Matt Fernley

matt.fernley@gmpeurope.com At the Open

+44-20-7647 2806 February 2, 2010

Vedanta Resources PLC BUY

VED - LSE 2624p (intraday) Target: 3500p
What's changed
New Old
Slightly disappointing production results; good
Rating NC Buy progress of aluminium expansion
Target 3500p 3650p
EPS FY10E (US$) 1.68 2.47
EPS FY11E (US$) 5.65 6.80  Vedanta reported slightly disappointing FQ3/10
NAV/share (p) 3,015 3,161
Share Data production results with Zambian copper production
Shares - m (basic/fully diluted)
52-week high/low
288.2m/289.4m
2,967p/493p
particularly weak. Sales were also weaker than
Free float 40% expected in Zambian Copper and Iron Ore where
3M average daily volume
3M average daily value
1.7m
£41.4m
realised prices were lower than expected.
Market capitalisation US$12,042m
Enterprise value
Dividend yield
US$20,456m
1.0%
 The company surprised by including revenue from its
Total projected return 34% Phase 1 smelter at Jharsuguda for the first time;
Key financials
Revenue (US$m)
03/09
6,579
03/10E
7,836
03/11E
14,049
previously this had been capitalised.
EBIT (US$m) 1,139 1,856 5,035
Net income adj. (US$m) 244 533 1,792  We have cut our FY10-12E EBITDA by 12%, 6% and
EPS adj./dil. (US$) 0.84 1.68 5.65
CEPS adj./dil (US$) 2.48 3.43 8.06 2% respectively, due mainly to cuts at KCM, Sesa
Net DPS (US$)
Summary metrics
0.41
03/09
0.55
03/10E
1.87
03/11E
Goa and the Indian copper operations.
EBIT margin % 17.3 23.7 35.8
ROIC (EBIT) % 9.0 10.3 27.4  We lower our price target to 3500p from 3650p, but
EV/EBITDA x 13.9 9.3 3.9 re-iterate our BUY rating on the company’s strong
PE x 49.6 24.9 7.4
P/CF x 16.9 12.2 5.2
near-term production growth, diversification and
exposure to Indian demand.

SLIGHTLY DISAPPOINTING FQ3/10 PRODUCTION RESULTS

Vedanta reported FQ3/10 production results that were slightly below our estimates, with Zambian
Copper the most disappointing. Revenues were particularly disappointing in the Zambian Copper and
Iron Ore (Sesa Goa) businesses with weak production impacting in Zambia and lower than expected
realised prices impacting at Sesa Goa.
The company reported revenues and EBITDA from phase 1 of the Jharsuguda aluminium smelter for
the first time which buoyed the results for the aluminium division.

Prepared by GMP Securities Europe LLP

See important disclosures at end of this report. February 2, 2010
 Matt Fernley
matt.fernley@gmpeurope.com
+44-20-7647 2806

Vedanta FQ3/10 results (unaudited) vs GMP estimates

FQ3/10
GMPe Actual Diff
Sales
Aluminium (incl. Power) 205 287 39%
Indian Copper 825 753 -9%
Zambian Copper 341 265 -22%
Zinc 433 446 3%
Iron ore 495 390 -21%
EBITDA
Aluminium (incl. Power) 33 82 147%
Indian Copper 56 39 -31%
Zambian Copper 75 36 -52%
Zinc 293 291 -1%
Iron ore 336 217 -35%

Source: Company data, GMP estimates

CHANGES TO OUR FORECASTS

 The continuing underperformance from the Zambian copper division has led us to cut our
production, and hence earnings, forecasts substantially for FY10-12E. We have also increased
our unit cost estimates, resulting in a reduction of our EBITDA estimate for FY10E by 31%, for
FY11E by 15% and for FY12E by 4%.

 We have cut our EBITDA estimates for Sesa Goa in FY10E to reflect the weaker than
expected FQ3/10 sales and have further lowered our FY11E and FY12E forecasts.

 We have cut our forecasts at the Indian Copper operations to reflect slightly higher than
expected operating costs.

 We have increased our FY10E forecast for the aluminium division to reflect the fact that the
company is now including the Jharsuguda phase 1 smelter in the P&L.

 These changes result in a 12% decline in our FY10E forecast, a 6% cut in FY11E and a 2%
cut in FY12E.
Changes to our estimates

Sales EBITDA
Mar-10 Mar-11 Mar-12 Mar-10 Mar-11 Mar-12
Aluminium 4% 0% 0% 12% 0% 0%
Indian copper -5% -4% -4% -17% -10% -9%
KCM -15% -15% -4% -31% -15% -4%
HZL 1% 2% 4% -1% 0% 3%
Sesa Goa -15% -7% -7% -25% -10% -9%
Total -6% -4% -2% -12% -6% -2%

Source: GMP estimates

February 2, 2010
 Matt Fernley
matt.fernley@gmpeurope.com At the Open
+44-20-7647 2806 February 2, 2010

VALUATION UPDATE
We value Vedanta using a simple average of two valuation metrics; a DCF-derived sum of the parts
(SotP) valuation and a multiple on our CY11E EBITDA forecast.
Our SotP valuation is based on DCFs for the company’s major operating divisions for the period
FY10-20E using the parameters in the table below. It yields a value of 3015p per diluted share.
Vedanta Resources SotP valuation

