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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   ` 208.30   Open: 205.75   Today's Range 201.40
211.10
+4.50 (+ 2.16 %) Prev Close: 203.80 52 Week Range 202.25
355.70
Year End :2017-03 

Notes:

a) Additions to mining property includes deferred stripping cost of Rs.4.13 Crore (March 31, 2016 Nil

b) Capital work-in-progress is net of impairment of Rs.539.90 Crore (March 31, 2016 Rs.339.20 Crore, April 01, 2015 Rs.213.84 Crore). (Refer note-34)

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

d) 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 recognised 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.(Refer note 55- First time adoption of Ind AS)

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.4.16 Crore loss (March 31, 2016 Rs.33.02 Crore loss) are adjusted to the cost of respective item of property, plant and equipment which is included in foriegn exchange difference above.

Capital work-in-progress is net of foreign currency exchange differences of Rs.27.12 Crore gain adjusted during the year (March 31, 2016 Rs.114.44 Crore loss).

e) Gross block of property, plant and equipment includes Rs.31,966.62 Crore (March 31, 2016 Rs.31,939.92 Crore, April 01, 2015 Rs.28,633.24 Crore) representing Company’s share of assets co-owned with the joint venture partners. Accumulated depreciation and impairment on these assets is Rs.29,790.01 Crore (March 31, 2016 Rs.28,763.54 Crore, April 01, 2015 Rs.20,872.23 Crore) and net book value is Rs.2,176.61 Crore (March 31, 2016 Rs.3,176.38 Crore, April 01, 2015 Rs.7,761.01 Crore).

Capital work-in-progress includes Rs.1,001.18 Crore (March 31, 2016 Rs.1,781.81 Crore, April 01, 2015 Rs.2,687.81) representing Company’s share of assets coowned with the joint venture partners.

Exploration intangible assets under development represents Company’s share of assets co-owned with the joint venture partners.

h) Freehold Land includes Rs.110.61 Crore (March 31, 2016 Rs.68.52 Crore, April 01, 2015 Rs.64.66 Crore), accumulated amortisation of Rs.81.51 Crore (March 31, 2016 Rs.60.76 Crore and April 01, 2015 Rs.52.70 Crore), which is available for use during the lifetime of the Production Sharing Contract of the respective Oil and Gas blocks.

1 Financial assets- non current: Investments

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 for July 15, 2017. Meanwhile, the Government of India without prejudice to the position on the Put/Call option issue has received approval from the Cabinet for disinvestment and the Government is looking to divest through the auction route.

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 of Delhi 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 10, 2017. Meanwhile, the Government of India without prejudice to its position on the Put/Call option issue has received approval from the Cabinet for divestment and the Government is looking to divest through the auction route.

On January 9, 2012, the Company offered to acquire the Government of India’s interests in HZL and BALCO for Rs.15,492.00 Crore and Rs.1,782.00 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.

I n 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 recognised in the financial statements.

c. The Company’s investment in CMHPL was for funding the operations of an oil and gas block in Srilanka, held by CMHPL’s step down subsidiary, Cairn Lanka Private Limited. Given the level of gas prices and fiscal terms, the development of hydrocarbons in the said block was not commercially viable. Therefore, the value of the investment had been considered as permanently diminished in the earlier years. The said subsidiary has been transferred to Cairn Energy Hydrocarbons Limited during the year ended March 31, 2016.

d. During the current year, the Company made an investment of Rs.14,729.58 Crore in 220 Crore equity shares of USD 1 each of its subsidiary Bloom Fountain Limited.

e. During the year ended March 31, 2016, the Company had subscribed to Compulsorily Convertible Debentures (CCDs) of Rs.100 each at a premium of Rs.900 each carrying coupon of 2% per annum issued by its wholly owned subsidiary Malco Energy Limited (‘MALCO’). CCDs shall be compulsorily convertible into equity shares not later than 10 years from the date of issue of such CCDs or at such other dates as may be mutually agreed between the parties at the fair value prevailing at the date of conversion. During the current year, the coupon rate of these CCD’s have been changed to 0% and the conversion ratio also has been fixed at the fair value as on March 31, 2016.

f. During the year, the Company disposed of its investment in its subsidiary “Sterlite Infraventures Limited” and incurred a loss of Rs.2.66 Crore on the same, which has been recognised as an expense under Other Expenses.

g. During the year pursuant to demerger of “Sterlite Technologies Limited” into “Sterlite Technologies Limited” and “Sterlite Power Transmission Limited”, 9,52,859 shares of “Sterlite Power Transmission Limited” have been alloted to the Company.

2 Non-current financial assets - Others

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

(ii) Bank deposits includes site restoration fund amounting to Rs.275.23 Crore (March 31, 2016: Rs.234.91 Crore and April 01, 2015: Rs.172.68 Crore)

3 Other non-current assets

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

(b) IncludesRs.30.00 Crore (March 31, 2016: Rs.30.00 Crore and April 01, 2015: Rs.30.00 Crore), being Company’s share of gross amount of Rs.85.85 Crore paid under protest on account of Education Cess and Secondary Higher Education Cess for the year ended 2013-14.

(c) Includes Rs.45.85 Crore (March 31, 2016: Nil and April 01, 2015: Nil), being Company’s share of gross amount of Rs.130.99 Crore, of excess oil cess paid under OIDA Act.

4 Inventories

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

(ii) Inventories with a carrying amount of Rs.5,124.94 Crore (March 31, 2016 : Rs.4,756.27 Crore and April 01, 2015: Rs.5,047.51 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.1.72 Crore (March 31, 2016 : Rs.48.75 Crore and April 01, 2015: Rs.67.25 Crore).

5 Trade receivables

(i) The interest free credit period given to customers is upto 90 days. Also refer note 50.

(ii) Trade receivables with a carrying value of Rs.1,917.20 Crore (March 31, 2016 : Rs.1,321.08 Crore and April 01, 2015: Rs.744.37 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 53.

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

a. Includes Rs.0.91 Crore (March 31, 2016 : Rs.3.72 Crore and April 01, 2015: Rs.7.46 Crore) on lien with banks and margin money Nil (March 31, 2016 : Rs.37.69 Crore and April 01, 2015: Nil)

b. Includes Rs.306.38 Crore (March 31, 2016 : Rs.187.00 Crore and April 01, 2015: Rs.187.00 Crore) on lien with banks and margin money Rs.40.02 Crore (March 31, 2016 : Nil and April 01, 2015: Rs.38.13 Crore)

c. Include a sum of Nil (March 31, 2016: Nil and April 01, 2015: Rs.143.12 Crore) deposited in an escrow account for the buyback of its own shares by erstwhile Cairn India Limited.

d. Earmarked unpaid dividend accounts are restricted in use as it relates to unclaimed or unpaid dividend.

