7 March 2011

Vedanta Group

The InSites
Takeaways from site visits

Silver lining amid uncertainties

Vedanta group all-India site visit takeaways

During March 1-4, we visited mines and plant sites of Vedanta group of companies
across India. The companies covered were (1) Hindustan Zinc, (2) Sterlite Energy,
(3) Vedanta Aluminium and (4) Sesa Goa. We present our key takeaways below.

Hindustan Zinc: SK mines ahead of schedule

 We were positively surprised by the progress of Hindustan Zinc's (HZ IN, Mkt
Cap US$12.5b, CMP Rs131, Buy) silver-rich SK mines, where the expansion is running ahead of schedule.
 HZL is targeting silver production of 400 tons v/s our estimate of 270 tons in FY12.
 Cost of production will remain constant despite deepening of mines as stripping ratio will come down.
 We are keeping our estimates unchanged for now but we will look to upgrade as we see ramp-up of sliver production.

Sterlite Energy: Ramp-up delayed

 Sterlite Energy's power plant ramp-up has been delayed in past due to bottlenecks in evacuation of power. With 950-
1,000MW of transmission capacity in place now, generation ramp-up at 1,200MW can be expected.
 Sterlite Energy's 2 units of 600MW each will start commercial production from April 2011. Other 2 units of 600MW
each are scheduled to start in September and December 2011, but risk of delay remains.
 We have factored average of 1,500MW to be available for FY12, which looks achievable but we need to monitor the
projects carefully.

Vedanta Aluminium and Balco: Smelters on hold

 VAL's 1.25mtpa smelter is 80% complete but put on hold due to shortage of alumina and better margins in selling
power. VAL will continue to operate only 500ktpa smelter and 1mtpa refinery. Captive power plant gets 35% of its
coal requirement through linkages.
 Cost of production of aluminium is US$1,750-1,800/ton. Balco's landed cost of alumina converted by VAL from its
captive bauxite is US$300/ton.
 Balco's 1,200MW project is on track, while 325ktpa smelter is put on hold. Captive coal mine is expected to start
production by December 2011 subject to getting permissions.

Sesa Goa: thrust on R&R

 Sesa Goa (SESA IN, Mkt Cap US$5.4b, CMP Rs272, Buy) indicated that
R&R would be enhanced at year-end. Sterlite Inds: SOTP valuation (FY12, Rs b)
Equity Stake Attrib. Rs/
 It remains keen on expansion to 40mtpa subject to permissions.
value (%) equity share
Infrastructure investment in Orissa in on track. Stand-alone 31 100 31 9
 Sesa currently is trading at unjustified discount to DCF valuations of Hindustan Zinc 600 64.9 389 116
Rs319 (assuming long-term iron ore prices of US$120/dmt on fob basis). Balco 61 51 31 9
CMT 45 100 45 13
Valuation and view VAL - 29.5 - -
 We believe Hindustan Zinc and Sesa Goa are trading at attractive Skorpion Zinc 41 100 41 12
Lisheen Zinc 45 100 45 13
valuations with upside risk to our estimates.
Black Mountain Zinc 23 75 17 5
 Sterlite Industries (STLT IN, Mkt Cap US$12.4b, CMP Rs166, Buy) is
Sterlite Energy 143 100 143 43
likely to post strong EPS growth of 76.3% to Rs22.5 in FY12 due to SOTP 990 743 221
growth in HZL, Anglo, Balco and Sterlite Energy businesses. Note: - Aluminum prices US$2,200/ton, zinc & lead
 We have a Buy rating on HZL, Sesa Goa and Sterlite Industries. prices = US$2,200/ton Source: Company/MOSL

Sanjay Jain (SanjayJain@MotilalOswal.com); Tel: +91 22 3982 5412

Tushar Chaudhari (Tushar.Chaudhari@MotilalOswal.com); +91 22 3982 5425
 The InSites

