NOTES TO THE FINANCIAL STATEMENTS

COMPANY OVERVIEW

Hindustan Zinc Limited (HZL or the Company) was incorporated on January 10, 1966 under the laws of the Republic of India and has its registered office at Udaipur (Rajasthan). HZL's shares are listed on National Stock Exchange and Bombay Stock Exchange. HZL is mainly engaged in the mining and smelting of zinc, lead and silver metal in India.

HZL's operations include five zinc-lead mines, four zinc smelters, one lead smelter, one zinc-lead smelter, seven sulphuric acid plants, one silver refinery plant and six captive power plants in the state of Rajasthan. In addition, HZL also has a rock-phosphate mine in Maton near Udaipur in Rajasthan and zinc, lead, silver processing and refining facilities in the State of Uttarakhand. The Company also has wind power plants in the States of Rajasthan, Gujarat, Karnataka, Tamilnadu and Maharashtra.

In view of the scheme of amalgamation and arrangement amongst the group companies and made effective during the financial year 2013-14 with the effective date of August 17, 2013, Vedanta Limited (earlier known as Sesa Sterlite Limited) became the holding Company of HZL.

NOTE SIGNIFICANT ACCOUNTING POLICIES

a) BASIS OF ACCOUNTING

The financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013 ("the 2013 Act") , as applicable. The financial statements have been brpared as a going concern on accrual basis under the historical cost convention. The accounting policies adopted in the brparation of the financial statements are consistent with those followed in the brvious year.

b) USE OF ESTIMATES

The brparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in brparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known or materialise.

c) FIXED ASSETS (TANGIBLE AND INTANGIBLE)

Fixed assets (including research and development assets) are recognised at cost of acquisition including any directly attributable expenditure on making the asset ready for its intended use, other incidental expenses attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use, net of cenvat or value added tax less accumulated debrciation, amortization and impairment loss. Grant received towards fixed assets is reduced from the cost of the related assets. Machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular are capitalised and debrciated over the useful life of the principal item of the relevant assets. Subsequent expenditure on fixed assets after its purchase or completion is capitalised only if such expenditure results in an increase in the future benefits from such asset beyond its brviously assessed standard of performance.

Fixed assets acquired and put to use for project purpose are capitalised and debrciation thereon is included in the project cost till the project is ready for its intended use.

Mine development expenditure includes leases, costs incurred for acquiring or developing properties or rights up to the stage of commercial production.

d) CAPITAL WORK-IN-PROGRESS

Projects under which tangible fixed assets are not yet ready for their intended use are carried at cost, comprising direct cost and related incidental expenses.

e) IMPAIRMENT OF FIXED ASSETS

The carrying amount of assets or cash generating units are reviewed at each balance sheet date, if there is any indication of impairment based on internal or external factors. An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value. An impairment loss is recognised in the Statement of Profit and Loss where the carrying amount of an asset exceeds its recoverable amount. The impairment loss recognised in prior accounting periods is reversed if there has been a change in the estimate of recoverable amount.

f) DEbrCIATION AND AMORTISATION

Debrciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value. Debrciation on tangible fixed assets has been provided on the straight-line method as per the useful life brscribed in Schedule II to the Companies Act, 2013, except that:

(i) Additions and disposals are reckoned on the first day and the last day of the month respectively;

(ii) Individual items of plant and machinery and vehicles costing up to Rs. 25,000 and other assets up to Rs. 5,000 are wholly debrciated in the year of purchase; and

(iii) Debrciation has been provided over residual life of the respective fixed assets in respect of additions arising on account of insurance spares, on additions or extension forming an integral part of existing plants and on the revised carrying amount of assets identified as impaired.

(iv) Intangible assets including mining rights or right to use assets are amortized over its expected useful life on straight line method. Amortization of leasehold land has been done in proportion to the period of lease.

(v) Mine development expenditure is amortized in proportion to the annual ore raised to the remaining mineable ore reserves. In the year of abandonment of mine, the residual mine development expenditure is written off.

