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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500295ISIN: INE205A01025INDUSTRY: Mining/Minerals

BSE   ` 191.45   Open: 199.40   Today's Range 191.00
199.40
-6.95 ( -3.63 %) Prev Close: 198.40 52 Week Range 186.85
355.70
Year End :2018-03 

2 Significant Judgments

a) Revenue recognition and receivable recovery in relation to the power business

In certain cases, the Company’s power customers are disputing various contractual provisions of Power Purchase Agreements (PPA). Significant judgments is required in both assessing the tariff to be charged under the PPA in accordance with Ind AS 18 and to assess the recoverability of withheld revenue currently accounted for as receivables.

In assessing this critical judgment, management considered favorable external legal opinions the Company has obtained in relation to such claims. In addition the fact that the contracts are with government owned companies implies the credit risk is low (Refer note 11 (iv))

b) Contingencies

In the normal course of business, contingent liabilities may arise from litigation, taxation and other claims against the Company. A tax provision is recognized when the Company has a present obligation as a result of a past event, it is probable that the Company will be required to settle that obligation.

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.

When considering the classification of a legal or tax cases as probable, possible or remote, there is judgments involved. This pertains to the application of the legislation, which in certain cases is based upon management’s interpretation of country specific applicable law, in particular India, and the likelihood of settlement. Management uses in-house and external legal professionals to make informed decision.

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. The liabilities which are assessed as possible and hence are not recognized in these financial statements are disclosed in note 49.

c) Exceptional items:

Exceptional items are those items that management considers, by virtue of their size or incidence (including but not limited to impairment charges and acquisition and restructuring related costs), should be disclosed separately to ensure that the financial information allows an understanding of the underlying performance of the business in the year, so as to facilitate comparison with prior periods. Also tax charges related to exceptional items and certain one-time tax effects are considered Exceptional. Such items are material by nature or amount to the year’s result and require separate disclosure in accordance with Ind AS.

The determination as to which items should be disclosed separately requires a degree of judgments. These are set out in note 34.

(z) Recently issued accounting pronouncements

The following standards/amendment to standards have been issued but are not yet effective up to the date of issuance of the Company’s financial statements. Except specifically disclosed below, the Company is evaluating the requirements of these standards, improvements and amendments and has not yet determined the impact on the financial statements.

- Ind AS 115: Revenue from Contracts with Customers

This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard replaces most of the current revenue recognition guidance. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively including service revenues and contract modifications and improve guidance for multiple element arrangements. The new Standard comes into effect for the annual reporting periods beginning on or after April 1, 2018.

In order to identify the potential impact of the standard on the Company’s financial statements, the Company has analyzed contracts of the relevant revenue streams of the Company. The work done is focused on evaluating the contractual arrangements across the Company’s principal revenue streams, particularly key terms and conditions which may impact revenue recognition and measurement of revenue.

Based on the work carried out, the areas of impact in implementing Ind AS 115, on the Company results is detailed below.

The Company has products which are provisionally priced at the date revenue is recognized. Revenue in respect of such contracts will be recognized when control passes to the customer and will be measured at the amount the entity expects to be entitled - being the estimate of the price expected to be received at the end of the measurement period. Post transfer of control of goods, provisional pricing features will be accounted in accordance with Ind AS 109 “Financial Instruments” rather than Ind AS 115 and therefore the Ind AS 115 rules on variable consideration do not apply. These ‘provisional pricing’ adjustments i.e. the consideration received post transfer of control will continue to be included in the revenue on the face of the statement of profit and loss, and these would be disclosed by way of note to the financial statements.

On the basis of the analysis conducted, the new standard would result in identification of freight and insurance services as a separate performance obligation implying segregation of revenue on account of sale of goods and sale of services. The revenue on account of these services is required to be deferred and recognized over time as this obligation is fulfilled.

The overall effect of implementation of Ind AS 115 is not material on the recognition and measurement of revenues, though there would be significant additional disclosure requirements for the Company to comply with.

The Company will adopt the modified transitional approach to implementation where any transitional adjustment is recognized in retained earnings at April 01, 2018 without adjustment of comparatives and the new standard will only be applied to contracts that remain in force at that date.

4 Merger of Cairn India Limited with Vedanta Limited

(i) Vedanta Limited and Cairn India Limited (Cairn), had initially announced a scheme of merger between the two companies on June 14, 2015, terms whereof were amended on July 22, 2016 (“Scheme”). As per the terms of the Scheme, Cairn India Limited was to merge into Vedanta Limited and upon the merger becoming effective:

a) Non-controlling shareholders of Cairn India Limited were to receive one equity share in Vedanta Limited of face value ' 1 each and four 7.5% Redeemable Preference Shares (redeemable after 18 months from issuance) in Vedanta Limited with a face value of ' 10 each for each equity share held in Cairn India Limited.

b) No shares were to be issued to Vedanta Limited or any of its subsidiaries for their shareholding in Cairn India Limited.

c) The employees of Cairn India Limited who were holding stock options in Cairn India Limited were to be compensated either in cash or through issuance of stock options of Vedanta Limited.

d) The authorized share capital of Cairn India Limited aggregating to ' 2,250 Crore was to be assumed by the Company, resulting in an increase in its authorized share capital from Rs, 5,162 Crore (divided into 5,127 Crore equity shares of Rs, 1 each and 3.50 Crore preference shares of Rs, 10 each) to Rs, 7,412 Crore (divided into 4,402 Crore equity shares of Rs, 1 each and 301 Crore preference shares of Rs, 10 each).

All substantive approvals for effecting the merger of Cairn India Limited with Vedanta Limited were received by March 27, 2017 and therefore the same was accounted for in the previous financial year ended March 31, 2017. The Board of Directors of both the companies made the merger operative on April 11, 2017, where after Cairn India Limited ceased to exist.

(ii) Since the amalgamating entity, Cairn India Limited, was a subsidiary of the Company and both have in turn been controlled by a common parent Vedanta Resources Plc, the transaction has been accounted for in accordance with the Appendix C to Ind AS 103 “Common Control Business Combination”, which requires retroactive accounting of the merger from the date common control was established. Accordingly, financial information as on April 1, 2015, being the earliest period presented in the annual standalone financial statements of the Company, and all periods thereafter, were restated to give effect of the merger.

(iii) The accounting effects arising out of merger are explained below:

a) Equity shares aggregating to Rs, 75 Crore required to be issued to the non-controlling shareholders of Cairn, has been accounted for as an item of equity on April 1, 2015, as equity shares proposed to be issued.

b) Upon the merger being substantively completed in March 2017, the liability towards issuance of preference shares of Rs, 3,010 Crore has been accounted for as a financial liability.

c) The carrying value of the assets, liabilities and reserves of Cairn India Limited as appearing in the consolidated financial statements of the Company have been recognized in the standalone financial statements of the Company. The said values relating to Cairn India Limited in the consolidated financial statements of the Company prior to the merger, were computed by restating past business combinations as permitted by Ind AS 101.

d) Sesa Resources Limited (‘SRL’), a wholly owned subsidiary of the Company, held investments in Cairn having a fair value of Rs, 956 Crore, which have been cancelled without any consideration. Accordingly, the said fair value, has been reduced from the carrying value of investments in SRL with a corresponding reduction in the value of Reserves and Surplus. As per the provisions of the Scheme necessary adjustment in the Reserves and Surplus has been carried through the Securities premium account.

e) Twin Star Mauritius Holdings Limited (‘TMHL’), an indirect wholly owned subsidiary, also held investments in Cairn and had corresponding liabilities which it had incurred to fund the purchase of investments in Cairn. As per the terms of the Scheme, the investments held by TMHL have been cancelled and accordingly, its liabilities have been reflected in the financial statements of the Company.

The net effects of Rs, 28,906 Crore arising out of the above adjustments have been recognized as a capital reserve on December 8, 2011, being the date of initial common control.

(iv) All changes to the liabilities arising on account of interest and exchange differences post December 8, 2011, of Rs, 11,311 Crore, have been recognized directly in retained earnings as of April 1, 2015 and net charge of Rs, 623 Crore in the statement of profit and loss as an “Exceptional item” for the financial year ended March 31, 2017.

(v) All the direct subsidiaries of Cairn India Limited, viz., Cairn India Holdings Limited (‘CIHL’) and CIG Mauritius Holding Private Limited have become the direct subsidiaries of the Company.

(vi) Further, some of the wholly owned subsidiaries of the Company had advanced monies to TMHL, either directly or through some other wholly owned subsidiaries. Pursuant to the merger being effective, the amounts recoverable from TMHL have been impaired by the said subsidiaries as TMHL’s investments in Cairn has been cancelled. This has had the effect of discharging the obligation reflected in the financial statements of the Company (refer ‘(iii)e’ above) with a corresponding reduction in the value of the Company’s investments in its direct subsidiaries. The net excess of liability being discharged over the carrying value of such investments of Rs, 1,993 Crore has been recognized as an exceptional gain in the statement of profit and loss during the previous year. During the current year, CIHL discharged the balance obligation Rs, 6,762 Crore which resulted in a further reduction in the carrying value of the said subsidiary by an equivalent amount.

a) Additions includes deferred stripping cost of Rs, Nil Crore (March 31, 2017 Rs, 4 Crore).

b) Certain property, plant and equipment are pledged as collateral against borrowings, the details related to which have been described in Note 19 on “Borrowings”.

c) In accordance with the exemption given under Ind AS 101, which has been exercised by the Company, a first time adopter can continue its previous GAAP policy for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognized in the previous GAAP financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period i.e. April 01, 2016.

Accordingly, foreign currency exchange differences arising on translation/settlement of long-term foreign currency monetary items acquired before April 01, 2016 pertaining to the acquisition of a depreciable asset amounting to Rs, 1 crore gain (March 31, 2017 Rs, 4 crore loss) is adjusted to the cost of respective item of property, plant and equipment.

