THIS CO MMENTARY IS P UBLISHED BY FITCH SO LUTIO NS MACRO RESEARCH and is NO T a co mme nt o n Fitch Rating s ' cre dit rating

s . Any
co mme nts o r data include d in the re po rt are s o le ly de rive d fro m Fitch So lutio ns Macro Re s e arch and inde pe nde nt s o urce s . Fitch Rating s '
analys ts do no t s hare data o r info rmatio n with Fitch So lutio ns Macro Re s e arch.

Global Company Strategy - Vedanta Resources - Q2 2018

0 2 Apr 20 18 Glo bal Bauxite - Mining

SWO T ANALYSIS

Streng ths Wo rld-clas s dive rs ifie d po rtfo lio o f larg e , s tructurally lo w-co s t as s e ts with mine s with lo ng e vity. De live re d co ns is te ntly s tro ng EBITDA marg ins
ave rag ing abo ut 30 % o ve r the pas t de cade .

Wo rld's larg e s t inte g rate d z inc and le ad pro duce r, fo llo wing acquis itio ns o f Ang lo Ame rican's Sko rpio n Z inc and Black Mo untain mine s in 20 10 .
Co ppe r mine s in Z ambia have hig h g rade co ppe r de po s its with s tro ng po te ntial fo r furthe r de ve lo pme nt.

Weaknes s es Ne t de bt lo ads re main hig h, incre as ing to USD9 .0 bn o ve r the firs t s ix mo nths o f 20 17
India-s pe cific is s ue s including e nviro nme ntal pro te s ts and the crackdo wn o n ille g al mining activitie s will co ntinue to hinde r mining o pe ratio ns .

Opportunities P o s itive re fo rms anno unce d by Indian P rime Minis te r Nare ndra Mo di will he lp lift do me s tic de mand fo r me tals in India in the co ming ye ars .
O pe ratio ns in Africa are ce nte re d o n Z ambia and Namibia; two co untrie s which we hig hlig ht as having s o me o f the be s t bus ine s s e nviro nme nts o n
the co ntine nt.
We fo re cas t Z inc and co ppe r, two o f the co mpany's ke y co mmo dity bas e s , to pe rfo rm we ll in the co ming ye ars .

Threats Gro wing s o cial pro te s ts ag ains t mining pro je cts in India co uld turn vio le nt and affe ct the mining indus try and halt o pe ratio ns .
Ambitio us inve s tme nt pro g ramme co uld backfire if co mmo dity price s do no t ho ld up as e xpe cte d in the co ming quarte rs .

SELECT CO MMO DIT IES - P RICE FO RECAST S

Indicat o r 2016e 2017e 2018f 2019f 2020f 2021f

Co ppe r P rice , Thre e -mo nth, USD/to nne , ave 4,8 70 .0 6 ,20 0 .0 7,0 0 0 .0 7,10 0 .0 7,20 0 .0 7,250 .0
Co ppe r price , thre e -mo nth, ave , % y-o -y -11.3 27.3 12.9 1.4 1.4 0 .7
Nicke l price , ave , % y-o -y -18 .8 8 .5 19 .4 4.0 1.9 1.9
Nicke l P rice , USD/to nne , ave 9 ,6 47 10 ,46 9 12,50 0 13,0 0 0 13,250 13,50 0
Le ad P rice , USD/to nne , ave 1,8 75 2,325 2,50 0 2,450 2,450 2,50 0
Le ad price , ave , % y-o -y 4.5 24.0 7.5 -2.0 0 .0 2.0
Z inc P rice , USD/to nne , ave 2,10 1 2,8 9 0 3,10 0 3,150 3,10 0 3,0 50
Z inc price , ave , % y-o -y 8 .4 37.6 7.3 1.6 -1.6 -1.6
Iro n O re P rice , USD/to nne , ave 58 .0 70 .6 55.0 48 .0 46 .0 44.0
Iro n o re price , ave , % y-o -y 4.4 21.7 -22.1 -12.7 -4.2 -4.3