The estimated useful life of the intangible assets and the amortization period are reviewed at the end of each financial year and the amortisation period is revised to reflect the changed pattern, if any.

g) FINANCIAL ASSET INVESTMENTS

(i) Investments are recorded as long term investments unless they are expected to be sold within one year or held for sale. Investments in joint venture are valued at cost less provision for impairment, if any. Investments are reviewed for impairment at the year end.

(ii) Investments classified as 'Held for Trading' that have a market price are measured at fair value and gains and losses arising on account of fair valuation are routed through Statement of Profit and Loss. Investments in unquoted equity instruments that do not have a market price and whose fair value cannot be reliably measured, are measured at cost.

(iii) Investments classified as 'Available for Sale' are initially recorded at cost and then re-measured at subsequent reporting dates to fair value. Unrealized gains/losses on such investments are recognised directly in Investment Revaluation Reserve Account. At the time of disposal, de-recognition or impairment of the investments, cumulative gain or loss brviously recognised in the Investment Revaluation Reserve Account is recognised in the Statement of Profit and Loss. Currently no investments are classified as 'Available for Sale'.

h) INVENTORIES

(i) Ore, concentrate (mined metal), work-in-progress and finished goods (including significant byproducts) are valued at lower of cost and net realisable value on weighted average basis.

(ii) Stores and spares are valued at lower of cost and net realizable value on weighted average basis.

(iii) Immaterial by-products, aluminum scrap, chemical lead scrap, anode scrap and coke fines are valued at net realizable value.

i) CASH FLOW STATEMENT

Cash flows are reported using the indirect method, whereby profit (or loss) before extraordinary items and tax is adjusted for the effects of transactions of noncash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.

Cash and cash equivalents

Cash comprises cash at bank and in hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.

j) REVENUE AND EXPENSES

Revenue on sale of products (net of volume rebates) is recognized on delivery of product and/or on passage of title to the buyer.

Revenue relating to insurance or railways claims and interest on delayed or overdue payments from trade receivable for sale of energy is recognized when no significant uncertainty as to measurability or collection exists.

Interest income is accounted on accrual basis. Dividend income is accounted for when the right to receive it is established.

For income on financial assets, please refer section on Financial Asset Investments.

Expenditure on projects is:

• capitalized when projects are commissioned

• written off in other cases

Technical knowhow, not directly identifiable to any plans, layout of buildings or plant and machinery, etc. are written off. Expenditure relating to fixed assets not owned by Company is charged to Statement of Profit and Loss.

Prior period and brpaid expenses exceeding Rs. 5 Lacs are appropriately disclosed.

All revenue expenses on research and development are written off.

k) GOVERNMENT GRANTS, SUBSIDIES AND EXPORT INCENTIVES

Government grants and subsidies are recognized when there is reasonable assurance that the Company will comply with the conditions attached to them and the grants or subsidies will be received.

Export benefits are accounted for in the year of exports based on eligibility and when there is no significant uncertainty in receiving the same.

l) FOREIGN CURRENCY TRANSACTIONS

(i) Transactions denominated in foreign currencies are recorded at the exchange rate brvailing at the date of the transaction.

(ii) Monetary items denominated in foreign currencies at the year-end are restated at year end rates. In case of monetary items which are hedged by derivative instruments, the valuation is done as per "Accounting Standard - 30, Financial Instruments: Recognition and Measurement". The fair value of foreign currency contracts are calculated with reference to current forward exchange rates for the contracts with similar maturity profile.

(iii) Non-monetary foreign currency items are carried at cost.