Capital work-in-progress includes foreign currency exchange loss of Rs, 17 crore incurred during the year (March 31, 2017 Rs, 27 crore gain) on such long term foreign currency monetary liabilities.

d) Gross block of property, plant and equipment includes Rs, 32,694 Crore (March 31, 2017 Rs, 31,967 Crore) representing Company’s share of assets co-owned with the joint venture partners. Accumulated depreciation, depletion and impairment on these assets is Rs, 30,487 Crore (March 31, 2017 Rs, 29,790 Crore) and net book value is Rs, 2,207 Crore (March 31, 2017 Rs, 2,177 Crore).

Capital work-in-progress includes Rs, 994 Crore (March 31, 2017 Rs, 1,001 Crore) jointly owned with the joint venture partners.

Exploration intangible assets under development includes Rs, 7,950 Crore (March 31, 2017 Rs, 5,028 Crore) jointly owned with the joint venture partners.

1. Financial Assets- Non Current : Investments continued

a. Pursuant to the Government of India’s policy of disinvestment, the Company in April 2002 acquired 26% equity interest in Hindustan Zinc Limited (HZL) from the Government of India. Under the terms of the Shareholder’s Agreement (‘SHA’),the Company had two call options to purchase all of the Government of India’s shares in HZL at fair market value. The Company exercised the first call option on August 29, 2003 and acquired an additional 18.9% of HZL’s issued share capital. The Company also acquired an additional 20% of the equity capital in HZL through an open offer, increasing its shareholding to 64.9%. The second call option provided the Company the right to acquire the Government of India’s remaining 29.5% share in HZL. This call option was subject to the right of the Government of India to sell 3.5% of HZL shares to HZL employees. The Company exercised the second call option on July 21, 2009.The Government of India disputed the validity of the call option and refused to act upon the second call option. Consequently the Company invoked arbitration which is in the early stages. The next date of hearing is scheduled on November 24, 2018.

b. Pursuant to the Government of India’s policy of divestment, the Company in March 2001 acquired 51% equity interest in BALCO from the Government of India. Under the terms of the SHA, the Company had a call option to purchase the Government of India’s remaining ownership interest in BALCO at any point from March 2, 2004. The Company exercised this option on March 19, 2004. However, the Government of India contested the valuation and validity of the option and contended that the clauses of the SHA violate the erstwhile Companies Act, 1956 by restricting the rights of the Government of India to transfer its shares and that as a result such provisions of the SHA were null and void. In the arbitration filed by the Company, the arbitral tribunal by a majority award rejected the claims of the Company on the ground that the clauses relating to the call option, the right of first refusal, the “tagalong” rights and the restriction on the transfer of shares violate the erstwhile Companies Act, 1956 and are not enforceable. The Company has challenged the validity of the majority award before the Hon’ble High Court at Delhi and sought for setting aside the arbitration award to the extent that it holds these clauses ineffective and inoperative. The Government of India also filed an application before the High Court to partially set aside the arbitral award in respect of certain matters involving valuation. The matter is currently scheduled for hearing by the Delhi High Court on July 3, 2018.

On January 9, 2012, the Company offered to acquire the Government of India’s interests in HZL and BALCO for Rs, 15,492 Crore and Rs, 1,782 Crore respectively. This offer was separate from the contested exercise of the call options, and Company proposed to withdraw the ongoing litigations in relation to the contested exercise of the options should the offer be accepted. To date, the offer has not been accepted by the Government of India and therefore, there is no certainty that the acquisition will proceed.

In view of the lack of resolution on the options, the non-response to the exercise and valuation request from the Government of India, the resultant uncertainty surrounding the potential transaction and the valuation of the consideration payable, the Company considers the strike price of the options to be at the fair value, which is effectively nil, and hence the call options have not been recognized in the financial statements.

c. During the the previous year, the Company made an investment of Rs, 14,730 Crore in 220 Crore equity shares of US$ 1 each in Bloom Fountain Limited.

d. During the current year, the Company made an investment of Rs, 11.30 Lacs in 1.13 Lacs equity shares having face value of Rs, 10/- each in Gaurav Overseas Private Limited .

e. During the current year, the maturity of investments in compulsorily convertible debentures of Vizag General Cargo Berth Private has been extented has been extented by 2 years 10 months till January 28, 2021.

f. During the current year, the Company made an investment in 1,70,418 Compulsory convertible debentures of Malco energy limited (MEL) having face value of Rs, 100/- each at a premium of Rs, 900/- each.

(i) Bank deposits earns interest at fixed rate based on respective deposit rate.

(ii) Bank deposits includes site restoration fund amounting to Rs, 318 Crore (March 31, 2017: Rs, 275 Crore)

(a) Represents prepayments in respect of land taken under operating leases, being amortized equally over the period of the lease.

(b) Includes Rs, 30 Crore (March 31, 2017: Rs, 30 Crore), being CompanyRs,s share of gross amount of Rs, 86 Crore (March 31, 2017: Rs, 86 Crore) paid under protest on account of Education Cess and Secondary Higher Education Cess for the year ended 2013-14.

(c) Includes Rs, 48 Crore (March 31, 2017: Rs, 46 Crores), being Company’s share of gross amount of Rs, 139 Crore (March 31, 2017: Rs, 131 Crores), of excess oil cess paid under Oil Industry (Development) Act.

(i) For method of valuation of inventories, refer note 3(j).

(ii) Inventories with a carrying amount of Rs, 7,961 Crore (March 31, 2017 : Rs, 5,125 Crore) have been pledged as security against certain bank borrowings of the Company (Refer note 19).

(iii) Inventory held at net realizable value amounted to Rs, 90 Crore (March 31, 2017 : Rs, 2 Crore).

(iv) The write down of inventories amounting to Rs, 42 Crore (March 31, 2017: Rs, Nil Crore) has been charged to the statement of profit and loss.

(i) The interest free credit period given to customers is upto 90 days. Also refer note 48c(d).

(ii) Trade receivables with a carrying value of Rs, 2,429 Crore (March 31, 2017 : Rs, 1,917 Crore) have been given as collateral towards borrowings (Refer note 19).

(iii) For amounts due and terms and conditions relating to related party receivables see note 51.

(iv) Current & Non-current trade receivables (net of provisions) includes Rs, 767 Crores as at March 31, 2018 (March 31, 2017: Rs, 893 Crores) relating to amounts held back by a customer in the power segment, owing to certain disputes relating to computation of tariffs and differential revenue recognized with respect to tariffs pending finalisation by the state electricity regulatory commission. Basis legal advice received on the matter, the management considers these to be fully recoverable as there is a high probability of success.

(v) There are no outstanding debts due from directors or other officers of the Company.

(a) Includes Nil Crore (March 31, 2017 Rs, 115 Crores) on lien with banks.

(b) Bank deposits earns interest at fixed rate based on respective deposit rate.

Bank deposits earns interest at fixed rate based on respective deposit rate.

a Includes Rs, 8 Crore (March 31, 2017 : Rs, 1 Crore) on lien with banks.

b Includes Rs, 193 Crore (March 31, 2017 : Rs, 195 Crore) on lien with banks and margin money Rs, 39 Crore (March 31, 2017 : Rs, 40 Crore) c Earmarked unpaid dividend accounts are restricted in use as it relates to unclaimed or unpaid dividend.

(a) During the year, 7.5% preference share capital of Rs, 3,010 Crore comprising of 301 Crore shares of Rs, 10/- each have been issued and the same are disclosed under borrowings (Refer note 19).

(b) Includes 308,232 (March 31, 2017: 310,632) equity shares kept in abeyance. These shares are not part of listed equity capital.

(c) Includes 92,33,871 (March 31, 2017: 39,84,256) equity shares held by Vedanta Limited ESOS Trust (Refer note 38).

(d) Voting rights exercisable upon issuance.

* The % of holding has been calculated on the issued and subscribed share capital as at respective balance sheet date.

(1) All the above entities are subsidiaries of Volcan Investments Limited, the ultimate holding Company.

(2) Represented by 2,48,23,177 American Depository Shares (“ADS”).

E. Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date

* The % of holding has been calculated on the issued and subscribed share capital as at respective balance sheet date.

# 2,48,23,177 ADS, held by CITI Bank N.A. New York as a depository.

As per the records of the Company, including its register of shareholders/members, the above shareholding represents legal ownership of shares.

2. Share capital continued G. Other disclosures

(1) The Company has one class of equity shares having a par value of Rs, 1 per share. Each shareholder is eligible for one vote per share held and dividend as and when declared by the Company. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend which is paid as and when declared by the Board of Directors. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts, in proportion to their shareholding.

(2) The Company has one class of 7.5% non-cumulative redeemable preference shares having a par value of Rs, 10 per share. Each preference shareholder is eligible for one vote per share as per terms of Section 47(2) of the Companies Act 2013 and dividend as and when declared by the Company. As per the terms of preference shares, these shares are redeemable at par on expiry of 18 months from the date of their allotment. In the event of winding up of Vedanta Limited, the holders of Preference Shares shall have a right to receive repayment of capital paid up and arrears of dividend, whether declared or not, up to the commencement of winding up, in prioirty to any payment of capital on the equity shares out of the surplus of Vedanta Limited.

(3) ADS shareholders do not have right to attend General meetings in person and also do not have right to vote. They are represented by depository, CITI Bank N.A. New York. As on March 31, 2018 - 24,84,24,696 equity shares were held in the form of 6,21,06,174 ADS (March 31, 2017- 21,70,19,900 equity shares in form of 5,42,54,975 ADS).

(4) In terms of Scheme of Arrangement as approved by the Hon’ble High Court of Judicature at Mumbai, vide its order dated April 19, 2002, the erstwhile Sterlite Industries (India) Limited (merged with the Company during 2013-14) during 2002-2003 reduced its paid up share capital by ' 10 Crore. There are 204,525 equity shares (March 31, 2017: 199,026 equity shares) of ' 1 each pending clearance from NSDL/CDSL. The Company has filed an application in Hon’ble High Court of Mumbai to cancel these shares, the final decision on which is pending. Hon’ble High Court of Judicature at Mumbai, vide its interim order dated September 06, 2002 restrained any transaction with respect to subject shares.

