Higher prices, better volumes boost Vedanta’s March quarter earnings


With commodity prices rising, everyone expected Vedanta Ltd to reap those benefits during the March quarter. It not only did that, but did much better than the Street forecast.

Consolidated Ebitda at Rs7,837 crore, nearly 16% higher compared to the December quarter, is praiseworthy. Kotak Institutional Equities and Motilal Oswal Securities Ltd were expecting the measure at Rs6,974.5 crore and Rs7,249 crore, respectively.

Ebitda is short for earnings before interest, tax, depreciation and amortization.

What helped?

Chiefly, higher volumes from Zinc India business and the aluminium business, capitalization of certain expenses at the aluminium business, and better commodity prices boosted operating performance.

The aluminium business performed well what with its Ebit rising as much as 86% over the December quarter.

Further, the Ebit of the oil and gas business increased a massive 94% sequentially, helped by more volumes and better price realizations. What’s more, the outlook on this business is strong given Brent crude prices are hovering around $75 per barrel.

The aluminium price outlook too is bright over the medium term. Kotak expects aluminium fundamentals to improve from the widening deficit outside China and supply reforms in China. However, if the US sanctions are lifted completely, it could mean a risk to aluminium prices.

Vedanta expects its aluminium realizations to improve going ahead, aided by higher production of value-added products and more focus on the local market.

Nevertheless, there are also a few bumps on the road ahead. On the aluminium business, investors should keep a close watch on cost headwinds due to domestic coal and bauxite availability, and high alumina and carbon prices. In a post-earnings conference call, the company said alumina continues to trade at an all-time high driven by supply tightening and uncertainties due to US sanctions on Rusal.

To counter inflationary cost pressures, Vedanta is looking to ramp-up its alumina output this year, source high-quality low-cost bauxite from Odisha and diversify imported alumina sourcing. On the power cost front, the company is working towards increasing its linkage coal mix from 45% to 63%. Nonetheless, the supply dynamics for global alumina and prices for other input commodities remain uncertain. The company has guided for its cost of production for fiscal year 2019 being at $1,725-1,775 per tonne.

But on the flip side, zinc prices have been rather muted in April and investors will have to watch whether the trend reverses.

Vedanta’s net debt on 31 March has increased to about Rs22,000 crore from Rs16,300 crore three months ago. Still, net debt-to-Ebitda ratio at 0.9 times is among the lowest across Indian and global peers, according to the company. The ratio measures the ability of a company to pay off its debts and the lower the ratio, the better.livemint