Vedanta Cuts Capex, Volume Guidance For Key Divisions For FY20

Vedanta Ltd. cut capital expenditure guidance for the ongoing financial year amid lower metal prices and a slowing demand.

The capex guidance was lowered by $200 million to $1.2 billion for the financial year ending March 2020 with an optionality to spill into the next fiscal, the Anil Agarwal-led company said in a post-earnings conference call. The capex focused on key divisions—zinc and oil & gas—is guided to be funded by operating cash flows, it said.

That being said, Vedanta lowered volume guidance for zinc and oil & gas divisions—which contributed about 85 percent to the company’s operating profit in the second quarter—for the ongoing financial year.

Volume guidance for unit Hindustan Zinc Ltd. was cut by 5 percent, while that for international zinc business was slashed by 23 percent, the parent said in the conference call. The oil & gas division’s volume guidance was lowered by 5-10 percent for the current financial year.

While geotechnical issues at Rampura Agucha mine in Rajasthan led to the volume guidance cut for Hindustan Zinc, it was the slope failure at Skorpion mines in South Africa that led to the revision in forecast for the international business, Vedanta said. Also, power failure in the single line that impacted supply, along with a delay in capex, forced the company to lower output guidance for the oil & gas division, it said. The zinc India and international businesses contribute close to 50 percent to Vedanta’s operating profit on a consolidated level.

The mining conglomerate also raised the forecast for cost pf production for the ongoing financial year. That’s because of lower production from Rampura and Skorpion mines and weaker realisations.

Revised cost of production guidance

• Hindustan Zinc India: From less than $1,000 per tonne to less than $1,030 per tonne.
• Zinc international Gamesberg division: From $1,000 per tonne to $1,200-$1,250 a tonne.
• Zinc international other than Gamesberg: From $1,400 a tonne to $1,850 a tonne.

Still, Vedanta’s profit beat estimates in the quarter ended September, helped by deferred tax gain and higher other income.

The company’s net profit rose 60.7 percent year-on-year to Rs 2,158.7 crore in the July-September period, according to an exchange filing. It accounted for a deferred tax gain of Rs 1,891 crore during the period as the company opted for a lower tax rate.

Shares of the metal producer have fallen over 27 percent so far this year, compared to a 13 percent gain in the S&P BSE Sensex index.

Other Concall Highlights

• Expects aluminium division demand to improve with improvement in economic activity in second half of the ongoing financial year.
• Aluminium division cost of production to remain at $1,500 a tonne but some volatility is expected.
• Cost of power to come down in second half due to higher coal linkages.
• Jamkhani coal block in Odisha has capacity 2.6 million tonnes per annum.
• Jamkhani block can be fully operationalised within a year of getting formal letter from government.
• Coal ramp up to give additional 20-30 percent security.
• To save Rs 300-400 crore in tax for the year due to lower corporate tax rate.