Day 1 at Jharsuguda Balco: 1,200MW CPP expansion on track

 Balco is currently operating 245ktpa smelter, 540MW CPP and 270MW merchant
power plant. Balco has focused on enriching product mix. Value-added products have
increased from 80% in FY10 to 92% in FY11. Rod production increased from 148kt in
FY10 to 165kt in FY11, while rolled products remained at 66kt.
 Cost of production (CoP) ranges from US$1,750-1,800/ton. Alumina is produced on
conversion basis by sending bauxite from its mines to Lanjigarh. VAL charges
approximately Rs8,000 for conversion of one ton of alumina. Thus, cost of alumina to
Balco is approx US$300/ton. Balco's captive power plants receive coal through linkages.
Manpower has been right-sized and rationalized by 1,000 persons since April 1, 2009
through VRS. Hot metal costs consist of US$60/ton on account of surplus manpower
of dismantled Soderberg smelter.
 It is currently implementing expansion of 325ktpa of smelter and 1,200MW captive
power plant. Though the smelter commissioning has been put on hold, 1,200MW CPP
remains on track. First unit of 300MW is expected to commission by June 2011. The
400KV power transmission lines are expected by end of March 2011. Second, third
and fourth units are schedule for commissioning by September 2011, March 2012 and
June 2013.
 1,200MW power plant's captive coal mine is expected to start production by December
2011. Traimar coal block with R&R of 211m tons is located 70km from the plant site.
Coal mine has achieved significant progress with approval of TOR by MoEF, mining
plan by Ministry of Coal, in-principle mining lease by state government, in-principle
diversion of forest, and public hearing for environment clearance. Final forest clearance
is expected by July 2011 and mining lease by August 2011. Coal production can be
expected to start by December 2011.

VAL: 1.2mtpa smelter remains on hold

 1.25mtpa smelter with 4 lines of 336 pots each is nearly 80% complete. Project has
been kept on hold due to denial of bauxite from Nyamgiri mines. Lanjigarh alumina
refinery has completed 100% of purchase, while 60% of project construction is
complete.
 500ktpa smelter was operating near capacity. Neary 50% of alumina is received from
Lanjigarh refinery and rest is imported. Cost of alumina at Jharsuguda is US$420/ton.
Landed cost of 3rd party bauxite at Lanjigarh is ~Rs1,900/ton, which has increased by
Rs200 in last 2 years. Cost of production of aluminium is US$1,974/ton.
 Cost of power generation is Rs2.30/kwh (Rs2/kwh for coal and Paise30/kwh for
O&M).
 1,215MW CPP receives 35% coal through linkages, while remaining coal is purchased
through e-auction, forward auction, and imports. Nearly 60% of total coal consumed
is transported by road, while balance 40% by rail.

Sterlite Energy: 1,200MW commissioned

Sterlite Energy (SEL) has already started power generation at 2 units of 600MW each.
Unit 2 was started in September 2010. The 600MW unit was producing 321.1MW i.e.
PLF of 53%.

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 The InSites

Sterlite Energy Unit 2 (600MW)

Source: Company/MOSL

 Evonics Energy, a German contractor, has been given O&M contract. This unit is
supplying power to state grid through 450MW line, which can take maximum of 500MW.
PLF ramp up remains slow due to lack of demand from state. State grid (Gridco) is
buying power at Rs3.2/kwh. Coal cost is pass-through in agreement with state grid.
 600MW Unit 1 too has been started. Though the unit was ready operationally some
time ago, power generation was delayed due to delay in getting transmission line.
600MW Line-in Line-out (LILO-1) was charged towards end of February i.e. couple
of days before our site visit. The unit was being readied for charging to the grid. As
shown in the following picture, the control shows 0% PLF. Chinese contractor has
been hired for O&M of this unit as seen in the following picture.
Unit 1 (600MW)

Source: Company/MOSL

 The power plants are heavily dependent on purchase of coal through e-auction and
forward auctions because linkage coal from Coal India is only 65%. Nearly 10% of
coal consumed is imported. Though the coal mines are in proximity, the availability of
rakes remains poor. Nearly 60% of coal is transported through roads. An average
2,500 trucks remain engaged for delivery of coal. Since the e-auction coal is not
uniformly distributed through the month, the number of trucks touches 6,000 in peak
days. Commercial generation of 1,200MW i.e. first 2 units is expected to start from
April, 2011.
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 Unit 3 and 4 are expected to start generation by September and December 2011
respectively. The power evacuation will remain dependent on getting 1,000MW LILO-
2 and IB-Meramundli tansmission line. Though LILO-2 will be ready in next 6 months,
the IB-Meramundli line will take 12-15 months.

Unit 3: Schedule to start by 2QFY12 Unit 4: Schedule to start in 3QFY12

Boiler house: 3rd units (blue) completion; 4th unit (brown) VAL’s 0.5mtpa aluminum smelter potline
still under construction

Source: Company/MOSL

 To strengthen the logistics to handle huge requirement of raw materials, the company
is laying out 85km of railway lines at cost of Rs4b. Two projects have been completed.
3rd project will be completed by March 2011. 17-18km of Dhutra line is expected in
4QFY11. A merry-go-around to connect to captive coal mines is expected by 2013.
 Currently 50,000 tons per month of coal is being imported, which will go to 100,000tpm
at full production rate. At Jharsuguda, 4,400 acres of land has been acquired. Land for
ash pond is under acquisition.

