The Tamil Nadu pollution board had adjourned a decision to open Vedanta
’s Thootukudi copper smelter. As a result, the smelter will remain closed until at least June 6. Vedanta’s copper smelter had been closed since March 27, when it was closed as part of a 15-day scheduled maintenance. However, local groups have raised concerns over pollution caused due to the smelter’s operation. The pollution board rejected Vedanta's license to operate the smelter in April, saying the company had not complied with five local environmental laws.
The domestic copper business of Vedanta had reported a revenue of Rs24,975cr in FY18 (an increase of 13%yoy), on the back of a record production of 403kt of copper cathodes. The extended shutdown of the plant is likely to have an impact of 3-4% on the EBITDA level for Q1FY19. Assuming that the smelter is allowed to resume production from June 6, we see not much impact to the annual performance for Vedanta. Moreover, the performance from the other divisions of Vedanta remains strong. The company also aims to double capacity to 800k tonnes of copper cathode.
Vedanta would see a revenue CAGR of 14.1% over FY18-20E aided by (1) strong volume growth from the company’s commodity portfolio, and (2) firm global commodity prices. The company would also see its EBITDA margins expand by ~358bps over FY18-20E owing to higher production volumes and firm pricing. We expect PAT CAGR of 35.3% over FY18-20E respectively with an EBITDA margin of 31% in FY20E. The stock is currently trading at 5.6x FY20E EPS.
Vedanta is a diversified conglomerate with a wide commodity mix covering iron ore, zinc, copper, aluminium, coal, power, oil & gas and others. The company also operates power generation assets in India for both captive consumption as well as commercial generation. Captive power generation capacity stands at 5.1GW. Capacity of Independent Power Projects stands at 3.6GW. The management has given a capex target of $1.5bn for the company in FY19. Vedanta has recently entered the steel business by acquiring Electrosteel Steels for Rs5,320cr. This would help in forward integration of the company’s existing iron ore mines in Karnataka.