A R R A Y ( 0 x 1 6 e d fa 8 8 )

Company Overview
Vedanta Res ources is a g lobally divers ified natural res ources g roup with wide-rang ing interes ts in zinc, lead, s ilver, copper, iron ore, aluminium, power and
oil and g as . The company, headquartered in London, UK, is the larg es t mining and non-ferrous metals company in India, with operations in India, Z ambia,
Namibia, South Africa, Liberia, Ireland and Aus tralia. Among a s eries of inves tments , the company attained a s ig nificant s take in the iron ore bus ines s
throug h its acquis ition of Ses a Goa in 2007. In February 2012 Vedanta announced the cons olidation and s implification of its g roup s tructure, including a
merg er of Ses a Goa and Sterlite Indus tries to form Ses a Sterlite Limited.

This re po rt fro m Fitch So lutio ns Macro Re s e arch is a pro duct o f Fitch So lutio ns Gro up Ltd, UK Co mpany re g is tratio n numbe r 0 8 78 9 9 39
( 'FSG') . FSG is an affiliate o f Fitch Rating s Inc. ( 'Fitch Rating s ') . FSG is s o le ly re s po ns ible fo r the co nte nt o f this re po rt, witho ut any input fro m
Fitch Rating s .
Co pyrig ht © 20 20 Fitch So lutio ns Gro up Limite d. All rig hts re s e rve d. 30 No rth Co lo nnade , Lo ndo n E14 5GN, UK.
THIS CO MMENTARY IS P UBLISHED BY FITCH SO LUTIO NS MACRO RESEARCH and is NO T a co mme nt o n Fitch Rating s ' cre dit rating s . Any
co mme nts o r data include d in the re po rt are s o le ly de rive d fro m Fitch So lutio ns Macro Re s e arch and inde pe nde nt s o urce s . Fitch Rating s '
analys ts do no t s hare data o r info rmatio n with Fitch So lutio ns Macro Re s e arch.

India, Base Metals To Remain At Core

Vedanta Res ources - Revenue By Seg ment (LHC, %) & Revenue By Geog raphy (RHC, %), 2017

Source: BMI, Bloomberg

Competitive Landscape
Geog raphically, the refined zinc indus try will remain dominated by Chines e firms due to the vas t build-up of s melter capacity in the country over the pas t
decade. The g lobal zinc competitive lands cape will remain divers ified, as firms g enerally produce other metals along s ide zinc. Refined zinc producers in
lower-cos t countries will be quick to ramp up output as g lobal ore s hortag es drive prices hig her over coming years . Meanwhile, firms contending with
elevated debt loads will continue to prioritis e improving operational efficiencies and cos t-cutting .

Fragmented Market Share

Global Z inc Mine Production Market Share By Company (%), 2016

Source: Bloomberg, BMI

Latest Financial Results

Over Q317 (quarter ended December 2017), Vedanta Res ources delivered a robus t EBITDA increas e of 21% y-o-y, driven by hig her production volumes and
commodity prices . However, profitability came in lower than expected for the quarter at R20.5bn, down 4% y-o-y. This was mainly due to a one time charg e of
Rs 1.58bn incurred due to the arbitration of a his torical vendore claim in the aluminium bus ines s and acquis ition-related cos t of AvanStrate Inc.

This re po rt fro m Fitch So lutio ns Macro Re s e arch is a pro duct o f Fitch So lutio ns Gro up Ltd, UK Co mpany re g is tratio n numbe r 0 8 78 9 9 39
( 'FSG') . FSG is an affiliate o f Fitch Rating s Inc. ( 'Fitch Rating s ') . FSG is s o le ly re s po ns ible fo r the co nte nt o f this re po rt, witho ut any input fro m
Fitch Rating s .
Co pyrig ht © 20 20 Fitch So lutio ns Gro up Limite d. All rig hts re s e rve d. 30 No rth Co lo nnade , Lo ndo n E14 5GN, UK.
THIS CO MMENTARY IS P UBLISHED BY FITCH SO LUTIO NS MACRO RESEARCH and is NO T a co mme nt o n Fitch Rating s ' cre dit rating s . Any
co mme nts o r data include d in the re po rt are s o le ly de rive d fro m Fitch So lutio ns Macro Re s e arch and inde pe nde nt s o urce s . Fitch Rating s '
analys ts do no t s hare data o r info rmatio n with Fitch So lutio ns Macro Re s e arch.