3. Other equity (Refer statement of changes in equity)

a) General reserve: Under the erstwhile Companies Act 1956, general reserve was created through an annual transfer of net income at a specified percentage in accordance with applicable regulations. The purpose of these transfers was to ensure that if a dividend distribution in a given year is more than 10% of the paid-up capital of the Company for that year, then the total dividend distribution is less than the total distributable results for that year. Consequent to introduction of Companies Act 2013, the requirement to mandatorily transfer a specified percentage of the net profit to general reserve has been withdrawn.

b) Debenture redemption reserve: The Companies Act requires companies that issue debentures to create a debenture redemption reserve from annual profits until such debentures are redeemed. Companies are required to maintain 25% as a reserve of outstanding redeemable debentures. The amounts credited to the debenture redemption reserve may not be utilized except to redeem debentures.

c) Preference share redemption reserve: The Companies Act provides that companies that issue preference shares may redeem those shares from profits of the Company which otherwise would be available for dividends, or from proceeds of a new issue of shares made for the purpose of redemption of the preference shares. If there is a premium payable on redemption, the premium must be provided for, either by reducing the additional paid in capital (securities premium account) or net income, before the shares are redeemed. If profits are used to redeem preference shares, the value of the nominal amount of shares redeemed should be transferred from profits (retained earnings) to the preference share redemption reserve account. This amount should then be utilised for the purpose of redemption of redeemable preference shares. This reserve can be used to issue fully paid-up bonus shares to the shareholders of the Company.

d) Capital reserve: The balance in capital reserve has mainly arisen consequent to merger of Cairn India Limited with the Company in the previous year as described in note 4.

i) The Company has not defaulted in the repayment of loans and interest as at Balance Sheet date.

ii) Bank loans availed by the Company are subject to certain covenants relating to interest service coverage, current ratio, debt service coverage ratio, total outside liabilities to total net worth, fixed assets coverage ratio, ratio of total term liabilities to net worth and return on fixed assets. The Company has complied with the covenants as per the terms of the loan agreement.

* The NCDs have been pre-paid during the year

** The debenture holders of these NCDs and the Company have put and call option at the end of 5 years from the respective date of the allotment of the NCDs

(iv) Summary of secured borrowings:

Vedanta Limited has taken borrowings towards funding of its acquisitions, capital expenditure and working capital requirements. The borrowings comprise of funding arrangements from various banks. The Company’s total secured borrowings and a summary of security provided by the Company are as follows -

a. Represents government assistance in the form of the duty benefit availed under Export Promotion Capital Goods (EPCG) Scheme and Special Economic Zone (SEZ) scheme on purchase of property, plant and equipments accounted for as government grant and being amortized over the useful life of such assets.

* Refer note 19 for borrowing details

The Company has discounted trade receivables on recourse basis of ' 65 Crore (March 31, 2017: ' 520 Crore). Accordingly, the monies received on this account are shown as borrowings as the trade receivables does not meet de-recognition criteria. The above borrowings pertaining to trade receivables discounted has been restated on account of foreign exchange fluctuation.

(a) Trade payables are non- interest bearing and are normally settled upto 180 days terms

(b) Operational Buyer’s Credit is availed from offshore banks at an interest rate ranging from 1.5% to 3.5% per annum and are repayable within one year from the date of draw down, based on the letter of comfort issued under working capital facilities sanctioned by domestics banks. Some of these facilities are secured by first pari-passu charge over the present and future current assets of the Company.

(c) For amounts due and terms and conditions relating to related party payables see note 51.

(b) Does not include any amounts, due and outstanding, to be credited to Investor Education and Protection Fund except Rs, 38 Lacs (March 31, 2017: Rs, 38 Lacs) which is held in abeyance due to a pending legal case.

(c) Includes revenue received in excess of entitlement interest of Rs, 648 Crore (March 31, 2017 : Rs, 5 Crore), reimbursement of expenses, provision for expenses, liabilities related to compensation/claim etc.

a Statutory and other liabilities mainly includes contribution to PF, ESIC, withholding taxes, goods & service tax, excise duty, VAT, service tax etc. b Advance from customers includes the amount received under long term supply agreements. The portion of advance that is expected to be settled within next 12 months has been classified as current liability. c Represents current portion of government assistance in the form of the duty benefit availed under Export Promotion Capital Goods (EPCG) Scheme and Special Economic Zone scheme on purchase of property, plant and equipments accounted for as government grant and being amortized over the useful life of such assets.

a) Includes gratuity, compensated absences, deferred cash bonus etc.

a) With effect from July 01, 2017 Goods and Service Tax (GST) has been implemented which has replaced several indirect taxes including excise duty. While Ind-AS required excise duty to be included while computing revenues, GST is required to be excluded from revenue computation. Accordingly “Revenue from operation (net of excise duty)” has been additionally disclosed to enhance comparability of financial information.

a. Net of recoveries of Rs, 56 Crore ( March 31, 2017 : Rs, 70 Crore) from subsidiaries.

b. Includes Corporate social responsibility expenses of Rs, 45 Crore (March 31, 2017 : Rs, 49 Crore) as detailed in note 41.

c. Includes refund of Rs, 4.28 Crore being the donation given to a political party.

a) Includes Rs, 209 Crore (March 31, 2017 : Nil) on redeemable preference shares.

b) Net of interest cost of Rs, 349 Crore (March 31, 2017 : Rs, 556 Crore) capitalized during the year, relating to funds borrowed specifically to acquire/construct the qualifying assets. The capitalization rate of these borrowings is approximately 8.1% (March 31, 2017 : approximately 9%).

a. During the year ended March 31, 2018, the Company has recognized a loss of Rs, 251 Crore relating to certain items of capital work-in-progress at the aluminum operations, which are no longer expected to be used.

b. During the year ended March 31, 2017, the Company has recognized Rs, 201 Crore impairment charge relating to certain old items of capital work-in-progress at the Alumina refinery operations.

c. During the year ended March 31, 2018, the Company has recognized net impairment reversal of Rs, 3,513 Crore on its assets in the oil and gas segment comprising of:

i) reversal of previously recorded impairment charge of Rs, 3,622 Crore relating to Rajasthan oil and gas block (“CGU”) mainly following the progress on key growth projects expected to result in the enhanced recovery of resources in a commercially viable manner leading to a higher forecast of oil production and adoption of integrated development strategy for various projects leading to savings in cost. Of this reversal, Rs, 536 Crore reversal has been recorded against oil and gas producing facilities and Rs, 3,086 Crore reversal has been recorded against exploration intangible assets under development.

The recoverable amount of the Company’s share in Rajasthan Oil and Gas cash generating unit “RJ CGU” was determined to be Rs, 8,664 Crore (US $ 1,332 million) and Rs, 6,815 Crore (US $ 1,051 million) as at March 31, 2018 and March 31, 2017 respectively.

The recoverable amount of the RJ CGU was determined based on the fair value less costs of disposal approach, a level-3 valuation technique in the fair value hierarchy, as it more accurately reflects the recoverable amount based on the Company’s view of the assumptions that would be used by a market participant. This is based on the cash flows expected to be generated by the projected oil and natural gas production profiles up to the expected dates of cessation of production sharing contract (PSC)/cessation of production from each producing field based on the current estimates of reserves and risked resources. Reserves assumptions for fair value less costs of disposal tests consider all reserves that a market participant would consider when valuing the asset, which are usually broader in scope than the reserves used in a value-in-use test. Discounted cash flow analysis used to calculate fair value less costs of disposal uses assumption for short-term oil price of US $ 62 per barrel for the next one year (March 31, 2017: US $ 58 per barrel) and scales upto long-term nominal price of US $ 65 per barrel three years thereafter (March 31, 2017: US $ 70 per barrel) derived from a consensus of various analyst recommendations. Thereafter, these have been escalated at a rate of 2.5% per annum. The cash flows are discounted using the post-tax nominal discount rate of 10.1% (March 31, 2017: 10.2%) derived from the post-tax weighted average cost of capital after factoring in the risks ascribed to PSC extension including successful implementation of key growth projects. Based on the sensitivities carried out by the Company, change in crude price assumptions by US$ 1/bbl and changes to discount rate by 0.5% would lead to a change in recoverable value by Rs, 238 Crore (US $ 37 million) and Rs, 180 Crore (US $ 28 million) respectively.

ii) impairment charge of Rs, 109 Crore recorded against exploration intangible assets under development representing the carrying value of exploratory wells in Block PR-OSN-2004/1 which has been relinquished during the year.

During the year ended March 31, 2017, the Company has recognized net impairment reversal of Rs, 252 Crore relating to Rajasthan Oil and Gas block. Of this net reversal, Rs, 114 Crore charge has been recorded against cost of oil and gas producing facilities and Rs, 366 Crore reversal has been recorded against exploration intangible assets under development.

d. During the year ended March 31, 2018, the Company has recognized an impairment charge of Rs, 452 Crore as against the net carrying value of Rs, 1,048 Crore on its iron ore assets in Goa in the iron ore segment.

Pursuant to an order passed by the Hon’ble Supreme Court of India on February 7, 2018 the second renewal of the mining leases granted by the State of Goa to all miners including Vedanta were cancelled. Consequentially all mining operations stopped with effect from March 16, 2018 until fresh mining leases (not fresh renewals or other renewals) and fresh environmental clearances are granted in accordance with the provisions of the The Mines and Minerals (Development and Regulation) (MMDR) Act.

