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Notes to Accounts of Hindustan Zinc Ltd.

Mar 31, 2017

Note 01 COMPANY OVERVIEW

Hindustan Zinc Limited (“HZL” or “the Company”) was incorporated on January 10, 1966 and has its registered office at Yashad Bhawan, Udaipur (Rajasthan). HZL’s shares are listed on National Stock Exchange and Bombay Stock Exchange. The Company is engaged in exploring, extracting and processing of minerals.

HZL’s operations include five zinc-lead mines, four zinc smelters, one lead smelter, one zinc-lead smelter, seven sulphuric acid plants, one silver refinery plant and six captive power plants in the state of Rajasthan. In addition, HZL also has a rock-phosphate mine in Matoon near Udaipur in Rajasthan and zinc, lead, silver processing and refining facilities in the State of Uttarakhand. The Company also has wind power plants in the states of Rajasthan, Gujarat, Karnataka, Tamil Nadu and Maharashtra and solar power plants in the state of Rajasthan.

Note 2 BASIS OF PREPARATION OF FINANCIAL STATEMENTS

a) Basis of preparation

These financial statements are prepared on a going concern basis, in accordance with Indian Accounting Standards (Ind AS) under the historical cost convention on the accrual basis except for financial instruments which are measured at fair values (refer note 3(a)), the provisions of the Companies Act , 2013 (‘Act’) (to the extent notified). The Ind AS are prescribed under Section 133 of the Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016.

Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. The financial statements were approved for issue by the Board of Directors on April 20, 2017.

These are Company’s first financial statements prepared in accordance with Ind AS, using April 1, 2015 as the transition date.

The Company has adopted all the Ind ASs and the adoption was carried out in accordance with Ind AS 101 First time adoption of Indian Accounting Standards. The transition was carried out from Indian Accounting Principles generally accepted in India as prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 (IGAAP), which was the previous GAAP.

An explanation of how the transition to Ind AS has affected the reported Balance sheet, Statement of Profit & loss and cash flows of the Company and the exemptions claimed by the Company on first time adoption of Ind AS are given in note 39.

b) Critical accounting estimate and judgement

The preparation of the financial statements in conformity with Ind AS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income, expenses and disclosures of contingent liabilities at the date of these financial statements. Actual results may differ from these estimates under different assumptions and conditions.

The management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Information about estimates and judgments made in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are as follows:

Significant Estimates

(i) Mining property and Ore reserve

Ore reserves and mineral resource estimates are estimates of the amount of ore that can be economically and legally extracted from the Company’s mining properties. The Company estimates its ore reserves and mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. Such an analysis requires complex geological judgements to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs, along with geological assumptions and judgements made in estimating the size and grade of the ore body.

(ii) Restoration, rehabilitation and environmental costs:

Provision is made for costs associated with restoration and rehabilitation of mining sites as soon as the obligation to incur such costs arises. Such restoration and closure costs are typical of extractive industries and they are normally incurred at the end of the life of the mine or oil fields. The costs are estimated on the basis of mine closure plans and the estimated discounted costs of dismantling and removing these facilities and the costs of restoration are capitalized when incurred refecting the Company’s obligations at that time. The provision for decommissioning assets is based on the current estimate of the costs for removing and decommissioning production facilities, the forecast timing of settlement of decommissioning liabilities and the appropriate discount rate.

(iii) Stripping cost:

As part of its mining operations, the Company incurs stripping (waste removal) costs both during the development phase and production phase of its operations. Stripping costs incurred in the development phase of a mine, before the production phase commences (development stripping), are capitalized as part of the cost of constructing the mine and subsequently amortized over its useful life using a UOP method. The capitalization of development stripping costs ceases when the mine/component is commissioned and ready for use as intended by management.

In identifying components of the ore body, the Company works closely with the mining operations personnel for each mining operation to analyse each of the mine plans. Generally, a component will be a subset of the total ore body, and a mine may have several components. The mine plans, and therefore the identification of components, can vary between mines for a number of reasons. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs. If the costs of the inventory produced and the stripping activity asset are not separately identifiable, a relevant production measure is used to allocate the production stripping costs between the inventory produced and the stripping activity asset. This production measure is calculated for the identified component of the ore body and is used as a benchmark to identify the extent to which the additional activity of creating a future benefit has taken place. The Company uses the expected volume of waste extracted compared with the actual volume for a given volume of ore production of each component.

The stripping activity asset is accounted for as an addition to, or an enhancement of, an existing asset, being the mine asset, and is presented as part of ‘Mine properties’ in the statement of financial position. The stripping activity asset is subsequently depreciated using the UOP method over the life of the identified component of the ore body that became more accessible as a result of the stripping activity. Economically recoverable reserves, which comprise proven and probable reserves, are used to determine the expected useful life of the identified component of the ore body. The stripping activity asset is then carried at cost less depreciation and any impairment losses.

(iv) Useful lives of property, plant and equipment

The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This reassessment may result in change in depreciation expense in future periods.

Change in pattern of utilization of plant and equipment.

The Company, basis an independent technical review, has reassessed the method of charging depreciation basis actual economic benefits derived from asset and has decided to change the depreciation method for plant and equipment. Effective April 1, 2016, the method of depreciation on Plant and Equipment has been changed from Straight Line Method to Written Down Value Method on remaining useful life, resulting in higher depreciation charge and lower profits of Rs.711 Crore and Rs.465 Crore respectively for the year ended March 31, 2017. Further, the Company has also revised the useful life of plant and equipment deployed in the generation of wind energy from 22 years to 27 years based on the technical assessment undertaken by the management. The impact of the revision results in lower depreciation and higher profits of Rs.26 Crore and Rs.17 Crore respectively for the year ended March 31, 2017.

Significant Judgement

Contingencies:

In the normal course of business, contingent liabilities may arise from litigation, taxation and other claims against the Company. Where it is management’s assessment that the outcome cannot be reliably quantified or is uncertain, the claims are disclosed as contingent liabilities unless the likelihood of an adverse outcome is remote. Such liabilities are disclosed in the notes but are not provided for in the financial statements. While considering the possible, probable and remote analysis of taxation, legal and other claims, there is always a certain degree of judgement involved pertaining to the application of the legislation which in certain cases is supported by views of tax experts and/or earlier precedents in similar matters. Although there can be no assurance regarding the final outcome of the legal proceedings, the Company does not expect them to have a materially adverse impact on the Company’s financial position or profitability.

Note 3 EMPLOYEE BENEFIT EXPENSE

1) The Company offers equity-based award plans to its employees, officers and directors through its parents, Vedanta Resources Plc. [Vedanta Resources Long-Term Incentive Plan (““LTIP”“), Employee Share Ownership Plan (““ESOP”“) and Performance Share Plan (“PSP”)] collectively referred as ‘VR PLC ESOP’ scheme and Vedanta Limited [Vedanta Limited -Employee Stock Option Scheme (“Vedanta Limited- ESOS”)].

During the year, share- based incentives arrangement under VR PLC ESOP scheme and ESOS of Vedanta Limited (introduced effective December 2016) are provided to the defined management group. The maximum value of shares that can be awarded to members of the defined management group is calculated by reference to the individual fixed salary and share-based remuneration consistent with local market practice. ESOP scheme of VR Plc. and Vedanta Limited are both tenure and performance based share schemes. The awards are indexed to and settled by Parent’s shares (Vedanta Resources Plc. shares or Vedanta Ltd shares as defined in the scheme). The awards have a fixed exercise price denominated in Parent’s functional currency (10 US cents per share in case of Vedanta Resources Plc. and Rs.1 in case of Vedanta Limited), the performance period of each award is three years and is exercisable within a period of six months from the date of vesting beyond which the option lapses.

Further, in accordance with the terms of the agreement between the Parent and the Company, the cost recognised towards ESOP scheme is recovered by the Parent from the Company.

2) Includes Corporate social responsibility expenses of Rs.11 Crore (March 31, 2016 : Rs.14 Crore). Refer Note 34 on Corporate Social Responsibility.

Note 4

1) Future cash out flows in respect of the above matters are determinable only on receipt of judgments or decisions pending at various forums. Accordingly interest and penalty where applicable will be additionally payable.

2) The Department of Mines and Geology of the State of Rajasthan issued several show cause notices in August, September and October 2006 to HZL, amounting to Rs.334 Crore. These notices alleged unlawful occupation and unauthorised mining of associated minerals other than zinc and lead at HZL’s Rampura Agucha, Rajpura Dariba and Zawar mines in Rajasthan during the period from July 1968 to March 2006. HZL believes that the likelihood of this claim is not probable and thus no provision has been made in the financial statements. HZL had filed writ petitions in the High Court of Rajasthan in Jodhpur and had obtained a stay in respect of these demands. The High Court restrained the Department of Mines and Geology from undertaking any coercive measures to recover the penalty. In January 2007, the High Court issued another order granting the Department of Mines and Geology additional time to file their reply and also ordered the Department of Mines and Geology not to issue any orders cancelling the lease. The Company is currently awaiting listing of the said case in Rajasthan High Court.

(3) The State of Rajasthan issued a notification in June 2008 notifying the Rajasthan Environment and Health Cess Rules, 2008, imposing environment and health cess on major minerals including lead and zinc. HZL and other mine operators resisted this notification and the imposition thereunder before the High Court of Rajasthan on the ground that the imposition of such cess and all matters relating to the environment fall under the competence of the Central government as opposed to the State government. In October 2011, the High Court of Rajasthan disposed the writ petitions and held the Rajasthan Environment and Health Cess Rules, 2008 that imposes a levy of cess on minerals, as being constitutionally valid. An amount of Rs.150 per metric ton of ore produced would be attracted under the Statute if it is held to be valid. HZL challenged this order by a special leave petition in December 2011 before the Supreme Court of India. The Supreme Court of India issued a notice for stay. Further direction was issued by the Supreme Court on March 23, 2012 not to take any coercive action against HZL for recovery of cess. During the current year, the above mentioned notification has been rescinded via notification dated January 6, 2017, with immediate effect and thus the Company is not recognising any amount after the notified date as a contingent liability.

(4) The Company challenged the constitutional validity of the local statutes and related notifications in the state of Rajasthan pertaining to the levy of entry tax on the entry of goods brought into the state from outside. Post some contradictory orders of High Courts across India adjudicating on similar challenges, the Supreme Court referred the matters to a nine judge bench. Post a detailed hearing, although the bench rejected the compensatory nature of tax as a ground of challenge, it maintained status quo with respect to all other issues which have been left open for adjudication by regular benches hearing the matters. The total claims on the Company as at March 31, 2017, March 31, 2016 and April 1, 2015 is Rs.199 crore, Rs.128 crore and Rs.122 crore respectively. Post the order of the nine judge bench, the regular bench of the Supreme Court proceeded with hearing the matters. The regular bench remanded the entry tax matters relating to the issue of discrimination against domestic goods from other States to the respective High Courts for final determination but retained the issue of jurisdiction on levy on imported goods, for determination by Supreme Court. The Company is looking to file writ petition before the Rajasthan High Court.

5) As of March 31, 2017, the Company has open tax demands of contingent nature of Rs.4,267 crore for relevant assessment years 1989-90 through 2013-14. The demand is raised mainly on account of disallowance of certain benefits under section 80IA and 80IC of the Indian Income Tax Act and on account of depreciation disallowances and interest thereon. Although, the Company has paid an amount of Rs.526 crore in relation to these demands, which are pending at various levels of appeals, management considers these disallowances as not tenable against the Company, and therefore no provision for tax contingencies has been established.

