Vedanta Limited
Q4 2017 Earnings Call Transcript

Published: 16 May 2017

[Operator:]

Welcome to Vedanta Limited Q4 FY '17 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashwin Bajaj from Vedanta. And over to you, sir.

[Ashwin Bajaj:]

Thank you, Operator. Good evening, ladies and gentlemen. This is Ashwin Bajaj, Head of Group Investor Relations. Thanks for joining us today to discuss our results for the fourth quarter and financial year 2017. On this call, we will be referring to the presentation that is available on our website. Some of the information on today's call may be forward-looking in nature and will be covered by the disclaimers on Page 1 of the presentation. From our management team, we have with us our CEO, Tom Albanese; our CFO, Arun Kumar. We also have several of our business leaders with us. We have Abhijit Pati from Aluminum; Ajay Dixit, who's in charge of the Alumina vertical as well as TSPL Power; Sudhir Mathur from Cairn India; Sunil Duggal from Hindustan Zinc; Kishore Kumar from Iron Ore; and Deshnee Naidoo from Zinc International. I would also like to take this opportunity to introduce a new member of my team, Aarti Raghavan, who will be leading the Vedanta Limited IR report and many of you have already had the chance to meet her in the recent weeks. So with that, let me hand over to Tom.

[Thomas Albanese:]

Thank you, Ashwin and good evening, ladies and gentlemen. I'm pleased to welcome you to Vedanta Limited's Fourth Quarter and Fiscal Year 2017 Earnings Call. This is also the first earnings call of the new Vedanta post completion of the Cairn merger. As you know, it's been in the making for the past 2 years. This merger has significantly transformed the company and its capital structure. Starting with the commodity markets, we've seen a further improvement in commodity prices in the last quarter, although some pullback in commodity prices recently. Interestingly, aluminum LME is shifting to a positive bias for probably the first time in nearly 10 years. And overall, this is beginning to attract some latent supply capacity across many of the base metal commodities. However, I'd say that this newly added capacity is so far restricted as companies are not yet committing to large CapEx. So we'd expect fiscal year 2018 probably would be more of a supply-driven story in our sector, barring any macro shocks. So we begin to see large capital inflows back in the sector, probably continuing to see tightening - slowly tightening markets and fully supported prices. We've also noted the Chinese recent efforts to restrict excess capacity on aluminum, which, we think, will help the sector. You've known us as a zinc player. Well, aluminum may finally be coming into its own. I'd like to remind you that Vedanta directly benefits from these strong commodity prices, such as aluminum, at about $1,900 per tonne. We started up with the ramping up of aluminum and the improvement in LME has come at a very opportune time, helping us accelerate our journey to achieve the 2.3 million tonnes per annum of aluminum capacity. Our ramp-up of aluminum will contribute to meet the group's total EBITDA in the coming years. So I'd like to start taking you through the slides and our fourth quarter fiscal year 2017 performance, so as always, I'll start you with a slide on safety and sustainability. Unfortunately, I'm deeply saddened to say we had 5 fatalities during fiscal year 2017 and doubly unfortunate was that 4 of the fatalities occurred in a single accident to our - some of our contract employees due to a crane collapse at the SK mill project site at Hindustan Zinc. There's no question that these fatalities are a setback to all of our efforts, our collective hard work to deliver 0 harm. So we've learned what has happened from that. And we will continue to learn and continue to improve ourselves, make ourselves a safer and better company. And those of you following us for several years will see a noticeable improvement in not only attitude, but certainly the numbers related to our safety performance. So if we can move on to the next slide. Before we deep dive in results, I'd like to remind everyone about the compelling investment case in Vedanta Limited. We're a large diversified asset base geared toward base metals and oil-providing sector-leading production growth. We're a low-cost production profile in a lowest quartile and many of our assets aid the company in generating positive free cash flow even at low commodity prices. We've got the strongest balance sheet among the Indian and global peers with a net debt-to-equity ratio - a net debt to EBITDA ratio of 0.4 and gearing of 9%. With the completion of the Cairn merger, we'll have a more efficient capital allocation and improved focus on shareholder returns as key priorities. We're the only global player with significant operations expertise in majority of our sales in the Indian market. And with the merger with the 70% increase in free float market cap, providing strong trade and liquidity, especially for those international investment players. We move on to the next slide. On operations, we'll continue with our production ramp-up across many - much of the portfolio. We had record production at Zinc-India, Aluminum, Power and Copper India. We unfortunately have had some production outages, which I will speak to later in the business segments. Gamsberg zinc project continues to be on track for its calendar year 2018 production. And talking about the financial highlights. Fourth quarter EBITDA was over 40 - over INR72,000 crore and that's the highest that we've had in the last 16 quarters. Our fiscal year 2017 attributable PAT, before exceptionals and DDT, of INR7,323 crores was 2.6x compared to fiscal year 2016. We continue to see cost savings. We'll continue to see a strong culture of cost control, which, we believe, is required to assist in further savings. And I'm happy to say we've delivered on our cost to marketing savings of over $712 million over the last 8 quarters. That strong free cash flow is at INR13,312 crore during the year and reduced our gross debt by over INR4,115 crore, up through the year - fiscal year, a further INR6,200 crore paid since April 1, 2017. We've had the highest-ever dividend of INR7,099 crore during the fiscal year of 2017. And our contribution to the exchequer in fiscal of 2017 was around INR40,000 crore, including the special dividends from Hindustan Zinc. The merger with Cairn India is now complete and the new shares are expected to start up trading tomorrow on the various exchanges. And with the actions from the board today announced just a few hours ago, we have a robust dividend policy now in place for Vedanta Limited. So we move on to capital allocation. We've had a continuous focus on shareholder return. Our capital allocation plan is underpinned by our world-class assets and operational excellence to deliver strong, stable and long life cash flows. Most of the investment in growth projects in our assets is nearing completion and will result in an even improved cash generation in the years to come. Shareholder return is a clear focus area of the management and the board. And toward this objective, we're happy to announce dividend policy of Vedanta Limited, which envisions us passing through of Hindustan Zinc's regular dividend, plus a minimum 30% payout of attributable profit after tax, excluding the Hindustan Zinc profit after tax. Hindustan Zinc's dividend policy themselves is guiding toward a minimum 30% payout and that's already in place. And we continue to optimize our CapEx and OpEx spends across businesses to generate free cash flows. In terms of balance sheet management, the management's focus continues to remain on maintaining a strong credit metrics and using the strong free cash flows to drive further reduction in gross debt. We will only invest in high-return projects in the existing businesses. For us, each investment proposal has to pass through a rigorous test of achieving a hurdle rate criteria. To summarize, we'll focus on delivering long term value for all shareholders by continuing to allocate capital, to maintain a strong credit profile, also evaluate the most compelling growth opportunities across the groups. And while we're on compelling growth opportunities, I'll now move on to Zinc fundamentals. I've been talking about strong fundamentals for Zinc for the past 1.5 years and we continue to believe those fundamentals remain intact, but we've seen some pullback in Zinc LME for the past 2 to 3 months. Some doubts have mounted about the imminent arrival of estimated refined tightness. Although, if you can look, you can see the numbers for Zinc inventories have dropped significantly over the past 2 months. So we do remain bullish and still foresee incremental refined tightening leading to higher prices from here. Concentrate market continues to be tight, although it's slightly better for smelters as compared to the first quarter of calendar year 2017. TC/RCs did reach a decade low, given smelters are finding it difficult to support source concentrate post closure of the mines. Demand is drawing inventory from LME and Shanghai warehouses, which is at a 6- to 7-year low at the moment. So if we look at the chart on the right-hand side of the page, it shows the trend of zinc consumption in India as relative positioning. We believe, particularly in India, there's significant metal demand potential in the country. So speaking of India, moving on to the India slide. Together with the growing population and trends increasing urbanization, this is expected to translate into increasing metals demand. Look at the chart, on the right-hand side of the page, you will see the trend on metal demand with increasing GDP per capita. And extrapolating India's position, we believe there's significant metal demand potential in the country. If we combine the enormous economic growth potential in the country, together with the vast, untapped and underexplored resources, this provides Vedanta with a massive opportunity. Vedanta is ideally placed to take advantage of this opportunity, consolidate further on its mission. So if we can sum up India story, it's compelling and the development agenda of the Indian government is complemented by steady reforms announced through fiscal year 2017. So we can move on to the next slide, delivering on strategic priorities. In conclusion, I'd like to remind you the delivery of the company's strategic priorities and our focused areas for fiscal year 2018. We have record production and we continue to focus on the safe ramp-up of our assets. We're generating increasing free cash flow. And with the relentless focus on costs and managing working capital, we're deleveraging our balance sheet. We've announced our dividend policy today, which demonstrates our commitment to providing strong returns to shareholders. We have completed the merger with Cairn India and we'll look to realize the benefits of the merger. We continue to identify the next-generation resources by leveraging expertise of our business unit in central exploration groups. And we remain committed to our efforts to achieve the objectives of 0 harm and creating sustainable value to all shareholders. We have a diversified portfolio of businesses, which continue to remain fundamentally strong and structurally low cost. We continue to deliver superior value to all our stakeholders throughout the cycle. And with that, I'll now hand over to Arun, who'll take you through the financials. Arun?

