Q3FY23 Review: Vedanta: Q3 a beat; debt up on high dividends

30 Jan 2023 , 12:28 PM

VDL’s Q3FY23 Ebitda at Rs67.3bn beat estimates on lower than expected COP for Zn and O&G business with Al Ebitda being inline. Q4 and onwards would benefit from stronger commodity prices and lower carbon costs for Zn and Al. VDL net debt increased to Rs380bn led by large dividend and capex. With VRL debt reduction being key (US$2.5bn need over next few quarters), cash up-streaming will continue and will include that for proceeds from Zn Intl sale of ~US$3bn.

Al also saw 12% QoQ drop in CoP and was in-line with estimates. Reported PBT and PAT was helped by reversal of earlier impairment of Rs12.4bn in O&G business post a favourable arbitration outcome. Consolidated Ebitda over the next few quarters would be aided by strength in commodity prices (ex crude) as well as further reduction in COP due to fall in carbon costs (better coal availability, operationalization of captive mines) for Zn and Al businesses.

VDL has seen a steady rise in net debt levels which now stands at Rs380bn as company up-streamed cash driving down VRL debt by US$1.7bn over M9FY23. Latest dividend of Rs12.5/share will go to meet 4Q maturity need of US$550m while H1FY24 has maturity of US$2.05bn. Analysts at IIFL Capital Services understand that the ~US$3bn proceed (pre-tax) from ZI sale too would be utilised for the same purpose. Likely through dividend but possible also by other mode (no incremental intercompany loan).

Analysts at IIFL Capital Services cut estimates for FY23 by 14% and maintain Add with target price of Rs 372.