6 Share capital

(a) includes 310,632 (March 31, 2016: 310,632 and April 01, 2015: 310,632) equity shares kept in abeyance. These shares are not part of listed equity capital.

(b) includes 39,84,256 (March 31, 2016: Nil and April 01, 2015: Nil) equity shares held by Vedanta Limited ESOS Trust (Refer note 38).

(c) voting rights exercisable upon issuance.

G. Other disclosures

(7) 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.

(8) 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 priority to any payment of capital on the equity shares out of the surplus of Vedanta Limited.

(9) 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, 2017, 217,019,900 equity shares were held in the form of 54,254,975 ADS.

(10) I n 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 20022003 reduced its paid up share capital by Rs.10.03 Crore There are 199,026 equity shares (March 31, 2016: 198,900 equity shares) of Rs.1 each pending clearance from NSDL/CDSL. The Company has filed 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.

11 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 utilised 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.

(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.

(iii) Summary of Redeemable non convertible debentures (Carrying Value):

*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:

The company has taken borrowings in various countries 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 -

12 Other non-current liabilities

a. Advances from customers include amount received under long term supply agreements. The advance would be settled by supplying goods as per the terms of the agreement.

b. 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 amortised over the useful life of such assets.

The Company has discounted trade receivable on recourse basis of Rs.520.34 Crore (March 31, 2016: Rs.431.05 Crore and April 01, 2015: Rs.629.31 Crore). Accordingly, the monies received on this account are shown as borrowings as the trade receivable does not meet de-recognisation criteria. The above borrowings pertaining to trade receivables discounted has been restated on account of foreign exchange fluctuation.

13 Current financial liabilities - Trade payables

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

(b) Operational Buyer’s Credit is availed from banks at an interest rate ranging from 1% to 2% 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.

14 Current financial liabilities - Others

a Current Maturities of Long Term Borrowings consists of

b Does not include any amounts, due and outstanding, to be credited to Investor Education and Protection Fund except Rs.0.38 Crore (March 31, 2016 Rs.0.38 Crore and April 01, 2015: Rs.0.38 Crore ) which is held in abeyance due to a pending legal case.

c Other liabilities include reimbursement of expenses, provision for expenses, liabilities related to compensation/claim, etc.

15 Other current liabilities

a Statutory and other liabilities mainly includes contribution to PF, ESIC, withholding taxes, excise duty, VAT, service tax etc. Also includes amount payable to owned provident fund trust. (Refer note 53) 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 (SEZ) scheme on purchase of property, plant and equipments accounted for as government grant and being amortised over the useful life of such assets.

16 Provisions

Current liabilities - provisions

a) The Company had created a provision for meeting certain obligation of one of its subsidiaries CIG Mauritius Holding Private Limited. As part of internal re-organisation, the said subsidiary was transferred to Cairn Energy Hydrocarbons Limited, another wholly owned subsidiary of the Company and the above obligation was discharged for a total of Rs.264.23 Crore.

17 Employee benefits expense

18 Exceptional items

a. Impairment loss on capital work-in-progress represents non-cash provision during the year ended March 31, 2017 of Rs.200.70 Crore relating to certain old items of capital work-in-progress at the Alumina refinery operations and Rs.115.44 Crore during the year ended March 31, 2016 against the idle plant and equipment and building at Bellary, Karnataka.

b. During the year ended March 31, 2017, the Company has recognized net impairment reversal of Rs.251.39 Crore relating to Rajasthan Oil and Gas block. Of this net reversal, Rs.114.11 Crore charge has been recorded against cost of oil and gas producing facilities and Rs.365.50 Crore reversal has been recorded against exploration intangible assets under development. During the year ended March 31, 2016, the Company had recognised an impairment charge on its oil and gas assets of Rs.16,117.51 Crore mainly relating to Rajasthan oil and gas block, triggered by the significant fall in the crude oil prices, prevailing discount of Rajasthan crude and adverse long term impact of revised oil cess. Of this charge, Rs.3,515.78 Crore had been recorded against cost of oil and gas producing facilities, Rs.9.92 Crore against capital work in progress and Rs.12,591.81 Crore against exploration intangible assets under development.

Further impairment reversal of Rs.313.42 Crore and impairment charge of Rs.3,724.85 Crore during the year ended March 31, 2017 and March 31, 2016 respectively relates to investment in Cairn India Holdings Limited “CIHL” which holds 35% share in Rajasthan oil and gas block through its step down subsidiary Cairn Energy Hydrocarbons Limited.

The recoverable amount of the Company’s share in Rajasthan Oil and Gas cash generating unit “RJ CGU” was determined to be Rs.6,814.54 Crore and Rs.7,522.15 Crore as at March 31, 2017 and March 31,2016 respectively and that of CIHL was determined to be Rs.17,156.78 and Rs.25,147.98 as at March 31, 2017 and March 31, 2016 respectively (valuation of CIHL is represented by its share of discounted cash flows in RJ CGU held through its subsidiary and net fair value of its other assets).

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$ 54 per barrel for the next one year (March 31, 2016: US$ 41 per barrel) and scales up to long-term nominal price of US$ 68 per barrel three years thereafter (March 31, 2016: 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 10.2% (March 31, 2016: 11%) derived from the post-tax weighted average cost of capital and has been adjusted for risks associated with the business including extension of PSC, which is due for renewal in May 2020.

c. Provision for diminution in value of investments for the year ended March 31, 2017 of Rs.96.53 Crore includes impairment of investment in Bloom Fountain Limited of Rs.409.95 Crore, due to reduction in its value as a result of the effect of merger of Cairn India Limited with Vedanta Limited (Refer note 4). Provision for dimunition in value of investments for the year ended March 31, 2016 of Rs.4,851.19 Crore includes, diminution of investment in Bloom Fountain Limited of Rs.1,126.34 Crore as a result of underlying assets of Western Cluster Limited, due to low iron ore prices and geo-political factors resulting in continued uncertainty in the project.

There are certain income-tax related legal proceedings which are pending against the Company. Potential liabilities, if any have been adequately provided for, and the Company does not currently estimate any probable material incremental tax liabilities in respect of these matters. (Refer note 51)

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:

Sectoral Benefit - Power Plants

To encourage the establishment of certain power plants, provided certain conditions are met, tax incentives exist to exempt 100% of profits and gains for any ten consecutive years within the 15 year period following commencement of the power plant’s operation. However, such undertakings generating power would continue to be subject to the MAT provisions.