Sterlite Industries: Valuation summary

Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (Rs m) (Rs m) (Rs) Gr. (%) (x) (x) (%) (%) Sales EBITDA
3/10A 244,103 40,407 12.0 -2.2 13.8 1.5 10.9 9.5 1.9 11.2
3/11E 287,220 42,854 12.7 6.1 13.0 1.4 10.7 9.5 1.8 9.7
3/12E 386,965 75,554 22.5 76.3 7.4 1.2 16.2 14.2 1.3 5.7
3/13E 403,038 79,716 23.7 5.5 7.0 1.0 14.8 14.5 1.0 4.4

7 March 2011 4
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Sum of the parts valuations (based on FY12 estimates) - (Rs b)

Net EBITDA PAT Net Net Valuation EV Equity Stake Attrib. Rs/
sales debt worth basis value (%) equity share
Stand-alone 164 5 10 26 231 6.5x EBITDA 32 31 100 31 9
Hindustan Zinc 104 62 54 -198 176 6.5x EBITDA 402 600 64.9 389 116
Balco 44 17 8 46 24 6.5x EBITDA 107 61 51 31 9
CMT (less intersegment) 6 2 -15 -75 5.0x EBITDA 30 45 100 45 13
VAL 66 25 9 225 77 6.5x EBITDA 165 - 29.5 - -
Skorpion Zinc 15 8 5 -13 38 3.5x EBITDA 28 41 100 41 12
Lisheen Zinc 20 7 7 -20 32 3.5x EBITDA 25 45 100 45 13
Black Mountain Zinc 6 2 1 -2 17 10.0x EBITDA 21 23 75 17 5
Sterlite Energy 33 18 10 70 25 15.0x PE 143 100 143 43
453 150 105 119 990 SOTP 743 221
Note: - Aluminum prices US$2,200/ton, zinc & lead prices = US$2,200/ton Source: Company/MOSL

Day 2 at Hindustan Hindustan Zinc: Dariba Smelter and SK mines

Zinc: Dariba Smelter  On March 2, we visited Hindustan Zinc's Dariba smelter and Sindesur Kurd (SK)
and SK mines underground zinc mine.
 210ktpa zinc smelter was operating at full capacity, while lead and silver smelter is
expected to start operation by end of March 2011. SK mines development is running
ahead of schedule. Both lead and silver production is expected to get a boost with
commissioning of Dariba lead and silver smelters.
 SK mine produced 0.7m tons in FY11, while the current production rate has already
reached 1.2mtpa. In FY12, SK mine is expected to produce 1.5m tons and 2m tons in
FY13. Silver production is expected to more than double to 400 tons in FY12, which is
ahead of 270 tons in our estimates.
 Hindustan Zinc has invested heavily in drilling and exploration activities to expand
R&R by 186m tons (including depletion of 33.4m tons) to 299m tons. Nearly 70,000
meters of drilling is carried out every year. A team of 46 geologists is engaged in the
task.

Zinc-lead-silver mines (m tons)

Reserves Resources
197
183
152
133
109
98
92

102
89
80
77
69
67
54

FY04 FY05 FY06 FY07 FY08 FY09 FY10

Source: Company/MOSL

7 March 2011 5
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Hindustan Zinc: Mining assets

Hindustan Zinc: Smelters and captive power plants

Source: Company/MOSL

After a presentation on Hindustan Zinc, we visited Dariba complex. Zinc smelter was
operating at full capacity, while lead and silver smelters are expected to start production
by end of March 2011. Thereafter, we visited underground SK mine.

7 March 2011 6

Dariba Zinc Smelter: Cell house and output of zinc in sheet form
Dariba Lead-Silver Smelter: Entry gate
Day 3 at Hindustan
Zinc: Rampura Agucha
and Chanderiya
7 March 2011
The InSites
Dumper exiting silver-rich SK mines
Source: Company/MOSL
Hindustan Zinc: Rampura Agucha and Chanderiya
 On day 3 we visited the Rampura Agucha mines and Chanderiya smelter. Rampura
Agucha zinc and lead mine is currently operating at depth of 190 meters. Total depth
of zinc ore body (vein) is about 1,200 meters. Open cut mining will continue to the
depth of 372 meters. Thereafter, underground mine will have to be undertaken. Open
cut mining will last until 2020 though simultaneous underground mining will start in
next 3 years to sustain current production levels.
 The stripping ratio currently is about 1:13 versus average of 1:10 for entire mine life.
Currently, the stripping ratio has increased because the preparations for mining next
stage of hanging wall are currently on. This is visible in the following photograph
(Rampura Agucha mine) on the left side of pit. Left wall of pit is called hanging wall
because it is sitting on top of ore body, which is moving from right to left downwards.
The wall on right side is called footwall because it is below the ore body and is not
required to be mined further. This wall is used for evacuating the ore, while hanging
wall is used for evacuating overburden. The stripping ratio will decline over time.
Thus cost of production will remain constant.
 The average cost of zinc concentrate is US$300/ton for all the mines. Rampura Agucha
mine's cost of production is lower at US$250/ton of MIC. Cost of production for
underground mines is approximately US$400/ton of MIC exclusive of royalties.
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 The InSites