(6) Contingent liability towards excise duty of Rs.424 crore includes various demands raised on the Company towards CENVAT, service tax and excise for FY 1991-92 to 2015-16. These demands include an amount of Rs.271 crore towards reverse credit on inputs used for manufacture of silver cleared without payment of duty during the period Oct 2008 to Feb 2013. The Company has paid an amount of Rs.43 crore against these demands under protest and is confident of the liability not devolving on the Company.

b. Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for Rs.1,636 Crore (March 31, 2016: Rs.2,015 Crore, April 1, 2015: Rs.1,798 Crore).

c. Other Commitments - Export obligations

The Company had export obligations of Rs.1,244 Crore (March 31, 2016: Rs.166 Crore) on account of concessional rates of import duties paid on capital goods under the Export Promotion Capital Goods Scheme enacted by the Government of India which is to be fulfilled over the next six years from purchase. If the Company is unable to meet these obligations, its liabilities currently not provided would be Rs.207 Crore (March 31, 2016: Rs.33 Crore) reduced in proportion to actual export. This liability is backed by the bonds executed in favour of Customs department amounting to Rs.268 Crore (March 31, 2016: Rs.122 Crore). Further, bonds amounting to Rs.346 Crore (March 31, 2016: Rs.581 Crore) will be released subject to verification of EODC (Export obligation discharge certificate) by the Customs department.

Note 5 RETIREMENT AND OTHER EMPLOYEE BENEFIT SCHEMES

a. Defined contribution schemes

Family Pension Scheme

The contributions are based on a fixed percentage of the employee’s salary, subject to a ceiling, as prescribed in the scheme. A sum of Rs.6 Crore (March 31, 2016: Rs.7 Crore) has been charged to the Statement of Profit and Loss during the year.

Superannuation fund

A sum of Rs.2 Crore (March 31, 2016: Rs.2 Crore) has been charged to the Statement of Profit and Loss in respect of contributions made to the superannuation fund. The Company has no further obligations to the plan beyond the monthly contributions.

b. Defined benefit plans

For defined benefit pension schemes, the cost of providing benefits under the plans is determined by actuarial valuation each year for the plan using the projected unit credit method by independent qualified actuaries as at the year end. Remeasurements in the year are recognized in full in other comprehensive income for the year.

Provident fund

The Company offers its employees, benefits under defined benefit plans in the form of provident fund scheme which covers all employees. Contributions are paid during the year into ‘Hindustan Zinc Limited Employee’s Contributory Provident Fund’ (‘Trust’). Both the employees and the Company pay predetermined contributions into the Trust. A sum of Rs.25 Crore (March 31, 2016: Rs.24 Crore) has been charged to the Statement of Profit and Loss in this respect during the year.

The Company’s Trust is exempted under section 17 of Employees Provident Fund Act, 1952. The conditions for grant of exemption stipulate that the employer shall make good the deficiency, if any, between the return guaranteed by the statute and actual earning of the trusts. Having regard to the assets of the Trust and the return on the investments, the Company does not expect any deficiency in the foreseeable future.

Gratuity plan

The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Act, an employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the member’s length of service and salary at retirement age. The Company’s defined benefit plans are funded with Life Insurance Corporation of India (LIC). The Company does not have any liberty to manage the fund provided to LIC.

The following tables set out the funded status of the gratuity plans and the amounts recognized in the financial statements.

Sensitivity analysis

Below is the sensitivity analysis determined for significant actuarial assumptions for the determination of defined benefit obligations and based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period while holding all other assumptions constant.

The above sensitivity analysis may not be representative of the actual benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

In presenting the above sensitivity analysis, the present value of defined benefit obligation has been calculated using the projected unit credit method at the end of reporting period, which is the same as that applied in calculating the defined obligation liability recognized in the balance sheet.

Risk analysis

The Company is exposed to a number of risks in the defined benefit plans. Most significant risks pertaining to defined benefits plans and management estimation of the impact of these risks are as follows:

Investment risk

The Company’s defined benefit plans are funded with Life Insurance Corporation of India (LIC). The Company does not have any liberty to manage the fund provided to LIC. The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to Government of India bonds for the Company’s operations. If the return on plan asset is below this rate, it will create a plan deficit.

Interest risk

A decrease in the interest rate on plan assets will increase the plan liability, however this will be partially offset by increase in the return on plan debt investment.

Longevity risk/ Life expectancy

The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and at the end of the employment. An increase in the life expectancy of the plan participants will increase the plan liability.

Salary growth risk

The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. An increase in the salary of the plan participants will increase the plan liability.

Note 6 INCOME TAX EXPENSES

The major components of income tax expense for the year ended March 31, 2017 are indicated below:

There are certain income-tax related legal proceedings which are pending against the company. Potential liabilities, if any have been adequately provided for and the Company does not currently estimate any probable material incremental tax liabilities in respect of these matters. (Refer note 30)

Investment Allowance U/s.32 AC of the Income Tax Act

Incentive for acquisition and installation of new high value plant or machinery to manufacturing companies by providing an additional deduction of 15% of the actual cost of plant or machinery acquired and installed during the year. The actual cost of the new Plant or Machinery should exceed Rs.25 Crore to be eligible for this deduction. Deduction U/s.32AC is available up to financial year March 31, 2017.

The Company is eligible for specified tax incentives which are included in the table above as ‘tax holidays and similar exemptions’. These are briefly described as under:

The location based exemption

In order to boost industrial and economic development in undeveloped regions, provided certain conditions are met, profits of newly established undertakings located in certain areas in India may benefit from a tax holiday. Such a tax holiday works to exempt 100% of the profits for the first five years from the commencement of the tax holiday, and 30% of profits for the subsequent five years. This deduction is available only for units established up to March 31, 2012. However, such undertaking would continue to be subject to the Minimum Alternative tax (‘MAT’). The company has such types of undertakings at Haridwar and Pantnagar.

Sectoral Benefit - Power Plants

To encourage the establishment of certain power plants, provided certain conditions are met, tax incentives exist to exempt 100% of profits and gains for any ten consecutive years within the 15 year period following commencement of the power plant’s operation. The Company currently has total operational capacity of 474 Mega Watts (MW) of thermal based power generation facilities and wind power capacity of 274 MW. However, such undertakings generating power would continue to be subject to the MAT provisions.

The unused long term capital losses for which no deferred tax asset is recognised amounts to Rs.935 Crore and Rs.948 Crore as at March 31, 2016 and April 1, 2015 respectively. These losses begin to expire from financial year 2018-19 to 2022-2023.

As at March 31, 2017, the Company has minimum alternate tax (MAT) credit carry forward of Rs.4,880 Crore (March 31, 2016: Rs.5,069 Crore) which will begin to expire from FY 2025-26. MAT paid can be carried forward for a period of 15 years and can be set off against the future tax liabilities. MAT is recognised as a deferred tax asset only when the asset cab be measured reliably and it is probable that the future economic benefit associated with the asset will be realised.

Note 7 JOINT VENTURE

The Company had access of upto 31.5 million MT of coal as a partner in the joint venture ‘Madanpur South Coal Company Limited’ (Madanpur JV), a Company incorporated in India, where it holds 18.05% of ownership interest. During the year 201314, Honourable Supreme Court had passed the judgment cancelling all the coal blocks including Madanpur JV allocated since 1993 with certain exceptions and consequently the Company does not have any business to pursue. Accordingly, the Company had created 100% provision against its investment in Madanpur JV amounting to Rs.2 Crore.

The Company has not prepared consolidated financial statements as at March 31, 2017, March 31, 2016 and April 1, 2015 as the Company does not have any investment in subsidiaries or associates apart from the above investment in Madanpur JV. The operations of Madanpur JV has been discontinued pursuant to cancellation of coal allocation by Supreme Court and the investments in Madanpur JV are completely impaired. Accordingly, the profits, equity and cash flows on consolidation of Madanpur JV with the Company would remain consistent with the standalone financial statements.

Note 8 CORPORATE SOCIAL RESPONSIBILITY EXPENSES

The Company is required to spend a gross amount of Rs.175 Crore and Rs.170 Crore for the year ending March 31, 2017 and March 31, 2016 respectively.

Note 9 SEGMENT REPORTING

a. Basis of Segmentation

The Company is engaged in exploring, extracting and processing minerals. The Company produces zinc, lead, silver and commercial power. The Company has two reportable segments: i) zinc, lead and silver and ii) wind energy. The management of the Company is organized by its main products: zinc, lead and silver and wind energy. Each of the reportable segments derives its revenues from these main products and hence these have been identified as reportable segments by the Company’s Chief Operating Decision Maker (“CODM”). Segment profit amounts are evaluated regularly by the CEO, who has been identified as the CODM, in deciding how to allocate resources and in assessing performance.

Zinc, Lead and Silver

The Company’s operations include five lead-zinc mines, one rock phosphate mine, four hydrometallurgical zinc smelters, two lead smelters, one pyro metallurgical lead-zinc smelter, seven sulphuric acid plants, a silver refinery and six captive power plants in State of Rajasthan in Northwest India and one zinc ingot melting and casting plant at Haridwar and one silver refinery, one zinc ingot melting and casting plant and one lead ingot melting and casting plant at Pantnagar in the State of Uttarakhand in North India.

Wind energy

The Company has installed 274 MW wind power plants in Gujarat, Karnataka, Rajasthan, Maharashtra and Tamil Nadu.

The accounting policies of the reportable segments are the same as the Company’s accounting policies described in Note 3. The operating segments reported are the segments of the Company for which separate financial information is available. Segment profit (Earnings before interest, depreciation and amortization, and tax) amounts are evaluated regularly by the CEO who has been identified as its CODM in deciding how to allocate resources and in assessing performance. The Company’s financing (including finance costs and finance income) and income taxes are reviewed on an overall basis and are not allocated to operating segments. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

Revenue and expenses directly attributable to segment are reported under each reportable segment. Expenses which are not directly identifiable to each reporting segment have been allocated on the basis of appropriate cost drivers of the segment.

Asset and liabilities that are directly attributable for allocable to segments are disclosed under each reportable segment. All other assets and liabilities are disclosed as unallocable.

The following table presents revenue and profit information and certain assets information regarding the Company’s business segments for the year ended March 31, 2017.

Note 10 FINANCIAL INSTRUMENTS

This section gives an overview of the significance of financial instruments for the Company and provides additional information on the balance sheet. Details of significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 2 and Note 3.

The management assessed that Cash and cash equivalents, Other bank balances, Trade receivables, Trade payables, other current financial assets and liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.

The Fair value of the Company’s interest bearing borrowings are determined using amortised cost basis using a discount rate that refects the issuer’s borrowing rate as at the end of the reporting period. The own non performance risk as at March 31, 2017 was assessed to be insignificant [a level 2 technique].

Fair value of the current instrument in bonds and zero coupon bonds are based on the price quotations at the reporting date. Fair value of current investments that are in the nature of ‘close ended’ mutual funds are based on market observable inputs [a level 2 technique].

Fair value of current investments that are in the nature of ‘open ended’ mutual funds are derived from quoted market prices in active markets [a level 1 technique].

The Fair value of Non current financial assets and liabilities are estimated by discounting the expected future cash flows using a discount rate equivalent to the risk free rate of return adjusted for the appropriate credit spread.

The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Commodity derivative contracts are valued using the forward LME rates of commodities actively traded in the listed metal exchanges (i.e. London Metal Exchange). Forward foreign currency contracts are valued using valuation technique with market observable inputs. The most frequently applied valuation techniques for such derivatives include forward pricing using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of the underlying commodity. Commodity contracts are valued using the forward LME rates of commodities actively traded on the listed metal exchange i.e. London Metal Exchange, United Kingdom (U.K.) [a level 2 technique].