Sectoral benefit - oil & gas

Provided certain conditions are met, profits of newly constructed industrial undertakings engaged in the oil & gas sector may benefit from a deduction of 100% of the profits of the undertaking for a period of seven consecutive years. This deduction is only available to blocks licensed prior to March 31, 2011. However, such businesses would continue to be subject to the MAT provisions.

Erstwhile Cairn India Limited (now merged with Vedanta Limited) benefited from such deductions till March 31, 2016.

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

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

(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 standalone statements of financial position as follows:

Deferred tax assets on carry forward unused tax losses have been recognised to the extent of deferred tax liabilities on taxable temporary differences available. It is expected that any reversals of the deferred tax liability would be offset against the reversal of the deferred tax asset.

Unused tax losses/ unused tax credit for which no deferred tax asset is recognized amount to Rs.Nil, Rs.269.70 Crore and Rs.464.27 Crore as at March 31, 2017, March 31, 2016, April 01, 2015 respectively. The unused tax losses expire as detailed below:

19 Share based payments

The Company offers equity based award plans to its employees, officers and directors through the Company’s stock option plan introduced in the current year, Cairn India’s stock option plan now administered by the Company pursuant to merger with the Company and Vedanta Resources Plc [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 ‘VRPLC ESOP’ scheme.

The Vedanta Limited Employee Stock Option Scheme (ESOS) 2016

During the year, 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 holding and subsidiary companies. The ESOS scheme includes both tenure based and performance based on stock option awards. The value of options that can be awarded to members of the wider management group is calculated by reference to the grade average CTC and individual grade of the employee. The performance conditions attached to the award 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 award vests will depend on the Vedanta Limited’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 awards 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 Remuneration Committee (the Committee) is provided by the Company’s advisers. The Committee considers that this performance condition, which requires that the Vedanta Limited’s total return has outperformed a group of industry peers, provides a reasonable alignment of the interests of participants with those of the shareholders.

Initial awards under the ESOS were granted on December 15, 2016. The exercise price of the awards is Rs.1 per share and the performance period is three years, with no re-testing being allowed.

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

The fair values were calculated using the Black-Scholes Model for tenure based awards and Monte Carlo simulation model for performance based awards. 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 award. 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.6.68 Crore related to above equity settled share-based payment transactions in the year ended March 31, 2017 out of which Rs.3.27 Crore was recovered from group companies. Equity settled employee stock options reserve outstanding with respect to the above scheme as at year end is Rs.6.68 Crore.

Employee stock option plans of estwhile Cairn India Limited:

The Company has provided various share based payment schemes to its employees. During the year ended 31 March 2017, the following schemes were in operation:

CIPOP plan (including phantom options)

Options will vest (i.e., become exercisable) at the end of a “performance period” which has been set by the 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 (including phantom options)

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.

Modification in terms of Employee stock option plans

Pursuant to the merger of Cairn India Limited with the Company as referred to in note 4, the stock option plans of Cairn India Limited stands modified as follows:

a) The exercise price of CIESOP plan is reduced by Rs.40 per option.

b) The liability w.r.t. the CIPOP plans (including phantom options) has been fixed based on the share price of Cairn India Limited as on March 27, 2017, being the effective date of merger. Accordingly, the outstanding employee stock option liability (Equity Settled) and Provision for employee stock option (Cash Settled) of Rs.62.51 Crores and Rs.8.25 Crores respectively, has been transferred to financial liability.

The incremental fair value for the remaining stock options, being the difference between the fair value of the modified equity instrument and that of the original equity instrument, has been re-estimated on the effective date of merger and the difference has been recognised in the statement of profit and loss account.

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 awards are indexed to and settled by Parent’s shares (Vedanta Resources Plc shares as defined in the scheme). The awards have a fixed exercise price denominated in Parent’s functional currency (10 US cents per share), the performance period of each award is three years and is exercisable within a period of six months from the date of vesting beyond which the option lapses.

Amount recovered by the Parent and recognized by the Company in the Statement of Profit and Loss (net of capitalisation) for year ended March 31, 2017 is Rs.33.89 Crore (March 31, 2016: Rs.33.04 Crore). The Company considers these amounts as not material and accordingly has not provided further disclosures.

20 Employee benefit plans

a) Defined contribution plans

The Company contributed a total of Rs.54.45 Crore for the year ended March 31,2017 and Rs.55.85 Crore for the year ended March 31, 2016 to the following defined contribution plans.

Central provident fund

In accordance with The Employees Provident Funds 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 2017 and 2016) 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.

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 period they are incurred.

b) Defined benefit plans

Contribution to provident fund (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, 2017 and March 31, 2016. Having regard to the assets of the Fund and the return on the investments, the Company does not expect any deficiency in the foreseeble future.

The Company contributed a total of Rs.10.82 Crore for the year ended March 31,2017 and Rs.6.29 Crore for the year ended March 31, 2016, The present value of obligation and the fair value of plan assets of the trust are summarised below.

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 recognised funds in India.

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

Principal actuarial assumptions

Principal actuarial assumptions used to determine the present value of the defined benefit obligation are as follows:

The actual return on plan assets was Rs.7.30 Crore for the year ended March 31, 2017 and Rs.8.76 Crore for the year ended March 31, 2016.

The weighted average duration of the defined benefit obligation is 16.60 years and 17.60 years as at March 31, 2017 and March 31, 2016, respectively.

The Company expects to contribute Rs.18.99 Crore to the funded defined benefit plans in fiscal year 2018.

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 benefits plans, and management’s estimation of the impact of these risks are as follows:

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.

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 prudential.

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.

21 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.

22 The Company has incurred an amount of Rs.48.48 Crore (March 31, 2016 Rs.66.17 Crore) towards Corporate Social Responsibility (CSR) as per Section 135 of the Companies Act, 2013 and is included in other expenses.

23 Oil & gas reserves and resources

The Company’s gross reserve estimates are updated atleast annually based on the forecast of production profiles, determined on an asset-by-asset basis, using appropriate petroleum engineering techniques. The estimates of reserves and resources have been derived in accordance with the Society for Petroleum Engineers “Petroleum Resources Management System (2007)” The changes to the reserves are generally on account of future development projects, application of technologies such as enhanced oil recovery techniques and true up of the estimates. The management’s internal estimates of hydrocarbon reserves and resources at the period end, based on the current terms of the PSCs, are as follows: :

24 Advance(s) in the nature of Loan (Regulation 34 of Listing Obligations & Disclosure Requirements):

a) Loans and advances in the nature of Loans

(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.