Increasing Cash Flow To Remain Priority

Vedanta Res ources - Free Cas h Flow (USDmn)

Est = Bloomberg estimate. Source: Bloomberg

Company Strategy
Vedanta will prioritis e production g rowth and efficiency, improving free cas h flow, adding res erves and res ources to exis ting portfolio and s treamlining the
g roup s tructure throug h cons olidation. In previous quarters the firm turned to cas h-rich s ubs idiaries , throug h inter-company loans , to continue to cut down
USD7.5bn of debt. For ins tance, in September 2016, s hareholders approved the deal for Vedanta to buy out the remaining 40% of cas h-rich oil s ubs idiary
Cairn India for USD2.3bn. Earlier in 2017 s ubs idiary Hindus tan Z inc paid a s pecial dividend amount of USD1.8bn to parent firm Vedanta. Vedanta will continue
to conduct this s trateg y in 2018 while at the s ame time challeng e the larg es t divers ified miners s uch as BHP and Vale, with a USD8.0bn expans ion
prog ramme which will be focus ed mainly on its Indian as s ets and on developing its zinc mines , with s pending returning to over USD1.0bn in FY2017.

In late 2017, Vedanta purchas ed 13% of Ang lo American with the aim of increas ing Ang lo's pres ence in India. Vedanta will als o focus on expanding its oil and
g as as s ets and aluminium production, following permis s ion from the Indian g overnment in January to us e captive power to s upport the increas e in
production at the Jhars ug uda-II s melter, targ eting 1.3 million tonnes per annum. Captive power coal plants will help lower operating cos ts for the firm. In
January 2018, the company als o announced intentions to purchas e debt-ridden Electros teel Steels in India in order to s upport Vedanta's exis ting iron ore
operations in the country. Apart from India, Vedanta will focus its expans ion efforts at the Konkola mines in Z ambia.ves ting to increas e capacity acros s
exis ting operations .

VEDANT A - KEY FINANCIAL DAT A

2 0 11 2 0 12 2 0 13 2 0 14 2 0 15 2 0 16 2 0 17
Revenue (USDmn) 11,427 14,005 14,640 12,945 12,879 10,737 11,520
% chg y-o-y 44.1 22.6 4.5 -11.6 -0.5 -16.6 7.3
Net Income (USDmn) 845.4 41.1 -65.7 -398.1 2,194.6 1,268.5 -275.9
% chg y-o-y 7.4 0.3 -0.4 -3.1 17.0 11.8 -2.4
Capital Expenditure (USDmn) 2,491 2,796 2,221 2,185 2,505.8 2,512.3 1,596.0
% chg y-o-y 5.000 11.0 -26.0 -2.0 13.0 0.0 -57
Profit Marg in (%) 7.4 0.3 -0.4 -3.1 17.0 11.8 -2.4
Debt to EBITDA 2.9 4.5 3.4 3.9 na na na

S o u r c e : B MI , B l o o m b e r g

This re po rt fro m Fitch So lutio ns Macro Re s e arch is a pro duct o f Fitch So lutio ns Gro up Ltd, UK Co mpany re g is tratio n numbe r 0 8 78 9 9 39
( 'FSG') . FSG is an affiliate o f Fitch Rating s Inc. ( 'Fitch Rating s ') . FSG is s o le ly re s po ns ible fo r the co nte nt o f this re po rt, witho ut any input fro m
Fitch Rating s .
Co pyrig ht © 20 20 Fitch So lutio ns Gro up Limite d. All rig hts re s e rve d. 30 No rth Co lo nnade , Lo ndo n E14 5GN, UK.