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* Our analysis of VEDL’s FY23 annual report showed that despite volatility in prices and elevated input costs, domestic demand remained resilient for the company.

* The metals and mining sector is expected to contribute substantially to India’s GDP, and VEDL expects domestic demand to outpace global demand till FY30.

* Metal consumption in India is expected to remain robust, driven by the ‘trinity of manufacturing, infrastructure and energy’. VEDL, being the largest natural resources company in India and having a diversified portfolio, will benefit from buoyant domestic demand.

* VEDL is a metal and mining powerhouse with presence across zinc, lead, silver, aluminum, oil and gas, copper, ferro chrome, iron ore, power and steel.

* Financial highlights: In FY23, consolidated revenue grew 11% YoY to INR1,473b; however, EBITDA and APAT were down 23% and 45% YoY at INR344b and INR108b, respectively. The FY23 performance was affected by a reduction in metal prices, lower realizations, higher input costs, and an unfavorable macro-economic scenario, which was partially offset by higher volumes and INR depreciation.

* Debt at HoldCo: Vedanta Resources has adhered to all the debt repayment timelines and has already deleveraged USD3.3b as of May’23 as against its three-year USD4b target. As on date, Vedanta Resources has a total debt of ~USD6.4b, and HoldCo is expected to continue its deleveraging journey and adhere to deleveraging commitments.

* Valuation: VEDL is currently trading at 5.5x FY25E EV/EBITDA. We reiterate our Neutral rating on the stock with our SoTP-based TP of INR280.

* Downside risks: Any delay in repayment or failure to raise further capital at HoldCo will adversely impact VEDL. Almost 100% of the promoter holding is pledged and any negative scenario will have an adverse impact on the company.

* Dividend payout: In order to meet debt repayment commitments at HoldCo, VEDL declared a record dividend of INR101.5 per share. We believe VEDL will follow a similar strategy to adhere to future debt commitments. To fulfill its debt repayment commitments, Vedanta Resources relies heavily on dividend payouts by VEDL, which in turn relies on HZL.

A diversified natural resources powerhouse

* VEDL has presence across India, UAE, East Asia, South Africa, Namibia, Liberia, Australia and Ireland.

* VEDL has 26 facilities in India, with a strong presence across mining, ferrous and non-ferrous metals. VEDL holds key leadership position across zinc-leadsilver, oil and gas, aluminum and power.

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