25 Interest in other entities

a) Subsidiaries

The Company has a number of subsidiaries held directly and indirectly by the Company which operate and are incorporated around the world. Following are the details of shareholdings in the subsidiaries.

b) The Company participates in several unincorporated joint operations which involve the joint control of assets used in oil and gas exploration, development and producing activities which are as follows:

c) Interest in associates and joint ventures

Set out below are the associates and joint ventures of the Company as at March 31, 2017 which, in the opinion of the directors, are not material to the Company. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held.

26 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 Hon’ble 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.

27 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(j) 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 53.

28 Leases

Operating lease commitments - as lessee

The Company is having an operating lease in relation to the office premises, with a non-cancellable lease period of 3 years. There are no restrictions imposed by lease arrangements and there are no subleases. There are no contingent rents. The information required with respect to non-cancellable leases are as follow:

29 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 recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 2 and Note 3.

A. Financial assets and liabilities:

The accounting classification of each category of financial instruments, and their carrying amounts, are set out below:

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 below table summarises the categories of financial assets and liabilities as at March 31, 2017, March 31, 2016 and April 01, 2015 measured at fair value:

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 at the reporting date; 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) [a level 1 technique].

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 [a level 2 technique].

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 [a level 3 technique].

Derivative financial assets/liabilities: The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. 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 the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of the underlying commodity. Commodity contracts are valued using the forward LME rates of commodities actively traded on the listed metal exchange i.e. London Metal Exchange, United Kingdom (U.K.) [a level 2 technique].

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

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 recognised at fair value.

The estimated fair value amounts as at March 31, 2017 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 polices act as an effective tool in mitigating the various financial risks to which the business is exposed to in the course of the daily operations. The risk management policies cover areas such as liquidity risk, commodity price risk, foreign exchange risk, interest rate risk, counterparty and concentration of credit risk and capital management. Risks are identified through a formal risk management programme with active involvement of senior management personnel and business managers at both corporate and division level. Each operating division 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 CFO Committee and 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 meetings of the CFO Committee and 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 maximisation. The treasury policies are approved by the Committee of the Board. Daily treasury operations of the Company are managed by the finance team within the framework of the 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 investments, debt, currency, commodity and interest rate derivatives. The Company has a strong system of internal control which enables effective monitoring of adherence to Company’s policies. The internal control measures are supplemented by regular internal audits.

The investment portfolio at the Company is independently reviewed by CRISIL Limited and it has been rated as “Very Good” meaning highest safety. The investments are made keeping in mind safety, liquidity and yield maximisation.

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 business. As a general policy, the Company aims to sell the products at prevailing market prices. The commodity price risk in import of Copper Concentrate and Alumina 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.

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

- economic hedging of prices realised 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 aluminium content in outsourced alumina to protect its margins. The Company also enters into hedging arrangements for its aluminium sales to realise 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 quotational 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, minimising conversion cost, generating a premium over LME on sale of finished copper, sale of by-products and from achieving import parity on domestic sales. Hence, mismatches in quotational periods are managed to ensure that the gains or losses are minimised. 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 LME 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).

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 LME prices would have an equal and opposite effect on the Company’s financial instruments.

Financial risk

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

(a) Liquidity

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 upgraded the ratings for the Company’s long-term bank facilities and its Non-Convertible Debentures (NCD) programme to CRISIL AA / Stable Outlook from CRISIL AA- / Negative at the beginning of FY2017. The revision happened in three steps in September 2016

- Change in Outlook from Negative to Stable with AA-rating; February 2017 - change in Outlook from Stable to Positive with AA- rating and April 2017 - Upgrade of Ratings from CRISIL AA- / Positive outlook to CRISIL AA / Stable Outlook. The Company has the highest short term rating on its working capital and Commercial Paper Programme at CRISIL A1 . The agency expects that the ramp-up of aluminium, iron ore and power capacities; and stable commodity prices shall aid higher cash flow generation and leverage reduction for the company in near to medium term. Also, the agency shall be guided by extent and timeline for reduction in gross debt for further positive rating action.

India Ratings has revised the outlook on the Company’s ratings from IND AA/ Negative to IND AA/Stable on account of improved financial metrics and completion of the merger with Cairn.

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

Collateral

The Company has pledged a part of its trade receivables 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. There are no other significant terms and conditions associated with the use of collateral.

b) Foreign exchange risk

Fluctuations in foreign currency exchange rates may have an impact on profit or 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 a 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 uses forward exchange contracts, currency swaps and other derivatives to hedge the effects of movements in exchange rates on foreign currency denominated assets and liabilities. The sources of foreign exchange risk are outstanding amounts payable for imported raw materials, capital goods and other supplies as well as financing transactions and loans denominated in foreign currencies. The Company is also exposed to foreign exchange risk on its exports and foreign exchange risk on its net investment in foreign operations. Most of these transactions are denominated in US dollar The policy of the Company is to determine on a regular basis what portion of the foreign exchange risk on financing transactions and loans are to be hedged through forward exchange contracts and other instruments. Short-term net exposures are hedged progressively based on their maturity. A more conservative approach has been adopted for project expenditures to avoid budget overruns. Longer term exposures, except part of net investment in foreign operations exposures, are normally unhedged. However all new long-term 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 following analysis is based on the gross exposure as at the reporting date which could affect the profit or loss or other comprehensive income. The exposure summarised below is mitigated by some of the derivative contracts entered into by the Company as disclosed under the section on “Derivative financial instruments”

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

The results of Company’s operations may be affected largely by fluctuations in the exchange rates between the US dollar, Euro and INR against the respective functional currencies. 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 currencies by 10% against the functional currency of the respective businesses.

Set out below is the impact of a 10% strengthening in the INR 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:

(c) Interest rate risk

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 US dollar debt is split between fixed and floating rates (linked to US dollar LIBOR) and the Indian Rupee debt is principally at fixed interest rates. 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 current financial asset 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. Additionally, the investments portfolio is independently reviewed by CRISIL Limited, and our investment portfolio has been rated as “Very Good” meaning highest safety.

(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, cash and cash equivalents, investments, other bank balances, loans, other financial assets, financial guarantees 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% or more of the trade receivables 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.

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 Company’s 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 Rs.33,178.79 Crore, Rs.35,453.24 Crore and Rs.22,104.09 Crore as at March 31, 2017, March 31, 2016 and April 01, 2015 respectively.

The maximum credit exposure on financial guarantees given by the Company for various financial facilities is described in Note 51 on “Contingent liabilities and commitments”.

