Vedanta’s Production Fails To Meet Guidance In FY19
Its two key divisions—refined zinc and oil & gas—fell short of their production guidance.
Vedanta Ltd.’s two key divisions—refined zinc and oil & gas division—fell short of their production guidance for the year ended March 31, 2019.
Production from Hindustan Zinc Ltd., which contributed 49 percent to Vedanta’s FY18 consolidated Ebitda, declined by 12 percent to 696 kilo tonne. Though the mining company, in its investor presentation, guided for lower production but the quantum of the cut is expected to weigh on its financials.
Zinc volumes were lower owing to unsafe underground conditions at Rampura Agucha in the last quarter of FY19, according to Vedanta’s press release. Internationally, too, its Zinc production fell short of the guidance due to a strike in Namibia-based Skorpion Zinc mine and annual shutdown in the first quarter of FY19. The company produced 131 kt from Skorpion and South Africa-based Black Mountain Mining compared to the guidance of 150 kt. The company produced 17 kt of Zinc from its Gamsberg mine after it was launched in February 2019.
Disappointing Performance Of Oil & Gas Division
Oil & Gas division, which contributed 22 percent to the company’s FY18 consolidated Ebitda, too fell short of its production guidance of 200-220 koepd. It clocked a rate of 189 koepd for FY19.
The decline in production of natural gas in Rajasthan, which was partially offset by enhanced oil recovery and new discoveries, led to lower production rate for this division, according to the company’s press release.
The mining giant’s copper division, a drag on the company’s financials after the closure of Tuticorin copper smelter since April 2018, also recorded lower production. The company produced 90 kt in FY19, down by 78 percent from FY18 and lower compared to its guidance of 100 kt.
Besides, its international copper division underperformed due to lower copper concentrate availability in the region and the levy of customs duty in Budget 2019.
Amit Dixit, assistant vice president at Edelweiss Securities, however, expects the trend to change going ahead. “The growth shall be primarily driven by cost efficiencies at aluminium division and operating leverage at both Zinc India and International,” he said.
Encouraging Performance From Aluminium, Power & Iron Ore
- The company’s aluminium production was in line with FY19 guidance.
- While plant availability factor for Talwandi Sabo Power Ltd. stood at 88 percent compared to 80 percent guidance from its earnings presentation for December 2018 quarter.
- Its iron ore production was higher by 89 percent in Karnataka, mainly on account of increase in annual mining cap in the first quarter of FY2019. Its steel division production grew by 17 percent.
- Vedanta’s shares declined 35 percent in FY19, their worst performance since FY16. A ratings downgrade from Moody’s on expectation of weaker earnings due to downside risk to commodity prices and increased risk of movement of funds outside Vedanta mainly kept the stock prices of the company under pressure.