[Arun Kumar:]

Thanks, Tom. Good evening, good afternoon to all. On the first page on the financials, I'm glad to report another quarter of strong performance, which was on track with the guidance given at the commencement of the year. The year has seen strong operational performance on volumes and costs. Aluminum and Power continued to ramp up and Zinc India delivered a strong performance in last quarter, in line with the mine plan. Prices remain strong. The full year EBITDA of INR21,437 crore represents 41% up. The quarter EBITDA at INR7,275 crore is a sequential plus 22% and double of last year. Margin improved further by about 500 basis points sequentially to exit at 44%. These numbers represent the highest quarterly EBITDA in the last 16 quarters margin levels last seen in quarter 4 FY 2014. Attributable PAT before exceptional and DDT at INR7,300 plus crore is 2.6x FY '16, thus reflecting the operational leverage flowing through to the bottom line. EPS is the highest in the last 4 years since the existence of Vedanta Limited in its current form post the Sesa Goa Sterlite merger. Debt reduction continued to remain one of our key priorities. Excluding temporary borrowing by Zinc India to bridge its dividend payment and its investment maturities, the gross debt reduced by all INR4,000 crore during the year. Our net debt ratio is in gearing, as you can see, are best-in-class, we believe, the lowest and strongest amongst Indian and global peers. Liquidity position continues to be strong, with the pro forma year-end cash balance post the dividend payouts of over INR48,000 crores. This set of numbers make the merger entity a fit case and fit investment case, both equity and debt. The merged market cap was around INR88,000 crore or $14 billion as of Friday closing. And the company will be part of the Nifty top 50 index soon. This year, a contribution to the exchequer is estimated around INR40,000 crores, placing us as the top business group in India with this kind of numbers. Our return on capital employed swung into double digits at 14.5% for the year and annualized quarter 4 is exceeding 20%. Moving on to the next page, EBITDA bridge. As you can see, the operations played a key role in driving the 41% growth in EBITDA. First of the 2 points I wish to highlight on the page is the cost savings of nearly INR1,850 crores, significant improvement in coal and power cost, both structural and tactical, better technical efficiencies, effectively contracting the mining and maintenance areas, logistics improvements and, last but not the least, improvement in fixed cost absorption on the back of high volumes. Second highlight, of course, the volume ramp-up and Tom covered it in his section. We do expect to complete the remaining ramp-up in FY '18 in the Aluminum sector and to that extent, I can say the volume ramp-up is not yet complete. Moving on to the next page. You'll notice that the quarter 4 EBITDA at INR7,275 crores hit a run rate of around $1.1 billion at the average commodity prices of quarter 4. The work over the previous year is a very familiar story, though quarter 4 was largely driven by the Zinc upswing given the mine plan. Over to the next page. This is a quick report card of our cost savings program. As you can see on the top right side, against the $1.3 billion savings plan over the FY '15 cost base, which we had announced at the height of the low commodity cycle, we're ahead of the schedule, but also managing to keep the program fresh. If you look at the left side, we believe digitization is an area of potential opportunity, which will lead to efficiencies in cost reduction. We have also a renewed program on vendor optimization and quality scorecarding that will help us improve our vendor interactions in terms of quality of partnerships leading to efficiency and cost benefits. Furthermore, we're looking at various win-win outsourcing models, where service providers with high technology can help improve volumes, recoveries and exploration efforts. The group will continue to stay contemporary in terms of trends, ideas and best practices to keep this cost bucket fresh. Moving on to the next page. Income statement, as always, the page is self-explanatory. Some of the key numbers have been covered earlier. It's important to note that this is the first full year of the new Ind AS reporting regime in India. And hence, as per regulation, the previous year's numbers have been restated as well. Ind AS, being a surrogate of IFRS, also helps us align to the U.S. ADR reporting and plc's U.K. reporting, thus, making it investor-friendly for our global investors. It's useful to note that at a consolidated net revenue of about INR72,000 crores, we come in amongst the top 10 largest private sector groups in India. The finance income has been lower than the earlier guidance, given the reversal of some of the mark-to-market gains, thanks to the hardening yield curve, but offset by the tax line with lower-than-expected effective tax rate driven by deferred tax. In so far as the guidance for FY '18 is concerned, while we don't give specific guidance, I can say that the interest cost of the debt that we carry was an average 8.3% for the year, exited closer to 8%. And the cash surplus on an average earned around 7.7% post tax for FY '17. The tax rate for next year is expected to be in the mid-20s given that our Zinc and Oil units are now largely out of the tax benefit status. Depreciation and amortization is likely to be 10% to 15% higher given the continued capitalization on the full year effect on working capitalized this year. The exit EBITDA run rate is something we spoke about earlier. Moving on further to the next page. The highlight of the net debt paid is the free cash flow post-CapEx of nearly INR13,300 crores, representing a healthy 62% of EBITDA conversion. Free cash flow free CapEx was over INR18,500 crore with over 95% of it coming from operations, unlike the previous year, where debtors and creditors cycle drew a significant part of the cash flows. This reflects the fundamental ability of the operations to generate cash and, again, the work on volumes and cost flowing through to the cash accretion as well. On the next page, we can see that during FY '17, CapEx was around $650 million as against the revised midyear guidance of $800 million. It was lower mainly in oil and gas and as some rephasing of the CapEx spend part on the Gamsberg Zinc project without any impact on the project completion schedule. As guided during the half year, the optionality in the Oil and Gas business has now progressed to feasible project status. And all of them are at an attractive about 20% IRR at $1.40 Brent. The current guidance for FY '18 also includes other optional items, as you can see on the shaded portion, pertaining to 400 KT Copper smelter expansion and Lanjigarh refinery expansion subject to bauxite supply chain in place. As Tom highlighted earlier, on the capital allocation, the right toll gates have returned to the flight for all the project approvals, which you can see, is also reflected on this page as we move from guidance to feasibility. Moving on to the next page, strong credit profile and the balance sheet. Reflecting the strong performance and proactive balance sheet management, the long term CRISIL rating in April 2017 was upgraded to AA stable, the second rating action in the last 3 months. On net debt and net gearing remain low. As we have mentioned earlier, gross debt reduction and term extension have been our key focus areas. We have between April 2017 and May '17, either retired or have given notices to retire another $1 billion of gross debt, both on the strength of the fourth quarter cash flows as well as the opening liquid cash balance on hand. Our access to the debt market and relationship banks continue to be comfortable. And we will, at the opportune time, refinance or repay some of the short term debt and improve the maturity profile further at competitive interest rates. As mentioned, liquidity continues to be strong with pro forma INR48,000 crores, $7.5 billion of cash and about $0.9 billion of undrawn line of credit. On the last page, in my section, on financial priorities, we continue to be consistent and stay focused, with the objective being to allocate capital wisely. As mentioned by Tom, the board approved a dividend policy to create long term value for the shareholder, in short, allocate capital appropriately. I reiterate the unique positioning of this group in the sector and with the backdrop of a good growth story in India, its well-managed balance sheet and resilient set of financials, the investment case argument, I presume, is compelling. Thank you all and back to Tom for the business section.

