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Directors Report of Vedanta Ltd.

Mar 31, 2013

To the Members, The Board of Directors presents the Annual Report of the Company together with the Audited Statements of Account for the financial year ended March 31, 2013. This report is drawn for the Company on a stand-alone basis Rs. in crore, except as stated Particulars 2012-13 2011-12 Profit before provisions for depreciation and tax 204.90 2,504.79 Less: Depreciation 147.91 83.85 Provision for Tax - Current and Prior Year Tax 10.92 719.00 - Deferred Tax -74.70 22.00 Profit after depreciation and tax 120.77 1,679.94 Add: Balance brought forward from the preceding year 1,962.10 1,137.72 Profit available for appropriation 2,082.87 2,817.66 Appropriations Interim dividend / Proposed Final dividend 8.69 347.64 Tax on distributed profit 1.48 7.92 General Reserve 5.00 500.00 Balance carried to Balance Sheet 2,067.70 1,962.10 Total 2,082.87 2,817.66 In accordance with the requirements of the Listing Agreement, a consolidated Financial Statement of the Company is included in this Annual Report. The consolidated profit after tax for the group for the year ended March 31, 2013 is Rs. 2,280 crore as against Rs. 2,696 crore for the previous year. The basic earnings per share for 2012-13 were Rs. 26.24 as against Rs. 31.01 for the previous year. Corporate Actions Western Cluster Limited (WCL) The Company increased its equity interest in Western Cluster Limited to 100% through the acquisition of the remaining 49% in December 2012 at an acquisition cost of US$33.5 million. This acquisition consolidates our presence in Liberia and reaffirms our faith in the significant potential for the Western Cluster Project. With a large resource potential and with proximity to the port, it is one of the most exciting upcoming iron ore projects. The project is progressing well with about 69,000 meters of exploratory drilling completed till March 31, 2013. The first JORC resources of 966 mt have been announced. The reserves and resources position has been independently reviewed and certified as per Joint Ore Reserves Committee (JORC) standards. The feasibility and engineering work for the project is also progressing as per plan. Sesa has completed the feasibility studies for the first phase of the project, which envisages a 4 mtpa high-grade concentrate output (2 modules of 2 mtpa each) from the Bomi Mine. Initially, the saleable ore will be transported 76 km to the Monrovia port by road, which will be replaced / supplemented by rail transport as the railway line is gradually set up for the integrated project. The first shipments are targeted by the end of FY2014. The Western Cluster Project presents an excellent opportunity for Sesa to strengthen its presence in the world seaborne iron ore market and the Company intends to gradually ramp up the production capacity at WCL in a phased manner targeting a total of about 25-30 mtpa. Sesa Sterlite - A Merger Announcement The Scheme of Amalgamation and Arrangement amongst Sterlite Industries (India) Limited (SIIL), The Madras Aluminium Company Limited (MALCO), Sterlite Energy Limited (SEL), Vedanta Aluminium Limited (VAL) with the Company, which was announced last year has received approvals of respective company's equity shareholders, the Stock Exchanges in India and the Competition Commission of India. Approval of Foreign Investment Promotion Board, respective company's equity shareholders and the Supreme Court of Mauritius approval for the merger of Ekaterina Limited with the Sesa Goa Limited have been received. The High Court of Mumbai at Goa has already approved both the mergers while the hearing at the High Court of Madras has been completed and the order is awaited. The Order of the Single Judge of High Court of Bombay at Goa approving both the Schemes has been challenged before the Division Bench. Dividend The board of directors has recommended a dividend of Rs. 0.10 per equity share of Rs. 1/- each for 2012-13. Operations A summary on a stand-alone basis of the sales turnover and the working results is given below: 2012 - 13 2011 - 12 (All money values are net of ocean freight and Qty. mt Value Qty. mt Value excise duty) Rs. crore Rs. crore Sale of Iron Ore* 2.5 1,289 12.7 5,635 Direct Exports 2.2 1,188 9.7 5,082 Other Sales 0.3 101 3.0 553 Sale of Metallurgical Coke 0.30 552 0.25 191 Sale of Pig Iron 0.28 775 0.25 721 Profit after Tax - 120 - 1,680 * Includes 0.17 mt (amounting to Rs. 