Rampura Agucha open pit mine

Rampura Agucha: Elevation (left) and mine cutting plan (right) - replica of actual mine

Chanderiya smelter: Cell house (left) and robot stacking zinc slabs (right)

Source: Company/MOSL

Hindustan Zinc: Valuation summary

Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (Rs m) (Rs m) (Rs) Gr. (%) (x) (x) (%) (%) Sales EBITDA
3/10A 80,170 40,414 9.6 48.2 13.7 3.0 22.3 22.9 5.4 9.3
3/11E 92,797 43,663 10.3 8.0 12.7 2.5 19.7 20.1 4.4 8.0
3/12E 104,107 53,516 12.7 22.6 10.3 2.0 19.7 20.2 3.4 5.7
3/13E 109,457 58,621 13.9 9.5 9.4 1.7 18.0 17.7 2.7 4.6

7 March 2011 8
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Day 4 at Sesa Goa: Sesa Goa: Shonshi-Surla mine complex

Shonshi-Surla mine On March 4, we arrived in Goa and directly reached the Shonshi Surla mine complex,
complex which has R&R of 50m tons. Currently, this complex produces 5mtpa. Surla mine came to
Sesa's fold when Dempo was acquired. These are two adjoining mines. Thus, there are
synergies in R&R and cost of production. The average grade of this complex is 57%. The
mining activities are currently being carried out are at the depth of 70 meters below mean
sea level. The maximum depth when fully mined will be 200 meters below mean sea level.
These mines can double the production subject to getting statutory clearances. The mined
ore is transported to Amona beneficiation plant, which is situated on the banks of Mandovi
River. After beneficiation, the ore is loaded onto barges, which is subsequently loaded
mid-sea with the help of trans-shippers on to outgoing capesize vessels.

Sesa Goa: Shonshi mines - full mine view (left) and zoomed to ore body (right)

Sesa: North Goa mines map (left) and out going barge (right) loaded with iron ore

Source: Company/MOSL

 The site visit was followed by presentation by management. Sesa continues to pursue
mine capacity expansion. Currently, the R&R stand at 275m tons, which has been
increased by 120m tons since acquisition by Vedanta. Nearly 85m tons of R&R were
added to erstwhile Sesa and 35m tons of R&R have been added to Dempo's assets
through continuous drilling and exploration. Sesa indicated that R&R are further
expected to be enhanced once the results of exploration are announced along with the
annual results for FY11.

7 March 2011 9
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 Sesa has permission to mine total of 22mtpa (16mtpa in Goa and 6mtpa in Karnataka).
The shipments are expected to be flat at 20.5m tons in FY11 and 25m tons in FY12
subject to getting permission to expand Karnataka mines from 6mtpa to 10mtpa and
lifting of export ban. Karnataka mines are currently selling to domestic producers at
discount of US$35/ton to the export parity prices. The realization is likely to further dip
due to enhancement of export duty to 20%. Karnataka mines dispatched 3.5m tons in
FY10 and 2.5m tons in FY11, while the target for FY12 is 6m tons. Though Karnataka
mine expansion and logistics debottlenecking have achieved many milestones, some
more approvals are still pending. There is apparently no visibility over mine expansion
permission for Goa mines though management is targeting to expand total mine capacity
to 30mtpa by end of FY12 and 40mtpa by end of FY13.
 We met couple of local mining companies to understand the sentiments. Goa miners
are very disappointed with the recent hike in export duty to 20% on fines. Most miners
are currently sharpening the axe to make presentation to ministry against hike in duty.
There is very high probability that export duty on fines may be lowered because
exports of very low grade like 48% Fe, which fetches as low as US$30/ton (though
63% Fe grade ore is selling at US$170/dmt) have become unviable. Also, there are
possibilities of introducing more slabs for low-grade ore to reduce the burden of royalty
on very low grade ore.