Fair value hierarchy

The table shown below analyses financial instruments carried at fair value, by measurement hierarchy. The different levels have been defined below:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

- Refer section-”Derivative financial instruments’

There is no financial instrument which is classified as level 3 during the year. There were no transfers between Level 1, Level 2 and Level 3 during the year.

Risk management framework

Risk management

The Company’s businesses are subject to several risks and uncertainties including financial risks. The Company’s documented risk management polices act as an effective tool in mitigating the various financial risks to which the business is exposed to in the course of their daily operations. The risk management policies cover areas such as liquidity risk, commodity price risk, foreign exchange risk, interest rate risk, counterparty and concentration of credit risk and capital management. Risks are identified through a formal risk management programme with active involvement of senior management personnel and business managers. Each significant risk has a designated ‘owner’ within the Company at an appropriate senior level. The potential financial impact of the risk and its likelihood of a negative outcome are regularly updated.

The risk management process is coordinated by the Management Assurance function and is regularly reviewed by the Company’s Audit Committee. The Audit Committee is aided by the Risk Management Committee, which meets regularly to review risks as well as the progress against the planned actions. Key business decisions are discussed at the periodic meetings of the Executive Committee. The overall internal control environment and risk management programme including financial risk management is reviewed by the Audit Committee on behalf of the Board.

The risk management framework aims to:

- improve financial risk awareness and risk transparency

- identify, control and monitor key risks

- identify risk accumulations

- provide management with reliable information on the Company’s risk situation

- improve financial returns Treasury management

The Company’s treasury function provides services to the business, co-ordinates access to domestic financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.

Treasury management focuses on capital protection, liquidity maintenance and yield maximization. The treasury policies are approved by the Board and adherence to these policies is strictly monitored at the Executive Committee meetings. Day-to-day treasury operati ons of the Company are managed by the finance team within the framework of the overall Company’s treasury policies. A monthly reporting system exists to inform senior management about investments, currency and, commodity derivatives. The Company has a strong system of internal control which enables effective monitoring of adherence to Company’s policies. The internal control measures are effectively supplemented by regular internal audits.

The investment portfolio at the Company is independently reviewed by CRISIL Limited and it has been rated as “Very Good” meaning highest safety.

The Company uses derivative instruments as part of its management of exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The Company does not acquire or issue derivative financial instruments for trading or speculative purposes. The Company does not enter into complex derivative transactions to manage the treasury and commodity risks. Both treasury and commodities derivative transactions are normally in the form of forwards and these are subject to the Company’s guidelines and policies.

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises interest rate risk, currency risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, FVTOCI investments and derivative financial instruments.

The sensitivity analyses in the following sections relate to the position as at March 31, 2017, March31, 2016 and April 1, 2015. The sensitivity analyses have been prepared on the basis that the amount of net d ebt, the ratio of fixed interest rates of the debt and derivatives and the proportion of financial instrume nts in foreign currencies are all constant. The analyses exclude the impact of movements in market variables on: the carrying values of gratuity and other post-retirement obligations, provisions and the non -financial assets and liabilities of foreign operations.

Commodity price risk

The Company is exposed to the movement of base metai commodity prices on the London Metal Exchange. Any decline in the prices of the base metals that the Company produces and sells will have an immediate and direct impact on the profitability of the businesses. As a general policy, the Company aims to achieve the monthly average of the commodity prices for sales realization. Hedging is used primarily as a risk management tool and, in some cases, to secure future cash flows in cases of high volatility by entering into forward contracts or similar instruments. The hedging activities are subject to strict limits set out by the Board and to a strictly defined internal control and monitoring mechanism. Decisions relating to hedging of commodities are taken at the Executive Committee level and with clearly laid down guidelines for their implementation by the Company.

Whilst the Company aims to achieve average LME prices for a month or a year, average realized prices may not necessarily refect the LME price movements because of a variety of reasons such as uneven sales during the year and timing of shipments.

Financial instruments with commodity price risk are entered into in relation to following activities:

- economic h edging of prices realized on commodity contracts

- cash flow hedging on account of forecasted highly probable transactions (for the year ended March 31, 2016)

The sales prices of zinc and lead are linked to the LME prices. The Company also enters into hedging arrangements for its Zinc and Lead sales to realize month of sale LME prices.

Total exposure on provisionally priced Zinc and Lead contracts as at March 31, 2017 were Rs.38 crore (March 31, 2016 Rs.17 crore) and Rs.31 crore (March 31, 2016 Rs.19 crore). The impact on net profits for a 10% movement in LME prices of zinc and 5% movement in LME price of lead that were provisionally priced as at March 31, 2017 and March 31, 2016 is Rs.4 crore and Rs.2 crore for zinc and Rs.2 crore and Rs.1 crore for lead respectively.

Financial risk

The Company’s Board approved financial risk policies comprise liquidity, currency, interest rate and counterparty risk. The Company does not engage in speculative treasury activity but seeks to manage risk and optimize interest and commodity pricing through proven financial instruments.

a. Liquidity risk

The Company requires funds both for short-term operational needs as well as for long-term investment programme mainly in growth projects. The Company generates sufficient cash flows from the current operations which together with the available cash and cash equivalents and short-term investments provide liquidity both in the short term as well as in the long-term.

The Company has been rated as ‘AAA’/Stable for long term and A1 for short term by CRISIL Limited during the current and previous financial years.

The Company remains committed to maintaining a healthy liquidity, gearing ratio and strengthening the balance sheet. The maturity profile of the Company’s financial liabilities based on the remaining period from the date of balance sheet to the contractual maturity date is given in the table below. The figures refect the contractual undiscounted cash obligation of the Company.

b. Foreign exchange risk

Fluctuations in foreign currency exchange rates may have an impact on the Statement of Profit and Loss, where any transaction references more than one currency other than the functional currency of the Company.

The Company uses forward exchange contracts, to hedge the effects of movements in exchange rates on foreign currency denominated assets and liabilities. The sources of foreign exchange risk are outstanding amounts payable for imported raw materials, capital goods and other supplies denominated in foreign currency.The Company is also exposed to foreign exchange risk on its exports. Most of these transactions are denominated in US dollars. The policy of the Company is to determine on a regular basis what portion of the foreign exchange risk on financing transactions are to be hedged through forward exchange contracts and other instruments. Short-term net exposures are hedged progressively based on their maturity. A more conservative approach has been adopted for project expenditures to avoid budget overruns. Longer term exposures, are normally unhedged. The hedge mechanisms are reviewed periodically to ensure that the risk from fluctuating currency exchange rates is appropriately managed. The following analysis is based on the gross exposure as at the reporting date which could affect the Statement of Profit and Loss. The below table summarises the foreign currency risk from financial instrument and is partly mitigated by some of the derivative contracts entered into by the Company as disclosed under the section on “Derivative financial instruments.”

The Company’s exposure to foreign currency arises where a Company holds monetary assets and liabilities denominated in a currency different to the functional currency of the Company, with US dollar and Euro being the major non-functional currency. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rate, liquidity and other market changes.

The results of Company operations may be affected largely by fluctuations in the exchange rates between the Indian Rupee, against the US dollar. The foreign exchange rate sensitivity is calculated by the aggregation of the net foreign exchange rate exposure with a simultaneous parallel foreign exchange rate shift in the currencies by 5% against the functional currency of the respective entities.

Set out below is the impact of a 5% strengthening in the INR on pre-tax profit/(loss) arising as a result of the revaluation of the Company’s foreign currency financial assets/liabilities:

c. Interest rate risk

Floating rate financial assets are largely mutual fund investments which have debt securities as underlying assets. The returns from these financial assets are linked to market interest rate movements; however the counterparty invests in the agreed securities with known maturity tenure and return and hence has manageable risk. Additionally, the investments portfolio is independently reviewed by CRISIL Limited, and it has been rated as “Very Good” meaning highest safety.

Interest rate risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in market interest rate. The Company does not have floating interest rate borrowing during the year ended March 31, 2017, March 31, 2016, and April 01, 2015, and it is not significantly exposed to interest rate risk.

Considering the net investment position as at March 31, 2017 and the investment in bank deposits, bonds and debt mutual funds, any increase in interest rates would result in a net increase and any decrease in interest rates would result in a net decrease. The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the balance sheet date.

The below table illustrates the impact of a 0.5% to 2.0% change in interest rate of floating investment on profit/(loss) and equity and represents management’s assessment of the possible change in interest rates.

The impact of change (increase/(decrease)) in interest rate of 0.5%, 1.0% and 2.0% on profits for year ended March 31, 2017 is Rs.97 crore, Rs.193 crore and Rs.387 crore and for year ended March 31, 2016 is Rs.157 crore, Rs.314 crore and Rs.628 crore respectively.

d. Counterparty and concentration of credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company is exposed to credit risk for receivables, cash and cash equivalents, short-term investments and derivative financial instruments. Credit risk on receivables is limited as almost all credit sales are against letters of credit and guarantees of banks of good financial repute.

Moreover, given the nature of the Company’s business, trade receivables are spread over a number of customers with no significant concentration of credit risk. No single customer accounted for 10% or more of revenue on a % basis in any of the years indicated. The history of trade receivables shows a negligible provision for bad and doubtful debts. Therefore, the Company does not expect any material risk on account of non-performance by any of the Company’s counterparties.

For short-term investments, counterparty limits are in place to limit the amount of credit exposure to any one counterparty. For derivative and financial instruments, the Company attempts to limit the credit risk by only dealing with reputable banks and financial institutions having high credit-ratings assigned by international credit-rating agencies. Defined limits are in place for exposure to individual counterparties in case of mutual funds schemes and bonds.

The carrying value of the financial assets represents the maximum credit exposure. The Company’s maximum exposure to credit risk as at March 31, 2017, March 31, 2016 and April 01, 2015 are Rs.32,324 Crore, Rs.35,407 Crore and Rs.31,487 Crore respectively.

None of the Company’s cash equivalents, including time deposits with banks, are past due or impaired. Regarding trade and other receivables, and other non-current assets, there were no indications as at March 31, 2017, that defaults in payment obligations will occur.

Of the year end trade receivables, loans and other financial assets, following balances were past due but not impaired as at March 31, 2017, March 31, 2016 and April 1, 2015:

Receivables are deemed to be past due or impaired with reference to the Company’s normal terms and conditions of business. These terms and conditions are determined on a case to case basis with reference to the customer’s credit quality and prevailing market conditions. Receivables that are classified as ‘past due’ in the above tables are those that have not been settled within the terms and conditions that have been agreed with that customer.

The credit quality of the Company’s customers is monitored on an on-going basis and assessed for impairment where indicators of such impairment exist. The solvency of the debtor and their ability to repay the receivable is considered in assessing receivables for impairment. Where receivables have been impaired, the Company actively seeks to recover the amounts in question and enforce compliance with credit terms.

Derivative financial instruments

The Company does not acquire or issue derivative financial instruments for trading or speculative purposes. The Company does not enter into complex derivative transactions to manage the treasury and commodity risks. Both treasury and commodities derivative transactions are normally in the form of forward contracts and these are subject to the Company guidelines and policies.

All derivative financial instruments are recognized as assets or liabilities on the balance sheet and measured at fair value based on quotations obtained from financial institutions or brokers. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation.

The fair values of all derivatives are separately recorded in the balance sheet within current assets and liabilities. Derivatives that are designated as hedges are classified as current depending on the maturity of the derivative.

