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Vedanta reported Q4FY22 Ebitda of Rs 136.3 bn, in line with our estimate. Key points: (i) Record performance led by higher realisation. (ii) Volume ramp-up at the aluminium (Al) and zinc (Zn) divisions. (iii) Margin improvement across business units despite cost inflation. (iv) Net debt/Ebitda at 0.5x. v) First interim dividend of Rs 31.5/share.

Going ahead, we expect solid growth prospects owing to high commodity prices and unwavering focus on cost and capex. Besides, efforts are underway to meet ESG commitments. Taking cognisance of higher commodity prices, we are raising Ebitda by 20% each for FY23E and FY24E. Our TP hence along with a rollover to Q2FY24E works out to Rs 525 (Rs 430 earlier) at an unchanged 3.7x Ebitda. Retain ‘Buy’.

Record performance on higher prices and cost control: Vedanta’s Q4FY22 Ebitda of Rs 136 bn is its highest-ever. Key points: (i) The Al division’s Ebitda at Rs 52.2 bn (up 90% y-o-y) is the best-ever on higher LME price and efficient coal sourcing (power cost stable q-o-q at $826/t of hot metal). (ii) Robust Ebitda growth across key divisions: Zn – India & International, Al and Oil & Gas. (iii) Net debt is down 24% q-o-q to Rs 209 bn despite a dividend payout of Rs 48.2 bn. (iv) Hedged 15% of volume for FY23E at favourable prices. Going ahead, we expect ongoing capex and cost efficiencies initiatives to lead to sustainable Ebitda of `560–600 bn through FY25E, resulting in sustained debt paydown at Vedanta Resources of ~$1 bn p.a.

In focus: Cost, capex and ESG initiatives – We see a significant shift in the company’s profitability owing to its focus on cost/capex over the next two–three years: (i) Coal cost/GCV reduction by 50% once all three captive mines are operationalised. (ii) Al capacity expansion to 3mt by FY24E. (iii) The ultimate aim is to achieve capacity of 600–700ktpa of integrated metal production at Zn-International. (iv) Doubling hot metal capacity at ESL. In terms of ESG, Vedanta has launched two low-carbon green aluminium products – Restora and Restora (Ultra) – and signed a power delivery agreement for 580MW by FY25.

Outlook: Primed for growth – We are raising Ebitda by 20% each for FY23E and FY24E. Our TP hence, along with a rollover to Q2FY24E works out to Rs 525 at an unchanged 3.7x Ebitda.



Author: Howard Caldwell