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-      Vedanta (VEDL) delivered the highest ever 3Q consolidated net sales at INR355b (up 4% YoY), which was 6% higher than our estimate of INR337b. The revenue was driven by higher sales volumes and favorable movements in forex, which were partially offset by a fall in commodity (input) prices.

-      VEDL’s consolidated EBITDA stood at INR85b (up 21% YoY), which was a 28% beat to our estimate of INR67b. EBITDA margin for 3QFY24 improved ~440bp to 24%. The beat was driven by higher volumes across business verticals and a strong focus on cost reduction initiatives.

-      Aluminum and HZ reported the highest ever 9M volumes and they are now in the first quartile of the global aluminum and zinc mining cost curves.

-      APAT for the quarter stood at INR20b (up 29% YoY) against our estimate of INR10b. The beat was supported by better operating performance, lower finance cost, and higher other income, which were partially offset by higher depreciation and tax outgo.

-      VEDL’s net debt stood at ~INR625b (up from INR578b in 2QFY24) and net debt/EBITDA stood at 1.7x in 3QFY24, with ~82% of debt being in INR.

-      In 3QFY24, the Board declared a second interim dividend of INR11/share, taking the total dividend for FY24 to INR29.5/share.

-      During 9MFY24, revenue stood at INR1,034b (-5.5% YoY), EBITDA was at INR216b (-13.6% YoY), and PAT stood at INR34b (-54.1% YoY).

-      Reiterate Neutral with a revised SoTP-based TP of INR270.

Highlights from the management commentary

-      Post-capacity expansion in the aluminum business, which will take the total smelting capacity to ~2.8mt, the share of VAP will increase to ~90%.

-      Management has guided for an EBITDA/t guidance of USD1,000/t for its aluminum business with a conversion cost of ~USD1,600/t.

-      Capex for FY24 is expected to be ~USD1.5-1.6b.

-      Management expects to ramp up its Zinc International volumes to 500kt in the near term, with a medium-to-long-term target of 1mt. For Zinc International, EBITDA/t guidance stands at USD800/t in the near term and USD1,000/t in the medium-to-long-term period.

-      VEDL is increasing its power portfolio to 4,780mw from 2,580mw by setting up the 1,000mw Meenakshi, and 1,200mw Athena power plants.

-      VEDL is enhancing the mining EC for iron ore in Karnataka and Liberia, along with a ramp-up of Goa mines, which will take the yearly iron ore production to 13mt by FY25 from ~5mt.

-      For strategic divestment or sale of non-core assets, VEDL has received inquiries, and currently it is in the stage of sharing data and undertaking site visits. VEDL expects concrete response by 4QFY24 or 1QFY25 on the same.

-      About USD3b bonds at HoldCo. have been extended by around three years and the company has USD1.8b of debt coming up for repayment over the next few months (including USD800m interest).

-      The current rate of interest at Hold Co. is ~13%.

Valuation and view

-      The company’s performance has substantially improved during the quarter, driven by better-than-estimated performance across segments.

-      An extension of the maturity of bonds at HoldCo. by three years provides adequate liquidity comfort to the company in the near term.

-      To account for its better performance, comfortable debt position, higher volumes, and improved EBITDA guidance by the management, we have raised our FY24/FY25/FY26 EBITDA estimates by 15%/1%/3%. VEDL currently trades at 6.4x FY26E EV/EBITDA, and we believe that the stock is adequately priced in at current levels. We reiterate our Neutral rating on VEDL with a revised SoTP-based TP of INR270.

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