[Thomas Albanese:]

Thank you, Arun. So let's start with Zinc. At Zinc India, we've had record production this year, both in mine metal and also in terms of silver. Hindustan Zinc operates in the lowest quartile of the cost curve and note that when we refer to the cost curve, we're just looking at the curve before the silver byproduct credits. If we were to take into account silver byproduct credits, these zinc cash costs will be further reduced to about $450 per tonne on zinc. In our projects, we're well on our way to achieving the 1.2 million tonnes of mine metal capacity by fiscal year 2020. Underground mining at 52% of total mine metal production in fiscal year 2017 will move to about 80% in the current year before phasing completely to underground mining in fiscal year 2019. At our SK mine, expansion of mine capacity to 4.5 million tonnes per year is expected in this fiscal year, ahead of schedule. Winder foundation work for the shaft is complete and headgear erection is nearing completion. The expansion of the SK mill to 1.5 million tonnes per annum is complete and running smoothly. We also have the expansion of the Zawar mill at 2.5 million tonnes per annum and associated power upgradation project, which is in an advanced stage and expected to complete by June 2017. We've also talked about the fumer project undertaken recently to provide further metal recoveries for the hydro plant in addition to improving overall environmental performance and that's been progressing well and expected to be complete by mid fiscal year 2019. In terms of our guidance for fiscal year 2018, zinc and lead metal production is expected to be about 950,000 tonnes. Silver production will be over 500 tonnes. Cost of production is expected to be marginally higher compared to the $830 per tonne in fiscal year 2017 given coal and input commodity prices. Moving overseas to Zinc International. Fiscal year 2017 production was about 156,000 tonnes. The cost of production for the year was $1,417 per tonne, largely due to lower volumes. The Gamsberg project in South Africa is expected to come onstream in a zinc-deficit market, as we're on track for first production by mid-calendar year 2018 and ramp up to full capacity to 250,000 tonnes of zinc in 9 to 12 months thereafter. Plant and infrastructure EPC contracts from Gamsberg have been placed. Gamsberg will come onstream in that zinc concentrate market and expect to generate a good payback - quick payback and strong returns in the long term to shareholders. We'd spoken at Skorpion about the pit expansion and the pit extension is under way. We've started mobilizing for the pit layback in April 2018 with ore extraction expected by the third quarter of fiscal year 2018. This has the potential to increase mine life by 3 years. In terms of our outlook, our production guidance for the year at Skorpion - our production outlook for the year for Zinc International in total is about 160,000 tonnes, with the cost of production expected to be about $1,500 per tonne. The CapEx spend for Zinc International for fiscal year 2018 is expected to be about $230 million, largely on Gamsberg and that would be out of Gamsberg's total stated CapEx of $400 million. So before we move on to Oil, I'd like to just say that we've known that before the merger, you got a full presentation by Sudhir on Cairn. And we thought that to ensure that the oil analysts in this group keep the same level of information, we're asking Sudhir to speak directly about the highlights of Cairn. And I would expect in future earnings call, we'll have Sudhir talk about that in a little more deep dive, so those of you who are oil analysts get the same satisfaction you would've had in the past. With that, over to you, Sudhir.

[Sudhir Mathur:]