(iv) Any income or expense on account of exchange difference either on settlement or on translation is recognised in the Statement of Profit and Loss.

m) DERIVATIVE FINANCIAL INSTRUMENTS

In order to hedge its exposure to foreign exchange, interest rate and commodity price risks, the Company enters into forward options or any other derivative financial instruments with an intention to hedge its existing assets and liabilities, firm commitments and highly probable transactions in foreign currency. The Company does not hold derivative financial instruments for speculative purposes. Derivative financial instruments are initially recorded at their fair value on the date of the derivative transaction and are re-measured at their fair value at subsequent balance sheet dates. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Statement of Profit and Loss. The hedged item is recorded at fair value and any gain or loss is recorded in the Statement of Profit and Loss and is offset by the gain or loss from the change in the fair value of the derivative.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in equity. Amounts deferred to equity are recycled in the Statement of Profit and Loss in the periods when the hedged item is recognised in the Statement of Profit and Loss.

Derivative financial instruments that do not qualify for hedge accounting are marked to market at the balance sheet date and gains or losses are recognised in the Statement of Profit and Loss immediately.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the Statement of Profit and Loss.

n) BORROWING COSTS

Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalised as part of cost of such asset till such time as the asset is ready for its intended use. All other borrowing costs are recognised as an expense in the period in which they are incurred.

o) SEGMENT REPORTING

The Company identifies primary segments based on the dominant source, nature of risks and returns and the internal organization and management structure. The operating segments are the segments for which separate financial information is available and for which operating profit or loss amounts are evaluated regularly by the executive management in deciding how to allocate resources and in assessing performance. Segment revenue, segment expenses, segment assets and segment liabilities have been identified to segments on the basis of their relationship to the operating activities of the segment.

Inter-segment revenue is accounted on the basis of transactions which are primarily determined based on market or fair value factors.

Revenue, expenses, assets and liabilities which relate to the Company as a whole and are not allocable to segments on reasonable basis have been included under 'unallocated revenue / expenses / assets / liabilities'.

p) EMPLOYEE BENEFITS

i) Short term

Short term employee benefits including termination benefits are recognised as an expense at the undiscounted amount incurred during the year.

ii) Long term

1. Defined contribution plan and family pension scheme:

The Company's contribution to family pension scheme paid or payable during the year is recognised to the Statement of Profit and Loss.

2. Defined benefit plan:

(a) Gratuity

The Company accounts for the net brsent value of its obligations for gratuity benefits based on an independent external actuarial valuation carried out annually and determined using the Projected Unit Credit Method. The Company makes annual contributions to funds administered by trustees and managed by Insurance Company for amounts notified by the said insurance Company. Actuarial gains and losses are immediately recognised in the Statement of Profit and Loss.

(b) Provident fund

The Company's contribution to the Employee provident fund scheme is a defined benefit plan. Both the employee and the Company make monthly contributions to the 'Hindustan Zinc Limited Employee's Contributory Provident Fund' equal to specified percentage of employees' salary. The Company's contribution paid or payable to the Fund is recognised as expenses in the Statement of Profit and Loss. The shortfall, if any, between the return guaranteed by the statute and actual earnings of the Fund is provided for by the Company and contributed to the Fund.

(c) Other long term benefit plan :

Compensated absences

The Company has a scheme for leave encashment for employees, the liability for which is determined on the basis of an actuarial valuation carried out at the end of the year using Projected Unit Credit Method

q) VOLUNTARY RETIREMENT EXPENSES

Voluntary retirement expenses are charged to the Statement of Profit and Loss in the year of occurrence.

r) TAXATION

Tax expenses for the year, comprising of current and deferred tax are included in the determination of net profit or loss for the period. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the brvailing tax laws.

Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset, if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is probable that future economic benefits associated with it will flow to the Company. Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed debrciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their realisability.

Current and deferred tax relating to items directly recognised in reserves, are recognised in reserves and not in the Statement of Profit and Loss.

s) EARNING PER SHARE

Basic earnings per share are calculated by dividing the net profit or loss after tax (including the post-tax effect of extraordinary items, if any) for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue, bonus element in a rights issue to existing shareholders, share split and reverse share split (consolidation of shares).