72 crore) in FY2013 as compared to 0.3 mt (amounting to Rs. 95 crore) in FY2012 transfered to PID. Iron Ore Business 2012-13 was a year of challenges for your Company - challenges unprecedented in its history. In September / October 2012, the iron ore mining operations in Goa were brought to a complete halt by an abrupt imposition of ban on mineral extraction and transportation by the State Government and subsequently by the Supreme Court. The Company's entire iron ore mining business is currently at a standstill in the State of Goa. The Honourable Supreme Court of India has given clearance for resumption of mining operations for A and B category mines in Karnataka subject to statutory clearances, vide its order dated April 18, 2013. Sesa's Karnataka mine falls under B category, and the Company is in the process of securing necessary statutory clearances to resume mining shortly. The Ministry of Mines, Government of India, had constituted the Shah Commission for inquiry into aspects of compliances for iron ore mining across India in FY2011. Post the submission of Shah Commission report, in September 2012, the State Government of Goa, temporarily suspended the mining and transportation of iron ore across the state of Goa. This was followed by an Order from Ministry of Environment and Forest (MoEF) putting into abeyance the Environmental Clearances for iron ore mines in Goa. Subsequently, a review by a High Powered committee appointed by the State government was also ordered. In October 2012, the Honourable Supreme Court suspended mining and transportation of Iron ore across the State of Goa and ordered a review by the Centrally Empowered Committee (CEC). In view of the foregoing, operations at the Company's mines in Goa have been remained suspended. The Company has filed an application before the Supreme Court seeking modification or vacation of the aforesaid order. The hearing in the Court is yet to commence effectively. Despite the adverse circumstances during the year, the Company looks ahead to an early resolution of these challenges. We continue to work on furthering our internal systemic robustness and strengthening processes to handle such challenges. In 2012, Sesa became the 1st Indian mining company to implement automation using RFID technology. The Implementation covers all Sesa Group companies. The RFID system identifies the vehicle using RFID tags across the Sesa operations in Goa and Karnataka and links forest passes and Department of Mines and Geology permits (in Karnataka) with truck information thereby providing assurance and control. Sesa received Supply Chain Technology Advancement award at the 2nd Asia Manufacturing Supply Chain Summit (AMCSCS) for this implementation. Spot prices witnessed a significant drop from August due to drop in demand reaching a low of $83 per tonne (63% Fe FOB India) in early September from about -$130 per tonne at the start of the year. With the improved sentiment in China, iron ore spot prices experienced a sharp recovery, December onwards, reaching above $140 per tonne in February 2013, before showing slight softening in March to reach $125 per tonne on March 31, 2013. The average spot iron ore price for 2012-13 was about -20% lower at US$ 120 per tonne (63% grade FOB price) level, compared to about -$150 per tonne in 2011-12. Exploration Exploration at the Liberian project combined with significant new discoveries in India has resulted in the addition of 1.03 billion tonnes of Ore Reserves and Mineral Resources (R&R) in 2012-13. This includes 966 mt of JORC / CRIRSCO certified R&R in Liberia and 59 mt net R&R addition in India. Now operating in India and Liberia, Sesa has applied new thinking to old deposits. Driven by the consistent focus on resource addition, the total R&R in Goa and Karnataka has increased 3.6 times (net of depletion) over the last 5 years. During 2012-13, over 95,000 metres were drilled, with about 69,000 m in Liberia and about 26,500 m in India. The R&R as on March 31, 2013 now stands at 433 mt in India and 966 mt in Liberia (WCL), totalling to 1,399 mt for Sesa group. These resources in Liberia pertain to only a portion of the exploration license area. With a small part of the strike length explored as on date, there is a potential for significant upside with focused drilling in coming years. Pig Iron & Met Coke Business The Value Addition Business achieved a new landmark in August 2012 with the commissioning of the new 450 m3 blast furnace