None of the Company’s cash and 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, 2017, that defaults in payment obligations will occur except as described in Note 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 experiences 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.

The above balances include receivables of Rs.893.34 Crore (Net of provisions) as at March 31, 2017 (March 31, 2016: Rs.779.56 Crore and April 01, 2015 : Rs.837.01 Crore) relating to amounts held back by a customer in the power segment, owing to certain disputes relating to computation of tariffs and differential revenue recognised 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.

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 noncurrent 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 in liabilities 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.

No embedded derivative conversion option was outstanding as of March 31, 2017, March 31, 2016 and April 01, 2015.

(ii) Cash flow hedges

The Company enters into forward exchange and commodity price contracts for hedging highly probable forecast transactions 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, 2017.

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 2017. 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, 2018 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 the statement of profit and 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 quotational period basis, generally one month to three months after the date of delivery at a customer’s facility. The Company enters into forward contracts for the respective quotational period to hedge its commodity price risk based on average LME prices. Gains and losses on these hedge transactions are substantially offset by the amount of gains or losses on the underlying sales.

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 profit or 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, aluminium future contracts on the LME and certain other derivative instruments. Fair value changes on such derivative instruments are recognized in profit or loss.

30 Contingencies & Commitments

I Contingent liabilities

a) Erstwhile Cairn India Limited : Income tax

In March 2014, erstwhile 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”) UK, for acquiring shares of Cairn India Holdings Limited (““CIHL”“), as part of their internal reorganisation. Tax Authorities have stated in the said notice that a short-term capital gain has accrued to CUHL on transfer of the shares of CIHL to Cairn India, in financial year 20062007, on which tax should have been withheld by the Company. Pursuant to this various replies were filed with the tax authorities.

After hearings, the Income Tax Authority, during March 2015, have issued an order by holding Cairn India as ‘assessee in default’ and asked to pay such demand totalling Rs.20,494.73 Crore (including interest of Rs.10,247.36 Crore) as at March 31, 2017, March 31, 2016 and April 1, 2015. Cairn India has filed its appeal before the Appellate Authority CIT (Appeals) and filed a fresh Writ petition before Delhi High Court wherein it raised several points for assailing the aforementioned order.

In this regard, Vedanta Resources Plc. (holding company), filed a Notice of Claim against the Government Of India (‘GOI’) under the UK India Bilateral Investment Treaty (the “BIT”) in order to protect its legal position and shareholder interests. Management has been advised that Vedanta Resources Plc. has a good case to defend as per provisions of BIT, the benefit of which would ultimately accrue to company.

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 6 MTPA expansion project, and filed a claim of Rs.1,579.82 Crore (March 31, 2016: Rs.1,668.56 Crore and April 01, 2015: Rs.1,553.00 Crore). Based on the assessment, the Company has booked a liability of Rs.179.08 Crore. SSNP also filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court praying 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 the Company to deposit a bank guarantee for an amount of Rs.187.00 Crore as a security, being a prima facie representation of the claim, until arbitration proceedings are completed. The Company has deposited a bank guarantee of equivalent amount. Management is of the opinion that this claim is not valid under the terms of the contract with SSNP and it is unlikely that SSNP can legally sustain the claim and accordingly, no provision is considered necessary. The arbitration proceedings have concluded and the Tribunal may hold a clarificatory hearing before passing the final award.

c) Ravva joint venture arbitration proceedings: ONGC Carry

Erstwhile Cairn India Limited (now merged into Vedanta Limited) is involved in a dispute against Government of India ““GOI”“ relating to the recovery of contractual costs in terms of calculation of payments that contractor party were required to make in connection with the Ravva field.

The Ravva Production Sharing Contract ‘PSC’ obliges the contractor parties to pay proportionate share of ONGC’s exploration, development, production and contract costs in consideration for ONGC’s payment of costs related to 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”). However Arbitral Tribunal retained the jurisdiction for determination of remaining issues between the parties, including costs quantification.

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 Partial Awardw

However, MoPNG on July 10, 2014 proceeded to issue a Show Cause Notice alleging that since the partial award has not been enforced 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.

As 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’s favour. GOI has challenged the Final Award in the Malaysian courts. Further Company has also filed for enforcement of the Partial Award and Final Award with Delhi High Court. While the Cairn does not believe the GOI will be successful in its challenge, if the Arbitral Award is reversed and such reversal is binding, Cairn could be liable for approximately USD 63.90 million (approximately Rs.414.32 Crore) (March 31, 2016: Rs.423.94 Crore and April 1, 2015: Rs.400.26 Crore) plus interest.

d) Proceedings related to the imposition of entry tax

Sales tax demands relating to tax on Freight and Entry tax as at March 31, 2017 is at Rs.809.18 Crore (March 31, 2016: Rs.842.65 Crore and April 01, 2015: Rs.693.13 Crore).

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

Post the order of the nine judge bench, the regular bench of the Supreme Court proceeded with hearing the maters. 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 on levy on imported goods, for determination by Supreme Court.

The argument pertaining to imported goods are currently pending before a regular bench of the SC.

The issue of discrimination has been remanded back to the High Courts for final adjudication. Vedanta has filed a writ petition before the Odisha High Court.

e) The Company is involved in various tax disputes amounting to Rs.1,438.73 Crore (March 31, 2016: Rs.806.55 Crore and April 1, 2015: Rs.1,209.63 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

The Company is subject to various claims and exposures which arise in the ordinary course of conducting and financing its business from the income tax, 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 against the Company excluding claims shown above totals to Rs.1,932.95 Crore (March 31, 2016: Rs.1,264.03 Crore and April 1, 2015: Rs.1,594.50 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, there are no pending litigations which the Company believes could reasonably be expected to have 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.

31 Segment Information as per Indian Accounting Standard 108 on Segment Reporting for the year ended March 31, 2017

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, 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 Board, 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.

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 Odissa in India. The pots are in the stage of commissioning in the 1.25 mtpa Jharsuguda-II Aluminium smelter with 530 pots having been commissioned by March 31, 2017.

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.

Power

The Company’s power business include 600 MW thermal coal-based commercial power facility at Jharsuguda in the State of Orissa in Eastern India. During the 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 six blocks, one in state of Rajasthan in India, one on the west coast of India, four on the east coast of India

The operating segments reported are the segments of the Company for which separate financial information is available. 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 2017, 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, 2017 and as at March 31, 2016.