Significant uncertainty exists over the resumption of mining at Goa under the current leases. The Company has assessed the recoverable value of all its assets and liabilities associated with existing mining leases which led to a non-cash impairment charge. Upon consideration of past precedence, the provision for restoration and rehabilitation with respect to these mines has been assessed as Nil, as the Company believes that the same would be carried out by the future successful bidder at the time of mine closure.

e. Charge pursuant to unfavorable arbitration order- Rs, 113 Crore (Refer note 49 (b) - Contractor claims).

f. During the year ended March 31, 2018 and March 31, 2017 the Company has recognized net impairment reversal of Rs, 2,710 Crore and net impairment charge of Rs, 97 Crore respectively, on its investment in subsidiaries, comprising of:

(i) Cairn India Holding Limited (‘CIHL’) holds 35% share in Rajasthan oil and gas block through its step down subsidiary Cairn Energy Hydrocarbons Limited. The recoverable value of investment in CIHL was determined to be Rs, 13,754 Crore (US $ 2,115 million) and Rs, 17,157 Crore (US $ 2,646 million) as at March 31, 2018 and March 31, 2017 respectively, represented by CIHL’s share of discounted cash flows in RJ CGU held through its subsidiary and net fair value of its other assets. (Refer note (c)(i) above).

(ii) The net recoverable value of investment in Sesa Resources Limited (‘SRL’) was determined to be Rs, 109 Crore. The Supreme Court judgement relating to iron ore mining in Goa resulted in impairment. The recoverable value is represented by the estimated selling price of the underlying assets of SRL. (Refer note (d) above).

Certain businesses of the Company are 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: SEZ Operations

In order to boost industrial development and exports, provided certain conditions are met, profits of undertaking located in Special Economic Zone (‘SEZ’) 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, 50% of profits for five years thereafter and 50% of the profits for further five years provided the amount allowable in respect of deduction is credited to Special Economic Zone Re-Investment Reserve account. However, such undertaking would continue to be subject to the Minimum Alternative tax (‘MAT’).

The Company has setup SEZ Operations in its aluminum division (where no benefit has been drawn).

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 years period following commencement of the power plant’s operation. However, such undertakings generating power would continue to be subject to the MAT provisions.

The total effect of such tax holidays and exemptions was Rs,8 crore for the year ended March 31,2018 (March 31,2017: Rs,524 crore).

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 was available up to financial year ended March 31, 2017.

(c) Deferred tax assets/liabilities

The Company has accrued significant amounts of deferred tax. The majority of the deferred tax liability represents accelerated tax relief for the depreciation of property, plant and equipment and the depreciation on mining reserves, net of losses carried forward by Vedanta Limited (post the re-organisation) and unused tax credit in the form of MAT credits carried forward. Significant components of Deferred tax (assets) & liabilities recognized in the balance sheet are as follows :

a) The above does not include dividend and tax thereon paid by erstwhile Cairn India Limited to its fellow subsidiaries.

b) The Board of Directors of the Company declared an interim dividend of Rs, 6,580 Crore on March 30, 2017 which has been paid during the current year.

c) Tax on interim and final dividend (net of dividend from subsidiary) u/s 115O of the Income Tax Act, 1961.

d) Dividend @ 7.5% p.a. on the redeemable preference shares of face value of Rs, 10/- per preference share as per their terms of issuance was declared during the year ended March 31, 2018. The same has been accounted for as a interest cost and has been recorded in the statement of profit and loss. (Refer note 33)

4. Share Based Payments

The Company offers equity based option plans to its employees, officers and directors through the Company’s stock option plan introduced in the previous year, Cairn India’s stock option plan now administered by the Company pursuant to merger with the Company and Vedanta Resources Plc plans [Vedanta Resources Long-Term Incentive Plan (“LTIP”), Employee Share Ownership Plan (“ESOP”), Performance Share Plan (“pSp”) and Deferred Share Bonus Plan (“DSBP”)] collectively referred as ‘VR PLC ESOP’ scheme.

The Vedanta Limited Employee Stock Option Scheme (ESOS) 2016

The Company introduced an Employee Stock Option Scheme 2016 (“ESOS”), which was approved by the Vedanta Limited shareholders to provide equity settled incentive to all employees of the Company including subsidiary companies. The ESOS scheme includes both tenure based and performance based on stock option options. The maximum value of options that can be awarded to members of the wider management group is calculated by reference to the grade average cost-to-company (“CTC”) and individual grade of the employee. The performance conditions attached to the option is measured by comparing company’s performance in terms of Total Shareholder Return (“TSR”) over the performance period with the performance of two group of comparator companies (i.e. Indian and global comparator companies) defined in the scheme. The extent to which an option vests will depend on the Company’s TSR rank against a group or groups of peer companies at the end of the performance period and as moderated by the Remuneration Committee. Dependent on the level of employee, part of these options will be subject to a continued service condition only with the remainder measured in terms of TSR.

The performance condition is measured by taking Vedanta Limited’s TSR at the start and end of the performance period (without averaging), and comparing its performance with that of the comparator group or groups. The information to enable this calculation to be carried out on behalf of the Nomination and Remuneration Committee (the Committee) is provided by the Company’s advisers. The Committee considers that this performance condition, which requires that the Company’s total return has outperformed a group of industry peers, provides a reasonable alignment of the interests of participants with those of the shareholders.

38 Share Based Payments continued

Initial options under the ESOS were granted on 15 December 2016. Further during the year, new options were granted in September 2017, October 2017 and November 2017. However, in the scheme launched during the year, business performance (“EBIDTA”) set against business plan for the financial year is included as an additional condition. The exercise price of the options is ' 1 per share and the performance period is three years, with no re-testing being allowed.

The fair value of all options has been determined at the date of grant of the option allowing for the effect of any market-based performance conditions. This fair value, adjusted by the Group’s estimate of the number of options that will eventually vest as a result of non-market conditions, is expensed over the vesting period.

The fair values were calculated using the Black-Scholes Model for tenure based and EBIDTA based options and Monte Carlo simulation model for TSR based options. The inputs to the model include the share price at date of grant, exercise price, expected volatility, expected dividends, expected term and the risk free rate of interest. Expected volatility has been calculated using historical return indices over the period to date of grant that is commensurate with the performance period of the option. The volatilities of the industry peers have been modelled based on historical movements in the indices over the period to date of grant which is also commensurate with the performance period for the option. The history of return indices is used to determine the volatility and correlation of share prices for the comparator companies and is needed for the Monte Carlo model to estimate their future TSR performance relative to the Vedanta Limited’s TSR performance. All options are assumed to be exercised immediately after vesting, as the exercise period is 6 months.

The Company recognized total expenses of Rs, 47 Crore (March 31, 2017 Rs, 7 Crore) related to above equity settled share-based payment transactions in the year ended March 31, 2018 out of which Rs, 18 Crore (March 31, 2017 Rs, 3 Crore) was recovered from group companies.

CIPOP plan

Options will vest (i.e., become exercisable) at the end of a “performance period” which has been set by the Nomination remuneration committee at the time of grant (although such period will not be less than three years). However, the percentage of an option which vests on this date will be determined by the extent to which pre-determined performance conditions have been satisfied. Phantom options are exercisable proportionate to the period of service rendered by the employee subject to completion of one year.

CIESOP plan

There are no specific vesting conditions under CIESOP plan other than completion of the minimum service period. Phantom options are exercisable proportionate to the period of service rendered by the employee subject to completion of one year.

Volatility is the measure of the amount by which the price has fluctuated or is expected to fluctuate during the period. The measure of volatility used in Black-Scholes option-pricing model is the annualized standard deviation of the continuously compounded rates of return on the stock over a period of time. Time to maturity /expected life of options is the period for which the Company expects the options to be live. Time to maturity has been calculated as an average of the minimum and maximum life of the options.

Employee share option plan of Vedanta Resources Plc

The value of shares that are awarded to members of the Group is calculated by reference to the individual fixed salary and share-based remuneration consistent with local market practice. ESOP scheme of VRPLC is both tenure and performance based share schemes. The options are indexed to and settled by Parent’s shares (Vedanta Resources Plc shares as defined in the scheme). The options have a fixed exercise price denominated in Parent’s functional currency (10 US cents per share), the performance period of each option is three years and is exercisable within a period of six months from the date of vesting beyond which the option lapses.

Amount recovered by the Parent and recognized by the Company in the Statement of Profit and Loss for year ended March 31, 2018 is Rs, 29 Crore (March 31, 2017: Rs, 33 Crore). The Company considers these amounts as not material and accordingly has not provided further disclosures.

Out of the total expense of Rs, 58 Crore pertaining to equity settled options for the year ended March 31, 2018, the Group has capitalized Rs, 2 Crore expense for the year ended March 31, 2018.

39 Employee Benefit Plans a) Defined contribution plans

The Company contributed a total of Rs, 59 crore for the year ended March 31, 2018 and Rs, 54 Crore for the year ended March 31, 2017 to the following defined contribution plans.

Central provident fund and family pension fund

In accordance with The Employees Provident Funds and Miscellaneous Provisions Act, 1952 employees are entitled to receive benefits under the provident fund. Both the employee and the employer make monthly contributions to the plan at a predetermined rate (12% for fiscal year 2018 and 2017) of an employee’s basic salary. All employees have an option to make additional voluntary contributions. These contributions are made to the fund administered and managed by the Government of India (GOI) or to independently managed and approved funds. The Company has no further obligations under the fund managed by the GOI beyond its monthly contributions which are charged to the statement of profit and loss in the period they are incurred. Where the contributions are made to independently managed and approved funds, shortfall in actual return, if any, from the return guaranteed by the State are made by the employer, these are accounted for as defined benefit plans. The benefits are paid to employees on their retirement or resignation from the Company. There is no shortfall in the actual return for independently managed funds for the year ended March 31, 2018 and March 31, 2017. Having regard to the assets of the fund and the return on the investments, the Company does not expect any deficiency in the foreseeable future.

Superannuation

Superannuation, another pension scheme applicable in India, is applicable only to senior executives. The Company holds a policy with Life Insurance Corporation of India (“LIC”), to which it contributes a fixed amount relating to superannuation and the pension annuity is met by LIC as required, taking into consideration the contributions made. The Company has no further obligations under the scheme beyond its monthly contributions which are charged to the statement of profit and loss in the year they are incurred.

