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Robust performance, margin widens

Vedanta Ltd, a subsidiary of Vedanta Resources Ltd, has operations in several sectors such as oil and gas, zinc, lead, silver, copper, iron ore, steel, aluminum and power across India and other parts of the world.

* In Q1FY25, revenue increased 5.7% YoY to Rs. 35,239cr, driven by favourable prices across segments.

* EBITDA soared 54.9% YoY to Rs. 9,945cr. EBITDA margin expanded 890bps YoY on account of structural cost saving initiatives across businesses.

* Vedanta reported robust growth in profitability driven by enhanced operational efficiencies and steady growth in businesses. Going ahead, the company is expected to maintain margin growth on falling cost of production. Also, favourable market conditions and strategic expansions are expected to aid its future growth. Hence, we upgrade our rating to BUY on the stock with a revised target price of Rs. 510 based on 5.4x FY26E EV/EBITDA.

Steady revenue growth across segments

Vedanta’s top line increased 5.7% YoY to Rs. 35,239cr in Q1FY25, primarily led by growth in aluminium, zinc, lead and silver operations. Revenue from aluminium operations grew 13.5% YoY on the back of higher commodity prices. Also, alumina production increased 36% YoY to 539 KT. Similarly, revenue from the zinc, lead and silver businesses rose 5.3% YoY. Mined metal production was 45% down YoY owing to lower tonne milled and zinc grades. Further, power and oil & gas revenue grew 6.4% YoY and 2.4% YoY, respectively, on healthy pricing. However, the copper segment revenue remained flat at Rs. 4,734cr.

Key concall and other highlights

* Vedanta Limited has successfully completed an offer for sale of its 3.31% stake in Hindustan Zinc, raising funds to reduce its debt and deleverage its balance sheet.

* The Balco expansion is scheduled to be commissioned this year in Q4FY25 (earlier expected in Q3FY25) and the operation is likely to commence from 1QFY26.

* The company’s demerger into six independent companies is on track, as it has filed a demerger scheme with the NCLT, which is the last process in the demerger

Efficient cost measures boost profitability

EBITDA soared 54.9% YoY to Rs. 9,945cr. EBITDA margin expanded 890bps YoY to 28.2%, as overall cost of production (CoP) declined ~20% YoY on the back of structural changes, easing of input commodity inflation, rise in output commodity prices and other initiatives. Reported PAT increased 54.0% YoY to Rs. 5,095cr, aided by higher EBITDA.

Valuation

Vedanta’s aluminium, zinc, lead and silver businesses are expected to drive revenue growth in the near term on the back of favourable output commodity prices. With its cost-efficient strategies, the company is expected to maintain sustainable profitability, further supported by a reduction in input costs. In addition, a reduction in debt, strategic expansions and capital expenditures should boost its performance in the long term. Therefore, we upgrade our rating to BUY on the stock with a revised target price of Rs. 510 based on 5.4x FY26E EV/EBITDA.

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