32 Related Party disclosures

List of related parties and relationships

A) Entities controlling the Company (Holding Companies)

Volcan Investments Limited (Ultimate Holding Company)

Intermediate Holding Company Finsider International Company Limited Richter Holdings Limited Twin Star Holdings Limited Vedanta Resources Cyprus Limited Vedanta Resources Finance Limited Vedanta Resources Holdings Limited Vedanta Resources Plc Welter Trading Limited Westglobe Limited

Chairman Emeritus

Mr. Anil Agarwal

B) Fellow Subsidiaries (with whom transactions have taken place)

Konkola Copper Mines Plc

Sterlite Grid Limited

Sterlite Iron and Steel Company Limited

Sterlite Technologies Limited

Sterlite Power Transmission limited

C) Associates

Gaurav Overseas Private Limited

Raykal Aluminium Company Private Limited

Roshskor Township (Proprietary) Limited

D) Subsidiaries

Amica Guesthouse (Proprietary) Limited Bharat Aluminium Company Limited Black Mountain Mining (Proprietary) Limited Bloom Fountain Limited Cairn Energy Australia Pty Limited*

Cairn Energy Discovery Limited Cairn Energy Gujarat Block 1 Limited Cairn Energy Holdings Limited*

Cairn Energy Hydrocarbons Limited Cairn Energy India Pty Limited Cairn Exploration (No. 2) Limited Cairn Exploration (No. 6) Limited***

Cairn Exploration (No. 7) Limited*

Cairn India Holdings Limited Cairn Lanka (Private) Limited Cairn South Africa (Pty) Limited CIG Mauritius Holdings Private Limited CIG Mauritius Private Limited Copper Mines of Tasmania Pty Limited Fujairah Gold FZC Hindustan Zinc Limited

Killoran Lisheen Finance Limited Killoran Lisheen Mining Limited Lakomasko B.V.

Lisheen Milling Limited Malco Energy Limited Maritime Ventures Private Limited Monte Cello B.V. (MCBV)

Namzinc (Proprietary) Limited Paradip Multi Cargo Berth Private Limited Pecvest 17 Proprietary Limited *

Rosh Pinah Health Care (Proprietary) Limited

Sesa Mining Corporation Limited

Sesa Sterlite Mauritius Holdings Limited#

Sesa Resources Limited

Skorpion Mining Company (Proprietary) Limited Skorpion Zinc (Proprietary) Limited Sterlite (USA) Inc.

Sterlite Infraventures Limited **

Sterlite Ports Limited Talwandi Sabo Power Limited Thalanga Copper Mines Pty Limited THL Zinc Holding B.V.

THL Zinc Limited

THL Zinc Namibia Holdings (Proprietary) Limited

THL Zinc Ventures Limited

Twin Star Energy Holdings Limited

Twin Star Mauritius Holdings Limited

Vedanta Exploration Ireland Limited

Vedanta Lisheen Holdings Limited

Vedanta Lisheen Mining Limited

Vizag General Cargo Berth Private Limited

Western Cluster Limited

Goa Sea Port Private Limited

E) Others

Anil Agarwal Foundation Trust

Vedanta Foundation

Sesa Community Development Foundation

Rampia Coal Mines & Energy Private Limited

Sesa Group Employees Provident Fund

Vedanta Limited ESOS Trust

Cairn Foundation (formerly known as ‘Cairn Enterprise Centre’)

33 Subsequent events

Subsequent to the Balance Sheet date

- 525,000 tonnes Jharsuguda-I smelter suffered an pot outage incident wherein 228 pots out of the total 608 pots were damaged and taken out of production, resulting in reduced production for a temporary period. No material loss is expected as a result of the above.

34. First-time adoption of Ind AS

These are the Company’s first financial statements prepared in accordance with Ind AS. The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended March 31, 2017 and the comparative period information.

For all periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with Generally Accepted Accounting Principles (GAAP) in India and complied with the accounting standards as notified under Section 133 of the Companies Act, 2013 read together with Rule 7 of the Companies (Accounts) Rules, 2014, to the extent applicable, and the presentation requirements of the Companies Act, 2013 (Previous GAAP).

The transition to Ind AS was carried out in accordance with Ind AS 101, with April 1, 2015 being the date of transition. This note explains the exemptions on the first time adoption of Ind AS availed in accordance with Ind AS 101 and an explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

Exemptions availed and mandatory exceptions

Ind AS 101 First-time Adoption of Indian Accounting Standards allows first-time adopters certain exemptions from retrospective application of certain requirements under Ind AS. Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

A) Ind AS optional exemptions

i) Fair valuation as deemed cost for certain items of Property, Plant and Equipment

I nd AS 101 permits an entity to elect to measure an item of property, plant and equipment at the date of transition to Ind AS at its fair value and use that fair value as its deemed cost at that date.

Accordingly, the Company has elected to use the fair value of certain items of property, plant and equipment on the date of transition and designate the same as deemed cost on the date of transition. Fair value has been determined, by obtaining an external third party valuation, with reference to the depreciated replacement cost of similar assets, a level 3 valuation technique. For the remaining assets, the Company has applied Ind AS retrospectively, from the date of their acquisition.

ii) Designation of previously recognised financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS.

The Company has elected to apply this exemption for its equity investment.

iii) Long Term Foreign Currency Monetary Items

Ind AS 101 allows a first-time adopter to continue the policy adopted for the accounting for exchange differences arising on translation of the long-term foreign currency monetary items recognised in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per previous GAAP.

The Company has opted for this exemption and continued its previous GAAP policy for accounting of exchange differences on long-term foreign currency monetary items recognized in the previous GAAP financial statements for the year ended March 31, 2016. Accordingly, foreign currency differences on such items attributable to the acquisition of property, plant and equipment are adjusted against their cost and depreciated prospectively over the remaining useful lives.

iv) Investments in subsidiaries, joint ventures and associates

Ind AS 101 permits a first-time adopter to measure its investments in subsidiaries, joint ventures and associates at deemed cost. The deemed cost of such an investment could be either (a) its fair value at the date of transition; or (b) previous GAAP carrying amount at that date. The option may be exercised individually and separately for each item of investment.

Accordingly, the Company has opted to measure its investments in subsidiaries, joint ventures and associates at deemed cost, i.e. previous GAAP carrying amount, except for its investment in Hindustan Zinc Limited, which has been measured at fair value at the date of transition. Fair value has been determined with reference to the quoted market price of Hindustan Zinc Limited as at the date of transition to Ind AS, a level 1 technique.

v) Compound financial instruments

Ind AS 101 permits a first-time adopter not to split the compound financial instrument into separate liability and equity components in accordance with Ind AS 32 Financial Instruments: Presentation, if the liability component is no longer outstanding at the date of transition to Ind AS.