The use of derivatives can give rise to credit and market risk. The Company tries to manage credit risk by entering into contracts with reputable banks and financial institutions. The use of derivative instruments is subject to limits, authorities and regular monitoring by appropriate levels of management. The limits, authorities and monitoring systems are periodically reviewed by management and the Board. The market risk on derivatives is mitigated by changes in the valuation of the underlying assets, liabilities or transactions, as derivatives are used only for risk management purposes.

Embedded derivatives

Derivatives embedded in other financial instruments or other contracts are treated as separate derivative contracts and marked-to-market when their risks and characteristics are not clearly and closely related to those of their host contracts and the host contracts are not fair valued.

Cash flow hedges

The Company also enters into commodity price contracts for hedging highly probable forecast transaction and account for them as cash flow hedges and states them at fair value. Subsequent changes in fair value are recognized in equity until the hedged transaction occurs, at which time, the respective gains or losses are reclassified to the Statement of Profit and Loss. These hedges have been effective for the year ended March 31, 2016. There were no cash flow hedges for the year ended March 31, 2017.

Fair value hedges

The fair value hedges relate to commodity price risks and foreign currency exposure. The Company’s sales are on a quotational period basis, generally one month to three months after the date of delivery at a customer’s facility. The Company enters into forward contracts for the respective quotational period to hedge its commodity price risk based on average LME prices. Gains and losses on these hedge transactions are substantially offset by the amount of gains or losses on the underlying sales. These hedges have been effective for the year ended March 31, 2016. There were no fair value hedges for the year ended March 31, 2017.

Non-qualifying/economic hedges

Non-qualifying hedges related to commodity price risks and foreign currency exposure. The Company’s sales are on a quotational period basis, generally one month after the date of delivery at a customer’s facility. The Company enters into forward contracts for the respective quotational period to hedge its commodity price risk based on average LME prices. The Company enters into forward foreign currency contracts and commodity contracts (for the year ended March 31, 2017) which are not designated as hedges for accounting purposes, but provide an economic hedge of a particular transaction risk or a risk component of a transaction. Fair value changes on such forward contracts are recognized in the Statement of Profit and Loss.

11 A. The following are the outstanding position of commodity hedging open contracts as at March 31, 2017 :-

Zinc forwards/futures sale/buy for 1,700 MT (2016: 1,775 MT, 2015: 3,000 MT)

Lead forwards/futures sale/buy for 2,775 MT (2016: 5,750 MT, 2015: 1,500 MT)

Silver forwards/futures sale/buy for 126,684 Oz (2016: 1,32,460 Oz, 2015: 3,87,459 Oz)

11 B. All derivative and financial instruments acquired by the Company are for hedging purposes.

11 C. Unhedged foreign currency exposure

The Company’s objectives when managing capital is to safeguard, maintain a strong credit rating and healthy capital ratios in order to support its business and provide adequate return to shareholders through continuing growth. The Company’s overall strategy remains unchanged from previous year. The Company sets the amount of capital required on the basis of annual business and long-term operating plans which include capital and other strategic investments. The funding requirements are met through a mixture of internal accruals, equity and short term borrowings. The Company has short term borrowings in the form of Commercial Paper at the end of the year. There are no long term borrowings outstanding as at end of the year. The Company monitors capital on the basis of net debt to equity. Equity comprises all components including other components of equity. The Company is not subject to any externally imposed capital requirement.

Note 12 RELATED PARTY

a. List of related parties:

Particulars

(i) Holding Companies:

Vedanta Limited (Immediate Holding Company)

Vedanta Resources Plc. (Intermediate Holding Company)

Volcan Investments Limited (Ultimate Holding Company)

(ii) Fellow Subsidiaries (with whom transactions have taken place):

Bharat Aluminium Company Limited Sterlite Technologies Limited Sterlite Power Transmission Limited Malco Energy Limited Talwandi Sabo Power Limited Copper Mines of Tasmania Pty Limited Konkola Copper Mines Plc.

Fujairah Gold FZC Skorpion Zinc (Pty) Limited Namzinc (Pty) Limited Black Mountain Mining (Pty) Limited Lisheen Milling Limited

(iii) Related Party having a Significant Influence

Government of India - President of India

(iv) Other related party

Vedanta Foundation

Madanpur South Coal Company Limited (jointly controlled entity) Hindustan Zinc Limited Employee’s Contributory Provident Fund Trust

b. Transactions with Key management Personnel:

Compensation of key management personnel of the Company recognised as expense during the reporting period

(1) Excludes gratuity and compensated absences as these are recorded in the books of accounts on the basis of actuarial valuation for the Company as a whole and hence individual amount cannot be determined

c. Transactions with Government having significant influence:

Central government divested its 64.92% share in Hindustan Zinc Limited in the year 2002-03. Since then, HZL is under significant influence of Government of India. Company has been allotted the biggest Zinc Mines of India, on which Royalty is paid basis the extraction done during the period. During the year, Company has availed incentives in the form of export incentive under Export promotion and credit guarantee scheme announced by the Government of India. Also, HZL has transactions with other government related entities (Public sector undertakings) including but not limited to sales and purchase of goods and ancillary materials, rendering and receiving services and use of public utilities.

d. Transactions with Related Parties’”

The details of the related party transactions entered into by the Company, for the year ended March 31, 2017 and March 31, 2016 are as follows

Note 13 FIRST TIME ADOPTION OF IND AS

These are the Company’s first financial statements prepared in accordance with Ind AS. For all periods upto and including the year ended March 31, 2015, the Company prepared its financial statements in accordance with accounting standards notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014, hereafter referred to as ‘Previous GAAP’.

Ind AS 101 First-time Adoption of Indian Accounting Standards allows first-time adopters to certain exemptions from retrospective application of certain requirements under Ind AS. The Company has in accordance with the exemptions provided, opted to capitalize stripping cost of a surface mine (incurred during the production phase) from the date of transition to Ind AS.

I. Reconciliation of Equity between IND-AS and previous GAAP

The transition from previous GAAP to Ind AS did not have any impact on total equity presented in the balance sheet of the Company. Accordingly, its total equity remained consistent at Rs.37,385 Crore.

II. Reconciliation of Profit after tax between IND-AS and previous GAAP

Notes on adjustments:

(1) Re-measurement gains or losses: Ind AS 19 Employee Benefits requires the impact of re-measurement in net defined benefit liability (asset) to be recognized in Other Comprehensive Income (OCI). Re-measurement of net defined benefit liability (asset) comprises actuarial gains and losses, return on plan assets (excluding interest on net defined benefit asset/liability). However, under IGAAP this was being recognized in the Statement of Profit and Loss. Accordingly, the net effect of actuarial gain/loss on employee defined benefit liability and related tax effect is recognized in OCI amounting to Rs.3 Crore (Rs.8 Crore).

(2) Fair valuation of financial assets: Under IGAAP, current investments were being measured at fair value in accordance with provisions of erstwhile AS 30 ‘Financial Instruments-Measurement and Recognition’. Accordingly, there are no changes with regard to fair valuation of the Company’s investments in mutual funds except for corporate and zero coupon bonds which have been classified as at FVTOCI as required under Ind AS 109 ‘Financial Instruments’.

Consequently changes in fair value of such debt instruments during the year, which were earlier accounted in the Statement of Profit and Loss under the Indian GAAP, have now been accounted for under the Other Comprehensive Income.

(3) Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in ‘other comprehensive income’ which includes effective portion of gains and losses on cash flow hedging instruments. The concept of other comprehensive income did not exist under previous GAAP.

III. Reconciliation of cash flows for the year ended March 31, 2016

The transition from previous GAAP to Ind AS did not have any impact on the statement of cash flows.


Mar 31, 2015

NOTE 1

Company Overview

Hindustan Zinc Limited (HZL or Company) was incorporated on January 10, 1966 under the laws of the Republic of India and has its registered office at Udaipur (Rajasthan). HZL''s shares are listed on National Stock Exchange and Bombay Stock Exchange. HZL is mainly engaged in the mining and smelting of zinc, lead and silver metal in India.

HZL''s operations include five zinc-lead mines, four zinc smelters, one lead smelter, one zinc-lead smelter, seven sulphuric acid plants, a silver refinery plant and five captive power plants in the state of Rajasthan. In addition, HZL also has a rock-phosphate mine in Maton near Udaipur in Rajasthan and zinc, lead & silver processing and refining facilities in the State of Uttarakhand. The Company also has wind power plants in the States of Rajasthan, Gujarat, Karnataka, Tamilnadu and Maharashtra.

In view of the scheme of amalgamation and arrangement amongst the group companies and made effective during the previous year with the effective date of August 17, 2013, Sesa Sterlite Limited became the holding Company of HZL.

NOTE 2 Contingent liability

(Rs. in Crore)

Particulars As at March 31, 2015 As at March 31, 2014

Claims against the Company not acknowledged as debts (matters pending in court or arbitration)

- Suppliers and contractors 42.07 101.80

- Ex-employees and others 306.30 123.55

- Mining cases 333.90 333.90

Guarantees issued by the banks (bank guarantees are provided under legal or contractual obligations.) 55.92 63.83

Sales tax demands (this pertains to disputes in respect of differential sales tax, classification and stock transfer issues etc. in respect of tax rate difference/ classification, stock transfer matters) 13.46 64.63

Entry tax demands (this pertains to disputes in respect of entry tax on goods.) 121.52 48.06

Income tax demands (this pertains largely to deduction and allowances claimed under Chapter VIA, etc.) 1129.18 1129.18

Excise Duty demands (this pertains to mainly admiss -ibility of cenvat credit on inputs & capital goods, captive use of intermediate goods, clearance of by products, classification of coal etc.) 465.17 142.54

Future cash out flows in respect of the above matters are determinable only on receipt of judgments or decisions pending at various forums.

NOTE 3 Commitments

a. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 1,798.48 Crore (2014: Rs. 2,684.93 Crore)

b. The Company had export obligations of Rs. 542.65 Crore (2014: Rs. 2,060.73 Crore) on account of concessional rates of import duties paid on capital goods under the Export Promotion Capital Goods Scheme enacted by the Government of India which is to be fulfilled over the next eight years or six years effective 2013-14 from purchase. If the Company is unable to meet these obligations, its liabilities currently unprovided would be Rs. 101.70 Crore (2014: Rs. 337.38 Crore) reduced in proportion to actual export. This liability is backed by the bonds executed in favour of customs department amounting to Rs. 1,088.36 Crore (2014: Rs. 1,067.78 Crore).

NOTE 4

a) The title deeds are still to be executed in respect of 10.63 acres of freehold land at Vishakhapatnam.

(b) During the previous year, the Company had commenced dismantling its assets at Vishakhapatnam Smelter plant post closure of its operations at that location, which is for use at other locations of the Company or for disposal.

NOTE 5 Joint Venture

a. The Company had access up to 31.5 million MT of coal as a partner in the joint venture ''Madanpur South Coal Company Limited'' (Madanpur JV) where it holds 18.05% of ownership interest (2014: 18.05%). During the current year, Honorable Supreme Court has passed the judgment cancelling all the coal blocks including Madanpur JV allocated since 1993 with certain exceptions. Accordingly, the Company has created 100% provision against its investment in Madanpur JV amounting to Rs. 2.81 Crore, even as the Companies interest is reported as non-current investments (Note 10).

