Vedanta Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Cost compression drives a sharp EBITDA beat: EBITDA surged 21% QoQ and 22% YoY to ₹8,677 crore, powered by a ~$900/t reduction in Aluminium CoP over six quarters and a 15% YoY drop in Zinc India costs.
• Aluminium is the star, Zinc India is the rock: Aluminium EBITDA nearly tripled YoY to ₹2,873 crore on lower costs and record production, while Zinc India held EBITDA flat despite lower revenue, thanks to sustained cost leadership.
• Oil & Gas is the clear drag: Production fell 15% YoY to 123 kboepd on natural field decline, and EBITDA dropped 37% YoY to ₹1,259 crore, with the Jaya OALP field only beginning to contribute.
• The balance sheet story is improving: A successful liability management exercise at Holdco structurally improved the capital structure, and management reiterated its commitment to deleveraging.
• What to watch next quarter: Whether the Lanjigarh Train-I expansion comes online on schedule, the pace of infill drilling to arrest the Oil & Gas decline, and any progress on the ambitious 3 MTPA integrated Aluminium target.

Cost Leadership & Margin Delivery

• Aluminium CoP collapsed: Hot metal CoP fell 19% YoY and 4% QoQ to $1,735/t, a cumulative ~$900/t reduction over the last six quarters, driven by lower input commodity costs and higher operational and buying efficiency.
• Zinc India CoP hit a 10-quarter low: CoP without royalty fell 15% YoY and 4% QoQ to $1,095/t, the lowest in 10 quarters, led by four consecutive quarters of cost reduction on better volumes, lower input costs, and improved linkage coal availability.
• Steel turned the corner: The steel business swung from a negative EBITDA margin of ($28)/t in Q3FY23 to a positive $38/t in Q3FY24, with EBITDA of ₹107 crore versus a loss of ₹66 crore YoY, on 14% lower cost of sales.
• Copper broke even: Copper posted EBITDA of ₹7 crore versus a loss of ₹55 crore YoY, driven by a 27% production increase to 43,000 tonnes and 29% revenue growth, despite a nearly flat LME price.
• The cost ambition is structural: Management targets 1st quartile cost of production through the cycle for Aluminium and is already in the 1st quartile of the global cost curve for Zinc India and the 1st decile for Zinc International mines.

Arun Misra: "Our strategic focus on substantial cost compression, paralleled by an impressive production ramp-up across businesses has helped us to deliver remarkable performance."

Aluminium: The Integration Bet

• Record production run: Highest ever quarterly production, up 6% YoY and 1% QoQ, with the production run rate increasing for the fourth consecutive quarter, even as total metal production was 10% lower YoY due to planned shutdowns.
• Lanjigarh expansion is imminent: Train-I of the 1.5 MTPA alumina expansion is expected in Q4FY24, a critical step toward the stated vision of becoming a 3 MTPA integrated Aluminium producer within two years.
• The integration thesis: Management aims for a vertically integrated, closely connected supply chain with minimal impact from input commodity fluctuation, targeting over 300 KTPA of low-carbon aluminium.
• Sustainability alignment: Vedanta Aluminium joined the International Aluminium Institute, reinforcing its commitment to sustainability as it scales.

Zinc: India Delivers, International Stumbles

• Zinc India volume and cost both moved the right way: Mined metal production rose 7% YoY and 8% QoQ to 271 kt, while silver production jumped 22% YoY, strategically timed to capture elevated silver prices.
• Zinc International production fell hard: Overall production dropped to 41 kt due to mining challenges and lower zinc and lead grades, with Gamsberg production down 44% YoY, driving an 80% YoY collapse in segment EBITDA to ₹62 crore.
• The recovery path is under construction: Gamsberg achieved its highest ever recovery rate of 82.3% in October 2023, and Phase 2 expansion engineering is ~100% complete with procurement at ~87%, targeting a 500+ KTPA MIC run rate within two years.
• Cost guidance held: Management expects Zinc India to comfortably achieve its annual CoP guidance of $1,800/t-$1,900/t and Zinc International to advance toward $1,125-$1,175/t.

Oil & Gas: Managing the Decline

• Natural decline is biting: Gross operated production fell 15% YoY to 123,413 boepd, with declines across Rajasthan (down 12%), Ravva (down 22%), and Cambay (down 43%), only partially offset by infill wells in ABH, Aishwariya, and Bhagyam.
• Opex rose on lower volumes: Per-barrel opex increased 6% QoQ, primarily driven by the lower production base.
• The growth pivot is OALP: Production from the OALP block grew sharply to 1,760 boepd from just 104 boepd YoY, and India's first Field Development Plan under the OALP regime was submitted for the Jaya field in Gujarat, with an initial plan to deliver over 2 kboepd.
• Exploration is active: A five-well drilling campaign has commenced to appraise the Durga discovery and further explore prospects in the block, while six infill wells were drilled across RDG and Mangla fields.

Iron & Steel, and the Growth Pipeline

• Iron Ore Karnataka delivered a revenue surge: Sales volumes rose to 0.18 crore dmt from 0.14 crore dmt YoY, driving a 75% YoY revenue jump to ₹2,476 crore and EBITDA of ₹634 crore versus just ₹54 crore YoY, though margins compressed 30% QoQ on lower domestic demand.
• Steel production is ramping: Steel production rose 11% YoY, and the business has a $349 mn growth capex plan to double hot metal capacity to 3 MTPA, with project completion targeted for FY25.
• FACOR production rebounded: Chrome ore production jumped 278% QoQ on improved operational efficiency, and ferrochrome production rose 15% YoY on new capacity, though EBITDA fell 29% YoY on margin compression to $146/MT.
• The long-term capacity vision is bold: Targets include 4 MTPA of steel and pig iron, 13 MTPA of iron ore, 500 KTPA of ferro alloy, and 12 KTPA of nickel, supported by projects from Bokaro to Liberia.

Capital Structure & ESG

• Liability management improved the structure: A successful exercise at Holdco resulted in a structural improvement in the capital structure, and management stated Vedanta has a stronger balance sheet and remains committed to deleveraging and value creation.
• ESG ranking is a point of pride: Vedanta ranked 3rd in the S&P Global CSA in the Metal and Mining Industry Group among 238 companies, with Hindustan Zinc topping the index, and an overall score of 80/100 with significant improvement since 2018.
• Net zero commitment is funded: The company committed to net carbon neutrality by 2050 or sooner and aims to spend $5 billion over the next 10 years to accelerate the transition, with 1,826 MW of renewable energy PDAs under construction.
• Social spend is material: CSR spend reached ₹308 crore in 9MFY24, with over ₹1,800 crore spent since 2020, and the Anil Agarwal Foundation pledged ₹5,000 crore over five years on social impact programs including the Nand Ghar project.

Ajay Goel: "With a balanced capital structure through successful liabilities management at Holdco, Vedanta has a stronger balance sheet and will remain committed towards deleveraging and value creation."

Guidance & Commitments

Key Metrics