For the purpose of calculating diluted earnings per share, the net profit or loss after tax (including the posttax effect of extraordinary items, if any) for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares, if any.

t) DIVIDEND

Dividend payment including tax thereon is appropriated from profits for the year or surplus in statement of profit and loss. Provision is made for proposed final dividend and tax thereon is subject to consent of the shareholders at the Annual General Meeting.

u) PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

A provision is recognised when the Company has a brsent obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. Contingent liabilities are not recognised but are disclosed in the financial statements. Contingent assets are neither recognised nor disclosed in the financial statements.

v) OPERATING CYCLE

Based on the nature of products / activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.

NOTE

Matured fixed deposits of Rs. 0.08 Crore (2015: Rs. 0.08 Crore) due for transfer to Investor Education and Protection Fund have not been transferred in view of pending legal litigation between the beneficiaries.

NOTE

VEDANTA RESOURCES LONG TERM INCENTIVE PLAN (LTIP) AND EMPLOYEE SHARE OWNERSHIP PLAN (ESOP). –

The Company offers equity-based award plans to its employees, officers and directors through its parent, Vedanta Resources Plc (the "Parent"), [The Vedanta Resources Long-Term Incentive Plan ("LTIP"), Employee Share Ownership Plan ("ESOP"), Performance Share Plan (“PSP”) and Deferred Share Bonus Plan (“DSBP”)].

During the year, the PSP is the primary arrangement under which share-based incentives are provided to the defined management group, brviously these awards were granted on a similar basis under the LTIP. The maximum value of shares that can be awarded to members of the defined management group is calculated by reference to the individual fixed salary and share-based remuneration consistent with local market practice. The performance condition attaching to outstanding awards under the PSP and LTIP is that of Parent's performance, measured in terms of Total Shareholder Return ("TSR") compared over a three year period with the performance of the competitor companies as defined in the scheme from the date of grant.

Initial awards under the LTIP were granted in February 2004 and subsequently further awards were granted in the respective years until 2012-13. Additionally, PSP vesting conditions includes continued employment with the Group till the date of vesting. Initial awards under the PSP were granted in November 2014 and subsequently in December 2015. The awards are indexed to and settled by Parent shares. The awards have a fixed exercise price denominated in Parent's functional currency of 10 US cents per share, the performance period of each award is three years and are exercisable within a period of six months from the date of vesting beyond which the option lapse.

The Parent has also granted awards under the ESOP scheme that shall vest based on the achievement of business performance in the performance period. The vesting schedule is staggered over a period of three years. Under these schemes the Parent is obligated to issue the shares.

In 2015, Vedanta introduced the DSBP, with initial awards being made in May 2015 & August 2015. Under the plan, a portion of the annual bonus is deferred into shares and the awards granted under this scheme are not subject to any performance conditions. The vesting schedule is staggered over a period of two or three years. In case of DSBP, the shares are purchased from open market and allotted to employees, officers and directors.

Further, in accordance with the terms of the agreement between the Parent and the Company, the fair value of the awards as on the grant date is recovered by the Parent from the Company and its subsidiaries.

Amount recovered by the Parent and recognized by the Company in the Statement of Profit and Loss (net of capitalisation) for the year ended March 31, 2016 is Rs. 22.19 Crore (Previous year Rs. 40.90 Crore).The Company considers these amounts as not material and accordingly has not provided further disclosures.

NOTE EMPLOYEE BENEFITS

LONG TERM

(a) Defined Contribution Plans: Family Pension Scheme The Company offers its employees benefits under defined contribution plans in the form of family pension scheme. Family pension scheme covers all employees on the roll. Contributions are paid during the year into the fund under statutory arrangements. The contribution to family pension fund is made only by the Company based on brscribed rules of family pension scheme.

The contributions are based on a fixed percentage of the employee's salary, subject to a ceiling, as brscribed in the respective scheme.

A sum of Rs. 6.70 Crore (2015: Rs. 6.25 Crore) has been charged to the Statement of Profit and Loss during the year.