5. Employee Benefit Plans continued

b) Defined benefit plans

Contribution to provident fund trust (the “trust”)

The provident fund of the Iron Ore division is exempted under section 17 of The Employees Provident Fund and Miscellaneous Provisions Act, 1952. Conditions for grant of exemption stipulates that the employer shall make good deficiency, if any, between the return guaranteed by the statute and actual earning of the Fund. Based on actuarial valuation in accordance with Ind AS 19 and Guidance note issued by Institute of Actuaries of India for interest rate guarantee of exempted provident fund liability of employees, there is no interest shortfall in the funds managed by the trust and hence there is no further liability as on March 31, 2018 and March 31, 2017. Having regard to the assets of the Fund and the return on the investments, the Company does not expect any deficiency in the foreseeable future.

Gratuity plan

In accordance with the Payment of Gratuity Act, 1972, the Company contributes to a defined benefit plan (the “Gratuity Plan”) for employees who have completed 5 years of service. The Gratuity Plan provides a lump sum payment to vested employees at retirement, disability or termination of employment being an amount based on the respective employee’s last drawn salary and the number of years of employment with the Company. The Gratuity plan is a funded plan and the Company makes contribution to recognized funds in India.

Based on actuarial valuations conducted as at year end, a provision is recognized in full for the benefit obligation over and above the funds held in the Gratuity Plan.

The above plan assets have been invested in the qualified insurance policies.

The actual return on plan assets was Rs, 8 Crore for the year ended March 31, 2018 and Rs, 8 Crore for the year ended March 31, 2017.

The weighted average duration of the defined benefit obligation is 16.75 years and 16.60 years as at March 31, 2018 and March 31, 2017 respectively.

.6 Employee Benefit Plans continued

The Company expects to contribute Rs, 20 Crore to the funded defined benefit plans in fiscal year 2019.

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 benefit obligation liability recognized in the balance sheet.

Risk analysis

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

Investment risk

The Gratuity plan is funded with Life Insurance Corporation of India (LIC) and ICICI Prudential Life (ICICI). Company does not have any liberty to manage the fund provided to LIC and ICICI.

The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to Government of India bonds. 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.

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.

7. Capital management

The Company’s objectives when managing capital is to safeguard continuity, 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 equity, internal fund generation and other non-current borrowings. The Company’s policy is to use current and non-current borrowings to meet anticipated funding requirements.

The Company monitors capital on the basis of the gearing ratio which is net debt divided by total capital (equity plus net debt) . The Company is not subject to any externally imposed capital requirements.

Net debt are non-current and current debts as reduced by cash and cash equivalents, other bank balances and current investments. Equity comprises all components including other comprehensive income.

* Includes probable oil reserves of 22.69 mmstb (of which 15.05 mmstb is developed) and probable gas reserves of 18.31 bscf (of which 5.02 bscf is developed)

** Includes probable oil reserves of 20.36 mmstb (of which 11.73 mmstb is developed) and probable gas reserves of 22.69 bscf (of which 4.75 bscf is developed)

*** Includes probable oil reserves of 15.43 mmstb (of which 2.97 mmstb is developed) and probable gas reserves of 14.51 bscf (of which 3.91 bscf is developed)

mmboe = million barrels of oil equivalent

mmstb = million stock tank barrels

bscf = billion standard cubic feet

1 million metric tonnes = 7.4 mmstb

1 standard cubic meter =35.315 standard cubic feet

MBA = Mangala, Bhagyam & Aishwarya

EOR = Enhanced Oil Recovery

8. The Scheme of Amalgamation and Arrangement amongst Sterlite Energy Limited (‘SEL’), Sterlite Industries (India) Limited (‘Sterlite’), Vedanta Aluminium Limited (‘VAL’), Ekaterina Limited (‘Ekaterina’), Madras Aluminium Company Limited (‘Malco’) and the Company (the “Scheme”) had been sanctioned by the Honourable High Court of Madras and the Honourable High Court of Judicature of Bombay at Goa and was given effect to in the year ended March 31, 2014.

Subsequently the above orders of the H’onable High Court of Bombay and Madras have been challenged by Commissioner of Income Tax, Goa and Ministry of Corporate Affairs through a Special Leave Petition before the Supreme Court and also by a creditor and a shareholder of the Company. The said petitions are pending for hearing and admission.

9. Financial guarantees

The Company has issued financial guarantees to banks on behalf of and in respect of loan facilities availed by its group companies. In accordance with the policy of the Company (Refer note 3(h)) the Company has designated such guarantees as ‘Insurance Contracts’. The Company has classified financial guarantees as contingent liabilities.

Accordingly, there are no assets and liabilities recognized in the balance sheet under these contracts other than those related to commission income recognized and/or receivable from such group companies as disclosed in note 51.

Refer below for details of the financial guarantees issued:

Lease payments recognized as expenses on non-cancellable lease during the year is Rs, 1 Crore (March 31, 2017: Rs, 28Crore)

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.

* Investment in note 6 also includes investments (in equity and preference shares) in subsidiaries, associates and joint ventures which are carried at cost and hence are not required to be disclosed as per Ind AS 107 “Financial Instruments Disclosures”. Hence, the same have been excluded from the above table.

B. Fair value hierarchy

The Company uses the following hierarchy for determining and/or disclosing the fair value of financial instruments by valuation techniques:

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

(ii) 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).

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

The fair value of the financial assets and liabilities are at the amount that would be received to sell an asset and paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values:

Investments traded in active markets are determined by reference to quotes from the financial institutions; for example: Net asset value (NAV) for investments in mutual funds declared by mutual fund house. For other listed securities traded in markets which are not active, the quoted price is used wherever the pricing mechanism is same as for other marketable securities traded in active markets. Other current investments are valued on the basis of market trades, poll and primary issuances for securities issued by the same or similar issuer and for similar maturities or based on the applicable spread movement for the security derived based on the aforementioned factor(s).

Non-current fixed-rate and variable-rate borrowings: Fair value has been determined by the Company based on parameters such as interest rates, specific country risk factors, and the risk characteristics of the financed project.

Other non-current financial assets and liabilities: Fair value is calculated using a discounted cash flow model with market assumptions, unless the carrying value is considered to approximate to fair value.

Derivative financial assets/liabilities: The Company enters into derivative financial instruments with various counterparties. Interest rate swaps, foreign exchange forward contracts and commodity forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including 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.).

Trade receivables, cash and cash equivalents, other bank balances, loans, other financial assets, current borrowings, trade payables and other current financial liabilities: fair values approximate their carrying amounts largely due to the short-term maturities of these instruments.

For all other financial instruments, the carrying amount is either the fair value, or approximates the fair value.

The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and the value of other financial instruments recognized at fair value.

The estimated fair value amounts as at March 31, 2018 have been measured as at that date. As such, the fair values of these financial instruments subsequent to reporting date may be different than the amounts reported at each year-end.

There were no transfers between Level 1, Level 2 and Level 3 during the year.

C. Risk management framework

The Company’s businesses are subject to several risks and uncertainties including financial risks.

The Company’s documented risk management policies act as an effective tool in mitigating the various financial risks to which the businesses are exposed 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 credit risk and capital management. Risks are identified at both the corporate and individual subsidiary level with active involvement of senior management. Each operating subsidiary in the Company has in place risk management processes which are in line with the Company’s policy. 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 other Committees of the Board including 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

Treasury management focuses on liability management, capital protection, liquidity maintenance and yield maximization. The treasury policies are approved by the Committee of the Board. Daily treasury operations of the subsidiary companies are managed by the finance team within the framework of Company’s treasury policies. Long-term fund raising including strategic treasury initiatives are handled by a Central team. A monthly reporting system exists to inform senior management of the Company’s investments and debt position, exposure to currency, commodity and interest rate risk and their mitigates including the derivative position. 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 Company portfolio has been rated as Tier I or “Very Good” meaning highest safety. The investments are made keeping in mind safety, liquidity and yield maximization.

The Company uses derivative instruments to manage the exposure 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 forward contracts, interest rate and currency swaps and these are in line with the Company’s policies.

Commodity price risk

The Company is exposed to the movement of base metal 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 sell the products at prevailing market prices. The commodity price risk in import input commodity such as of Copper Concentrate & Alumina, for our copper and aluminum business respectively, is hedged on back-to back basis ensuring no price risk for the business. 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, basis clearly laid down guidelines.

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

The Company is also exposed to the movement of international crude oil price and the discount in the price of Rajasthan crude oil to Brent price.

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

- economic hedging of prices realized on commodity contracts

- cash flow hedging of revenues, forecasted highly probable transactions

Aluminum

The requirement of the primary raw material, alumina, is partly met from own sources and the rest is purchased primarily on negotiated price terms. Sales prices are linked to the LME prices. At present the Company on selective basis hedges the aluminum content in outsourced alumina to protect its margins. The Company also enters into hedging arrangements for its aluminum sales to realize average month of sale LME prices.

Copper

The Company’s custom smelting copper operations at Tuticorin is benefited by a natural hedge except to the extent of a possible mismatch in quotation periods between the purchase of concentrate and the sale of finished copper. The Company’s policy on custom smelting is to generate margins from Treatment charges /Refining charges (TC/RC), improving operational efficiencies, minimizing conversion cost, generating a premium over LM E on sale of finished copper, sale of by-products and from achieving import parity on domestic sales. Hence, mismatches in quotation periods are managed to ensure that the gains or losses are minimized. The Company hedges this variability of LME prices through forward contracts and tries to make the LME price a pass-through cost between purchases of copper concentrate and sales of finished products, both of which are linked to the LM E price.

TC/RCs are a major source of income for the Indian copper smelting operations. Fluctuations in TC/RCs are influenced by factors including demand and supply conditions prevailing in the market for mine output. The Company’s copper business has a strategy of securing a majority of its concentrate feed requirement under long-term contracts with mines.