The Company''s interest in the joint venture is reported as non-current investments (Note 10) and stated at cost, which has been fully provided for as mentioned above. The Company''s share of each of the assets, liabilities, income and expenses etc. (each without elimination of the effect of transactions between the Company and the joint venture) related to its interests in these joint ventures are:

NOTE 6 The Mines and Minerals (Development and Regulation) Amendment Act, 2015

Pursuant to introduction of ''The Mines and Mineral (Development and Regulation) Amendment Act, 2015'' during the year, which is effective from January 12, 2015, the Company has created liability in terms of Sections 9 B(6) and 9C of the Act towards proposed contribution to ''District Mineral Foundation'' and ''National Mineral Exploration Trust'' amounting to Rs. 119.98 Crore on best management estimates. Above charge to Statement of Profit and Loss has been included under Royalty expenses, which has been calculated @33% and @2% on the royalty expenses respectively.

During the year, with effect from April 1, 2014, the Company has revised the estimated useful lives of certain assets based on a technical study and evaluation of the useful life of the assets conducted in this regard and management''s assessment thereof. The details of previously applied depreciation rates and useful life and revised useful life are as follows:

Consequent to the change arising from the assessment of the useful lives of certain assets as above:

(i) The Company has fully depreciated the carrying value of assets, net of residual value, where the remaining useful life of the asset was determined to be nil as on April 1, 2014, and has adjusted an amount of Rs. 38.65 Crore (including deferred tax of Rs. 1.78 Crore) against the opening Surplus balance in the Statement of Profit and Loss under Reserves and Surplus.

(ii) As a result the net depreciation charge for the year is lower by Rs. 180.59 Crore

Matured fixed deposits of Rs. 0.08 Crore (2014: Rs. 0.08 Crore) due for transfer to Investor Education and Protection Fund have not been transferred in view of pending legal litigation between the beneficiaries.

NOTE 7 Vedanta Resources Long Term Incentive Plan (LTIP) and Employee Share Ownership Plan (ESOP) -

The Company offers equity-based award plans to its employees, officers and directors through its parent, Vedanta Resources Plc (The Vedanta Resources Long-Term Incentive Plan (''LTIP'') and Employee Share Ownership Plan (''ESOP'')).

The LTIP is the primary arrangement under which share- based incentives are provided to the defined management group. The maximum value of shares that can be awarded to members of the defined management group is calculated by reference to the balance of basic salary and share-based remuneration consistent with local market practice. The performance condition attaching to outstanding awards under the LTIP is that of Vedanta''s performance, measured in terms of Total Shareholder

Return (''TSR'') compared over a three year period with the performance of the companies as defined in the scheme from the date of grant. Under this scheme, initial awards under the LTIP were granted in February 2004 and subsequently further awards were granted in the respective years. The awards are indexed to and settled by Vedanta shares. The awards provide for a fixed exercise price denominated in Vedanta''s functional currency at 10 US cents per share, the performance period of each award is three years and the same is exercisable within a period of six months from the date of vesting beyond which the option lapse.

Vedanta has also granted an ESOP schemes that shall vest based on the achievement of business performance in the performance period. The vesting schedule is staggered over a period of three years. Under these schemes,

Vedanta is obligated to issue the shares

Further, in accordance with the terms of agreement between Vedanta and Sesa Sterlite Ltd (''SSL''), on the grant date fair value of the awards is recovered by Vedanta from SSL. SSL in turn recovers the same from the Company.

Amount recovered by SSL and recognised by the Company in the Statement of Profit and Loss for the financial year ended March 31, 2015 was Rs. 40.90 Crore (2014: Rs. 56.45 Crore). The Company considers these amounts as not material and accordingly has not provided further disclosures.

NOTE 8 Employee benefits

LONG TERM

(a) Defined Contribution Plans: Family Pension Scheme

The Company offers its employees benefits under defined contribution plans in the form of family pension scheme. Family pension scheme covers all employees on the roll. Contributions are paid during the year into the fund under statutory arrangements. The contribution to family pension fund is made only by the Company based on prescribed rules of family pension scheme. The contributions are based on a fixed percentage of the employee''s salary, subject to a ceiling, as prescribed in the respective scheme.

A sum of Rs. 6.25 Crore (2014: Rs. 3.58 Crore) has been charged to the Statement of Profit and Loss during the year.

(b) Defined benefit plans :

Provident fund

The Company offers its employees benefits under defined benefit plans in the form of provident fund scheme which covers all employees on roll. Contributions are paid during the year into ''Hindustan Zinc Limited Employee''s Contributory Provident Fund'' (''Trust''). Both the employees and the Company pay predetermined contributions into the Trust.

A sum of Rs. 25.82 Crore (2014: Rs. 23.18 Crore) has been charged to the Statement of Profit and Loss in this respect during the year.

The Company''s Trust is exempted under section 17 of Employees Provident Fund Act, 1952. The conditions for grant of exemption stipulate that the employer shall make good the deficiency, if any, between the return guaranteed by the statute and actual earning of the Trust. Based on a Guidance Note from The Institute of Actuaries - Valuation of Interest Guarantees on Exempt Provident Funds under AS 15 (Revised 2005) - for actuarially ascertaining such interest liability, there is no interest shortfall that is required to be met by the Company as of March 31, 2014 and March 31, 2015. Having regard to the assets of the Trust and the return in the investments, the Company also does not expect any deficiency in the foreseeable future.

Gratuity

The Company offers its employees, defined benefit plans in the form of gratuity. Gratuity Scheme covers all employees as statutorily required under Payment of Gratuity Act 1972. The Company has constituted a trust recognized by Income Tax authorities for gratuity to employees. The Company contributes funds to Life Insurance Corporation of India. Commitments are actuarially determined at the year-end. The actuarial valuation is done based on Projected Unit Credit Method. Gains and losses of changed actuarial assumptions are charged to the Statement of Profit and Loss under the head Employee benefits expense.

(v) The plan assets of the Company are managed by the Life Insurance Corporation of India, the details of investment relating to these assets is not available with the Company. Hence the composition of each major category of plan assets, the percentage or amount that each major category constitutes to the fair value of the total plan assets has not been disclosed.

(vii) Actuarial assumptions

The actuarial assumptions used to estimate defined benefit obligations and fair value of plan assets are based on the following assumptions which if changed, would affect the defined benefit obligation''s size and funding requirements.

The estimates of future salary increases considered in the actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. The above information is actuarially determined upon which reliance is placed by the auditors.

The details of experience adjustments arising on account of plan assets and plan liabilities as required by paragraph 120(n) (ii) of AS 15 (Revised) on "Employee Benefits" are not available in the valuation report and hence not furnished.

(ix) The contribution expected to be made by the Company during the financial year 2015-16 is Rs. 11.07 Crore.

(c) Other long term benefit plan - Compensated absences

The Company has provided for the liability on the basis of actuarial valuation as at the year end.

(iii) Note:

b) Business Segment

The Company has identified the following business segments:

- Mining and smelting of zinc, lead and silver

- Wind energy

Additional intra segment information of revenues and results for the silver metal have been provided to enhance understanding of segment business. Silver occurs in zinc & lead and is recovered in the smelting and refining process.

c) Geographical Segment

The Geographical segments considered for disclosure are as follows:

- Revenue within India includes sales to customers located within India and earnings in India

- Revenue outside India includes sales to customers located outside India and earnings outside India and export incentive benefits

NOTE 36 Related party disclosures

a. Names of related parties and description of relation:

(I) Holding companies;

Immediate & ultimate in India: Sesa Sterlite Limited Ultimate in UK: Vedanta Resources Plc. UK

(ii) Fellow subsidiaries;

Bharat Aluminium Company Limited

MALCO Energy Limited (Earlier Vedanta Aluminium Limited)

Copper Mines of Tasmania Pty Limited

Konkola Copper Mines Plc

Talwandi Sabo Power Limited

Black Mountain Mining (Proprietary) Limited

Vedanta Lisheen Mining Limited

(iii) Joint Venture- Jointly controlled entity Madanpur South Coal Company Limited

(iv) Key Managerial Personnel Mr. Akhilesh Joshi**

(v) Others Vedanta Foundation

** Appointed as CEO & Whole-time Director effective February 1, 2012

NOTE 37 Financial and derivative instruments disclosure

a) The following are the outstanding Forward Exchange Contracts entered into by the Company and outstanding as at March 31, 2015.

b) The following are the outstanding position of commodity hedging open contracts as at March 31, 2015; Zinc forwards/futures sale/buy for 3000 MT (2014: 1400 MT)

Lead forwards/futures sale/buy for 1500 MT (2014: 3525 MT)

Silver forwards / futures sale/buy for 387,459 OZ (2014: 884,626 OZ)

c) All derivative and financial instruments acquired by the Company are for hedging purposes.

d) Un-hedged foreign currency exposure ;

Arising from the announcement of ICAI on March 29, 2008, the Company has, since 2008, chosen to early adopt Accounting Standard (AS) 30 - Financial Instruments: Recognition and Measurement. Coterminous with this, in the spirit of complete adoption, the Company has also implemented the consequential limited revisions as have been announced by the ICAI in view of AS 30 to certain Accounting Standards. Accordingly, current investments which under AS-13 Accounting for Investments would have been carried at lower of cost and fair value, have been accounted for at fair value in accordance with AS-30, resulting in investments being valued as at March 31, 2015 at Rs. 3,592.65 Crore (2014 - Rs. 1486.10 Crore) above their cost and, consequently, the profit after tax for the year is higher by Rs. 1235.14 Crore (2014- higher by Rs. 806.14 Crore).

No borrowing costs are required to be capitalised during the year.

The disclosures relating to Micro, Small and Medium Enterprises have been furnished to the extent such parties have been identified on the basis of the intimation received from the suppliers regarding their status under the Micro, Small and Medium Development Act, 2006. There is no interest paid/payable as at March 31, 2015 (previous year Rs. Nil)

NOTE 9 Corporate Social Responsibility (CSR)

The provisions of Section 135 of the Companies Act, 2013 are applicable to the Company. Accordingly, the Company has incurred Rs. 59.28 Crore during the year on account of expenditure towards corporate social responsibility. No expenses have been incurred in construction of a capital asset under CSR during the year, however depreciation on assets amounting to Rs. 2.67 Crore falling under CSR assets during the earlier years have been included in above expenses. In addition to above, as outlined in Note no - 29, the Company has also provided for Rs. 119.98 Crore towards contribution to be made to the ''District Mineral Foundation'' and ''National Mineral Exploration Trust'' which is to work for the interest and benefit of persons and areas affected by mining related operations.

Previous year''s figures have been regrouped or reclassified wherever necessary to correspond with the current year''s classification or disclosure.


Mar 31, 2013

1 COMPANY OVERVIEW

Hindustan Zinc Limited (HZL or the Company) was incorporated on January 10, 1966 under the laws of the Republic of India and has its registered office at Udaipur (Rajasthan). HZL''s shares are listed on National Stock Exchange and Bombay Stock Exchange. HZL is mainly engaged in the mining and smelting of non-ferrous metals in India.

HZL''s operations include four lead zinc mines, four zinc smelters, two lead smelters, one lead zinc smelter, six sulphuric acid plants, a silver refinery plant and five captive power plants in the state of Rajasthan, one zinc smelter and a sulphuric acid plant in the state of Andhra Pradesh. In addition, HZL also has a rock-phosphate mine in Maton near Udaipur in Rajasthan and Zinc, Lead & Silver processing and refining facilities in the state of Uttarakhand. The Company also has wind power plants in the State of Rajasthan, Gujarat, Karnataka, Tamilnadu and Maharashtra.

i) 2,743,154,310 Equity Shares (2012: 2,743,154,310 ) are held by M/s. Sterlite Industries (India) Limited the holding company .The ultimate holding company is Vedanta Resourses PLC, United Kingdom (VRPLC) . No shares are held by VRPLC or its other subsidiaries or associates.

ii) Other disclosures

The Company has one class of equity shares having a par value of Rs. 2 per share. Each equity shareholder is eligible for one vote per share held. Each equity shareholder is entitled to dividends as and when declared by the Company. Interim Dividend is paid as and when declared by the Board. Final dividend is paid after obtaining shareholder''s approval. Dividends are paid in Indian Rupees.In the event of liquidation ,the equity shareholders are eligible to receive the remaining assets of the company after distribution of all preferential amount in proportion to their shareholding .