Sterlite Vedanta
Copper KCM HZL MALCO BALCO Aluminium Sesa Goa Power Other Group
PV of cash flow 2010-20E US$m 479 1,927 5,630 -30 2,164 4,804 6,280 892 -420 21,725
PV of TV US$m 306 19 2,709 -51 1,570 4,503 227 2,665 0 11,948
Total PV US$m 785 1,946 8,339 -81 3,733 9,308 6,507 3,557 -420 33,674
Net debt / (Net cash) US$m 4,773 4,773
Minority interests US$m 337 401 3,852 -6 2,648 1,181 2,790 1,529 12,733
PV of Equity US$m 447 1,545 4,487 -76 1,085 8,127 3,717 2,027 -5,193 16,167
No. of shares in issue m 317 317 317 317 317 317 317 317 317 317
Value per share (fd) US$ 1.41 4.87 14.14 -0.24 3.42 25.61 11.71 6.39 -16.37 50.95
Value per share (fd) GBp 83 288 837 -14 202 1516 693 378 -968 3,015

Discount rate % 8% 11% 11% 11% 11% 11% 11% 8% 8%

LT growth rate % 1.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 3.5% 2.5%

Vedanta's interest % 57% 79% 54% 93% 29% 87% 57% 57%

Source: GMP estimates

Our multiple-derived valuation metric yields a value of 5704p per diluted share, based on a 5.0x
EV/EBITDA multiple.
While the two metrics seem to yield widely disparate valuations, we note that they are measuring
different things. The multiple-based approach is highly leveraged to near-term growth, which we expect
to be significant, while the DCF valuation measures cash flow across the cycle.
We believe that both approaches are relevant when deriving a fair value for the company, so we take
an average of the two which yields a value of 4360p. We apply a 20% discount to this valuation
because of the company’s conglomerate structure.

CONCLUSIONS AND RECOMMENDATION

Following slightly weaker than expected FQ3/10 production data, we are lowering our price
target to 3500p from 3650p. However we still believe Vedanta is one of the most attractive
metals and mining stocks in the sector due to its strong near-term growth outlook, diversified
product offering and exposure to strong Indian materials demand growth.
We re-iterate our BUY rating.

Prepared by GMP Securities Europe LLP

See important disclosures at end of this report. February 2, 2010
 Matt Fernley
matt.fernley@gmpeurope.com At the Open
+44-20-7647 2806 February 2, 2010

y/e Mar (US$m) 2006 2007 2008 2009 2010E 2011E 2012E
PROFIT & LOSS
Revenues 3,702 6,502 8,204 6,579 7,836 14,049 18,705
Cost of sales 2,635 3,798 5,193 4,967 5,424 8,248 9,729
EBITDA 1,067 2,704 3,010 1,612 2,412 5,801 8,977
D&A 158 195 430 473 556 766 843
EBIT plus investment income & pension items 944 2,504 2,577 1,139 1,856 5,035 8,134
Net interest income/(expense) -57 -63 -219 -288 -458 -400 -336
Other financials income/(expense) 48 45 265 362 362 362 362
Pre-tax income 934 2,487 2,637 1,181 1,746 4,701 7,594
Adjusted PTP 934 2,488 2,626 1,213 1,746 4,701 7,594
Taxation -280 -673 -758 -281 -415 -1,117 -1,804
Post-tax income 653 1,814 1,880 900 1,332 3,585 5,790
Minority interests -281 -878 -1,127 -681 -799 -1,792 -2,895
Net income (reported) 372 936 753 219 533 1,792 2,895
Net income (adjusted earnings) 372 938 745 244 533 1,792 2,895
Per share data (US$)
EPS (adjusted, basic) 1.30 3.27 2.59 0.85 1.85 6.22 10.05
EPS (adjusted, diluted) 1.27 2.95 2.33 0.84 1.68 5.65 9.12
Cash EPS (adjusted earnings plus dep. & amort, diluted) 1.81 3.56 3.68 2.48 3.43 8.06 11.78
Shares outstanding (period average, basic) 286.8 286.9 287.8 287.2 288.2 288.2 288.2
Shares outstanding (fully diluted) 293.5 317.9 319.5 289.4 317.3 317.3 317.3

Source: Company data, GMP estimates

GMP Securities Europe LLP (“GMP”) is authorised by the Financial Services Authority and is a member of the London Stock Exchange.

Company disclosures

1 GMP or any of its group affiliated companies has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 GMP or any of its group affiliated companies is a market maker for the securities of the issuer.
3 non-voting
4 subordinate-voting
5 restricted-voting
6 multiple-voting
7 the analyst who prepared this report has viewed the material operations of this issuer.
8 the analyst who prepared this research report owns this issuer's securities.
9 limited voting
10 GMP or any of its group affiliated companies owns 1% or more of this issuer’s securities.
* The analyst is related to a member of the Board of Directors of [name of company], but that individual has no influence in the preparation of this report.
**[Other disclosure]

Prepared by GMP Securities Europe LLP

See important disclosures at end of this report. February 2, 2010
 Matt Fernley
matt.fernley@gmpeurope.com At the Open
+44-20-7647 2806 February 2, 2010

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Prepared by GMP Securities Europe LLP

See important disclosures at end of this report. February 2, 2010