Accordingly, as the liability component of compound financial instrument was no longer outstanding at the date of transition to Ind AS, the Company has elected not to apply Ind AS 32 retrospectively to split the liability and equity components of the instrument..

vi) Cumulative translation differences

Ind AS 21 ‘The effects of changes in Foreign Exchange Rates’ requires an entity to recognize the translation differences relating to foreign operations in other comprehensive income (and accumulate them in a separate component of equity) and on disposal of such foreign operation, to reclassify the cumulative translation difference for that foreign operation from equity to profit or loss as part of the gain or loss on disposal.

Ind AS 101 allows an entity to elect not to apply the requirements of Ind AS 21 retrospectively and set the cumulative translation differences for to zero as at the date of transition.

The Company has elected to avail the above exemption

B) Ind AS mandatory exceptions

i) Accounting estimates

An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at April 1, 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investment in equity instruments carried at FVOCI;

- Other investments carried at FVTPL or FVOCI

ii) Hedge accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in Ind AS 109, at that date. Hedging relationships cannot be designated retrospectively, and the supporting documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of April 1, 2015, are reflected as hedges in the Company’s results under Ind AS.

The Company had designated various hedging relationships as cash flow and fair value hedges under the previous GAAP. On date of transition to Ind AS, the Company had assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to Ind AS.

iii) De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the derecognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity’s choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

iv) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets bases on facts and circumstances that exist on the date of transition. Measurement of the financial assets accounted at amortised cost has been done retrospectively except where the same is impracticable.

Notes -

1. Vedenta Limited

i) Investment in subsidiaries, joint ventures and associates - Fair valuation as deemed cost:

The Company has elected to measure investment in equity shares of Hindustan Zinc Limited at the date of transition at its fair value and use that fair value as its deemed cost as at that date. Accordingly investments in equity shares of subsidiaries has increased by Rs.43,296.46 Crore as at March 31, 2016 and April 01, 2015 with a corresponding credit to retained earnings.

ii) Property, plant and equipment- Government grant and fair valuation as deemed cost for certain items:

Under Ind AS, the transfer of resources from the government in the form of a waiver of duty needs to be accounted for as government grant. Accordingly, the duty benefit availed under Export Promotion Capital Goods (EPCG) Scheme and SEZ scheme on purchase of plant and equipments has been recognised as government grant by an increase in the carrying value of plant and equipment with a corresponding credit to the deferred government grant. The increase in the value of plant and equipment is depreciated over the balance useful life of the asset. The deferred grant revenue is released to the profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset. Under Previous GAAP such benefits were being netted off with the cost of the respective item of plant and equipment. This has resulted in net increase in the value of plant and equipment and capital work-in-progress by Rs.2,663.66 Crore and Rs.2,725.92 Crore as at March 31, 2016 and April 01, 2015 respectively. There is no resultant impact on equity.

Further, as explained above, the Company has elected to measure certain items of property, plant and equipment at the date of transition at its fair value and use that fair value as its deemed cost as at that date. For the remaining assets, the Company has applied Ind AS retrospectively, from the date of their acquisition. A similar revaluation of assets was carried out under previous GAAP during the year ended March 31, 2016, which has been reversed on transition. Accordingly, this has resulted in net decrease in the value of property, plant and equipment by Rs.1,724.95 Crore and increase by Rs.3,610.57 Crore as at March 31, 2016 and April 1, 2015 respectively with corresponding adjustment to equity. Consequentially, the depreciation charge for year ended March 31, 2016 is lower by Rs.61.88 Crore.

iii) Proposed dividend: Under the previous GAAP, dividend payable is recognised as a liability in the period to which it relates. Under Ind AS, dividend to holders of equity instruments is recognised as a liability in the period in which the obligation to pay is established.

Under the previous GAAP, dividends proposed by the Board of Directors after the balance sheet date but before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS, such dividends are recognised when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend of Rs.698.97 Crore as at April 01, 2015 (including tax on proposed dividend of Rs.2.19 Crore) included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by equivalent amounts.

iv) Others: Others include following:

a) Deferred Sales tax liability: Under Ind AS, the benefit of government loans with subsidised/nil interest is accounted for as government grant, measured as the difference between the fair value determined in accordance with Ind AS 109 and the proceeds received from the loan.

Such borrowings were initially measured at fair value and thereafter at amortised cost as at March 31, 2016 and April 01, 2015 leading to a reduction in loan value by Rs.36.54 Crore and Rs.42.29 Crore respectively with a corresponding increase in retained earnings. Loss before tax for the year ended March 31, 2016 has increased by Rs.5.75 Crore on account of recognition of interest at effective interest rate.

b) Investment in equity instruments of a company, other than subsidiaries, associates and joint ventures: Under the previous GAAP, investments in equity instruments were carried at cost less provision for other than temporary decline in the value of such investments. Under Ind AS, such investments (in Companies other than subsidiaries, joint ventures and associates) are required to be measured at fair value. These investments have been designated as Fair Value through OCI and accordingly, the fair value changes with respect to such investments have been recognised in OCI - ‘Equity investments at FVOCI’ and subsequently in other comprehensive income for the year ended March 31, 2016. This has resulted in increase in the carrying value of investment by Rs.32.31 Crore and Rs.19.77 Crore as at March 31, 2016 and April 01, 2015 respectively with corresponding adjustment to equity. The effect of the same has led to an increase in other comprehensive income of Rs.17.04 Crore and decrease in the statement of profit and loss by Rs.4.50 Crore for the year ended March 31, 2016..

c) Re-measurement gains or losses: Ind AS 19 Employee Benefits requires the impact of re-measurement in net defined benefit liability (asset) to be recognized in other comprehensive income (OCI). Re-measurement of net defined benefit liability (asset) comprises actuarial gains and losses, return on plan assets (excluding interest on net defined benefit asset/liability). However, under previous GAAP this is recognised in the statement of profit and loss.

d) Other adjustments: Other adjustments include adjustment in respect of effective interest rate in case of borrowings, capitalisation of major inspection and overhaul costs, etc.

v) Deferred Tax: Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under Previous GAAP.

In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax has been recognised on such temporary differences.

vi) Sale of goods: Under Previous GAAP, sale of goods was presented as net of excise duty. However, under Ind AS, sale of goods includes excise duty. Excise duty on sale of goods is separately presented in the statement of profit and loss. Thus sale of goods under Ind AS for the year ended March 31, 2016 has increased by Rs.1,928.29 Crore with a corresponding increase in other expense.

