Metal being smelted in a factory (Photographer: Phil Weymouth/Bloomberg News)

Q1 Results: Vedanta’s Profit Misses Estimates 

Vedanta Ltd.’s profit in the June-ended quarter missed even the lowest analyst expectations as it was hurt by lower zinc and iron ore output and the shutdown of a key copper smelter in South India.

Net profit grew 2 percent over last year to Rs 1,533 crore, according to its stock exchange filings. Analysts tracked by Bloomberg had expected a profit of Rs 2,221.1 crore.

  • Revenue grew 21 percent year-on-year to Rs 22,206 crore.
  • Operating profit rose 28.4 percent to Rs 6,284 crore.
  • Operating margin expanded 100 basis points to 28 percent.
  • Other income fell 58 percent to Rs 418 crore.

The revenue was higher due to better volume output in the Anil Agarwal-led company’s aluminium and oil and gas business, higher power output at its Punjab subsidiary Talwandi Sabo Power Ltd., currency depreciation and higher global commodity prices, according to its media statement. However, that was partially offset by lower output in its Indian and international zinc business, iron ore and the closure of the copper smelter in Thoothukudi in Tamil Nadu.

The Supreme Court had ordered Vedanta to shut down its 400,000-tonne copper smelter copper in Tamil Nadu following deadly protests in the region due to environmental and health concerns. The country’s copper output is expected to slump 40 percent if the plant stays shut. “The company believes these actions weren’t taken in accordance with the procedure prescribed under applicable laws,” it said in notes to financial statements. It added it’s taking legal measures to address the matter and doesn’t expect any material adjustment to its financial results due to it.

Company’s Tuticorin plant is one of the best operating plants both in terms of operational and environment performance. We have approached NGT which will hear the case next on merit base on August 9 th. So, we are waiting for the resolution of this case by judicial process. But don’t have any timeline for a resolution of this case since such processes take time and we hope for the best as we lay out the resolution.  
Kuldip Kaura, Vedanta’s CEO To Bloomberg Quint Over Media Concall

That’s a hurdle for Agarwal who wants to shape Vedanta into a commodities giant, on the lines of BHP Billiton and Rio Tinto. He’s already won the bid to acquire debt-laden Eletrosteel Steels Ltd. through India’s new bankruptcy process, adding steel to his sprawling empire.

The acquisition coupled with its working capital adjustments added almost Rs 29,910 crore in net debt for the oil-to-metals giant during the quarter. The company added the execution of about $2.3 billion worth of projects are on track. “The projects are advancing well to meet key milestones and we’re confident of the progressive volume uplift in the coming quarters,” Kuldip Kaura, chief executive officer of Vedanta, said in a media statement.

Other Highlights

  • Average oil and gas production went up 4 percent over last year.
  • Underground production of zinc went up 7 percent sequentially.
  • Aluminium production was at a record during the quarter.
  • Debt/Ebitda is at 1.1, among the lowest in Indian peers.

Also read: Anil Agarwal Makes Firm Offer To Delist Vedanta From London Stock Exchange

Net Debt

The company’s net debt increased to Rs 29,910 crore compared to Rs 21,958 crore in the the previous quarter.

Net debt was higher due to acquisition of Electrosteel and working capital increase (buyers credit converted to term loan). Even after that, the company has one of the strongest positions as compared to Indian peers and a healthy balance sheet with net-debt Ebitda ratio of 1.1.
G R Arun Kumar, CFO, Vedanta 

Electrosteel Acquisition

In an analyst concall, Vedanta management explained that Electrosteel will be consolidated in company’s financials for 10 months in the current financial year.

In the first phase for Electrosteel, production will be stabilised, markets will be strengthened. In the second phase the capacity will be ramped up to 2.5 MTPA from 1.5 MTPA It capacity will be increased from 1.5 MTPA to 2.5 MTPA.
Kuldip Kaura On Vedanta’s Concall