Vedanta bets on higher prices, capacity ramp-up

Vedanta is betting on a firming up of global aluminium and zinc markets and ramping up capacity to power its growth in the coming quarters, barring any major global economic shock, Tom Albanese, Group CEO said.

Mine closures over last two years and the closure of capacity to curb pollution in China have contributed to tighter supply, demand conditions globally. The present situation is in sharp contrast to the last 10 years or so, when demand for aluminium was always met by higher production in China.

Key takeaways from the company’s first quarter results:

Strong demand
Aluminium and zinc demand awill be led by India and China. Higher demand for better buildings, automobiles, air conditioners and a better lifestyle will help Vedanta across its businesses, Albanese said.

Higher capacity utilisation
Aluminium capacity to go up to 2 million tonne by end of FY18 from 1.4 mtpa now; top capacity of 2.3 mt to be achieved in FY19.

Capex for copper business
Vedanta is investing Rs 2,500-3,000 crore to double its copper smelting capacity at Tuticorin over the next 2-3 years. This year it is likely to spend nearly $100 million (around Rs 700 crore) as optional capex on the project, according to the company’s CFO Arun Kumar. Also planned for this year is a capital expenditure of around $1.2 billion to expand zinc mines and capacity and capital infusion for the oil and gas business.

Pared debt
Gross debt reduced by Rs 9,000 crore in last four months. Net debt to EBIDTA ratio at 0.8x. With net debt under Rs 20,000 crore, not much debt to be repaid. "We are comfortable where we are now," Kumar said.

Focus on bottom line
Vedanta’s consolidated net profit more than doubled to Rs 1,525 crore in Q1 FY18 even as revenues went up 27 per cent YoY to Rs 18,203 crore on higher zinc and aluminium volumes and higher prices, but partially offset by currency appreciation. Operating profit (Ebitda) up 40 per cent YoY to Rs 4,965 crore. The merged entity, "New Vedanta" will continue to focus on optimised costs and disciplined capex, Albanese said. The stock went up 3.66 per cent to Rs 274.40 at close on BSE.

Next moves
Vedanta also hopes to make an announcement about a successor to Albanese "soon". Vedanta would also be interested in the residual government stake in Hindustan Zinc "in any shape or form" as and when the disinvestment comes up.