Thank you, Tom. Let me start with the first slide on the Oil and Gas. The business continues to deliver solid production volumes and superlative cash flows, while managing fields at a lower operating cost. Our coal fields continue to deliver along expected lines, with gross production across the assets for the year at 190,000 barrels of oil equivalent per day. Rajasthan production was at 162,000 barrels of oil equivalent per day. Mangala EOR continues to deliver strong performance with Q4 FY '17 volumes at 56,000 barrels per day. Continued reservoir management practices and production optimization helped deliver a steady production from waterflood operations at both fields. The Rajasthan assets have gotten excellent plant uptime of over 99% during the year. Gas production from RDG was lower at 21 million scf per day in the fourth quarter due to a technical issue between the gas transporter and buyer. The issue has since been resolved and the production level is at 32 million scf per day. The offshore production was at 28,000 barrels of oil equivalent per day with Ravva contributing 18,000 barrels of oil equivalent per day and Cambay 10,000. Effective reservoir management practices and production optimization measures have contained the natural decline. The offshore assets recorded an excellent uptime of over 99% for the year. Our world-class operational capabilities have kept operating cost at the lower end among our global peers. Rajasthan waterflood OpEx was at 17% lower year-on-year at USD 4.3 per barrel in FY '17. Blended operating cost for Rajasthan was also lower by 5% year-on-year at USD 6.2 per barrel, while we ramped up our polymer injection to 40,000 barrels per day in FY '17. Moving on to the next slide. Our continued efforts over the past year have enabled us to restart the CapEx cycle. Our projects command a healthy project economics even at $40 strength. Rageshwari gas project is progressing as per plan. As part of Phase 1, the 15-well hydro-frac program was successfully completed during the year. The low-cost augmentation of the existing facility is on track. Completion of Phase 1 in the second quarter will increase gas production to 40 million to 45 million scf per day. Tendering activity for the new term mill and drilling rig as part of Phase 2 is progressing well. Phase 2 is expected to increase the gas production to over 100 million scf per day and condensate production to about 5,000 barrels of oil equivalent per day by the first half of calendar 2019. Moving on to oil projects. Mangala has been our most prolific field for over the years. We're commencing a 15-well infill drilling program at Mangala to monetize the results early. All approvals are in place for the project and drilling of the wells is planned for Q2 FY '18. We're upgrading the facilities for Mangala Processing Terminal to facilitate increased crude oil production. The planned upgrade includes increasing liquid handling capacity from 950,000 to 1,200,000 barrels per day, increasing water injection capacity from 650,000 to 850,000 barrels per day and production enhancement through water treatment, well services and facility modifications. We look to leverage from the learnings from the excellent performance of Mangala EOR to enhance production from Bhagyam and Aishwariya through polymer injection. A multi-well polymer injectivity test for Bhagyam was successfully completed during the quarter and the results have been encouraging. The revised field development plan has been submitted to the JV partner. The injectivity test in Aishwariya has started in 3 polymer injection wells. The field development plan has been submitted to the JV partner. The large hydrocarbons in place of 1.4 billion barrels of oil equivalent of Barmer Hill, offers significant growth potential. Development cost of Aishwariya Barmer Hill has been reduced by over 30% to a USD 195 million from the initial estimate of USD 300 million for an estimated recovery of 32 million barrels. We have achieved commercial and technical alignment with our JV partner for Stage 1 and production from the appraised wells will start from Q1 FY '18. Execution of Stage 2 is expected to begin in fiscal 2018. Speaking of our exploration activities, we continue to work towards enhancing our prospect portfolio in Rajasthan by adding fine high-impact new plates. Prospects are now being formed up for exploration drilling in fiscal 2018. We're also planning to drill 2 exploration wells in the KG offshore block. In addition to this, we're actively pursuing an alternate strategy of executing our projects through an integrated project development model in partnership with consortiums, led by global oilfield services majors. This will help us drive incremental efficiencies as well execute projects faster. For the fiscal 2018, we've - we expect to have a steady production volume from Rajasthan at a 165,000 barrels per day, with potential upside from executing - from execution of the growth projects. The net CapEx is estimated at USD 250 million with further optionality for growth projects. With that, over to you, Tom.

[Thomas Albanese:]

Thanks, Sudhir. Now we're going to cover Aluminum. So now at Aluminum, we had record production as of the volumes are ramping up during the course of the year. At the 500,000 tonne Jharsuguda I smelter, we did have an outage in April 2017, where 228 pots out of the total 608 pots were damaged. Fortunately, we had no injuries from these incidents. However, we're disappointed. We're working towards stabilizing the operation over the coming quarters. This will typically mean a loss of 80,000 to 90,000 tonnes of production for the year, that being 2018. Coming on to the progress of ramp-up at Jharsuguda Plant II. As you are aware, the plant - so we have the second quarter of fiscal year 2017 impacted the first line of the 1.25 million tonne Jharsuguda II smelter, currently 81 pots are operationally and we do expect will ramp up by the third quarter of fiscal year 2018. Regarding the other lines of Jharsuguda II, the second line is fully ramped up, capitalized in the fourth quarter of 2017 while the third line has commenced ramping up through December 2016 and expected to be fully ramped up by the third quarter of fiscal year 2018. Moving on to BALCO-II, that's fully operational and will be fully capitalized in the first quarter of this fiscal year. So we would expect to produce between 1.5 million and 1.6 million tonnes of Aluminum for the year, excluding the trial run production from fiscal - in fiscal year 2018. On realizations, we benefited from higher Aluminum prices during the quarter and our realized premiums are more or less in line with the third quarter, although significantly higher on a year-on-year basis. We delivered strong EBITDA margin of over $446 per tonne, which is the highest we've seen in the last 8 quarters and I'm happy to share that in the fourth quarter, we're almost break even on profit-before-tax margin in the Aluminum segment. Our hot metal cost for the quarter was $1,492 per tonne and that's higher - mainly higher due to higher alumina prices for Aluminum, which we had flagged in the last call and partially offset by lower power costs. Although we have seen recently, some drops in alumina prices that weren't affecting the first - the most recent quarter of production. We estimate hot metal cost of production in fiscal year 2018 to be between $1,475 per tonne to $1,500 per tonne depending as much on the pace of the ramp-up and again, what will be the market prices for imported alumina. On alumina, total production in fiscal year 2017 was 1.2 million tonnes and we expect fiscal year 2018 production to be in the range of 1.5 million to 1.6 million tonnes, implying about 50% of alumina requirements, will be met via captive production. At BALCO, we expect to mine about 1.8 million to 2 million tonnes of bauxite in fiscal year 2018. And we will continue to work with the additional state government on allocation of new bauxite, which we would see driving expansion of the Lanjigarh refinery. At TSPL, in Punjab, we had a record availability of 85% in the fourth quarter in that Power business. Unfortunately, we did have a fire in the coal conveyor unit in April 2017, which did result in a shutdown of all 3 units in the power plant. As we speak, our teams are working hard on the rectification and we expect to restart the operations by the end of June. We now expect availability of 75% in fiscal year 2018. At BALCO 600-megawatt plant and Jharsuguda's 600-megawatt plant, we saw sequential increase offtake in the fourth quarter. Just to remind you, we did have long term PPAs for about 60% of the 600-megawatt capacity at BALCO, which are now being substantially met and serviced. With respect to coal sourcing through our power plants, we have been reducing our dependence on imported coal at BALCO and Jharsuguda, despite increasing coal requirements on the smelter ramp-ups. In fact, in the second half of fiscal year 2017, coal imports to these facilities have been minimal. Coal linkages of 6 million tonnes were secured earlier during the year, enabling us to receive 1.36 million tonnes of coal during the quarter. And we do believe that future auctions of coal linkages will be beneficial to long-service security of coal sourcing. So we're now moving on to Iron Ore. We did achieve our production ramp-up at Goa and Karnataka during the year. Post this, going into 2018, the Goa government has granted us an additional allocation - sorry, in the fourth quarter of this year, the Goa government granted us additional allocation and we produced 2.6 million tonnes in the end of the year, therefore, enabling the state to reach its 20 million tonne total cap for fiscal 2017. On the cost of production side, you can see in the chart on the right-hand side of the page, our cost efficiency. Mining, processing and logistics cost at Goa were in the $12 per tonne range in the fourth quarter. Despite such a low cost of operation, our EBITDA margin is at USD 21 per tonne as we realized lower prices for Goa due to the widening discounts from the benchmark price of 62% iron grade. I'd like to talk a bit about that wider discounts and lower recent Iron Ore prices. We have been seeing in the market, the broader Iron Ore market, an inventory overhang in the Chinese ports and there has been some hike in the discounts for lower-grade product, particularly lower high-alumina product in the market by leading mining companies. Due to environmental reasons, steel mills continue to focus on productivity and their preference for consumption of medium to higher Iron Ore grades continues. The premium for those higher grades has tapered off a bit due to the recent price declines. Currently, discounts for Iron Ore - for Indian Iron Ore would be typically about 45% and that was an average - appears an average of 38% in the fourth quarter of fiscal year 2017. In the fourth quarter fiscal year 2016 as comparison, the discount for Indian grades were about 10% to 11%. While steel prices are coming down and coking coal prices have remained volatile, we expect steel mills' margins to continue to decline, which will drive Chinese mills to revert to the lower-grade ores, like we have in Goa. due to their reduced cost to the steel mills. So talking about guidance in Iron Ore, we limit our guidance for fiscal year 2018 at the mining limits allocated by the states in fiscal year of 2017. However, we're continuously engaged with respect to the state governments and the courts for allocating a higher limit and higher cap to us. In Goa, the state is in the process of seeking intervention of the Honorable Supreme Court. The experts of media macro EIA has assessed its enhancement of the cap up to 30 million tonnes, with the existing infrastructure and 37 million tonnes per annum can be sustained after infrastructure development. We would hope this matter would be taken up in August of 2017 by the Honorable Supreme Court. The Goa - government of Goa has asked mining companies to aim for cumulative production of 8 million tonnes during the first quarter of fiscal year 2018, before the monsoons start. In Karnataka, our enhancement application has been approved by the ICFRE and FIMI and the technical committee, which is in the process of approval from the CII - CEC for 4.9 million tonnes per annum. Moving on to value-added business. Our pig iron production was strong at 708,000 tonnes. That's 8% higher than the previous year due to the higher plant availability, post debottlenecking. However, the margin was low due to higher coking coal and prices and higher Iron Ore prices. So I'll now speak about Copper India. For the year, our Copper India production was a record 403,000 tonnes. Our net cost of conversion was higher year-on-year due to lower asset prices as a lower by-product. However, we continue to be well positioned in the lower cost quartile globally. Our fiscal year 2018 production is estimated at 400,000 tonnes despite our maintenance shutdown in the first quarter of fiscal year 2018. We're evaluating expansion of the smelter Tuticorin by a further 400,000 tonnes per annum and should be able to provide an update, hopefully, over the coming quarters. So to conclude, before we move on to questions, I'm happy to conclude with the scorecard for fiscal year 2017. We achieved record and significant production growth, but we're mindful of the multiple production outages and we'll be concentrating more efforts on operational integrity and resilience of the businesses. We have generated increasing free cash flow and delevered our balance sheet. Our dividend policy has been announced with a view to provide strong returns to shareholders. As you heard, we've completed the merger with the Cairn India and look to realize the benefits of that merger and while across the board continuing to identify the next generation of resources. To close, as I've started, the Cairn merger has transformed Vedanta and we remain committed to achieving our objectives of Zero Harm and creating sustainable value for all of our shareholders. Thank you very much. And with that, operator, I'll now turn it over to you to go into Q&A.