Sesa Goa: Valuation summary

Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (Rs m) (Rs m) (Rs) Gr. (%) (x) (x) (%) (%) Sales EBITDA
3/10A 58,583 26,291 31.6 25.3 8.6 2.9 33.2 30.8 3.0 5.6
3/11E 82,826 44,609 50.1 58.5 5.4 1.8 34.0 36.8 1.8 2.9
3/12E 78,553 32,276 36.3 -27.6 7.5 1.5 20.2 24.8 1.5 2.9
3/13E 83,382 35,323 39.7 9.4 6.8 1.3 18.5 22.0 1.0 2.0

DCF valuation
Rs Million Case Iron ore DCF Sesa’s Remarks
WACC (%) 10 63% Fe Rs/share Realization
Terminal Growth (%) 3 (US$/dmt fob) (US$/wmt fob)
NPV of cashflows post 1 70 145 43.0 Most Chinese mines become unviable
FY12 (a) 180,858 2 80 180 52.0
Cash surplus (b) 95,915 3 90 215 61.0
Terminal Value (c ) 10,152 4 100 249 70.0
Equity value (a+b+c) 286,925 5 120 319 87.3 Some Chinese mines become unviable
Number of shares (m) 900 6 140 388 105.0
DCF value/share (Rs) 319 7 160 458 106.0
Source: MOSL

7 March 2011 10
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Sterlite Industries: Financials and Valuation

Income Statement (Consolidated) (Rs M) Ratios

Y/E March FY09 FY10 FY11E FY12E FY13E Y/E March FY09 FY10 FY11E FY12E FY13E
Net Sales 211,442 244,103 287,220 386,965 403,038 Basic (Rs)
Change (%) -14.5 15.4 17.7 34.7 4.2 EPS 12.3 12.0 12.7 22.5 23.7
Total Expenses 164,401 183,386 215,536 261,999 262,189 Cash EPS 14.8 14.3 15.5 27.3 29.3
EBITDA 47,041 60,718 71,684 124,966 140,849 BV/Share 90.4 110.1 119.2 139.0 160.0
Change (%) -40.2 29.1 18.1 74.3 12.7 DPS 1.7 1.9 1.8 1.8 1.8
As % of Net Sales 22.2 24.9 25.0 32.3 34.9 Payout (%) 14.2 15.6 13.7 7.8 7.4
Depn. & Amortization 7,007 7,498 9,333 16,123 18,642
EBIT 40,035 53,220 62,351 108,844 122,207 Valuation (x)
Net Interest 3,973 3,424 3,167 9,638 11,635 P/E 13.8 13.0 7.4 7.0
Other income 21,543 19,594 20,712 20,142 24,095 Cash P/E 11.6 10.7 6.1 5.7
PBT 57,604 69,390 79,897 119,347 134,668 P/BV 1.5 1.4 1.2 1.0
Tax 8,550 12,330 16,660 23,483 26,525 EV/Sales 1.9 1.8 1.3 1.0
Rate (%) 14.8 17.8 20.9 19.7 19.7 EV/EBITDA 11.2 9.7 5.7 4.4
PAT 49,054 57,060 63,237 95,864 108,142 Dividend Yield (%) 1.1 1.1 1.1 1.1
EO Income -553 2,970 1,631 0 0
Adj. PAT 49,607 54,091 61,607 95,864 108,142 Return Ratios (%)
Minority interests 12,671 17,241 17,510 22,965 29,247 EBITDA Margins 22.2 24.9 25.0 32.3 34.9
Share in Asso. -1,536 588 -2,873 2,655 821 Net Profit Margins 23.5 22.2 21.4 24.8 26.8
Attrib. PAT 34,847 40,407 42,854 75,554 79,716 RoE 13.6 10.9 10.7 16.2 14.8
Change (%) -19.9 16.0 6.1 76.3 5.5 RoCE 9.8 9.5 9.5 14.2 14.5