Iron ore

The Company sells its Iron Ore production from Goa on the prevailing market prices and from Karnataka through e-auction route as mandated by State Government of Karnataka in India.

Oil and Gas

The prices of various crude oils are based upon the price of the key physical benchmark crude oil such as Dated Brent, West Texas Intermediate, and Dubai/Oman etc. The crude oil prices move based upon market factors like supply and demand. The regional producers price their crude basis these benchmark crude with a premium or discount over the benchmark based upon quality differential and competitiveness of various grades.

Natural gas markets are evolving differently in important geographical markets. There is no single global market for natural gas. This could be owing to difficulties in large-scale transportation over long distances as compared to crude oil. Globally, there are three main regional hubs for pricing of natural gas, which are USA (Henry Hub Prices), UK (NBP Price) and Japan (imported gas price, mostly linked to crude oil).

Provisionally priced financial instruments

On March 31, 2018, the value of net financial liabilities linked to commodities (excluding derivatives) accounted for on provisional prices was Rs, 3,335 Crore (March 31, 2017: liability of Rs, 2,404 Crore). These instruments are subject to price movements at the time of final settlement and the final price of these instruments will be determined in the financial year beginning April 01, 2018.

The above sensitivities are based on volumes, costs, exchange rates and other variables and provide the estimated impact of a change in LME prices on profit and equity assuming that all other variables remain constant. A 10% decrease in LM E prices would have an equal and opposite effect on the Company’s financial statements.

Included above is also the impact of a 10% increase in closing copper LME for provisionally priced copper concentrate purchased at Copper division custom smelting operations in India of Rs, 368 Crore (March 31, 2017: Rs, 312 Crore), which is pass through in nature and as such will not have any impact on the profitability.

Financial risk

The Company’s Board approved financial risk policies include monitoring, measuring and mitigating the 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

The Company requires funds both for short-term operational needs as well as for long-term investment programmes 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 by CRISIL Limited (CRISIL) and India Ratings and Research Private Limited (India Rating) for its capital market issuance in the form of CPs and NCDs and for its banking facilities in line with Basel II norms.

CRISIL changed the outlook for the Company’s long-term bank facilities and its Non-Convertible Debentures (NCD) programme to CRISIL AA / Positive from CRISIL AA /Stable during the year on account of structural improvement in business profile and deleveraging. India Ratings has revised the outlook on Vedanta Limited’s ratings to IND AA / Positive from IND AA/ Negative on account of improved financial metrics, completion of the merger with Cairn and proactive refinancing. Vedanta Limited has the highest short term rating on its working capital and Commercial Paper Programme at A1 from CRISIL and India Ratings.

Anticipated future cash flows, together with undrawn fund based committed facilities of ' 985 Crore, and cash, bank and current investments of ' 7,449 Crore as at March 31, 2018, are expected to be sufficient the meet the liquidity requirement of the Company in the near future.

The Company remains committed to maintaining a healthy liquidity, a low gearing ratio, deleveraging and strengthening our 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 reflect the contractual undiscounted cash obligation of the Company.

*Includes Non-current borrowings, current borrowings, current maturities of non-current borrowings and committed interest payments on borrowings.

**Includes both Non-current and current financial liabilities and committed interest payment, as applicable. Excludes current maturities of non-current borrowings, Interest accrued on borrowings and derivatives.

Collateral

The Company has pledged a part of its trade receivables, short-term investments and cash and cash equivalents in order to fulfill the collateral requirements for the financial facilities in place. The counterparties have an obligation to return the securities to the Company.

(b) Foreign exchange risk

Fluctuations in foreign currency exchange rates may have an impact on statement of profit and loss, the statement of change in equity, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the Company.

Exposures on foreign currency loans are managed through the Company wide hedging policy, which is reviewed periodically to ensure that the results from fluctuating currency exchange rates are appropriately managed. The Company strives to achieve asset liability offset of foreign currency exposures and only the net position is hedged.

The Company’s presentation currency is the INR. The assets are located in India and the Indian Rupee is the functional currency except for Oil and Gas business. Natural hedges available in the business are identified at each entity level and hedges are placed only for the net exposure. 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, where cost of the project is calculated taking into account the hedge cost. However all new non-current borrowing exposures are being hedged. The hedge mechanisms are reviewed periodically to ensure that the risk from fluctuating currency exchange rates is appropriately managed.

The Company’s exposure to foreign currency arises where a Company entity holds monetary assets and liabilities denominated in a currency different to the functional currency of the respective business, with US dollar being the major non-functional currency. The following analysis is based on the gross exposure as at the reporting date which could affect the consolidated statement of profit and loss. The exposure is mitigated by some of the derivative contracts entered into by the Company as disclosed under the section on ‘Derivative financial instruments’.

The foreign exchange rate sensitivity is calculated by the aggregation of the net foreign exchange rate exposure with a simultaneous parallel foreign exchange rates shift in the foreign currencies by 10% against the functional currency of the respective entities.

Set out below is the impact of a 10% strengthening in the functional currencies of the respective businesses on pre-tax profit/(loss) and pre-tax equity arising as a result of the revaluation of the Company’s foreign currency financial assets/liabilities:

A 10% weakening of functional currencies of the respective businesses would have an equal and opposite effect on the Company’s financial statements.

(c) Interest rate risk

At March 31, 2018, the Company’s net debt of Rs, 33,264 Crore (March 31, 2017: Rs, 21,868 Crore) comprises cash, bank and investments of Rs, 7,449 Crore (March 31, 2017: Rs, 21,365 Crore) offset by debt of Rs, 40,713 Crore (March 31, 2017: Rs, 43,233 Crore).

The Company is exposed to interest rate risk on short-term and long-term floating rate instruments and on the refinancing of fixed rate debt. The Company’s policy is to maintain a balance of fixed and floating interest rate borrowings and the proportion of fixed and floating rate debt is determined by current market interest rates. The borrowings of the Company are principally denominated in Indian Rupees and US dollars with mix of fixed and floating rates of interest. The USD floating rate debt is linked to US dollar LIBOR and INR Floating rate debt to Bank’s base rate. The Company has a policy of selectively using interest rate swaps, option contracts and other derivative instruments to manage its exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a monthly basis. The Company invests cash and liquid investments in short-term deposits and debt mutual funds, some of which generate a tax-free return, to achieve the Company’s goal of maintaining liquidity, carrying manageable risk and achieving satisfactory returns.

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.

Considering the net debt position as at March 31, 2018 and the investment in bank deposits, corporate bonds and debt mutual funds, any increase in interest rates would result in a net loss and any decrease in interest rates would result in a net gain. The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments at the balance sheet date.

The table below illustrates the impact of a 0.5% to 2.0% increase in interest rates on interest on floating rate financial assets/ liabilities (net) on profit/(loss) and equity and represents management’s assessment of the possible change in interest rates. The year end balances are not necessarily representative of the average debt outstanding during the year. This analysis also assumes that all other variables, in

An equivalent reduction in interest rates would have an equal and opposite effect on the Company s financial statements.

(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 only dealing with creditworthy counterparties and 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 trade receivables, investments, loans, other financial assets, 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 national standing.

Moreover, given the diverse nature of the Company’s businesses trade receivables are spread over a number of customers with no significant concentration of credit risk. No single customer accounted for 10.0% or more of revenue on a consolidated basis in any of the years presented. 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.

The Company has clearly defined policies to mitigate counterparty risks. For short-term investments, counterparty limits are in place to limit the amount of credit exposure to any one counterparty. This, therefore, results in diversification of credit risk for our mutual fund and bond investments. For derivative and financial instruments, the Company attempts to limit the credit risk by only dealing with reputable banks and financial institutions.

For current investments, counterparty limits are in place to limit the amount of credit exposure to any one counterparty. This, therefore, results in diversification of credit risk for our mutual fund and bond investments. For derivative and financial instruments, the Company attempts to limit the credit risk by only dealing with reputable banks and financial institutions.

The carrying value of the financial assets represents the maximum credit exposure. The Company’s maximum exposure to credit risk is ' 13,292 Crore and ' 33,180 as at March 31, 2018 and March 31, 2017 respectively.

The maximum credit exposure on financial guarantees given by the Company for various financial facilities is described in Note 49 on “Commitments, contingencies, and guarantees”.

None of the Company’s cash equivalents, including time deposits with banks, are past due or impaired. Regarding trade receivables, loans and other financial assets (both current and non-current), there were no indications as at March 31, 2018, that defaults in payment obligations will occur except as described in Note 7, 11, and 15 on allowance for impairment of trade receivables and other financial assets.

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 Company based on past experience does not expect any material loss on its receivables and hence no provision is deemed necessary on account of ECL.

The credit quality of the Company’s customers is monitored on an ongoing basis and assessed for impairment where indicators of such impairment exist. The Company uses simplified approach for impairment of financial assets. If credit risk has not increased significantly, 12-month expected credit loss is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime expected credit loss is used. 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.

D. Derivative financial instruments

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 forward contracts and these are subject to the Company guidelines and policies.

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

The use of derivatives can give rise to credit and market risk. The Company tries to control credit risk as far as possible by only 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.

(i) Embedded derivatives

Derivatives embedded 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.

(ii) Cash flow hedges

The Company enters into forward exchange and 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 gain or losses are reclassified to profit or loss. These hedges have been effective for the year ended March 31, 2018.

The Company uses foreign exchange contracts from time to time to optimize currency risk exposure on its foreign currency transactions. The Company hedged part of its foreign currency exposure on capital commitments during the year ended 2018. Fair value changes on such forward contracts are recognized in comprehensive income.

The majority of cash flow hedges taken out by the Company during the year comprise non-derivative hedging instruments for hedging the foreign exchange rate of highly probable forecast transactions and commodity price contracts for hedging the commodity price risk of highly probable forecast transactions.

The cash flows related to above are expected to occur during the year ended March 31, 2019 and consequently may impact profit or loss for that year depending upon the change in the commodity prices and foreign exchange rates movements. For cash flow hedges regarded as basis adjustments to initial carrying value of the property, plant and equipment, the depreciation on the basis adjustments made is expected to affect profit or loss over the expected useful life of the property, plant and equipment.