During the year ended March 31, 2013, the amount of per share final dividend recognised as distribution to equity shareholders was Rs. 1.50 per share (2012 : Rs. 0.90 per share)

2A Towards the year end, on March 30, 2013, the Company has entered into a share purchase agreement with a buyer for the sale of its entire equity investments in Andhra Pradesh Gas Power Corporation Limited (APGPCL) for an aggregate consideration of Rs. 110 Crores, subject to the approval of the Board of APGPCL. Pursuant to the said agreement, Investments aggregating to Rs. 98.41 Crores which were hitherto reflected as intangible assets at cost and amortised, have been reclassified as at the year end as Current Investments -Available for sale at fair value , with the gain on fair valuation aggregating to Rs. 11.59 Crores taken to the investment revaluation reserve , and the cummulative amortisation charge aggregating to Rs. 56.42 Crores (Rs. 51.72 Crores for prior years and Rs. 4.70 Crores for the year end) being adjusted in depreciation and amortisation expenses in the Statement of Profit and Loss. The said transfer of investments has since been approved by APGPCL subsequent to the year end on April 10, 2013 and the sale has been concluded as on that date.

3 COMMITMENTS

a) Estimated amount of contracts remaining to be executed on capital account not provided for Rs. 2777.67 Crores (2012: Rs. 796.93 Crores)

b) The Company had export obligations of Rs. 1,676.21 Crores (2012: Rs. 1,664.75 Crores) on account of concessional rates of import duties paid on capital goods under the Export Promotion Capital Goods Scheme enacted by the Government of India which is to be fulfilled over the next eight years. If the Company is unable to meet these obligations, its liabilities currently un-provided would be Rs. 247.24 Crores (2012: Rs. 239.31 Crores) reduced in proportion to actual export. This liability is backed by the bonds executed in favour of customs department amounting to Rs. 1133.96 Crores (2012: Rs. 1345.72 Crores).

4. The title deeds are still to be executed in respect of 10.63 acres of freehold land at Vishakhapatnam.

5. JOINT VENTURE

a. The Company has access upto 31.5 million tonnes of coal as a partner in the joint venture "Madanpur South Coal Company Limited" where it holds18.05% of ownership interest (2012: 18.05%).

6. AIMiral Matured fixed deposits of Rs. 0.08 Crores (2012: Rs. 0.08 Crores) due for transfer to Investor Education and Protection Fund have not been transferred in view of pending legal litigation between the beneficiaries.

7. VEDANTA RESOURCES LONG TERM INCENTIVE PLAN (LTIP)

The Company offers equity-based award plans to its employees, officers and directors through its ultimate parent, Vedanta Resource Plc (The Vedanta Resources Long-Term Incentive Plan (the "LTIP").

The LTIP is the primary arrangement under which share-based incentives are provided to the defined management group. The maximum value of shares that can be awarded to members of the defined management group is calculated by reference to the balance of basic salary and share-based remuneration consistent with local market practice. The performance condition attaching to outstanding awards under the LTIP is that of Vedanta''s performance, measured in terms of Total Shareholder Return ("TSR") compared over a three year period with the performance of the companies as defined in the scheme from the date of grant.

Under this scheme, initial awards under the LTIP were granted in February 2004 and subsequently further awards were granted in the respective years. The awards are indexed to and settled by Vedanta shares. The awards provide for a fixed exercise price denominated in Vedanta''s functional currency at 10 US cents per share, the performance period of each award is three years and the same is exercisable within a period of six months from the date of vesting beyond which the option lapse. During the year, Vedanta has granted a new LTIP tranche that shall vest based on the achievement of business performance in the performance period. The vesting schedule is staggered over a period of three years.

Under the scheme, Vedanta is obligated to issue the shares and the grant date fair value of the awards is recovered by Vedanta from the Company.

Amount recovered by Vedanta and recognised by the Company in the Statement of Profit and Loss for the financial year ended March 31, 2013 was Rs. 37.36 Crores (2012: Rs. 23.78 Crores). The Company considers these amounts as not material and accordingly has not provided further disclosures.

8. EMPLOYEE BENEFITS Long term

(a) Defined Contribution Plans : Provident Fund and Family Pension Scheme

The Company offers its employees benefits under defined contribution plans in the form of provident fund and family pension scheme. Provident fund and family pension scheme cover all employees on roll. Contributions are paid during the year into separate funds under certain statutory or fiduciary type arrangements. While both the employees and the Company pay predetermined contributions into the provident fund, the contribution to family pension fund is made only by the Company based on prescribed rules of family pension scheme. The contributions are based on a fixed percentage of the employee''s salary prescribed in the respective scheme.

The Company''s provident fund is exempted under section 17 of Employees Provident Fund Act, 1952. The conditions for grant of exemption stipulate that the employer shall make good the deficiency, if any, between the return guaranteed by the statue and actual earning of the Fund. Based on a Guidance Note from The Institute of Actuaries - Valuation of Interest Guarantees on Exempt Provident Funds under AS 15 (Revised 2005) - for actuarially ascertaining such interest liability, there is no interest shortfall that is required to be met by the Company as of March 31, 2012 and March 31, 2013. Having regard to the assets of the Fund and the return in the investments, the Company also does not expect any deficiency in the foreseeable future and hence operates the Provident Fund Scheme as a defined contribution plan.

(b) Defined benefit plans : Gratuity

The Company offers its employees, defined benefit plans in the form of gratuity. Gratuity Scheme covers all employees as statutorily required under Payment of Gratuity Act 1972. The Company has constituted a trust recognised by Income Tax authorities for gratuity to employees. The Company contributes funds to Life Insurance Corporation of India. Commitments are actuarially determined at the year-end. The actuarial valuation is done based on "Projected Unit Credit" method. Gains and losses of changed actuarial assumptions are charged to the Statement of Profit and Loss under the head Employee benefits expense.

(v) The plan assets of the Company are managed by the Life Insurance Corporation of India, the details of investment relating to these assets is not available with the Company. Hence the composition of each major category of plan assets, the percentage or amount that each major category constitutes to the fair value of the total plan assets has not been disclosed.

The estimates of future salary increases considered in the actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. The above information is actuarially determined upon which reliance is placed by the auditors.

The details of experience adjustments arising on account of plan assets and plan liabilities as required by paragraph 120(n)(ii) of AS 15 (Revised) on "Employee Benefits" are not available in the valuation report and hence not furnished.

(ix) The contributions expected to be made by the Company during the financial year 2013-14 are Rs. 13.43 Crores (FY2013: Rs. 5.19 Crores)

(c) Other long term benefit plan -Compensated absences

The Company has provided for the liability on the basis of actuarial valuation as at the year end

(iii) Note :

a) Business Segment

The Company has identified the following business segments:

- Mining and smelting of Zinc, Lead and Silver.

- Wind energy.

Additional intra segment information of revenues and results for the silver metal have been provided to enhance understanding of segment business. Silver occurs in Zinc & Lead and is recovered in the smelting and silver refining process.

b) Geographical Segment

The Geographical segments considered for disclosure are as follows:

- Revenue within India includes sales to customers located within India and earnings in India.

- Revenue outside India includes sales to customers located outside India and earnings outside India.

b) For hedging commodity related risks

Zinc forwards/futures sale for10,350 MT (2012: 12,150 MT)

Lead forwards/futures sale for 9,300 MT (2012: 1,550 MT)

Silver forwards / futures sale for 5,71,407 OZ (2012: 42,740 OZ)

c) All derivative and financial instruments acquired by the Company are for hedging purposes.

9. Arising from the announcement of ICAI on March 29, 2008, the Company has, since 2008, chosen to early adopt Accounting Standard (AS) 30 - Financial Instruments: Recognition and Measurement. Coterminous with this, in the spirit of complete adoption, the Company has also implemented the consequential limited revisions as have been announced by the ICAI in view of AS 30 to certain Accounting Standards. Accordingly, current investments which under AS-13 Accounting for Investments would have been carried at lower of cost and fair value, have been accounted for at fair value in accordance with AS-30, resulting in investments being valued as at March 31, 2013 at Rs. 550.66 Crores (As at March 31, 2012

- Rs. 268.44 Crores) above their cost and, consequently, the profit after tax for the year is higher by Rs. 178.65 Crores (2012: higher by Rs. 13.22 Crores).

(a) Exceptional item represents the amount incurred on Voluntary Retirement Scheme in respect of Zinc, Lead and Silver segment.

(b) No borrowings costs are required to be capitalised during the year.

10 The disclosures relating to Micro ,Small and Medium Enterprises has been furnished to the extent such parties have been identified on the basis ofthe intimation received from the suppliers regarding their status under the Micro, Small and Medium Development Act, 2006 (the Act). There is no interest paid/payable as at March 31,2013

11 Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure


Mar 31, 2012

COMPANY OVERVIEW

Hindustan Zinc Limited (HZL) was incorporated on January 10, 1966 under the laws of the Republic of India and has its registered office at Udaipur (Rajasthan). HZL's shares are listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). HZL is engaged mainly in non-ferrous metals and mining in India.

HZL's operations include four Lead Zinc mines, four Zinc smelters, two Lead smelters, one Lead Zinc smelter, six Sulphuric Acid plants, a silver refinery plant and five captive power plants in the state of Rajasthan, one Zinc smelter and a Sulphuric Acid plant in the state of Andhra Pradesh. In addition, HZL also has a rock- phosphate mine in Maton near Udaipur in Rajasthan and Zinc, Lead & Silver refining facilities in the State of Uttarakhand. The Company also has wind power plants in the States of Rajasthan, Gujarat, Karnataka, Tamilnadu and Maharashtra.

i) 2,743,154,310 Equity Shares (FY2011: 2,743,154,310 ) are held by M/s. Sterlite Opportunities and Ventures Limited (SOVL), the holding company. SOVL is a subsidiary of Sterlite Industries (India) Limited and the ultimate holding company is Vedanta Resourses PLC, United Kingdom (VRPLC) . No shares are held by VRPLC or its other subsidiaries or associates.

ii) Other disclosures

The Company has one class of equity shares having a par value of Rs 2 per share. Each equity shareholder is eligible for one vote per share held. Each equity shareholder is entitled to dividends as and when declared by the Company .Interim dividend is paid as and when declared by the Board .Final dividend is paid after obtaining shareholder's approval. Dividends are paid in Indian Rupees.

During the year ended March 31, 2012, the amount of per share final dividend recognised as distribution to equity shareholders was Rs 0.90 per share (FY2011 : Rs 1 per share)

Of the above the balance that meet the definition of cash and cash equivalents as per Accounting Standard 3: Cash flow statement .

Note -

Balances with banks include deposits amounting to Rs 4,875 Crores (FY2011: Rs 5,055 Crores) which have an original maturity of more than twelve months.