[Operator:]

[Operator Instructions]. And first question is from the line of Pinakin Parekh from JPMorgan.

[Pinakin Parekh:]

My first question is the dividend policy that has been announced. Now when I look at it, there is a CapEx guidance that has been given for FY '18, '19 and there is a dividend policy, which is based on dividends from Hindustan Zinc and the stand-alone earnings. Now does this mean that the balance sheet deleveraging would be a residual target after the first 2 targets have been met? And to that extent, if the Vedanta stand-alone earnings for whatever non-win commodity price deflation, we might see the deleveraging would be goal number 3 after dividends and CapEx?

[Thomas Albanese:]

So maybe if I just start and maybe then ask Arun to support me and that is as we've said with our capital allocation slide, with a dividend policy in place that we would look to basically balance all 3 objectives, as you can see, we have a quite modest capital spending that's envisioned with a little bit of growth from last year but not that much given how much we had compressed capital over the past 5 years. And again, with our own projections, we would see that we would be in a position to meet the dividend policy, to meet the modest level of capital costs and continue down the pathway of delivering, reminding you that we've already reduced the overall gross debt by INR6,000 crore so for year-to-date. But, Arun, if you want to add to that?

[Arun Kumar:]

I think a good a summary from what I think we basically a fundamentally draw strength from the combined with Vedanta Limited with its ramped up aluminum and power sector and with oil and gas business in it. Iron ore doing well; copper continues to deliver. So that gives us a strong operating activity with enough free cash flow post-CapEx on its own. And you also have to remember that the aluminum ramp-up does not cost any CapEx which we've already spent and we would reap the benefits of the past CapEx spend. The oil and gas business, as in the past and into the future, will fund its own CapEx. That really leaves in our surplus cash in order to do a good capital allocation, I would say smart capital allocation between investor returns, which was a fundamental question, further delevering, which is our intention which is the gross debt delevering the net debt. I must remind all of us that we're already 0.4x on a consolidated basis best-in-class with our peers. And further fund growth CapEx, if any, required basis excellent returns on the IRR site and crossing all our toll gates. So with that, I think we have a good mix that's possible, fundamentally, driven by the strong operating base.

[Pinakin Parekh:]

Just to follow on, there was bias credit of INR11,200 crores as of 3Q. What would be that number as of 4Q? And secondly, on aluminum, given over the last 12 months we have seen multiple quartile digits at the various lines. How does management see this issue? Is it a function of the lines not being operational for a long time and hence a capital spend? Or is this an issue in the power plant? Or is this a normal operational issue in terms of ramping up of the line?

[Thomas Albanese:]

So maybe, I can start on Aluminum, but I'd like Abhijit to then support that and then that will give Arun time to give an answer on the buyer's credit. So starting with the Aluminum, from my own personal experience, there is more outages than I would've expected. I think there's probably a combination and each of them are all quite different but there's a combination, in some cases, of things that we found during the construction in terms of defects, some in cases in terms of the fact that, as you point out, these facilities were sitting for 4 years or more from the completion of the construction to the start-up and as a caveat, if you've had a car in the garage for 4 years without turning it on. When you turn it on, you're usually going to find something that does go wrong. And I think also I'd say that as we're ramping up, just the operational experience of the people on the ground probably led to, basically learnings that we recognized we've had to bring in some probably, on a global basis, people that have been through start-ups like this in the past elsewhere in the world. But Abhijit, why don't you say a little more about how you would see this from your perspective?

[Abhijit Pati:]

Thanks, Tom. I think a couple of these outages are issues which have impacted the operations for the last 15 months. It's a combinations of many factors, I think. First of all, when you do the ramp-up, obviously, stabilization is something, which is a key success factor of a commissioning of a plant. So it is a historic combination of certain amounts of operational capability part because we're new people, we're driving in very aggressive numbers and also, just lastly, some amount of skill competency and some design issue. Some cases it has happened because we have kept ideal for very longer time, so idealness of an equipment particularly when the case of transformer failure came. It is basically a combination of a certain amount of design deficiency of interlocking plus followed by maintainability of this equipment, because when you recommission after a phase of many years, you have to have a commissioning protocol, which is sometimes not known to at OEMs. So that's the reason, which has impacted our transformer site, but the 2 issues which has open circuit for the pot line and followed by recently the very large - the fire issue, which has impacted the month of April, one of the lines [indiscernible] the separations. And these issues, I can tell you, too, all of you, that these issues are not very uncommon. I think there are many cases particularly, sometimes it happens for a stabilized operations, sometimes in for ramp-up, I think it has happened in SNGM, Odisha, [indiscernible] it has happened in BALCO, but it is a combination of many factors that we're trying to work it out and we're confident that we should be in a position to mitigate learnings and move track back. And put back the speed of the ramp-up going forward.