(iii) Fair value hedge

The fair value hedges relate to forward covers taken to hedge currency exposure and commodity price risks.

The Company’s sales are on a quotation 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 quotation 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. Net gains and losses are recognized in the statement of profit and loss.

The Company uses foreign exchange contracts from time to time to optimize currency risk exposure on its foreign currency transactions. Fair value changes on such forward contracts are recognized in the statement of profit and loss.

(iv) Non-qualifying/economic hedge

The Company enters into derivative contracts 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. Hedging instruments include copper, aluminum future contracts on the LME and certain other derivative instruments. Fair value changes on such derivative instruments are recognized in the statement of profit and loss.

The fair value of the Company’s derivative positions recorded under derivative financial assets and derivative financial liabilities are as follows:

11. Contingencies and commitments

I Contingent Liabilities

a) Erstwhile Cairn India Limited: Income tax

In March 2014, Cairn India Limited (referred to as ‘Cairn India’) received a show cause notice from the Indian Tax Authorities (“Tax Authorities”) for not deducting withholding tax on the payments made to Cairn UK Holdings Limited (“CUHL”), for acquiring shares of Cairn India Holdings Limited (“CIHL”), as part of their internal reorganization. Tax Authorities have stated in the notice that a short-term capital gain has accrued to CUHL on transfer of the shares of CIHL to Cairn India, in the financial year 2006-2007, on which tax should have been withheld by Cairn India. Pursuant to this various replies were filed with the tax authorities.

Cairn India also filed a writ petition before the Delhi High Court wherein it has raised several points for assailing the aforementioned Income tax Authority’s order. The matter is next listed for hearing on July 06, 2018 before the Honourable Delhi High Court.

After several hearings, the Income Tax Authority, in March 2015, issued an order holding Cairn India as ‘assessee in default’ and raised a demand totaling Rs, 20,495 Crore (including interest of Rs, 10,247 Crore). Cairn India had filed an appeal before the First Appellate Authority, Commissioner of Income Tax (Appeals) which vide order dated July 03, 2017 confirmed the tax demand against Cairn India. Cairn India has challenged the Commissioner of Income Tax (Appeals) order before Income Tax Appellate Tribunal (ITAT).

Separately CUHL, on whom the primary liability of tax lies has received an Order from the ITAT holding that the transaction is taxable in view of the clarification made in the Act but also acknowledged that being a retrospective transaction, interest would not be levied. Hence affirming a demand of Rs, 10,248 Crore excluding the interest portion that had previously been claimed. The Department is appealing this order.

As a result of the above order from ITAT, the Company now considers the risk in respect of the interest portion of claim to be remote. Further, as per the recent attachment notice received from the Tax Recovery Officer appointed for CUHL, the tax officer has adjusted the dividend of Rs, 667 Crore which was due to CUHL and was recovered by the Tax department. The Company has further remitted additional dividend of Rs, 442 Crore further reducing the principal liability to Rs, 9,139 Crore. Accordingly, the Company has revised the contingent liability to Rs, 9,139 Crore.

Additionally, the Tax department has initiated the process of selling the attached CUHL investment in equity and preference shares of Vedanta Limited valuing Rs, 5,861 Crore based on the quoted price as at March 31, 2018.

In the event, the case is finally decided against Cairn India, the potential liability including interest would be Rs, 20,495 Crore.

Separately but in connection with this litigation, Vedanta Resources Plc has filed a Notice of Claim against the Government of India (‘GOI’) under the UK India Bilateral Investment Treaty (the “BIT”). The International arbitration Tribunal recently passed favorable order on jurisdiction and now the matter would be heard on merits - hearing scheduled in April-May 2019. The Government of India has challenged jurisdiction order of Arbitration Tribunal before the High court of Singapore.

b) Vedanta Limited: Contractor claim

Shenzhen Shandong Nuclear Power Construction Co. Limited (‘SSNP’) subsequent to terminating the EPC contract invoked arbitration as per the contract alleging non-payment of their dues towards construction of a 210 MW co-generation power plant for the 6 MTPA expansion project, and filed a claim of Rs, 1,642 Crore. SSNP also filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court requesting for interim relief. The Bombay High Court initially dismissed their petition, but on a further appeal by SSNP, the Division Bench of the Bombay High Court directed Vedanta Limited to deposit a bank guarantee for an amount of Rs, 187 Crore as a security, being a prima facie representation of the claim, until arbitration proceedings are completed. Vedanta Limited has deposited a bank guarantee of an equivalent amount. Based on the assessment, the Company had booked the liability for Rs, 200 Crore in earlier years.

On November 09, 2017, the Arbitral Tribunal has pronounced the award in favor of SSNP for Rs, 221 Crore along with the interest and cost of Rs, 118 Crore (@ 9% p.a. from date of filing petition, i.e. April 18, 2012). The amount is payable subject to SSNP handing over all the drawings to the Company. Given the Company was already carrying a part provision it recognized additional liability of Rs, 139 Crore including interest and cost making the total liability towards SSNP as Rs, 339 Crore. The additional amount recognized in the income statement includes Rs, 113 Crore which has been presented under exceptional items.

The Company has challenged the award under section 34 of The Arbitration and Conciliation Act, 1996, which was dismissed. Subsequently, the Company has filed an appeal under section 37 of The Arbitration and Conciliation Act, 1996 with the Delhi High Court. The Court has granted a stay subject to deposit of the award amount, which has been complied by the Company. The hearing on the arguments in the matter have been completed and the matter has now been reserved for orders.

c) Ravva joint venture arbitration proceedings: ONGC Carry

Erstwhile Cairn India Limited (referred to as ‘Cairn India’) is involved in a dispute against the Government of India (GOI) relating to the recovery of contractual costs in terms of calculation of payments that the contractor party were required to make in connection with the Ravva field.

The Ravva Production Sharing Contract “PSC” obliges the contractor parties to pay a proportionate share of ONGC’s exploration, development, production and contract costs in consideration for ONGC’s payment of costs related to the construction and other activities it conducted in Ravva prior to the effective date of the Ravva PSC (the ‘‘ONGC Carry’’). The question as to how the ONGC Carry is to be recovered and calculated, along with other issues, was submitted to an international arbitration Tribunal in August 2002 which rendered a decision on the ONGC Carry in favour of the contractor parties whereas four other issues were decided in favour of GOI in October 2004 (“Partial Award”).

The GOI then proceeded to challenge the ONGC Carry decision before the Malaysian courts, as Kuala Lumpur was the seat of the arbitration. The Federal Court of Malaysia which adjudicated the matter on October 11, 2011, upheld the Partial Award. Per the decision of the Arbitral Tribunal, the contractor parties and GOI were required to arrive at a quantification of the sums relatable to each of the issues under the Partial Award.

Pursuant to the decision of the Federal Court, the contractor parties approached the Ministry of Petroleum and Natural Gas (“MoPNG”) to implement the Partial Award while reconciling the statement of accounts as outlined in the Partial Award.

However, MoPNG on July 10, 2014 proceeded to issue a Show Cause Notice alleging that since the partial award has not been enforced, the profit petroleum share of GOI has been short-paid. MoPNG threatened to recover the amount from the sale proceeds payable by the oil marketing companies to the contractor parties. The contractor party replied to the show cause notice taking various legal contentions.

As the Partial Award did not quantify the sums, therefore, contractor parties approached the same Arbitral Tribunal to pass a Final Award in the subject matter since it had retained the jurisdiction to do so. The Arbitral Tribunal was reconstituted and the Final Award was passed in October 2016 in Cairn India’s favour. GOI’s challenge of the Final Award was dismissed by the Malaysian High Court. GOI has challenged the decision before the Court of Appeal, the procedural hearing for which is scheduled on August 30, 2018. Further, Cairn India has also filed for the enforcement of the Partial Award and Final Award with Delhi High Court which is scheduled to be heard on September 04, 2018. While Cairn India does not believe the GOI will be successful in its challenge, if the Arbitral Award is reversed and such reversal is binding, Cairn India could be liable for approximately Rs, 416 Crore plus interest as at March 31, 2018 ( March 31, 2017: Rs, 416 Crore plus interest).

d) Proceedings related to the imposition of entry tax

The Company challenged the constitutional validity of the local statutes and related notifications in the states of Odisha and Rajasthan pertaining to the levy of entry tax on the entry of goods brought into the respective states 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.

Following 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 bought from other States to the respective High Courts for final determination but retained the issue of jurisdiction for levy on imported goods, for determination by regular bench of Supreme Court. Following the order of the Supreme Court, the Company filed writ petitions in respective High Courts.

On October 09, 2017, the Supreme Court has held that States have the jurisdiction to levy entry tax on imported goods. With this Supreme Court judgement, imported goods will rank parri-passu with domestic goods for the purpose of levy of Entry tax. The Company has amended its appeal (writ petitions) in Odisha to include imported goods as well. With respect to Rajasthan, the State Government has filed a counter petition in the Rajasthan High Court, whereby it has admitted that it does not intend to levy the entry tax on imported goods.

The issue pertaining to the levy of entry tax on the movement of goods into a Special Economic Zone (SEZ) remains pending before the Odisha High Court. The Company has challenged the levy of entry tax on any movement of goods into an SEZ based on the definition of ‘local area’ under the Odisha Entry Tax Act which is very clear and does not include an SEZ. In addition, the Government of Odisha further through its SEZ Policy 2015 and the operational guidelines for administration of this policy dated August 22, 2016, exempted the entry tax levy on SEZ operations.

