Q3FY24 Review: Vedanta: Q3 a beat; easier liquidity a positive

29 Jan 2024 , 01:48 PM

Vedanta’s Q3FY24 Ebitda (Rs85bn) beat was led by a strong Aluminium business (volumes, CoP) that offset the weakness in Zn Intl. Incremental focus is on driving volume growth and CoP reduction for Al as well as on expanding IPP capacity to 4.8GW vs 2.6GW currently. Volume delivery in Zn Intl and O&G remains a concern. While VDL debt has risen to Rs625bn (1.7x ND/E), group liquidity position has improved and should enable higher focus on delivery of growth capex including meaningful allocation to display/semi-conductor ventures and possible integration of group-owned KCM. Analysts of IIFL Capital Services retain estimates and their ADD rating with TP of Rs296. 

Aluminium business drives beat in Q3FY24: 

Vedanta’s Q3FY24 Ebitda of Rs85bn (up 26% YoY, 24% QoQ post adjusting for one-off), beat IIFLe. This was led by a strong performance of the Aluminium business, where volume was strong CoP came in lower. This offset the weakness in Zinc Intl where volumes are under pressure). Zinc India performance was in line with CoP continuing to fall on lower coal costs. O&G Ebitda was inline but volumes continue to fall which remains a key concern. 

Continued focus on volume growth and COP reduction: 

Mgmt highlighted strong focus on volume growth, especially in Aluminium addition of 500kt smelting and 3mtpa aluminium refinery in the next two years. This will be backed by an additional 30mtpa of captive coal. Vedanta’s IPP (power) capacity is likely to expand from 2.6GW to 4.8GW by FY26, with capex on Meenakshi and Athena Power. Zn Intl targets to double capacity to 500ktpa by FY26 however, existing production setbacks don’t lend much comfort here. Similarly, volume enhancement in O&G is yet to materialise as well. 

Group liquidity better, but debt shifts to VDL: 

Net debt for VDL rose from Rs577bn in Q2FY24 to Rs625bn (1.7x ND/Ebitda) in Q3FY24, led by capex as well as dividend payments, so as to meet VRL’s debt obligations. Group level net debt has fallen to US$6bn with recent liquidity mgmt exercise lending the much-needed comfort. This should enable higher focus on planned capex to deliver the growth projects.