[Thomas Albanese:]

Thank you, Abhijit. Arun, over to you. Fire spend?

[Arun Kumar:]

I think the number is more or less the same at the end of Q3. Whatever it is, it's also the Q4 level.

[Operator:]

The next question is from Sumangal Nevatia from Macquarie.

[Sumangal Nevatia:]

First question on the credit rating, congratulations on the upgrade. What interest cost savings can be realized with this, if you could just elaborate on that.

[Arun Kumar:]

I think the credit rating, as you rightly observed, is on an upward curve and as we articulated earlier, our objective is to be in the AA+ category. So we still have some more work to do on that front, I would confess. Having said that, if you really see the growing operational strength and the liquidity has already paid up in terms of interest rate for us. If you see the last bonds that we issued in the local Indian market, right? we issued at 7.5%, which is almost the rate that one would get if one had a higher credit rating as well. So to me, while the credit rating is a process, we will engage with the rating agencies in a transparent way as we always do, it will get us there. We keep doing our work, but at the same time, I think the debt market is already started rewarding the stronger balance sheet profile that you see. I hope that gives you sort of an indication of what we're looking for if you take a bond as a benchmark.

[Sumangal Nevatia:]

Any immediate benefit of cost saving in the coming quarters? Or it's a long loan process?

[Arun Kumar:]

I think if you see the savings will keep coming in bits and pieces because some of the debt, you would repay; some of the other debt, you will refinance. So the increased credit rating will definitely lead to the benefits in the near future.

[Sumangal Nevatia:]

Understood. Second question is with respect to the aluminum division. We're guiding almost 0.5 million tonne increase in volume in FY '18. This would require almost 1 million tonne additional alumina and 3 million tonnes of bauxite. So if you could just elaborate on the sourcing strategy. Is there any risk on the raw material constraints, which could limit the volume growth?

[Thomas Albanese:]

So let me just give you a little high-level overview and then I'd like Ajay Dixit, who is also responsible for our upstream sourcing in addition to the Power business. What we're doing right now is ramping up our alumina production as we have now received the environmental approvals to do so about 1.5 years ago, but that ramp-up has been constrained by our bauxite. So we have been basically looking to increase our own bauxite production from 2 mines that we have in Chhattisgarh, one of them I visited just 2 weeks ago and then supplementing that with purchased bauxite within India and further the bauxite from overseas purposes. The bauxite that we have in Chhattisgarh is, on balance, a slightly lower quality that we want for the overall blend, which means that we need to import bauxite of higher qualities to basically provide the right metallurgical characteristics for the plant's facility. And again, over the longer term, we want to bring in, basically, some of the Orissa bauxites, which we know are higher quality by their very nature and certainly larger in terms of resource volumes than what we see in Chhattisgarh. So with that, maybe Ajay, why don't you talk about that strategy and how we basically are going to be getting as much bauxite as we can to produce as much alumina as we can to reduce our import dependence on alumina.

[Ajay Dixit:]

Yes. Dixit here. So first of all, as Tom said, we have our ability in terms of the bauxite, which we're ramping up to 5 million tonnes, which should effectively give us 1.5 million tonnes of alumina. And recently we have contracts with the imported bauxite as well as imported alumina. Fortunately, we have a good downturn on the price on the alumina also. So partially, we're offsetting it by commitment of the imported alumina and progressively as the mines will be offset by its own from Orissa, we would also be participating in that. And on the other hand, in any case, there's a lot of detailed info that while we had made the investments and [indiscernible] commitments that Orissa government will also arrange to give us some bauxite from the local Orissa. So that's all I would say, is there. But I would say, yes, as we're ramping up, the refinery capacity is getting first ramped up to 4 million tonnes immediately in Stage 1, which should get completed by this end of the financial year and then immediately thereafter by additional 2.5 million tonnes, [indiscernible] 6.2 million tonnes.

[Thomas Albanese:]

So and I just want to reinforce one point that Ajay mentioned, that is about, there's no technical issues with respect to bauxite in India, certainly in Odisha. These issues have been largely social and they've been largely related to what I think are basically unfounded fears of the unknown related to bauxite mining. It's one of the most benign mining methods, people within our industry would recognize. But I do respect the fact that it has had a history of controversy and tension with social activists. So for that purpose, our commitment is toward basically mining with the best environmental practices and mining with a commitment in advance that we'd only mined with a free, prior, informed consent, nor - and we would only buy bauxite from Odisha, Orissa mining companies or somebody else, if they've already obtained free, prior, informed consent. And that free, prior, informed consent, as defined in India, would be through the known legal process called the Gram Sabha process.

[Sumangal Nevatia:]

Understood. Just one follow-up question on aluminum. There are 25 paisa increase in electricity duty in Orissa. So if you could just elaborate on the impact on this. Is it only limited to the non-ACZ location, Jharsuguda I, or the entire 1.75 million tonne capacity in Orissa?

[Thomas Albanese:]

So, Abhijit, why don't you take that and if, Ajay, you have anything you want to add, go ahead, feel free to do so.

[Abhijit Pati:]

Yes, I think this - first of all, this increase which has been notified has a got an impact of the 1215 area, that's the DD area, as of today, the financial impact should come around $55 to $60 per tonne of aluminum. If it's just whatever 1,800-megawatt we have been converted into CPP and supplying it as up to date, the actual of that. So this is what is going to be impacted so far as the Orissa operation is concerned.

[Sumangal Nevatia:]

So, sorry, it's just Jharsuguda I, that you said would get the impacted 1215.

[Operator:]

Next question is from Ravi Shankar from Credit Suisse.

[Ravi Shankar:]

Two questions. One was on the peak production from all the oil and gas projects that have been enlisted. If you could give any an idea on how long will the production plateau would be in that case. And the second question is clarification on the entity wise net debt and net cash situation. So would it be safe to say that from that INR8,099 crore figure, we just need to add another INR13,900 crore or roundabout INR14,000 crore of dividend plus DDT payout out of FZL to get to the effective net debt of 64 dividend payout .

[Thomas Albanese:]

So I will start on this peak production comment and maybe Sudhir talk specifically about the Iron Ore business. But remind you that back in the 1970s, someone was referring to the term peak production and he was wrong. Five years ago, someone was referring to the peak production; they were wrong. And so Sudhir, my own view is there's no such thing as peak production in Barmer that even 5 years from now people are going to be coming up with new discoveries that we haven't even conceived of. So with that, Sudhir, over to you.