CONTINGENT LIABILITY (Rs in Crores)

Particulars As at March 31, As at March 31, 2012 2011

Claims against the Company not acknowledged as debts (Matters pending in court / arbitration. No cash out flow is expected in future)

- Suppliers and contractors 61.20 64.59

- Employees, ex-employees and others 59.97 19.93

- Land Tax 0.27 0.27

- Mining cases 333.90 333.90

Guarantees issued by the banks 62.24 46.02

(Bank guarantees are provided under legal / contractual obligation. No cash out flow is expected in future)

Sales tax demands 65.14 34.78 (This pertain to disputes in respect of tax rate difference / classification, stock transfer matters. No cash out flow is expected in future)

Entry tax demands 27.42 (This pertain to disputes in respect of entry tax on goods. No cash out flow is expected in future)

Income tax 749.92 556.86 (No cash out flow is expected in future)

Excise Duty demands 70.52 71.19 (This pertain to modvat / cenvat credit availed on inputs, capital goods, alleged duty demand on captive use of the goods. No cash out flow is expected in future)

Claim for compensation (CLZS land) Not Not ascertainable ascertainable

Estimated amount of contracts remaining to be executed on capital account not provided for Rs 796.93 Crores (FY2011: Rs 643.64 Crores)

The Company had export obligations of Rs 1,664.75 Crores (FY2011: Rs 2,504.45 Crores) on account of concessional rates of import duties paid on capital goods under the Export Promotion Capital Goods Scheme enacted by the Government of India which is to be fulfilled over the next eight years. If the Company is unable to meet these obligations, its liabilities currently unprovided would be Rs 239.31 Crores (FY2011: Rs 360.01 Crores) reduced in proportion to actual export.

The title deeds are still to be executed in respect of 10.63 acres of freehold land at Vishakapatnam.

Joint Venture

a. The Company has access to upto 31.5 Million tonnes of coal as a partner in the joint venture "Madanpur South Coal Company Limited" where it holds 18.05% of ownership interest (FY2011: 18.05%).

Matured fixed deposits of Rs 0.08 Crores (FY2011 : Rs 0.08 Crores) due for transfer to Investor Education and Protection Fund have not been transferred in view of pending legal litigation between the beneficiaries.

VEDANTA RESOURCES LONG TERM INCENTIVE PLAN (LTIP)

The Company offers equity-based award plans to its employees, officers and directors through its parent, Vedanta Resource Plc ("Vedanta").

The LTIP is the primary arrangement under which share-based incentives are provided to the defined management group. The maximum value of shares that can be awarded to members of the defined management group is calculated by reference to the balance of basic salary and share-based remuneration consistent with local market practice. The performance condition attaching to outstanding awards under the LTIP is that of Vedanta's performance, measured in terms of Total Shareholder Return ("TSR") compared over a three year period with the performance of the companies as defined in the scheme from the date of grant.

Under this scheme, initial awards under the LTIP were granted in February 2004 with further awards being made in June 2004, November 2004, February 2006, November 2007, February 2009, August 2009, January 2010, July 2010, October 2010, January 2011 and August 2011. The awards are indexed to and settled by Vedanta shares. The awards provide for a fixed exercise price denominated in Vedanta's functional currency at 10 US cents per share, the performance period of each award is three years and the same is exercisable within a period of six months from the date of vesting beyond which the option lapse. Under the scheme, Vedanta is obligated to issue the shares and the grant date fair value of the awards is recovered by Vedanta from the Company.

Amount recovered by Vedanta and recognised by the Company in the Statement of Profit and Loss for the financial year ended March 31, 2012 was Rs 23.78 Crores (FY2011: Rs 15.52 Crores). The Company considers these amounts as not material and accordingly has not provided further disclosures.

EMPLOYEE BENEFITS

Long term

(a) Defined Contribution Plans : Provident Fund and Family Pension Scheme

The Company offers its employees benefits under defined contribution plans in the form of provident fund and family pension scheme. Provident fund and family pension scheme cover all employees on roll. Contributions are paid during the year into separate funds under certain statutory / fiduciary type arrangements. While both the employees and the Company pay predetermined contributions into the provident fund, the contribution to family pension fund is made only by the Company based on prescribed rules of family pension scheme. The contributions are based on a fixed percentage of the employee's salary prescribed in the respective scheme.

A sum of Rs 24.80 Crores (FY2011: Rs 22.03 Crores) has been charged to the Statement of Profit and Loss in this respect, the components of which are tabulated below:

The Company's provident fund is exempted under section 17 of Employees Provident Fund Act, 1952. Conditions for grant of exemption stipulates that the employer shall make good the deficiency, if any, between the return guaranteed by the statue and actual earning of the Fund. Based on a Guidance Note from The Institute of Actuaries - Valuation of Interest Guarantees on Exempt Provident Funds under AS 15 (Revised 2005) - for actuarially ascertaining such interest liability, there is no interest shortfall that is required to be met by the Company as of March 31, 2011 and March 31, 2012. Having regard to the assets of the Fund and the return in the investments, the Company also does not expect any deficiency in the foreseeable future.

(b) Defined benefit plans : Gratuity

The Company offers its employees, defined benefit plans in the form of gratuity schemes. Gratuity Scheme covers all employees as statutorily required under Payment of Gratuity Act 1972. The Company has constituted a trust(s) recognised by Income Tax authorities for gratuity to employees. The Company contributes funds to Life Insurance Corporation of India. Commitments are actuarially determined at the year end. The actuarial valuation is done based on "Projected Unit Credit" method. Gains and losses of changed actuarial assumptions are charged to the Statement of Profit and Loss under the head Employee benefits expense.

(iii) Since the plan assets of the Company are managed by the Life Insurance Corporation of India, the details of investment relating to these assets is not available with the Company. Hence the composition of each major category of plan assets, the percentage or amount that each major category constitutes to the fair value of the total plan assets has not been disclosed.

The estimates of future salary increases considered in the actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. The above information is actuarially determined upon which reliance is placed by the auditors.

The details of experience adjustments arising on account of plan assets and plan liabilities as required by paragraph 120(n) (ii) of AS 15 (Revised) on "Employee Benefits" are not readily available in the valuation statement for the year 2007-08 received from Charan Gupta Consultants Pvt. Ltd. and hence, are not furnished.

(iv) The contributions expected to be made by the Company during the financial year FY2013 are Rs 5.19 Crores (FY2011 : Rs 9.55 Crores)

During the financial year FY2011 the existing Equity Shares of Rs 10 /- each were subdivided into 5 equity shares of Rs 2 /- each, and bonus shares in the ratio of 1 : 1 (post split) were allotted on March 9, 2011.

(V) Note :

a) Business Segment

The Company has identified the following business segments:

- Mining and smelting of Zinc, Lead and Silver.

- Wind Energy.

Additional intra segment information of revenues and results for the silver metal have been provided to enhance understanding of segment business. Silver occurs in Zinc & Lead and is recovered in the smelting and silver refining process.

b) Geographical Segment

The Geographical segments considered for disclosure are as follows:

- Revenue within India includes sales to customers located within India and earnings in India.

- Revenue outside India includes sales to customers located outside India and earnings outside India.

b) For hedging commodity related risks :-

Zinc forwards / futures sale for 12,150 MT (FY2011:4,925 MT)

Lead forwards / futures sale for 1,550 MT (FY2011: Nil)

Silver forwards / futures sale for 42,740 OZ (FY2011: Nil)

c) All derivative and financial instruments acquired by the Company are for hedging purposes.

d) Unhedged foreign currency exposure

Intangible assets represents Rs 98.41 Crores (FY2011 : Rs 98.41 Crores) being long-term investment in equity shares of Andhra Pradesh Gas Power Corporation Limited, Hyderabad, which entitles the Company to draw power in Andhra Pradesh for its Vishakapatnam unit. This has been amortised as a fixed asset. Amortisation for the year is Rs 4.67 Crores (FY2011 : Rs 4.67 Crores.), cumulative Rs 51.72 Crores (FY2011 : Rs 47.05 Crores).

The Company is an early adopter of Accounting Standard 30 - Financial Instruments: Recognition and Measurement effective April 1, 2007. Coterminous with this, in the spirit of complete adoption, as have been announced by the ICAI, the Company has also implemented the consequential limited revisions in view of AS-30 to certain Accounting Standards.

Accordingly, current investments which under AS-13 Accounting for Investments are carried at the lower of cost and fair value, have been accounted for at fair value resulting in investment being valued at Rs 268.44 Crores (FY2011 Rs 248.73 Crores) above their cost and the profit before tax for the year is higher by Rs 19.71 Crores (FY2011: higher by Rs 143.72 Crores).

Exceptional item represents the amount incurred on Voluntary Retirement Scheme in respect of Zinc, Lead and Silver segment.

The disclosures relating to Micro ,Small and Medium Enterprises has been furnished to the extent such parties have been identified on the basis of the intimation received from the suppliers regarding their status under the Micro, Small and Medium Development Act, 2006 (the Act). There is no interest paid/payable as at March 31, 2012

The Revised Schedule VI has become effective from April 1, 2011 for the preparation of financial statements. This has significantly impacted the disclosure and presentation made in the financial statements. Previous year's figures have been regrouped / reclassified wherever necessary to correspond with the current year's classification / disclosure.


Mar 31, 2011

1. Contingent Liability: (Rs. in Crores)

As at 31st March As at 31st March 2011 2010

Claims against the Company not acknowledged as debts (Matters pending in court/ arbitration. No cash out flow is expected in future)

- Suppliers and contractors 64.59 60.62

- Employees, ex-employees and others 19.93 12.83

- Land Tax 0.27 0.27

- Mining cases 333.90 333.90

Guarantees issued by the banks

(Bank guarantees are provided under legal/contractual obligation.

No cash out flow is expected in future) 46.02 27.91

Sales tax demands

(This pertain to disputes in respect of tax rate diference/classifcation, stock transfer matters. No cash out flow is expected in future) 34.78 37.02

Income tax

(No cash out flow is expected in future) 556.86 396.64

Excise Duty demands

(This pertain to Modvat/Cenvat credit availed on inputs, capital goods, alleged duty demand on captive use of the goods.

No cash out flow is expected in future) 71.19 49.09

Bills Discounted

(No cash out flow is expected in future) 345.11 105.81

Claim for compensation (CLZS land) Not ascertainable Not ascertainable

2. Estimated amount of contracts remaining to be executed on capital account not provided for Rs. 643.64 Crores (2010: Rs. 470.40 Crores)

3. The Company has export obligations of Rs. 360.00 Crores (2010 : Rs. 465.37 Crores) against the import licenses taken for import of capital goods under Export Promotion Capital Goods & Advance License Scheme.

4. The title deeds are still to be executed in respect of 10.63 acres of freehold land at Vishakapatnam.

5. Joint Venture :

a. The Company has access upto 31.5 million tonnes of coal as a partner in the joint venture “Madanpur South Coal Company Limited” where it holds 18.05% of ownership interest (2010 : 18.05%).

6. Matured fixed deposits of Rs. 0.08 Crore (2010: Rs. 0.08 Crores) due for transfer to Investor Education and Protection Fund have not been transferred in view of pending legal litigation between the beneficiaries.

7. Long-term Incentive Plan (LTIP)

The Company offers equity-based award plans to its employees, officers and directors through its parent, Vedanta (The Vedanta Resources Long-term Incentive Plan (the “LTIP”).

The LTIP is the primary arrangement under which share-based incentives are provided to the defined management group. The maximum value of shares that can be awarded to members of the defined management group is calculated by reference to the balance of basic salary and share-based remuneration consistent with local market practice. The performance condition attaching to outstanding awards under the LTIP is that of Vedantas performance, measured in terms of Total Shareholder Return (“TSR”) compared over a three year period with the performance of the companies as defined in the scheme from the date of grant.

