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Strong fundamentals; Promising growth

Vedanta Limited is a diversified resources company with interests in Zinclead-silver, oil and gas, aluminum, power, steel, copper and iron ore. It is also one of the largest resources company in India.

* Revenue grew 44.4% YoY to Rs. 30,048cr due to higher demand and supported by rise in prices of major commodities. Growth was witnessed across all segments, with Aluminum revenue rising +89.5% YoY, Zinc & Lead – India +15.7% YoY and Oil & Gas +73.6% YoY.

* EBITDA recorded was the highest at Rs. 10,363cr, driven by improved commodity pricing and higher volumes.

* Increase in volumes and prices along with cost optimization measures should help the company in achieving strong operational performance in the long-term. We reiterate our BUY rating on the stock with a revised target price of Rs. 374 based on 4.5x FY23E EV/EBITDA.

Record volumes continue to drive growth in topline

For Q2FY22, revenue grew 44.4% YoY to Rs. 30,048cr, largely driven by higher volumes across the business segments. The company registered sustained margins that benefitted from commodity price hikes, despite higher costs. Aluminum revenue grew significantly by 89.5% YoY to Rs. 12,119cr and the company also recorded the highest ever aluminium production of 570kt in Q2FY22 with LME prices of USD 2,648/mt. Revenue for Zinc, Lead and Silver, increased by 13.4% YoY to Rs. 6,941cr, led by Zinc and Lead – India (+15.7% YoY to Rs. 4,914cr) and Zinc International (+65.2% YoY to Rs. 1,044cr). Oil & Gas revenue rose to Rs. 2,892cr (+73.6% YoY), as oil price registered a massive spike of 71.0% YoY to USD 73.5/bbl.

EBITDA grows on improved pricing and operational efficiencies

EBITDA for Q2FY22 grew 58.7% YoY to Rs. 10,363cr and EBITDA margin increased 310bps YoY to 34.5%, primarily attributed to increased commodity prices and higher volumes in the Aluminum segment. However, this was partially offset by lower volumes in the Zinc and Iron ore business and higher COP impacted by high commodity inflation. Overall, Adj. PAT increased to Rs. 4,661cr (vs. Rs. 743 in Q2FY21).

Key concall highlights

* Net debt as of September 30, 2021 stood at Rs. 20,389cr with the NET/EBITDA was at 0.5x which was the lowest in four years.

* The company declared a first interim dividend of Rs. 18.5 per share, amounting to a total of Rs. 6,855cr in Q2FY22.

* Regarding Lanjigarh Expansion, EC was received for 6 Mnt in Q2FY22. Similarly, environmental authorizations for expansion of Zawar mines from 4.8 Mtpa to 6.5 Mtpa was granted.

Valuation

The company posted the highest-ever quarterly revenue and EBITDA in Q2FY22 due to a spike in demand, increase in production activities, and recovery in prices. The long-term outlook remains positive as the company is focusing on ramping up production across all the business verticals. It is also well positioned to benefit from the favorable regulatory environment and gain operational efficiencies through the adoption of digitalization and technology. We reiterate our BUY rating on the stock with a revised target price of Rs. 374 based on 4.5x FY23E EV/EBITDA.

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