[Sudhir Mathur:]

Yes, thanks, Tom. Yes, I think I agree with Tom. There's no such thing as peak production. Barmer is a huge - it's like 4,000 square kilometers. So we will be discovering things and technology is changing quite rapidly and bringing in enhanced oil recovery techniques, et cetera. So we'll continue to add to our reserves and that's really been our focus. Over the last few calls, you mentioned that we would be - that this PSC extension allows us to double our results to 2013 by 10 year and taking it up to 0.5 billion and the whole idea is the combination of increased exploration that I spoke about, both at Rajasthan as well as KG and technology - investments in technology on - and enhanced oil recovery techniques is to take the results to 1 billion barrels in the very near future and this has been done through a combination of what we know specifically, is the 4 projects that I sort of described, which was the 2 enhanced oil recovery projects at our second and third-largest biggest fields, that are Aishwariya and Bhagyam. In addition to that, unlocking a reasonably large amount of volume, in excess of 25,000 barrels, in the tight oil field in Aishwariya Barmer Hill. And on the gas side, which is tight gas to take it up to 100,000 - I'm sorry, a 100 million scuffs plus 5,000 barrels of condensate by middle of next calendar. So in all, this in excess of 100,000 barrels of production. And as Tom mentioned and I'm saying, it's difficult to put in peak here, which depends on when we got a check-off from the government on all these 4 projects. But in parallel, what we're doing is putting together an integrated development and an integrated execution strategy to be able to execute this as quickly as possible and bring to live production faster than it would be in a conventional execution strategy.

[Arun Kumar:]

And in so far, Arun, here. In so far as the net debt question is concerned, if you look at the footnotes on Page 14 of our pact, INR27,024 crore, which is basically the dividend payout from Vedanta Limited and to the zinc minorities that was paid out in April '17. You add that to the 8,099, you get to the 15c 22, which is there on the page. So basically, you're right and the translation is there on the page.

[Operator:]

Next question is from Vineet Malu [ph] from [indiscernible].

[Unidentified Analyst:]

I just want to have some more clarity on an earlier question about capital allocation. So you have these 3 goals of dividend payout, CapEx and reduction on gross debt. I'm still confused in case if there is a pressure on commodity prices, then how do you prioritize these 3?

[Thomas Albanese:]

I think, first of all, I would say that - I'll go start this and maybe Arun can support it, maybe as you can imagine, an active part of the discussion in the determination of the dividend policy. That dividend policy is basically stress tests, not only in terms of plus or minus of price movements but where we've seen in terms of depressed prices over the past couple of cycles. So we have a pretty good idea of at what price in different commodities prices go where we actually start seeing contractions in supply. So on that basis, we may began to model it. And then with the delevered balance sheet that we have now, it's given us more freedom in terms of that overall dividend approach as we go forward. Obviously, the overall allocation will - means we'll be - continue to be prudent and disciplined on capital spending but that's what dividend policy should do and that's what capital allocation framework should do. So we feel comfortable in a wide range of model price expectations that we can actually deliver the dividends that we have basically built - that would be foreshadowed by the dividend policy in conjunction with the fact that we have a delevering journey that we're not yet satisfied with, but we want to continue with and, again, we do see our capital allocation, which has, frankly, been relatively modest in terms of CapEx costs with that.

[Arun Kumar:]

I think Tom articulated it quite well. I don't have much to add other than to say that look, it's a - what we have on the Vedanta balance sheet is a good problem to have. We have a strong operating asset, which will also produce cash at lower price levels. If you take our numbers and stress test the FY '17 numbers to FY '16 level, you will still see that, with ramp-up you could probably return similar amounts of profits and cash flow. So the question is about balancing it out. We've done a stress test at various scenarios, as Tom articulated. Some of the CapEx spends will call out itself based on the thresholds and based on the expected IRR. So I think we should be in a decent position to balance out between the 3 objectives that we stated out. And it's important always to keep a framework that's flexible enough so that you can push the buttons on various sites as and when the situation and the environment demand. So I think...

[Thomas Albanese:]

I guess one final point I'd just want to reinforce, that is that, with the exception of what I would call extreme macro events, for the most part, the diversified portfolio does have balancing between commodities that are higher and then they're lower and that basically gives us stability of the earnings flow in most of the time. And certainly, we've modeled what we've seen in terms of extreme pricing events including the global financial crisis in terms of how we can manage the debt. But keeping a diversified portfolio, low-cost assets, which is what we've said has been objective all along basically provides us some resilience in this capital allocation.

[Unidentified Analyst:]

So my next question is on, how much flexibility you have on CapEx once you actually take a decision to go ahead with that?

[Thomas Albanese:]

I think just to give you an example what we've done, look at Gamsberg, when we first announced Gamsberg, this would've been in late 2014. We were flagging a project in about $780 million between Gamsberg and at Skorpion. Within months of that announcement, we saw that the entire metals complex was declining quite rapidly and you saw that we began to rephase that capital to take some of the burden off of current CapEx spending and - but we retained the option to turn it back up again. And then, therefore, 1.5 years later, as we move into 2016, market prices returned, we were able to basically turn the project up, but we also reengineered it by taking several hundred million dollars of capital out of it. So that's a good example of the kind of phasing, rephasing and flexibility that we want to see continuing with our capital projects.

[Unidentified Analyst:]

Sure. I was just going to add to that question, is that, do you have some of the flexibility in oil?

[Thomas Albanese:]

I think even [indiscernible] but remember, many of these oil projects are sequences of wells. So then if you have 10 wells, you're going to plan a sequence and you do - and maybe when you see something happening to the oil price you notice you get to well 5 and then you basically slow down the rest of them. So there is some range in those that are sequenced like that. Natural gas, where you have a large surface facility, would probably have some constraints. But the bulk of the capital is actually sequence in terms of rig completion. So go ahead, Sudhir.

[Sudhir Mathur:]

Yes. That's right, Tom. A large part of what we spoke about barring the gas new terminal and unless part of the capital is going into what I would call debottlenecking capacity at the processing terminal, which is being able to process more of the fluids that come up through the wells. Other than that, it's all a sequence of wells. So that can be cut short, et cetera and our contracts are quite flexible to take into - that into account. But I think more importantly, we're doing the project economics of each one of these projects at a crude price of 40 and that's what gives it the entire capital expenditure plan that Arun talked about, a lot more robustness than what you would normally see.

[Unidentified Analyst:]

Right. Last question I have is on Aluminum costs. We've seen some increase on account of alumina, right? And that was partially offset by savings in Power sector. Going ahead, how do you see that? I know alumina might have fallen out of favor. Do you have a bit of an escalation in power costs because of this electricity duty. How do you see overall cost moving in? it's a good - specifically you mentioned on the components that actually has big rate.

[Thomas Albanese:]

So I guess I'll start by just saying that while we've seen an improvement in LME and we've seen that the Chinese are beginning to take measures to constrain production, we can't count on that. So again, if there's something that could happen in China that would cause them to re-ramp up Aluminum production, that, that could go the other way around. So for that reason, I would say we're unsatisfied with our current level of Aluminum cost. We have to reduce them both in terms of alumina, in terms of power and in terms of conversion so that we can assure that if there was ever a surprise in LME, we can suffer through that. But, Abhijit, over to you.

