line fully ramped up in Q3FY18 o 2 nd line fully capitalised in Q4FY o 3 rd line 193 pots operational, full ramp up by Q4FY18 o 4 th line under evaluation BALCO I (245 kt) and II (325 kt) fully operational FY18 Outlook Aluminium production MT (excl. trial run). Alumina production at MT for FY18 CoP estimated at US$ /tonne for Q4FY18 due to improved materialisation of coal linkages and elimination of one-off impacts of power imports and revival costs. ICICI Securities Ltd Retail Equity Research Page 6

7 Copper business The production during the quarter stood at 101 kt. Q3 TcRc s at 20.8 c/lb. The net cost of conversion was higher QoQ due to higher input commodity prices. FY18 production guidance maintained at 400 kt, the benchmark TcRc for CY18 at USc 21.3/lb, c.11% lower than CY. For Tuticorin II (400 kt), EPC contract has been awarded site mobilisation and civil work commenced. The contracts for balance construction to be awarded by March-18. The completion is expected by Q3FY20 Iron ore segment (erstwhile Sesa Goa) The production and sales volume for the quarter stood at 1.8 MT and 0.9 MT respectively. Goa commenced production of higher quality ore through beneficiation and blending Karnataka achieved full allocation production in Q3, inventory of 0.5 MT to be sold in Q4 Beneficiation and blending increased realisations from higher quality ore at Goa. Karnataka had string realisations of US$28/tonne in Q3, the company is working towards higher realisations in the domestic market For FY18, production allocation has been 5.5 Million tonnes per annum (Mtpa) for the state of Goa and 2.3 Mtpa for the state of Karnataka. The company has been granted additional allocation in Goa and is expecting to produce higher quality ore of c.2mt in Q4FY18 Mining cap increased from MT for the state of Karnataka, company wise allocation is in progress Power business TSPL 3 x 660 MW Record quarterly plant availability at 97%; 9 months availability at 68% and targeting availability of 75% for CY18 Take or Pay arrangement with input coal pass through and EBITDA margin of 1/unit Other IPPs BALCO 600 MW: Q3 PLF of 43% was higher than Q2 Jharsuguda 600 MW: Low PLF of 5% due to the ash dyke incident and temporary coal shortage Coal Outlook Aluminium CPP Domestic coal supply situation o Lowe realisation of linkage coal in Q3 resulting in higher coal cost o In Jan 18 Coal India announced increase in coal prices across various grades Addressing challenges in coal supply and costs o Working towards improved materialisation of linkages and realisations of backlogs o Restrictions on linkage coal supply for captive power plants removed, better availability expected in Q4 o Total coal linkages secured, 8 MT from Tranche-I and II auctions, 2 MT from Tranche III auction; coal delivery from Tranche III to start Feb 18 o Third party quality control to help offset coal GCV losses ICICI Securities Ltd Retail Equity Research Page 7

8 Other highlights The company continues its focus on balance sheet management and cost optimisation. The term debt reduced by crore during YTDFY18. Improving credit profile lowered the spreads on bank borrowing and competitively priced debt market borrowings led to reduction in average borrowing costs by about ~40bps on term debt portfolio during YTD Dec The company had a strong liquidity with cash and liquid investments of crore and undrawn fund based line of credit of 3800 crore. The gross debt reduced by crore YTDFY18, partially offset by acquisition of AvanStrate Inc, Japan. Exhibit: 5 Debt profile ( crore) Company 30-Sep- 30-Dec- Debt Cash & LI Net Debt Debt Cash & LI Net Debt Vedanta Standalone 38,232 12,375 25,857 36,894 11,897 24,997 Cairn India Holdings Ltd 3,554 6,562 (3,008) 3,480 6,280 (2,800) Zinc India ,986 (19,393) - 19,183 (19,183) Zinc International (705) (778) BALCO 4, ,565 4, ,794 Talwandi Sabo 8, ,761 8, ,813 Twin Star Mauritius Holdings Limited and others , ,452 Vedanta Consolidated 55,798 40,206 15,592 55,218 38,923,295 Source: Company ICICI Securities Ltd Retail Equity Research Page 8