(b) Defined benefit plans :

Provident fund

The Company offers its employees, benefits under defined benefit plans in the form of provident fund scheme which covers all employees on roll. Contributions are paid during the year into 'Hindustan Zinc Limited Employee's Contributory Provident Fund' ('Trust'). Both the employees and the Company pay brdetermined contributions into the Trust.

A sum of Rs. 24.00 Crore (2015: Rs. 25.82 Crore) has been charged to the Statement of Profit and Loss in this respect during the year.

The Company's Trust is exempted under section 17 of Employees Provident Fund Act, 1952. The conditions for grant of exemption stipulate that the employer shall make good the deficiency, if any, between the return guaranteed by the statute and actual earning of the Trust. Based on a Guidance Note from The Institute of Actuaries - Valuation of Interest Guarantees on Exempt Provident Funds under AS 15 (Revised 2005) - for actuarially ascertaining such interest liability, there is no interest shortfall that is required to be met by the Company as of March 31, 2015 and March 31, 2016. Having regard to the assets of the Trust and the return in the investments, the Company also does not expect any deficiency in the foreseeable future.

Gratuity

The Company offers its employees, defined contribution plans in the form of gratuity. Gratuity Scheme covers all employees as statutorily required under Payment of Gratuity Act 1972. The Company has constituted a trust recognised by Income Tax authorities for gratuity to employees. The Company contributes funds to Life Insurance Corporation of India. Commitments are actuarially determined at the year-end. The actuarial valuation is done based on Projected Unit Credit Method. Gains and losses of changed actuarial assumptions are charged to the Statement of Profit and Loss under the head Employee benefits expenses.

NOTE 1

Arising from the announcement of ICAI on March 29, 2008, the Company has, since 2008, chosen to early adopt Accounting Standard (AS) 30 – Financial Instruments: Recognition and Measurement. Coterminous with this, in the spirit of complete adoption, the Company has also implemented the consequential limited revisions as have been announced by the ICAI in view of AS 30 to certain Accounting Standards. Accordingly, current investments which under AS-13 Accounting for Investments would have been carried at lower of cost and fair value, have been accounted for at fair value in accordance with AS-30, resulting in investments being valued as at March 31, 2016 at Rs. 4,437.26 Crore (2015 - Rs. 3,592.65 Crore) above their cost and, consequently, the profit after tax for the year is higher by Rs. 813.36 Crore (2015- higher by Rs. 1,235.14 Crore).

2.No borrowing costs are required to be capitalized during the year.

The disclosures relating to Micro, Small and Medium Enterprises have been furnished to the extent such parties have been identified on the basis of the intimation received from the suppliers regarding their status under the Micro, Small and Medium Development Act, 2006. There is no interest paid/payable as at March 31, 2016 (Previous year Rs. Nil)

3.CORPORATE SOCIAL RESPONSIBILITY (CSR)

The provisions of Section 135 of the Companies Act, 2013 are applicable to the Company. Accordingly, the Company has incurred Rs. 63.25 Crore during the year on account of expenditure towards corporate social responsibility. Rs. 11.62 Crore have been incurred in construction of capital asset under CSR during the year, debrciation on assets falling under CSR, amounting to Rs. 3.16 Crore ( Previous year Rs. 2.67 Crore) have been included in above expenses. In addition to above, as outlined in Note no - 30, the Company has also provided for Rs. 366.05 Crore towards contribution to be made to the 'District Mineral Fund' and 'National Mineral Exploration Trust' which is to work for the interest and benefit of persons, and areas affected by mining related operations.

4.Previous year's figures have been regrouped or reclassified wherever necessary to correspond with the current year's classification or disclosure.

For and on behalf of the Board of Directors

Sunil Duggal

CEO & Whole-time Director

A.R. Narayanaswamy

Director

Amitabh Gupta

Chief Financial Officer

R. Pandwal

Chief Financial Officer Company Secretary

Date: April 21, 2016

Place: Mumbai