Working Capital Ratios

Balance Sheet (Consolidated) (Rs M) Debtor (Days) 15 9 19 16 16
Y/E March FY09 FY10 FY11E FY12E FY13E Inventory (Days) 42 45 43 37 37
Share Capital 1,417 1,681 3,362 3,362 3,362 Working Capital (Days) 128 188 168 139 146
Reserves 254,715 368,439 397,347 463,873 534,561
Net Worth 256,132 370,120 400,709 467,234 537,922 Leverage Ratio (x)
Minority Interest 68,132 84,096 105,761 127,191 154,902 Current Ratio 2.8 3.6 3.8 3.8 3.8
Total Loans 70,135 92,600 132,600 149,600 127,600 Interest Cover Ratio 10.1 15.5 19.7 11.3 10.5
Deferred Tax Liability 14,076 15,524 18,789 21,081 23,535 Debt/Equity -0.2 -0.2 -0.1 -0.1 -0.2
Capital Employed 408,475 562,340 657,858 765,106 843,960
Cash Flow Statement (Rs M)
Gross Block 153,867 181,789 297,736 396,761 453,849 Y/E March FY09 FY10 FY11E FY12E FY13E
Less: Accum. Deprn. 51,549 59,133 68,302 84,352 102,950 EBITDA 47,041 60,718 71,684 124,966 140,849
Net Fixed Assets 102,319 122,656 229,434 312,409 350,899 Non cash Exp. (income) 6,227 1,135 2,266 4,944 -2,558
Capital WIP 69,786 110,844 115,717 69,297 28,962 (Inc)/Dec in Wkg. Cap. 13,636 -8,487 -5,753 -2,946 2,431
Investments 162,062 203,045 180,405 235,757 303,112 Tax paid -8,522 -11,549 -13,712 -21,191 -24,071
Liquid inv.(of above) 137,823 198,283 171,923 220,020 286,555 CF from Op. Activity 58,382 41,817 54,485 105,773 116,651
Curr. Assets 116,360 175,114 179,336 200,433 219,168
Inventory 24,591 29,827 33,918 39,036 40,417 (Inc)/Dec in FA -40,095 -61,819 -120,820 -52,605 -16,752
Account Receivables 8,760 5,709 14,839 17,411 17,754 (Pur)/Sale of Invest. 2,747 -36,725 22,640 -55,352 -67,355
Cash /Bank Balance 55,048 33,378 54,611 67,086 83,113 Int. & Div. Income 12,801 12,279 14,499 14,099 16,867
Loans and advances 27,961 106,200 75,967 76,901 77,883 Loans and Advances -6,974 -65,445 20,479 80 252
Cur. Liability & Prov. 42,051 49,319 47,033 52,790 58,180 CF from Inv. Activity-31,521 -151,710 -63,202 -93,778 -66,989
Account Payables 23,747 28,827 36,295 41,039 45,195
Provisions & Others 18,304 20,492 10,738 11,752 12,986 Equity raised/(repaid) 0 76,248 0 0 0
Net Curr. Assets 74,309 125,795 132,303 147,643 160,987 Debt raised/(repaid) 11,682 21,795 40,000 17,000 -22,000
Dividend (incl. tax) -3,938 -4,352 -6,883 -6,883 0
Appl. of Funds 408,475 562,340 657,858 765,106 843,960 Interest paid -4,093 -5,469 -3,167 -9,638 -11,635
E: MOSL Estimates CF from Fin. Activity 3,651 88,222 29,951 479 -33,635

(Inc)/Dec in Cash 30,513 -21,671 21,234 12,474 16,027

Add: opening Balance 24,536 55,048 33,378 54,611 67,086
Closing Balance 55,048 33,378 54,611 67,086 83,113

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Hindustan Zinc: Financials and Valuation