enhancing the pig iron production from 0.25 to 0.625 mtpa, making us the largest low phosphorous pig iron facility in India. A 0.28 mtpa metallurgical coke plant, a 0.8 mtpa sinter plant and a 30 MW power plant have also been commissioned as part of the expansion project. The newly commissioned sintering facility would enable the Pig Iron Division (PID) to partially meet its iron ore requirement with sintered iron ore fines, resulting in significant cost savings and increasing efficiencies. Driven by the commissioning of new capacities, pig iron production increased by 24% from 248,729 tonnes in 2011-12 to 307,775 tonnes in 2012-13. The pig iron sales volume increased by 10% from 250,571 tonnes in 2011-12 to 275,119 tonnes in 2012-13, while gross sales revenue grew by 7.4% to Rs. 784 crore in 2012-13 from Rs. 730 crore in 2011-12. Profits before interest, tax, dividends and other nonrecurring or non-allocable incomes for the Pig iron business decreased from Rs. 45 crore in 2011-12 to Rs. (9.3) crore in 2012-13. The metallurgical coke production increased by 29% to 331 kt in 2012-13 due to new capacities commissioned in Q2 FY2013. Sales volume of metallurgical (met) coke increased by 20% to 301,889 tonnes in 2012-13 from 251,264 tonnes in 2011-12. External sales revenue increased by 1.4% to Rs. 558 crore in 2012-13 from Rs. 550 crore in 2011-12. Sesa had applied for validation of its European patent in Germany, Italy and the United Kingdom. During the year, The International Organisation for Patent and Trademark Service confirmed the validity of the patent overruling some objections raised by a German Company. Outlook The iron ore mining industry continues to face increasing challenges with social licensing as a result of the competition for resources, and high prices increasing social pressure on the extractive industries to share more and more benefits with the society. As far as the overall iron ore market is concerned, despite temporary glitches, the theme of the emerging market super cycle remains unchanged, on the demand front. Supply forecasts continue to remain complex on account of supply disruptions due to regulatory concerns as in India, weather disruptions as in Australian ports, continued structural challenges from cost inflations, grade depletion and large uncertainty of project. However, in the longer term, prices are forecast to be under pressure as and when supply picks up with several new investments coming on stream, albeit supported by the phasing out of high cost operations. Despite all these challenges, the overall outlook for Sesa remains positive. Sesa's low cost operations in Goa and Karnataka are well placed to sustain any cost or pricing pressures. The Supreme Court has already permitted a conditional resumption of operations in Karnataka and the Company is in the process of securing the statutory clearances for an early resumption of operations. The expansion projects at pig iron and metallurgical coke operations have been commissioned, with the sinter plant adding key strategic ability to utilise iron ore fines. With the maiden resource estimate at Liberia already announced, Sesa's total reserves and resources exceed 1.4 billion tonnes with a significant upside expected from hitherto untouched exploration area in Liberia. Certification All the certificates under ISO: 9001-2008, ISO: 14001-2004,OHSAS 18001-2007 and SA 8000 for Quality Management, Environment Management, Occupational Health and Safety Management and Social Accountability respectively, are being maintained by the Company after periodical surveillance audits. Chitradurga Mine, Sonshi Mine, Amona Plant and Amona Bunder have been certified for implementing '5S Workplace Management System' from Quality Circle Forum of India, Hyderabad. Codli mine has been certified for implementing '5S Workplace Management System' from Quality Circle Forum of India, Hyderabad. Sesa's Information Technology Department has been certified for 'ISO 27001:2005' standard for its Information Security Management System (ISMS) for Sesa HO and SAP Data Center, Mahape. Energy Conservation, Technology Absorption, Foreign Exchange Earnings and Outgo Particulars prescribed under Section 217(1) (e) of the Companies Act, 1956, are given in Annexure A, which forms part of this Report. Ecology and Social Development Your Company remains focused on improving the ecology and the environment. Its mine reclamation efforts have significantly improved the biodiversity of