The total claims against the Company are Rs, 1,020 Crore (March 31, 2017: Rs, 809 Crore) net of provisions made.

e) Miscellaneous disputes- Income tax

The Company is involved in various tax disputes amounting to Rs, 1,430 Crore (March 31, 2017: Rs, 1,439 Crore) relating to income tax. These mainly relate to the disallowance of tax holiday for 100% Export Oriented Undertaking under section 10B of the Income Tax Act, 1961, disallowance of tax holiday benefit on production of gas under section 80IB of the Income Tax Act, 1961, on account of depreciation disallowances, disallowance under section 14A of the Income Tax Act and interest thereon which are pending at various appellate levels.

The Company believes that these disallowances are not tenable and accordingly no provision is considered necessary.

f) Miscellaneous disputes- Others

The Company is subject to various claims and exposures which arise in the ordinary course of conducting and financing its business from the excise, indirect tax authorities and others. These claims and exposures mostly relate to the assessable values of sales and purchases or to incomplete documentation supporting the companies’ returns or other claims.

The approximate value of claims (excluding the items as set out separately above) against the Company totals to Rs, 2,177 Crore (March 31, 2017: Rs,1,933 Crore)

The Company considers that it can take steps such that the risks can be mitigated and that there are no significant unprovided liabilities arising.

Except as described above from (a) to (f), there are no pending litigations which the Company believes could reasonably be expected to have a material adverse effect on the results of operations, cash flow or the financial position of the Company.

II Commitments

The Company has a number of continuing operational and financial commitments in the normal course of business including:

- exploratory mining commitments;

- oil & gas commitments;

- mining commitments arising under production sharing agreements; and

- completion of the construction of certain assets.

12. Segment Information

A) Description of segment and principle activities

The Company is a diversified natural resource Company engaged in exploring, extracting and processing minerals and oil and gas. The Company produces copper, aluminium, iron ore, oil and gas and commercial power. The Company has five reportable segments: copper, aluminum, iron ore, commercial power and oil and gas. The management of the Company is organized by its main products: copper, aluminum, iron ore, oil and gas and power. 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”). Earnings before Interest, Tax and Depreciation & Amortisation (EBITDA) amounts are evaluated regularly by the Management, which has been identified as the CODM, in deciding how to allocate resources and in assessing performance.

Copper

The Company’s copper business is principally one of custom smelting and includes a copper smelter, a refinery, a phosphoric acid plant, a sulphuric acid plant, a copper rod plant and three captive power plants at Tuticorin in Southern India, and a refinery and two copper rod plants at Silvassa in Western India.

On April 09, 2018 the annual consent to operate (CTO) for Tuticorin plant under the Air and Water Acts for copper smelters in India was rejected by the State Pollution Control Board for want of further clarification and consequently the operations have presently been suspended. The matter is presently pending in Tribunal. (Refer note 3 (y) (1) (xi))

Aluminum

The Company’s aluminium operations include a refinery and a captive power plant at Lanjigarh and a smelter, a thermal coal based captive power facility at Jharsuguda both situated in the State of Odisha in India. The pots are in the stage of commissioning in the 1.25 mtpa Jharsuguda-II Aluminium smelter with 879 pots having been commissioned by March 31, 2018.

Iron ore

The Company’s iron ore business consists of exploration, mining and processing of iron ore, pig iron and metallurgical coke. The mining operations are carried out at Codli group, Bicholim mine, Surla mine and the Sonshi group of mines in state of Goa and Narrian mine, situated at state of Karnataka in India, a Metallurgical Coke and Pig Iron plant in State of Goa in India and also has a power plant in State of Goa in India for captive use. Pursuant to an order passed by Hon’ble Supreme Court of India on Febuary 07, 2018 all mining was banned in state of Goa. The Company has recognized an impairement charge on its ironore assets for the year ended March 31, 2018 (Refer note 34 (d)).

Power

The Company’s power business include 600 MW thermal coal-based commercial power facility at Jharsuguda in the State of Odisha in Eastern India. During the previous year, three units of 600 MW each at Jharsugda have been converted into captive power plant to commercial power plant to meet the inhouse energy demands. Hence w.e.f. April 01, 2016 the operations of the said units have been included in the aluminium business segment.

Oil and gas

The Company’s is engaged in business of exploration and development and production of oil and gas, having a diversified asset base of five blocks, one in state of Rajasthan in India, one on the west coast of India and three on the east coast of India.

Segment Revenue, Results, Assets and Liabilities include the respective amounts identifiable to each of the segments and amount allocated on a reasonable basis. Unallocated expenditure consist of common expenditure incurred for all the segments and expenses incurred at corporate level. The assets and liabilities that cannot be allocated between the segments are shown as unallocated assets and unallocated liabilities respectively.

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. Earnings before interest, depreciation and amortization and tax (EBITDA) are evaluated regularly by the 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.

For the year ended March 31, 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

The following table presents revenue and profit information and certain assets information regarding the Company’s business segments as at and for the year ended March 31, 2018 and March 31, 2017.

a) Includes export incentive of Rs, 155 Crore.

b) Amortization of duty benefits relating to assets recognized as government grant.

c) Depreciation, depletion and amortization expense excludes and unallocated expense includes unallocated deprecation of Rs, 7 Crore.

d) Total Capital expenditure includes capital expenditure of Rs, 5 Crore not allocable to any segment.

e) Total of Impairment reversal/(charge) - net / Provision includes impairment reversal on investment in subsidiaries of Rs, 97 Crore not allocable to any segment.

No single customer has accounted for more than 10% of the Company’s revenue for the year ended March 31, 2018 and March 31, 2017.

The following is an analysis of the carrying amount of non-current assets, which do not include deferred tax assets and financial assets analysed by the geographical area in which the assets are located:

13.Related Party disclosures

List of related parties and relationships

A)

Entities controlling the Company (Holding Companies)

Monte Cello B.V.

Volcan Investments Limited (Ultimate Holding Company)

Namzinc (Proprietary) Limited

Intermediate Holding Companies

Paradip Multi Cargo Berth Private Limited

Finsider International Company Limited

Rosh Pinah Health Care (Proprietary) Limited

Richter Holdings Limited

Sesa Mining Corporation Limited

Twin Star Holdings Limited

Sesa Resources Limited

Vedanta Resources Cyprus Limited

Sesa Sterlite Mauritius Holdings Limited*

Vedanta Resources Finance Limited

Skorpion Mining Company (Proprietary) Limited

Vedanta Resources Holdings Limited

Skorpion Zinc (Proprietary) Limited

Vedanta Resources Plc

Sterlite (USA) Inc.

Welter Trading Limited

Sterlite Infraventures Limited**

Westglobe Limited

Sterlite Ports Limited Talwandi Sabo Power Limited

B)

Fellow Subsidiaries (with whom transactions have taken place)

Thalanga Copper Mines (Proprietary) Limited

Konkola Copper Mines Plc

THL Zinc Holding B.V.

Sterlite Iron and Steel Company Limited

THL Zinc Limited

Sterlite Technologies Limited

THL Zinc Namibia Holdings (Proprietary) Limited

Sterlite Power Transmission limited

THL Zinc Ventures Limited Twin Star Energy Holdings Limited*

C)

Associates (with whom transactions have taken place)

Twin Star Mauritius Holdings Limited*

Gaurav Overseas Private Limited

Vedanta Exploration Ireland Limited Vedanta Lisheen Holdings Limited

D)

Subsidiaries

Vedanta Lisheen Mining Limited

Amica Guesthouse (Proprietary) Limited

Vizag General Cargo Berth Private Limited

Bharat Aluminium Company Limited

Western Cluster Limited

Black Mountain Mining (Proprietary) Limited

Goa Sea Port Private Limited

Bloom Fountain Limited

AvanStrate Inc, Japan

Cairn Energy Discovery Limited

AvanStrate Korea Inc, Korea

Cairn Energy Gujarat Block 1 Limited Cairn Energy Hydrocarbons Limited

AvanStrate Taiwan Inc, Taiwan

Cairn Energy India (Proprietary) Limited

E) Post retirement benefit plan

Cairn Exploration (No. 2) Limited

Sesa Group Employees Provident Fund Trust

Cairn India Holdings Limited

Sesa Group Employees Gratuity Fund and Sesa Group

Cairn Lanka (Private) Limited

Executives Gratuity Fund

Cairn South Africa (Proprietary) Limited CIG Mauritius Holdings Private Limited

Sesa Group Executives Superannuation Scheme Fund

CIG Mauritius Private Limited

F) Others (with whom transactions have taken place)

Copper Mines of Tasmania (Proprietary) Limited

Vedanta Foundation

Fujairah Gold FZC

Sesa Community Development Foundation

Hindustan Zinc Limited

Rampia Coal Mines & Energy Private Limited

Killoran Lisheen Finance Limited

Vedanta Limited ESOS Trust

Killoran Lisheen Mining Limited

Cairn Foundation

Lakomasko B.V.

Lisheen Milling Limited

India Grid Trust

Malco Energy Limited

* Under liquidation

Maritime Ventures Private Limited

** Sold during the previous year

(b) None of the loanee have made, per se, investment in the shares of the Company.

(c) Investments made by Sterlite Ports Limited in Maritime Ventures Private Limited - 10,000 equity shares and Goa Sea Port - 50,000 equity shares

Investments made by Sesa Resources Limited in Sesa Mining Corporation Limited - 11,50,000 equity shares and Goa Maritime Private Limited - 5,000 Shares

(d) The above loans and advances to subsidiary fall under the category of loans and advances in the nature of loans where there is no repayment schedule and are repayable on demand.

(e) As per the Company’s policy, loan to employees are not considered in (a) above.

14.Subsequent events

Except as disclosed in note 3 (y) (1) (xi) and below, there are no material adjusting or non adjusting subsequent events:

Vedanta Limited’s resolution plan to acquire Electro steel Steels Limited (ESL) was approved by National Company Law Tribunal (NCLT) in India on April 17, 2018. In regard to an appeal filed before it, the National Company Law Appellate Tribunal (NCLAT) has directed that pending final resolution, status quo on ESL as on May 1, 2018 is to be maintained until the appeal is resolved. The Steering Committee, already constituted, shall continue to run the operations of ESL until final resolution.