35. Cairn India Limited

i) Current investments: Under the Previous GAAP, investments were measured at lower of cost or fair value. Under Ind AS, these investments are required to be measured at fair value through profit or loss or through Other Comprehensive Income. The resulting fair value changes of these investments is recognised in retained earnings/equity as at the date of transition and subsequently in profit or loss/other comprehensive income for the year ended March 31, 2016.

Accordingly, there is an increase in the retained earnings by Rs.1,621.66 Crore and Rs.1,323.39 Crore as at March 31, 2016 and April 1, 2015 respectively and profit before tax for the year ended March 31, 2016 has increased by Rs.298.25 Crore.

ii) Proposed dividend (Refer Note 1 (iii) above):

The liability for proposed dividend of Rs.676.96 Crore and Rs.899.89 Crore as at March 31, 2016 and April 01, 2015 respectively, (including tax on proposed dividend of Rs.114.50 Crore and Rs.149.94 Crore respectively) included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by equivalent amounts..

iii) Change in depletion, depreciation and carrying value of exploration costs:

Net impact is mainly on account of following transactions:

a) Exploration intangible assets under development:

Under Previous GAAP, exploration expenditure incurred in the process of determining exploration targets which cannot be directly related to individual exploration wells was expensed in the period in which they were incurred. Drilling costs were written off on completion of a well unless the results indicate that oil and gas reserves exist and there is a reasonable prospect that these reserves are commercial.

Under Ind AS, exploration expenditure incurred in the process of determining oil & gas exploration targets is capitalised initially within property, plant and equipment - exploration and evaluation assets and subsequently allocated to drilling activities. Drilling costs are written off on completion of a well unless the results indicate that oil and gas reserves exist and there is a reasonable prospect that these reserves are commercial. The resulting adjustment has been recognised against retained earnings.

b) Depletion: For depletion accounting in Oil and Gas business, previous GAAP specified use of working interest on proved and developed reserves (or 1P reserves) with current asset base, for calculation of depletion under unit of production methodology. However, under Ind AS proved and probable reserves (or 2P reserves) on entitlement interest basis are required to be depleted. Similarly, the future capex estimated to develop those undeveloped reserves is required to be added to the current asset base for depletion computation.

Accordingly, property, plant and equipment has increased by Rs.88.70 Crore as at March 31, 2016 and Rs.692.54 Crore as at April 01, 2015 respectively with a corresponding credit to retained earnings. The loss before tax for the year ended March 31, 2016 has increased by Rs.603.84 Crore.

iv) Property, plant and equipment - Site restoration obligation: - Under Previous GAAP, the full cost of site restoration was recognised as a liability when the obligation to rectify environmental damage arose. The site restoration cost forms part of the cost of the related asset. Under Ind AS, the site restoration cost is recognised in full, on a discounted basis, as an asset, and on a similar basis decommissioning liability is recognised. The difference on account of the same has been recognised in retained earnings.

Accordingly, ‘Provision for restoration, rehabilitation and environmental costs’ has decreased by Rs.133.48 Crore as at March 31, 2016 and by Rs.162.39 Crore as at April 01, 2015. The provision so decreased is compounded over the useful life for the time value of money.

Consequently, the retained earnings increased by Rs.133.48 Crore and Rs.162.39 Crore as at March 31, 2016 and April 01, 2015 respectively. Loss before tax for the period ended on March 31, 2016 has increased by Rs.29.33 Crore on account of unwinding of provision.

v) Grossing up of Joint Operation liabilities: Under Previous GAAP, the Cairn India Limited (Cairn) accounts for its share of the assets and liabilities of Joint Ventures involving joint control of assets along with income and expenses in which it holds a participating interest. Under Ind AS if Cairn participates in unincorporated Joint Arrangements which involves the joint control of assets, Cairn accounts for its share of liabilities of the Joint Operation in which Cairn holds an interest, classified in the appropriate Balance Sheet heading on a gross basis, i.e. the liabilities to be settled by all partners are grossed up in operator’s books to represent total Joint Operation liabilities, with a corresponding receivable from other venture partners.

vi) Functional Currency: Under the previous GAAP, Cairn India was preparing its financial statements in Indian Rupee. Accordingly, the impact of exchange fluctuation on all monetary items denominated in non-Indian Rupee was accounted for in the statement of profit and loss.

Ind AS 21 requires the assessment of functional currency basis the conditions specified therein. Given the requirements of the Production Sharing Contract (PSC), US dollar denominated revenues and most of the joint venture’s direct operating spends denominated in US Dollars (‘USD’), Cairn India has determined USD as the functional currency for its JV operations. Accordingly, under Ind AS, exchange fluctuation on non USD denominated monetary items in oil and gas operations would be accounted for in the statement of profit and loss.

Further, the Company’s reporting currency remains to be Indian Rupee, the impact on account of translation of items for which functional currency is USD are accounted for in “Other Comprehensive Income (OCI)” as part of Foreign Exchange Translation Reserve (FCTR).

Consequently, the currency translation reserve as at March 31, 2016 has increased by Rs.470.60 Crore.The retained earnings as at March 31,2016 has decreased by Rs.109.45 Crore and as at April 01,2015 has increased by Rs.6.04 Crore and loss before tax for the year ended March 31,2016 has increased by Rs.115.49 Crore

vii) Others: Others include following

viii) Remeasurement gains and losses:

Refer note 1 (iv) (c) above

ix) Inventories of stores and spares related to exploration and development activities: Under Previous GAAP, the inventory of stores and spares related to exploration and development activities was treated as Inventory. Under Ind AS it is treated as an asset and capitalised in the books and depleted over the life of the asset.

36. Merged Entity (Refer note 4)

i. Amortisation and impairment of oil and gas assets and impairment of investment in subsidiaries: Amortisation of oil and gas assets in accordance with the depletion policy recognised. Impairment of oil and gas assets and investment in subsidiaries recognised consequent to fall in oil prices [Refer note 34 (b)]

ii) Effect of foreign currency translation: Refer note 2 (vi) above.The currency translation reserve as at March 31,2016 has increased by Rs.600.59 Crore

37. Other Comprehensive Income (OCI):

Includes :

(a) Foreign currency translation reserve of Rs.1,071.19 Crore described in 2(vi) and 3 (ii) above,

(b) Fair value gains of Rs.17.04 Crore on equity instruments as described in 1 (iv) (b) above ; and

(c) Other adjustments of Rs.12.22 Crore.

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

The adjustments as explained above, are of non-cash nature and accordingly, there are no material differences in cash flows from operating, investing and financing activities as per the Previous GAAP and as per Ind AS.