the working as well as reclaimed mines. Successful replication of proven biotechnologies for mined land reclamation has become an integral part of the Company's resource planning process. Sesa accords high priority to the safety of its employees. Conscious efforts were made to improve safety practices across all the units. Your Company continued its focus on CSR activities with strong commitment in stakeholder engagement to understand the community needs. Company has associated with reputed CSR partners to implement CSR programs, notably among them Mineral Foundation of Goa, Government of Goa and so on. Details of the sustainable development activities are included in the Business Responsibility report, which is part of the annual report. The Company had published Sustainable Development Report for 2008-09, 2009-10, 2010-11 and 2011-12 based on International Guidelines of GRI - G3 / 3.1 with application level of A and has plans to publish at the G 3.1 level in 2012-13. CSR-SCDF Sesa Community Development Foundation (SCDF) runs two units, viz. the Sesa Technical School (STS) and the Sesa Football Academy (SFA). The Company's contribution during the year was Rs. 3.94 crore to the Foundation. Awards Your Company was awarded with the following prestigious awards during the year 2012-13: - Sesa has been recognised with the 'Commendation Certificate' in IMC Ramkrishna BajajNational Quality assessment in the Manufacturing Category for the year 2012. Sesa is the first and only mining company to get this recognition since the award's inception in 1996. The award is presented annually by the Indian Merchants' Chambers (IMC) to promote quality awareness and practices, recognise quality achievements of Indian companies and publicise successful quality strategies and programs. - Sesa won the first place for the Best Practices adopted and implemented in Environment Technology for its initiatives on 'Energy Conservation' given by the Goa State Pollution Control Board (GSPCB) on the occasion of World Environment Day. - Sesa's Pig Iron Division was the winner in the 'Manufacturing process Metallurgical - Medium Scale Industry' category and Met Coke Division was the runners up in the 'Manufacturing process Non Metallurgical - Medium Scale Industry' category. These awards, given at the national level, have been instituted by Srishti Publications. - Sesa won the 'CSR Initiative of the Year' award at Business Goa Corporate Excellence Awards given by Business Goa, a business magazine in March 2013. - Sesa won the Silver Award in the category of Best Strategy at the 3rd Annual Greentech HR Excellence Awards, 2013, given by the Greentech Foundation, which presents these HR Excellence Awards to companies that demonstrate the highest level of commitment to HR practices. - Sesa Goa Limited, has been conferred the Diamond Edge Award 2012, for its RFID Based Logistics System at the EDGE Awards 2012 in Mumbai on 10 October 2012. EDGE (Enterprises Driving Growth and Excellence through IT) initiative of InformationWeek is an effort to identify, recognise and honour end-user companies in India that have demonstrated the best use of technology to solve a business problem, improve their business competitiveness and deliver quantifiable return to stakeholders. - Sesa was declared the winner of 'Manufacturing Supply Chain Awards' in the category of 'Supply Chain Technology Advancement' for its RFID implementation across Goa and Karnataka iron ore operations. These awards were given as a part of the 2nd Asia Manufacturing Supply Chain Summit (AMSCS). - Sesa Goa Limited was awarded the Best Custom Solution Award in SAP Logistics category for Customisation of Ore Trucking Logistics at the SAP Localisation Forum India 2013. - Sesa's Met Coke division won two prestigious National Safety Awards in New Delhi in September 2012 for - Achieving lowest average weighted accident frequency rate over a period of 3 consecutive years ending in the performance year 2010 for factories working less than one million man-hours but more than half million man hours per year. - Achieving maximum man-hours without any fatal / non-fatal / PTD accident in the performance year 2010 for factories working less than one million man-hours but more than half million man hours per year. - Sesa Mining Corporation Limited (SMCL) was awarded the CSR Excellence Gold Award in the Education Category by the Green Triangle Society on 21 December 2012. - Sesa has been awarded a Merit Certificate