[Abhijit Pati:]

So I think, thanks, Tom, you have rightly said that because, going forward, yes, we will - we have continued to have some disadvantage of the highest LME and corresponding percentage of alumina price, but we're confident that at least Power, whatever the increase of electricity duty comes and with our best buying technology of our power, coal and everything including efficiency, we have to do a certain amount of more work to contain that power cost. But overall I think, there will be an increase into the cost going forward in Q1 of '17 and '18, at least on account of the alumina because we will appreciate one thing, this around 60% of the imported alumina, which is fading virtually the expanded capacity over years in Jharsuguda and also a part to the BALCO can only get offset by way of increasing the volume when it comes from the Lanjigarh. So that stays a little longer and I feared. So, thereby, going forward, at least a couple of quarters, we'll continue to see higher alumina cost and partly can be offset on account of a good power efficiency and others. So when we see talked about Tom about conversion, I think that's the only based on the further ramping up. I think it would rationalize in that extent. So there will be some increase in delta into that cost, but I think going forward, we will have to play and put some more vigor onto the cost of the alumina rationalization.

[Thomas Albanese:]

And I guess I want to also add to that, that putting my policy advocacy head on, is that India still being suffering a flood of cheap imports. And as long as that happens, that means that any of our marginal new production has to be exported or the materials imported. And so for that reason, I think that continues to keep the business in a somewhat vulnerable position, which means that we have to make sure that our costs stay lower.

[Operator:]

Next question is from Abhishek Poddar from Kotak Securities.

[Abhishek Poddar:]

This one is again on the Aluminum, just taking it back on BALCO specifically. We have seen the production cost declining by about 2% this quarter sequentially. And that is despite the Aluminum cost - alumina cost thriving. So could you tell us what is there? And also, what is the proportion of alumina that BALCO purchases and how much is it from Lanjigarh?

[Thomas Albanese:]

So I think that maybe two pieces of that and Abhijit, help me with it and maybe, Arun, if you need to. But the first is that, I think more - that the Chhattisgarh bauxite actually goes to Lanjigarh then back to BALCO. So they probably have a more stable sourcing of bauxite than the Jharsuguda would. Second, that BALCO started with the higher base both in terms of labor costs, rolling mill costs and particularly coal costs. So that allowed it to drop more on a comparable basis. So now that BALCO's power cost is closely approximating Jharsuguda, whereas 2 years ago Jharsuguda would've had a big cost advantage on coal. But, Abhijit, anything on this? I know you're competing with BALCO all the time to keep your cost lower than them.

[Abhijit Pati:]

No. I think that's a good journey for the BALCO, as you explained, Tom, is right because, yes, there is some amount of the increasing alumina cost. But I think over the years, if you really think quarter-on quarter in the last financial year, there was a significant move on to the power rationalization that came in a very good save of the power cost. And what I would add, one more point is that good story of the BALCO is that BALCO is fully capitalized good operation. At least they have come to a run rate, if you see the Q4 run rate, they're actually there, of 0.5 million to 0.56 million tonnes. That's the installed capacity going forward. So therefore, they will get a significant amount of good boost all through their other cost including the carbon. There are very good the rationalization of the fixed cost, which is going to happen. So BALCO, the cost story will be a good story and I think we're confident as a team to deliver the right numbers going forward.

[Abhishek Poddar:]

So the second question is regarding Zinc International. Despite the falling cost in this quarter and the high volumes, the EBITDA is lower. So is it to do with sales and if the sales are lower, what is the reason?

[Thomas Albanese:]

So I'll start with that. I think we have designated online too, it should supplement it. But I would say that in Zinc International, while we're very happy with the performance in getting Gamsberg up and going and the options we have in Skorpion lay back and everything else, what we have are older facilities at Skorpion and Black Mountain. And by the way these facilities have been around longer than would've been envisioned at the time of the original angle of purchase in 2011. With those older facilities, I think we have had some operational upsets, bpth particularly at the refinery at Skorpion and also the acid plant at Skorpion, which had a negative impact on productions. We're all disappointed by that. I know that Deshnee, particularly is disappointed by that. We look to improve that as we move forward into the coming fiscal year, but that's something that we're going to be dealing with until we can bring in the new layback at Skorpion. We can develop some additional resources at Black Mountain, particularly at Swarberg and most importantly bring Gamsberg online. But, Deshnee, what else do you want to add?

[Deshnee Naidoo:]

Okay thank you, Tom. I think in terms of the question, yes, there was a mismatch between EBITDA and revenue this quarter and it's largely because we took a prepayment on a sale and then only booked the EBITDA to start of the next financial year. I think relating to Tom's remarks around the Skorpion plant, yes, that is an aged plant now. But given the fact that we've just realigned the last pushback, we will now look to better maintain the plant to catch up with that and that's largely relating to some of the infrastructure integrity work. But we do believe and I think Tom touched on this earlier, that this refinery, once sorted up in terms of the downstream processes, we can still look to bring back on stream the refinery conversion to look at the treatment of both Gamsberg material and Skorpion future production down the line.

[Abhishek Poddar:]

Okay. The last question is on the buyers rate number. I did miss on that, how much was...

[Arun Kumar:]

I just clarified that the buyers rate is similar to the quarter 3 number.

[Operator:]

Next question is from Bhavin Chheda from Enam Holdings.

[Bhavin Chheda:]

Just on the balance sheet part, is the other equity number includes the preferential table of INR3,000 crores to Cairn minority that has been accounted?

[Arun Kumar:]

That is - that will not be included. That will be shown under financial liabilities.

[Bhavin Chheda:]

It is standing in other financial liabilities of INR24,305 crores? My question is it's already there in the March '17 balance sheet?

[Arun Kumar:]

That's right. It's already there on the March '17 balance sheet. And if you see the balance sheet that we have released, it should be under the other financial liabilities under noncurrent, which is 382.

[Bhavin Chheda:]

382. Okay, that's 3,375 crores.

[Arun Kumar:]

Yes.

[Bhavin Chheda:]

That 3,375 crores figure is the preference shares [indiscernible] preference shares payable to Cairn minority.

[Arun Kumar:]

That includes the preference shares. You see that's the big movement in that line.

[Operator:]

Due to time constraints and that was the last question. I now hand the conference over to Mr. Bajaj for closing comments. Over to you, sir.

[Ashwin Bajaj:]

So Tom, over to you, for closing remarks.

[Thomas Albanese:]

Thank you, operator and thank all of you who took the time to participate and we have very good participation here. I just want to close by saying 2017 was a transformative year for Vedanta. We have a record level of production, particularly well-timed in zinc and Aluminum led to a doubling of EBITDA in the fourth quarter compared to the previous fourth quarter and a 41% increase from the year before. We've been able to reduce our net debt not only during the course of the year but even more recently on a year-to-date basis. The merger with Cairn even tops off, is probably the most significant event for the year. We have been working on it hard for 2 years now and that's actually made the capital structure much more cleaner and capital allocation much more efficient. You've had a strong dividend story for the year, nearly INR12,000 crore that's been paid out since the end of March of 2016 and we have a new dividend policy. So this has been creating value for all the shareholders. If you look at everything we said we would do, notwithstanding skeptics, a year ago, we've done those plus more. We've checked all the boxes plus some. And for those of you who've been participating as shareholders, I know this has been a good journey for you for the past year. Thank you for your support.

[Arun Kumar:]

Thanks, Tom and thanks, ladies and gentlemen, for joining us. Please contact us if you have any further questions. Thank you.

[Operator:]

Thank you very much, members of management. Ladies and gentlemen, on behalf of Vedanta Limited, that concludes today's conference call. Thank you all for joining us and you may now disconnect your lines.