Exercise turns fat into muscle
Both fat and muscle tissues are composed of totally different types of cells and the two never convert into different forms. Muscle is an active tissue that burns calories around the clock even as you sleep and Fat, on the other hand, is just storage of excess energy. Both can increase or decrease separately but can never change into each other.
For building muscle, you must consume more calories than you burn and, in order to lose body fat, you must burn more calories than you consume. Only a proper diet plan and/or cardio workout will help with losing the fat, and only a proper diet plan and weight training workout will help with gaining the muscle.