IGI Logo

Operating performance in line; aims to maintain strong earnings growth

* Vedanta (VEDL) reported consolidated net sales of INR376b (+10% YoY and +5% QoQ), in line with our estimates. The sequential growth was primarily fueled by higher volumes, partly offset by lower output commodity prices.

* VEDL’s consolidated EBITDA came in at INR98b (+46% YoY and flat QoQ) vs. our estimate of INR95b. EBITDA was driven by favorable output commodity prices, structural cost-saving initiatives, and increased premia across businesses. EBITDA margin stood at 26.1% in 2QFY25 vs. 27.8% in 1Q and 19.7% in 2QFY24. APAT for the quarter was INR30b (+505% YoY and -18% QoQ) against our estimate of INR28b.

* VEDL reported an exceptional gain of INR11.4b led by impairment reversal in the Oil & Gas business, partly offset by impairment charges in ASI, and cess in zinc & iron ore vide a Supreme Court judgment to levy additional cess on mineral-bearing land & mining rights.

* Net debt stood at INR569b as of 2QFY25, while net debt/EBITDA improved to 1.49x.

* During 1HFY25, VEDL’s revenue grew 8% YoY and EBITDA rose 51% YoY. We expect its revenue/EBITDA to grow 7%/32% in 2HFY25.

Segmental highlights:

* Aluminum: VEDL produced 609kt of aluminum, registering a growth of 3% YoY and 2% QoQ. Alumina production from Lanjigarh refinery grew 8% YoY, while it declined 7% QoQ to 499kt.

* Net sales stood at INR137b (YoY/QoQ: +15% / +2%), in line with our est. of INR134b. Reported EBITDA came in at INR42b (YoY/QoQ: +111% / -6%) vs. our estimate of INR38b.

* Aluminum cost of production was lower by 4% YoY but witnessed a slight QoQ increase of 1% because of higher scrap and alumina prices in 2QFY25.

* Zinc International: Zinc production rose 18% QoQ (-33% YoY), supported by a 21% increase at Gamsberg.

* Revenue stood at INR10b (YoY/QoQ: -6% / +24%), in line with our estimate.

* EBITDA came in at INR3.8b (YoY/QoQ: +31% / +104%) against our estimate of INR2b, led by the lowest-ever quarterly CoP for Gamsberg at USD1,125/t.

* Copper: Copper cathodes production at 41kt was up 16% YoY (2x QoQ).

* Revenue came in at INR64b (YoY/QoQ: +38% / +35%) led by healthy pricing. It posted an operating loss of INR100m during the quarter.

* Iron Ore: Saleable ore production stood at ~1.3mt, up 7% YoY and 3% QoQ.

* Revenue stood at INR13.7b (YoY/QoQ: -34%/ +4%), while EBITDA stood at INR1.4b (YoY/QoQ: -57% / -25%) in 2QFY25. 9 November 2024 2QFY25 Results Update | Sector: Metals Vedanta 11 November 2024 17

Highlights from the management commentary

* Despite rising alumina prices globally, the company maintained its hot metal costs QoQ, led by their assets, operational, and buying efficiencies.

* VEDL expects coal costs to be USD50-60 lower post-monsoons, due to better coal grades obtained through MCL E-auctions with nil premiums.

* Management anticipates achieving 230kt of total MIC production for FY25 in its Zinc International business.

* Alumina cost inflation is a headwind, but VEDL anticipates it to be offset by lower costs and Lanjigarh ramp up.

* Management reduced its aluminum volume estimates to 2.3-2.4mt, due to a delay in Lanjigarh expansion. Lanjigarh’s current production run-rate is 3mt.

* Radhikapur coal block is likely to start operations by 1QFY26. VEDL secured the EC and completed land acquisition and is currently following with compliance checks.

* The Kurloi coal mine block is progressing well and is in an advanced stage, with public hearing completed. Management expects it to be operationalized by 1QFY26 (earlier 4QFY25) and ramped up by 3QFY26.

Valuation and view

* VEDL’s 2QFY25 performance came largely in line across segments. The capex plans are progressing well, which would lead to further cost savings.

* Management targets to maintain strong growth in earnings, led by the upcoming capacity, which will produce higher VAP products. VEDL remains firm on its deleveraging plans, and higher cash flows going forward will support its expansion plan along with deleverage.

* The stock currently trades at 5x FY27E EV/EBITDA. We largely maintain our estimates and reiterate our Neutral rating on the stock with a revised SoTPbased TP of INR520.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412