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Operating performance in line; lower tax outgo leads to APAT beat

Consolidated performance

* Vedanta (VEDL) posted consol. net sales of INR358b (+6% YoY/flat QoQ), in line with our estimate. The growth was driven by favorable market prices.

* VEDL’s consolidated EBITDA came at INR99b (+55% YoY and +13% QoQ) vs. our estimate of INR95b.

* APAT for the quarter stood at INR36b (+320% YoY and +130% QoQ) against our estimate of INR26b, on account of lower tax outgo.

* VEDL’s net debt of INR613b as of Jun’24 translates into a net debt/EBITDA ratio of 1.5x compared to 1.9x in 1QFY24.

Aluminum business

* VEDL produced 596kt of aluminum, registering a growth of 4% YoY (flat QoQ). The alumina production from Lanjigarh refinery jumped 36% YoY and grew 11% QoQ to 539kt in 1QFY25.

* Net sales stood at INR135b (YoY/QoQ: +14% / +9%) was in line with our est. of INR136b. Reported EBITDA came in at INR44b (YoY/QoQ: +144% / +48%), 8% above our estimate of INR41b.

* The CoP declined 11% YoY and remained flat QoQ, during the quarter.

Zinc International

* Zinc production at 37kt declined 45% YoY due to lower tons milled and lower zinc grades, while it grew 12% QoQ due to higher zinc grades and recoveries.

* Revenue stood at INR7.5b (YoY/QoQ: -32% /+19%), in line with our estimate. EBITDA was INR1.9b (YoY/QoQ: -34%/+214%) vs. our estimate of INR1b.

* Overall cost of production was down 4% QoQ.

Copper

* Copper cathode production declined 35% YoY and 38% QoQ to 20KT.

* Revenue came in at INR47b (YoY/QoQ: flat / -6%); the impact of weak volume was offset by healthy pricing during the quarter.

* The copper unit posted an operating loss of INR570m Iron Ore

* Revenue stood at INR13b (YoY/QoQ: -32%/-47%), while EBITDA came in at INR1.8b (YoY/QoQ: +12% / -67%).

* Karnataka saleable ore production stood at 1.2mt (-9% YoY and -41% QoQ), due to the temporary suspension of mine production in May'24.

Highlights from the management commentary

* Management expects to realize a higher premium going forward on account of the higher VAP product.

* The cost of aluminum is expected to be around USD1,600/t and zinc is likely to be ~USD1,000/t in the near to medium term.

* The company hedged ~10% of both aluminum and zinc volumes.

* The cost of production for the industry rose USD100/t, due to the increase in alumina prices.

* VEDL targets to deliver USD10b of EBITDA in the near term. Out of USD10b EBITDA target, management believes the aluminum business to contribute USD4.0b, Zinc India to contribute ~USD2.7b, and O&G USD1b, while the rest is expected from iron ore, steel, power and others.

* VEDL committed to execute about USD8b of growth capex in the next few years.

* It is aiming to reach a production of 300,000 barrels/day for its oil & gas business, whereas the iron ore business in Liberia is likely to produce ~30mtpa.

* The BALCO expansion is scheduled to be commissioned this year in 4QFY25 (earlier 3QFY25), and the operation is likely to commence from 1QFY26.

* The Radhikapur coal block is likely to start operations by 4QFY25, having secured environmental clearance and completed stage 1 forest clearances, following compliance checks.

Valuation and view

* VEDL’s performance in 1QFY25 came largely in line across segments. The capex plans are progressing well, which would lead to further cost savings.

* Management targets to clock USD10b of EBITDA, led by the upcoming capacity, which will produce higher VAP product. VEDL remains firm on its deleveraging plans, and higher cash flow going forward will support its expansion plan along with deleverage.

* The stock currently trades at 5.4x FY26E EV/EBITDA. We reiterate our Neutral rating on the stock with a revised SoTP-based TP of INR460.

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