9 Apr-15 Aug-15 Dec-15 Apr- Aug- Dec- Apr- Aug- Dec- (In US$/tonne) (In tonne) Apr-15 Aug-15 Dec-15 Apr- Aug- Dec- Apr- Aug- Dec- (In US$/tonne) (In tonne) Apr-15 Aug-15 Dec-15 Apr- Aug- Dec- Apr- Aug- Dec- (In US$/tonne) (In tonne) Metal pricing trend LME prices of all four major base metals registered an up-tick sequentially. All four base metals witnessed increase in prices QoQ and YoY. Exhibit 6: LME zinc prices & inventory levels 4, ,000 3, ,000 3, , , , , , , , ,000 1, Inventory Prices Source: Bloomberg, ICICIdirect.com Research Exhibit 7: LME lead prices & inventory levels 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1, , , , ,000 50,000 Inventory Price Source: Bloomberg, ICICIdirect.com Research Exhibit 8: LME aluminium prices & inventory levels 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Inventory Price Source: Bloomberg, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 9

10 Outlook and valuation We believe Vedanta would be a key beneficiary of the up-tick in global commodity prices. For 9MFY18, the average prices of zinc, lead, aluminium and copper increased 32%, 22%, 23% and 28% on a YoY basis. We expect the company to report healthy performance over the next couple of years on the back of volume growth and strength in the base metal prices. Furthermore, Vedanta s healthy balance sheet and prudent capital allocation strategy augurs well over a longer term horizon. We value the company using SOTP valuation and arrive at a target price of 375. We maintain our BUY recommendation on the stock. Exhibit 9: Valuation matrix Sales YoY Growth EPS YoY Growth PE EV/EBITDA P/ BV RoNW RoCE ( Crore) (%) ( ) (%) (x) (x) (x) (%) (%) FY FYE FY18E FY19E FY20E ICICI Securities Ltd Retail Equity Research Page 10

11 (%) ( ) Recommendation History vs. Consensus Feb- 15 Apr- 15 May- 15 Jul- 15 Aug- 15 Oct- 15 Nov- 15 Jan- Feb- Apr- Jun- Jul- Sep- Oct- Dec- Jan- Mar- May- Price Idirect target Consensus Target Mean % Consensus with Buy Jun- Aug- Sep- Nov- Dec Feb- 18 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Feb- Mar- Mar- Event As per media sources, Vedanta chalks out plans to invest ~US$10 billion in the next three or four years to expanding business across verticals The National Company Law Tribunal, Mumbai Bench (Tribunal), approves the merger between Vedanta and Cairn India. The company awaits certified copy of the order from the Tribunal. The Board of Directors of Vedanta approves a second interim dividend for FY of.70 per equity. The record date for the purpose of payment of dividend is April 12, 20. Further, the board also approves a dividend of.70 per equity share to shareholders of Cairn India, who will become shareholders of the company pursuant to the scheme of arrangement between Vedanta and Cairn India. The dividend would be paid to Cairn India shareholders as on a record date to be fixed after the scheme becomes effective. The total amount of dividend payout including that to Cairn shareholders is 6,580 crore Apr- Vedanta completes the Cairn India merger effective April 11. It fixes April 27 as the record date for determining the list of Cairn India shareholders to whom equity and preference shares would be allotted under the arrangement. Shareholders of Cairn India will get one equity share of Vedanta with four redeemable preference shares, carrying a coupon of 7.5%. As part of the deal, Cairn India shareholders will receive an interim dividend of.7 per share. Though Cairn India as a legal entity ceases to exist, Vedanta said it will preserve the Cairn brand for the oil & gas production business Crisil upgrades long-term credit rating assigned to Vedanta's debt instruments and preference share issue to Crisil AA with a stable outlook from Crisil AA- May- /Positive earlier. The short-term credit rating of Crisil A1+ was reaffirmed. The rating upgrade reflects better-than-expected operational performance and Crisil's expectation of a meaningful deleveraging of balance sheet with access to Cairn India's cash Vedanta's arm Cairn India Holdings (CIHL) has acquired a controlling stake in Japan-based LCD glass substrate manufacturer AvanStrate Inc (ASI) for US$158 Dec- million. The contours of the deal comprise the acquisition of US$151 million existing debt from banks, acquisition of ~51% stake for a nominal consideration from the Carlyle Group and an extension of US$7 million loan to ASI Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Vedanta Resources PLC 30-Sep , Life Insurance Corporation of India 30-Sep Cairn UK Holdings, Ltd. 30-Sep HDFC Asset Management Co., Ltd. 31-Dec The Vanguard Group, Inc. 31-Dec Aditya Birla Sun Life AMC Limited 30-Sep BlackRock Institutional Trust Company, N.A. 31-Dec PTC Cables Pvt. Ltd. 30-Sep Dimensional Fund Advisors, L.P. 31-Dec UTI Asset Management Co. Ltd. 31-Dec Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Dec- Mar- Jun- Sep- Dec- Promoter FII DII Others Recent Activity Buys Sells Investor Name Value (M) Shares(M) Investor Name Value (M) Shares(M) Vedanta Resources PLC Franklin Templeton Asset Management (India) Pvt. Ltd HDFC Asset Management Co., Ltd Life Insurance Corporation of India Causeway Capital Management LLC Templeton Asset Management Ltd Northern Trust Investments, Inc Principal Global Investors (Equity) Aditya Birla Sun Life AMC Limited Dimensional Fund Advisors, L.P Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 11