Income Statement (Rs m) Ratios

Y/E March FY09 FY10 FY11E FY12E FY13E Y/E March FY09 FY10 FY11E FY12E FY13E
Net Sales 56,803 80,170 92,797 104,107 109,457 Basic (Rs)
Change (%) -27.9 41.1 15.8 12.2 5.1 EPS 6.5 9.6 10.3 12.7 13.9
Total Expenses 29,461 33,469 41,873 42,328 44,652 Cash EPS 7.1 10.4 11.4 13.8 15.0
EBITDA 27,342 46,701 50,925 61,779 64,806 BV/Share 34.0 42.9 52.4 64.1 77.1
% of Net Sales 48.1 58.3 54.9 59.3 59.2 DPS 4.0 6.0 7.0 8.0 8.0
Depn. & Amortization 2,853 3,343 4,658 4,843 4,825 Payout (%) 7.2 7.3 7.9 7.4 6.7
EBIT 24,489 43,358 46,266 56,936 59,980
Net Interest 219 439 111 196 196 Valuation (x)
Other Income 9,312 7,222 7,594 10,155 13,491 P/E 14.1 13.0 10.6 9.7
PBT before EO 33,582 50,141 53,750 66,895 73,276 Cash P/E 13.0 11.8 9.7 9.0
EO Income 0 0 -212 0 0 P/BV 3.1 2.6 2.1 1.7
PBT after EO 33,582 50,141 53,538 66,895 73,276 EV/Sales 5.6 4.5 3.6 2.9
Tax 6,306 9,727 10,047 13,379 14,655 EV/EBITDA 9.6 8.3 6.0 4.8
Rate (%) 18.8 19.4 18.8 20.0 20.0 Dividend Yield (%) 4.5 5.2 5.9 5.9
Reported PAT 27,276 40,414 43,491 53,516 58,621
Adjusted PAT 27,276 40,414 43,663 53,516 58,621 Return Ratios (%)
Change (%) -38.0 48.2 8.0 22.6 9.5 EBITDA Margins 48.1 58.3 54.9 59.3 59.2
Net Profit Margins 48.0 50.4 47.1 51.4 53.6
RoE 19.0 22.3 19.7 19.7 18.0
RoCE 16.4 22.9 20.1 20.2 17.7
RoIC 47.7 59.2 52.2 62.9 66.0
Balance Sheet (Rs M)
Y/E March FY09 FY10 FY11E FY12E FY13E
Working Capital Ratios
Share Capital 4,225 4,225 8,451 8,451 8,451
Asset Turnover (x) 0.4 0.4 0.4 0.4 0.3
Reserves 139,351 177,014 213,032 262,593 317,259
Debtor (Days) 10.6 6.9 6.6 6.6 6.6
Net Worth 143,576 181,240 221,482 271,044 325,709
Inventory (Days) 9.6 5.6 5.4 5.4 5.4
Total Loans 87 605 605 605 605
Deferred Tax Liability 5,589 7,112 8,548 10,459 12,552
Leverage Ratio (x)
Capital Employed 149,251 188,957 230,634 282,107 338,866
Current Ratio 3.8 1.5 1.5 1.5 1.5
Interest Cover Ratio 111.9 98.7 418.7 290.5 306.0
Gross Block 58,555 82,407 99,012 103,012 107,012
Less: Accum. Deprn. 17,506 20,766 24,526 28,298 32,081
Cash Flow Statement (Rs M)
Net Fixed Assets 41,049 61,641 74,487 74,714 74,931
Y/E March FY09 FY10 FY11E FY12E FY13E
Capital WIP 11,084 11,130 11,084 11,084 11,084
Pre-tax profit 33,582 50,141 53,538 66,895 73,276
Investments 69,289 109,492 138,244 189,320 245,783
Depreciation 2,853 3,343 4,658 4,843 4,825
(Inc)/Dec in Wkg. Cap. 3,866 3,219 -126 -169 -80
Curr. Assets 37,839 19,953 20,555 21,364 21,746
Tax paid -5,209 -8,309 -8,611 -11,468 -12,562
Inventory 5,457 4,517 4,968 5,574 5,860
Other oper. activities -503 229 -686 -1,071 -1,042
Account Receivables 1,649 1,518 1,670 1,873 1,970
CF from Op. Activity 34,589 48,623 48,773 59,031 64,418
Cash/Bank Balance 27,192 9,275 9,275 9,275 9,275
Others 3,542 4,642 4,642 4,642 4,642
(Inc)/Dec in FA + CWIP-13,166 -23,897 -16,560 -4,000 -4,000
(Pur)/Sale of Invest. -5,964 -40,203 -28,752 -51,076 -56,463
Cur. Liability & Prov. 10,010 13,258 13,735 14,375 14,678
CF frm Inv. Activity -19,131 -64,100 -45,312 -55,076 -60,463
Account Payables 3,722 4,777 5,253 5,893 6,196
Provisions & Others 6,287 8,481 8,481 8,481 8,481
Debt Raised/(Repaid) 83 518 0 0 0
Net Current Assets 27,830 6,695 6,820 6,989 7,069
Dividend (incl. tax) -1,977 -2,956 -3,461 -3,955 -3,955
CF from Fin. Activity -1,894 -2,439 -3,461 -3,955 -3,955
Appl. of Funds 149,251 188,957 230,634 282,107 338,866
E: MOSL Estimates
(Inc)/Dec in Cash 13,564 -17,916 0 0 0
Add: opening Balance 13,628 27,192 9,275 9,275 9,275
Closing Balance 27,192 9,275 9,275 9,275 9,275