Under this scheme, initial awards under the LTIP were granted in February 2004 with further awards being made in June 2004, November 2004, February 2006, November 2007, August 2009, January 2010, July 2010, October 2010 and January 2011. The awards are indexed to and settled by Vedanta shares. The awards provide for a fixed exercise price denominated in Vedantas functional currency at 10 US cents per share, the performance period of each award is three years and the same is exercisable within a period of six months from the date of vesting beyond with the option lapse. Under the scheme, Vedanta is obligated to issue the shares. Further, in accordance with the terms of agreement between Vedanta and SIIL, the grant date fair value of the awards is recovered by Vedanta from SIIL.

Amount recovered by Vedanta and recognised by the Company in the statement of income for the financial year ended 31 March 2010 and 2011 was Rs. 11.14 Crores and Rs. 15.52 Crores respectively. The Company considers these amounts as not material and accordingly has not provided further disclosures.

8. Employee benefits Long-term

(a) Defined Contribution Plans: Provident Fund and Family Pension Scheme

The Company ofers its employees benefts under defned contribution plans in the form of provident fund and family pension scheme. Provident fund and family pension scheme cover all employees on roll. Contributions are paid during the year into separate funds under certain statutory/fduciary type arrangements. While both the employees and the Company pay predetermined contributions into the provident fund, the contribution to family pension fund is made only by the Company based on prescribed rules of family pension scheme. The contributions are based on a fixed percentage of the employees salary prescribed in the respective scheme.

15. Intangible assets represents Rs. 98.41 Crores (2010 : Rs. 98.41 Crores) being long-term investment in equity shares of Andhra Pradesh I Gas Power Corporation Limited, Hyderabad, which entitles the Company to draw power in Andhra Pradesh for its Vishakapatnam I unit. This has been amortised as a fixed asset. Amortisation for the year is Rs. 4.67 Crores (2010 : Rs. 4.67 Crores.), cumulative I Rs.47.05 Crores (2010 : Rs. 42.38 Crores).

16. Arising from the Announcement of the Institute of Chartered Accountants of India (ICAI) on 29 March 2008, the Company I has, since 2007-08, chosen to early adopt Accounting Standard (AS) 30, Financial Instruments: Recognition and Measurement. I Coterminous with this, in the spirit of complete adoption, as have been announced by the ICAI, the Company has also implemented I the consequential limited revisions in view of AS-30 to certain Accounting Standards.

Accordingly, current investments which under AS-13 Accounting for Investments are carried at the lower of cost and fair value, I have been accounted for at fair value resulting in investment being valued at Rs. 248.73 Crores (2010 : Rs. 105.01 Crores) above their I cost and the profit before tax for the year is higher by Rs. 143.72 Crores (2010 : higher by Rs. 0.60 Crore).

17. Exceptional item represents the amount incurred on Voluntary Retirement Scheme in respect of Zinc, Lead and Silver segment.

18. Previous years figures have been regrouped and rearranged, wherever necessary.


Mar 31, 2010

1. Contingent Liability: (Rsincrore)

As at As at

31/03/2010 31/03/2009

Claims against the company not acknowledged as debts (Matters pending in court/arbitration. No cash out flow is expected in future) -Suppliers and contractors 60.62 40.11 -Employees, ex-employees and others 12.83 16.37 -Land Tax 0.27 0.27

Guarantees issued by the banks (Bank guarantees are provided under legal/contractual obligation. No cash out flow is expected in future) 27.91 25.91

Sales tax demands (This pertain to disputes in respect of tax rate difference/classification, stock transfer matters. No cash out flow is expected in future) 37.02 26.45

Income tax (No cash out flow is expected in future) 396.64 IO6.76

Excise Duty demands (This pertain to

Modvat/Cenvat credit availed on inputs, capital

goods, alleged duty demand on captive use of

the goods. No cash out flow is expected

in future) 49.09 46.52

Bills Discounted (No cash out flow is

expected in future) 105.81 20790

Claim for compensation (CLZS land) Not ascertainable Not

ascertainable

2. Estimated amount of contracts remaining to be executed on capital account not provided for Rs 470.40 crore (2009: Rs 1492.31 crore).

3. The Company has export obligations of Rs 465.37 crore (previous year Rs 460.41 crore) against the import licenses taken for import of capital goods under Export Promotion Capital Goods & Advance License Scheme.

4. The title deeds are still to be executed in respect of IO.63 acres of freehold land at Vishakapatnam.

5. Additions to fixed assets and year end capital work in progress include Foreign Exchange loss Rs nil crore (2009: Rs 2.83 crore).

6. During the year,Company has borrowed money byway of commercial paper, the amount outstanding as at March 31,2010 is Rs nil (2009: Rs nil) and maximum amount raised at anytime during the year is Rs 500 crores (2009: Rs nil).

7. Matured fixed deposits of Rs 0.08 crore (2009: Rs 0.08 crore) due for transfer to Investor Education and Protection Fund have not been transferred in view of pending legal litigation between the beneficiaries.

8. Long Term Incentive Plan (LTIP)

Ultimate Parent company (Vedanta Resources pic or Vedanta) of the Company offers equity-based award plans to its employees, officers and directors based on the performance conditions as set out in the scheme. The performance condition attached to outstanding awards under the LTIP is that of Vedantas performance, measured in terms of Total Shareholder Return (TSR) compared over a three year period or such period as the Board of Vedanta may determine with the performance of the companies as defined in the scheme from the date of grant. Under this scheme, initial awards under the LTIP were granted in February 2004 with further awards being made in June 2004, November 2004, February 2006, November 2007, February 2009,August 2009 and January 2010.

The fair values were calculated using a Monte Carlo model with suitable modifications to allow for the specific performance conditions of the LTIP. The inputs to the model include the share price at date of grant, exercise price, expected volatility, expected dividends and the risk free rate of interest. A progressive dividend growth policy is assumed in all fair value calculations. Expected volatility has been calculated using historical share prices over the period to date of grant that is commensurate with the performance period of the option. The share prices of the mining companies in the Adapted Comparator Group have been modelled based on historical price movements over the period to date of grant which is also commensurate with the performance period for the option. The history of share prices is used to determine the volatility and correlation of share prices for the companies in the Adapted Comparator Group and is needed for the Monte Carlo simulation of their future TSR performance relative to the Companys TSR performance. All options are assumed to be exercised six weeks after vesting.

The awards are indexed to and settled by Vedanta shares. The awards provide for a fixed exercise price denominated in Vedantas functional currency at 10 US cents per share. Vedanta is obligated to issue the shares. In accordance with the terms of agreement between Vedanta and Sterlite Industries (India) Ltd (Sterlite), the grant date fair value of the awards is recovered by Vedanta from Sterlite. Accordingly, Sterlite, on the basis of fair value of options granted to the Company employees charged a proportionate cost to the Company in the amount of Rs 11.14 Crores (Previous Year Rs 1979 Crores) which is charged to the Profit & Loss Account under the head Employee remuneration and benefits.

The ultimate parent Company Vedanta has obtained an overall valuation of the options granted by it to Sterlite group. Hence the information related to options granted to the eligible employees of the Company is not readily available and accordingly the movement in options have not been disclosed.

9. Employee Benefits

Long Term

a) Defined Contribution Plans: Provident Fund and Family Pension Scheme

The Company offers its employees benefits under defined contribution plans in the form of provident fund and family pension scheme.

Provident fund and family pension scheme cover all employees on roll. Contributions are paid during the year into separate funds under certain statutory/fiduciary type arrangements. While both the employees and the Company pay predetermined contributions into the provident fund, the contribution to family pension fund is made only by the Company based on prescribed rules of family pension scheme. The contributions are based on a fixed percentage of the employees salary prescribed in the respective scheme.

The Companys provident fund is exempted under section 17 of Employees Provident Fund Act, 1952. Conditions for grant of exemption stipulates that the employer shall make good deficiency, if any, in the interest rate declared by Trust over statutory limit. Having regard to the assets of the Fund and the return in the investments, the Company does not expect any deficiency in the foreseeable future.

The Guidance on implementing AS 15 (revised 2005) issued by the Accounting Standards Board states that benefit plans involving employer established provident funds, which require interest shortfall to be recompensed are to be considered as defined benefit plan. Pending the issuances of the guidance note from the actuarial society of India, the Companys actuary has expressed an inability to reliably measure provident fund liabilities. Accordingly the Company is unable to exhibit the related information.

b) Defined benefit plans: Gratuity

The Company offers its employees, defined benefit plans in the form of gratuity schemes. Gratuity Scheme covers all employees as statutorily required under Payment of Gratuity Act 1972. The Company has constituted a trust(s) recognised by Income Tax authorities for gratuity to employees. The Company contributes funds to Life Insurance Corporation of India. Commitments are actuarially determined at the year end. The actuarial valuation is done based on Projected Unit Credit method. Gains and losses of changed actuarial assumptions are charged to the profit and loss account under the head Personnel Costs.

The details of experience adjustments arising on account of plan assets and plan liabilities as required by paragraph 120(n)(ii) of AS 15 (Revised) on Employee Benefits are not readily available in the valuation statement for the year 2007-08 received from Charan Gupta Consultants Pvt Ltd. and hence, are not furnished.

(iii) Note:

a) Business Segment:

The Company is engaged in the business of mining and smelting of zinc, lead & silver operations. The company has also entered into wind energy business; however, its operations for the year are within the threshold limits stipulated under AS-17Segment Reporting and hence it does not require disclosure as a separate reportable segment. In the previous year, the Company operated in a single segment of mining and smelting of zinc and lead operations.

b) Geographical Segment

The Geographical segments considered for disclosure are as follows:

-Revenue with in India includes sales to customers located within India and earnings in India.

- Revenue outside India includes sales to customers located outside India and earnings outside India.

Note: 1 represents transaction with Sterlite Opportunities and Ventures Limited

2 represents transaction with Sterlite Industries (India) Limited

3 represents transaction with Bharat Aluminium Company Limited and SESA Goa Ltd

10. Intangible assets represents Rs 98.41 crore (2009: Rs 98.41 crore) being long term investment in equity shares of Andhra Pradesh Gas Power Corporation Limited, Hyderabad, which entitles the company to draw power in Andhra Pradesh for its Vishakapatnam unit. This has been amortised as a fixed asset. Amortisation for the year is Rs 4.67 crore (2009: Rs 4.67 crore.), cumulative Rs 42.38 crore (2009: Rs 3771 crore).

11. Arising from the Announcement of the Institute of Chartered Accountants of India (ICAI) on 29 March 2008, the Company has chosen to early adopt Accounting Standard 30, Financial Instruments: Recognition and Measurement. Coterminous with this, in the spirit of complete adoption, the Company has also implemented the consequential limited revisions in view of AS-30 to certain Accounting Standards as have been announced by the ICAI. Consequent to this adoption, current investments which under AS-13 Accounting for Investments are carried at the lower of cost and fair value, have been accounted for at fair value resulting in investment being valued at Rs 105.01 crore (2009 Rs 10441 crore) above their cost and the profit before tax being higher by Rs 0.60 crore (2009 lower by Rs 24743 crore).

12. The disclosures relating to Micro, Small and Medium Enterprises has been furnished to the extent such parties have been identified on the basis of the intimation received from the suppliers regarding their status under the Micro, Small and Medium Development Act, 2006 (the Act). There is no interest paid/payable as at 31 March 2010

SNo. Particulars 2010 2009

1 Amount Outstanding 4.76 0.32

2 Interest Outstanding

13. Previous years figures have been regrouped and rearranged, wherever necessary.

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