12 Financial summary Profit and loss statement ( crore) (Year-end March) FY FY18E FY19E FY20E Net Sales Other Operating Income Total operating Income 72, , , ,211.6 Growth (%) Total Operating Expenditure 50, , , ,494.7 EBITDA 21, ,3.0 29, ,7.0 Growth (%) Depreciation & Amortization 6, , , ,819.6 Interest 5, , , ,137.1 Other Income 4, , , ,503.7 PBT 13,766.0, , ,263.9 Exceptional Items Total Tax 3, , , ,778.1 PAT before MI 9, , , ,485.8 Growth (%) Minorities, Associates, etc PAT after MI 5, , , ,252.0 Growth (%) LP Adjusted PAT after MI 5, , , ,252.0 Growth (%) Adj EPS ( ) Cash flow statement ( crore) (Year-end March) FY FY18E FY19E FY20E Profit after Tax 5, , , ,252.0 Add: Depreciation 6, , , ,819.6 (Inc)/dec in Current Assets 11, , , ,366.2 Inc/(dec) in CL and Provisions 14, , , Others -22, CF from operating activities 15, ,235.0, ,268.3 (Inc)/dec in Investments , (Inc)/dec in Fixed Assets -6, , , ,500.0 Others 9, CF from investing activities 3, , , ,000.0 Issue/(Buy back) of Equity Inc/(dec) in loan funds -6, , , ,000.0 Dividend paid & dividend tax -8, ,4.7-2,4.7-2,4.7 Inc/(dec) in Sec. premium 18, Others -11, CF from financing activities -7, , , ,4.7 Net Cash flow 10, ,7.2 3, ,093.6 Opening Cash 3, , , ,625.1 Closing Cash 14, , , ,718.7 Balance sheet ( crore) (Year-end March) FY FY18E FY19E FY20E Liabilities Equity Capital Reserve and Surplus 60, , , ,602.5 Total Shareholders funds 60, , , ,974.2 Total Debt 71, , , ,069.0 Deferred Tax Liability 2, , , ,333.7 Non-control. Interest, MI & oth 21, , , ,191.0 Total Liabilities 155, , , ,567.9 Assets Gross Block 131, , , ,270.6 Less: Acc Depreciation 44, , , ,865.1 Net Block 86, , , ,405.5 Capital WIP,670.9,670.9,670.9,470.9 Total Fixed Assets 104, , , ,876.4 Investments 46, , , ,449.5 Inventory 9, , ,710.9,295.1 Debtors 3, , , ,647.5 Loans, Adv. & Oth. Cu. assets 13, , , ,555.5 Cash 14, , , ,718.7 Total Current Assets 40, , , ,2.8 Creditors 41, , , ,120.2 Provisions 2, , , ,596.6 Total Current Liabilities 43, , , ,7.8 Net Current Assets -3, , , ,500.0 Others Assets 7, , , ,742.0 Application of Funds 155, , , ,567.9 Key ratios (Year-end March) FY FY18E FY19E FY20E Per share data ( ) Adj EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Net Debt/EBITDA Net Debt / Equity Current Ratio ICICI Securities Ltd Retail Equity Research Page 12

13 ICICIdirect.com coverage universe (Metals & Mining) Company CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) ROCE(%) ROE(%) ( ) TP ( ) Rating ( Cr) FY FY18E FY19E FY FY18E FY19E FY FY18E FY19E FY FY18E FY19E FY FY18E FY19E Coal India Hold Hindalco Buy Hindustan Zinc Buy JSW Steel Buy Vedanta Buy ICICI Securities Ltd Retail Equity Research Page 13

14 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 pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 14

15 ANALYST CERTIFICATION We /I, Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number INH ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. It is confirmed that Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. 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