7 March 2011 12
 The InSites

Sesa Goa: Financials and Valuation

Income Statement (Consolidated) (Rs M) Ratios

Y/E March FY09 FY10 FY11E FY12E FY13E Y/E March FY09 FY10 FY11E FY12E FY13E
Net sales 49,591 58,583 82,826 78,553 83,382 Basic (Rs)
Change (%) 29.7 18.1 41.4 -5.2 6.1 EPS 25.3 31.6 50.1 36.3 39.7
Total Expenses 24,170 27,097 33,155 37,725 40,047 Cash EPS 26.0 32.7 50.6 37.3 40.7
EBITDA 25,421 31,486 49,671 40,828 43,335 BV/Share 59.9 95.3 147.4 179.5 215.1
% of Net Sales 51.3 53.7 60.0 52.0 52.0 DPS 2.3 3.2 3.5 3.5 3.5
Depn. & Amortization 517 745 789 824 831 Payout (%) 10.4 12.0 8.2 11.3 10.3
EBIT 24,904 30,741 48,882 40,004 42,504
Net Interest 43 555 544 12 12 Valuation (x)
Other income 2,240 4,260 5,143 8,584 10,670 P/E 8.3 5.2 7.2 6.6
PBT before EO 27,102 34,446 53,481 48,575 53,162 Cash P/E 8.0 5.2 7.0 6.4
EO income -523 P/BV 2.8 1.8 1.5 1.2
PBT after EO 27,102 34,446 52,959 48,575 53,162 EV/Sales 2.9 1.7 1.4 0.9
Tax 7,153 8,056 8,755 16,225 17,768 EV/EBITDA 5.3 2.8 2.7 1.8
Rate (%) 26.4 23.4 16.5 33.4 33.4 Dividend Yield (%) 1.2 1.3 1.3 1.3
Reported PAT 19,949 26,390 44,204 32,350 35,394 EV/ton (US$) 10 8 9 6
Minority interests 69 99 117 74 70
Adjusted PAT 19,880 26,291 44,609 32,276 35,323 Return Ratios (%)
Change (%) 29.0 32.2 69.7 -27.6 9.4 EBITDA Margins (%) 51.3 53.7 60.0 52.0 52.0
Net Profit Margins (%) 40.1 44.9 53.9 41.1 42.4
RoE 42.2 33.2 34.0 20.2 18.5
Balance Sheet (Consolidated) (Rs M) RoCE 51.7 30.8 36.8 24.8 22.0
Y/E March FY09 FY10 FY11E FY12E FY13E RoIC 112.8 79.5 114.4 73.3 75.0
Share Capital 787 831 890 890 890
Reserves 46,370 78,346 130,220 158,853 190,533 Working Capital Ratios
Net Worth 47,157 79,177 131,110 159,743 191,423 Asset Turnover (x) 1.0 0.6 0.6 0.5 0.4
Minority Interest 334 433 512 586 656 Debtor (Days) 21.9 21.1 23.2 23.0 23.1
Total Loans 19 19,606 444 444 444 Inventory (Days) 5.3 8.6 6.4 6.2 6.2
Deferred Tax Liability 664 750 750 750 750
Capital Employed 48,175 99,966 132,815 161,522 193,273 Leverage Ratio (x)
Current Ratio 8.2 7.2 12.5 16.1 19.0
Gross Block 8,863 27,510 29,310 31,160 33,010
Less: Accum. Deprn. 3,422 5,741 6,558 7,412 8,305 Cash Flow Statement (Rs M)
Net Fixed Assets 5,441 21,770 22,752 23,748 24,706 Y/E March FY09 FY10 FY11E FY12E FY13E
Capital WIP 489 787 787 787 787 Pre-tax profit 27,102 34,446 52,959 48,575 53,162
Investments 0 1 1 1 1 Depreciation 517 745 789 824 831
(Inc)/Dec in Wkg. Cap. -6,146 2,973 -5,075 343 -435
Curr. Assets 48,084 89,808 118,744 146,085 177,089 Tax paid -7,100 -8,012 -8,755 -16,225 -17,768
Inventory 2,642 5,009 5,278 4,864 5,194 Other oper. activities -585 1,504 -7,682 30 62
Account Receivables 2,982 3,381 5,255 4,957 5,273 CF from Op. Activity 13,788 31,657 32,236 33,547 35,851
Cash/Bank Balance 31,429 69,566 96,359 124,412 154,770
Others 11,032 11,851 11,851 11,851 11,851 (Inc)/Dec in FA + CWIP -1,442 -18,945 -1,800 -1,850 -1,850
(Pur)/Sale of Investments 22 0 0 0 0
Cur. Liability & Prov. 5,840 12,400 9,468 9,099 9,310 CF from Inv. Activity -1,420 -18,945 -1,800 -1,850 -1,850
Account Payables 3,120 7,451 4,519 4,150 4,361
Provisions & Others 2,720 4,949 4,949 4,949 4,949 Share Capital raised 394 8,999 19,162 0 0
Net Current Assets 42,244 77,408 109,275 136,986 167,779 Debt raised/(repaid) 19 19,587 -19,162 0 0
Dividend (incl. tax) -2,072 -3,160 -3,643 -3,643 -3,643
Appl. of Funds 48,175 99,966 132,815 161,522 193,273 CF from Fin. Activity -1,660 25,426 -3,643 -3,643 -3,643
E: MOSL Estimates
(Inc)/Dec in Cash 10,709 38,138 26,792 28,054 30,358
Add: Opening Balance 20,720 31,429 69,566 96,359 124,412
Closing Balance 31,429 69,566 96,359 124,412 154,770

7 March 2011 13
 Motilal Oswal
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