for being a finalist in the Global CSR Awards 2012. - Sesa's mining division won the Late Manikant Hiralal Shah Memorial Gold Medal for excellence in Community & Social Welfare at the Green Triangle Society's CSR Excellence & Safety Awards. Fixed Deposits As reported last year, the Company has discontinued renewal of its fixed deposits on maturity. As on March 31, 2013 all fixed deposits had matured while 8 deposits amounting to Rs. 1.36 lakhs remained unclaimed. All these depositors are regularly advised about maturity of their deposits and urged to claim these as soon as they can. Safety The safety performance for the Financial Year 2012 - 13 is as under: FSI LTIFR 2012-13 2011-12 2012-13 2011-12 Mining Sesa 0.053 0.111 0.24 0.39 Shipping Division - SGL 0 0.47 0 3.2 Shipbuilding Division 0 0 0 0 Metallurgical Coke Division / PP* 0 0.243 0 1.64 Pig iron Division / SP* 0.29 0 1 0 Expansion Projects (Pig iron, Met coke, 0.443 0.125 1.75 1 Power Plant, Sinter Plant) Sesa Goa Limited 0.118 0.138 0.45 0.70 FSI - Frequency Severity Incidence, LTIFR - Lost Time Injury Frequency Rate * For 12-13, rate for MCD and PID have been computed including the expansion plants, power plant and sinter plant after commissioning in addition to the existing plant. Directors' Responsibility Statement Your Directors confirm that: i. the applicable accounting standards have been followed along with proper explanations relating to material departures, if any, for preparation of the annual accounts; ii. the accounting policies have been selected and applied consistently and judgments and estimates have been made that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended March 31, 2013 and of the profits of the Company for that year. iii. proper and sufficient care has been taken to maintain adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud or other irregularities; iv. the annual accounts have been prepared on a going concern basis. Directors Mr. K. K. Kaura and Mr. J. P. Singh, Directors, retire by rotation at the ensuing Annual General Meeting and, being eligible, offer themselves for re-appointment. Mr. A. Pradhan was re-appointed as Wholetime Director of the Company at the Board meeting held on April 27, 2013, effective from April 1, 2013 for a period of two years, subject to the approval of the shareholders at the ensuing Annual General Meeting of the Company. Auditors The Company's Auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants retire at the ensuing Annual General Meeting and are eligible for re-appointment. As per the requirement of the Central Government and in pursuance of Section 233 B of the Companies Act, 1956, your Directors have appointed M/s R. J. Goel & Co, Cost Accountants, as cost auditors of the Company to carry out the audit of cost accounting records related to Mining, Pig Iron and Met Coke product produced at plants located at Navelim / Amona for the financial year 2012-13. Compliance Certificate A certificate from the Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is attached to this Report along with report on Corporate Governance. Listing As stipulated under Clause 32 of the Listing Agreement, the names and addresses of Stock Exchange on which the Company's equity shares are listed are: 1) Bombay Stock Exchange Limited, Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400 001. 2) National Stock Exchange of India Limited, Exchange Plaza, Bandra Kurla Complex, Bandra East, Mumbai - 400 051. Your Company confirms that Annual Listing Fees for the year 2012-13 have been paid. Employees Your Directors express their deep appreciation for the unrelenting cooperation and support rendered by the employees at all levels of the Company. Your Directors wish to lay emphasis on safe working culture in the organisation and urge all the employees to not only follow safety standards but also to excel in all safety parameters. Statement of Particulars of Employees as required in terms of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975, is annexed hereto. Acknowledgement The Directors would like to thank the employees and employee unions, shareholders, customers, suppliers, bankers, regulatory authorities and all the other business associates of the Company for their confidence and support to its Management. For and on behalf of Board of Directors Place: Panaji - Goa G. D. Kamat P. K. Mukherjee Date: April 27, 2013 Director Managing Director

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