Q4FY23 Review: Vedanta: Q4 a beat; but lacklustre execution to hurt

15 May 2023 , 12:40 PM

VDL’s Q4 Ebitda exceeded IIFLe on better CoP across businesses. However, analysts of IIFL Capital Services cut FY24/25 Ebitda by 8%/3% led by lower volume guidance for O&G and delayed implementation of expansion projects in Al business. CoP will fall across with improving captive coal availability from mines won and gains from operationalization of recently won bauxite mine. VDL’s leverage rose to meet funding needs of parent VRL and should rise further in FY24 (1.7x ND/Ebitda) with US$2bn repayment due over balance FY24.

Lower CoP across segments drives beat in Q4: 

Vedanta reported Q4FY23 Ebitda of Rs93.4bn — well ahead of IIFLe — driven by mix of slightly better realisations and lower-than-expected CoP across Al/Zn/O&G businesses. Better coal availability (linkage & captive) and lower costs, aided the beat. Volumes were healthy/on- track for all, barring O&G where weakness persisted. Finance charges jumped 15% QoQ on rising debt. This, along with Rs12bn impairment in O&G, meant that reported PBT was largely in-line.

FY24 to benefit from lower COP; O&G volume weakness to continue: 

Guidance for FY24 includes steady volumes across Zn and Al, sharp jump in iron ore volumes and lower CoP for Al and Zn businesses. This will be aided by higher captive coal production, better domestic availability and falling global prices. O&G volume guidance is muted at 135-140kboepd vs FY23 prod of 143kboepd. Consolidated growth capex at US$1.7bn is strong vs US$1.2bn in FY23; but all projects have seen delays, which means FY25 volume growth would be muted.

Group leverage concerns remain; VDL debt to rise: 

While parent VRL reduced debt by US$2bn in FY23, it has repayment due of US$750mn till Jun’23 and further US$1.25bn in balance FY24. Unless refinanced, reliance on dividend from VDL remains high (100% holding in VDL and of HZL is encumbered). With FY24 DPS of just Rs22/share (US$688m inflow to VRL) and planned US$1.7bn capex, analysts of IIFL Capital Services see ND/Ebitda rising to 1.7x vs 1.3x in FY23. This remains the key overhang for VDL in their view.

Analysts of IIFL Capital Services maintain add with target price of Rs 347.