Vedanta Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Earnings surge on cost discipline and prices: EBITDA jumped 47% YoY to ₹10,275 crore, with margin expanding ~1,000 bps to 34%, driven by a 20% YoY reduction in overall cost of production and supportive commodity prices.
• Balance sheet repair accelerates: Net Debt/EBITDA improved to 1.5x from 1.9x YoY, aided by a landmark ₹8,500 crore QIP and a \$0.6 bn reduction in VRL gross debt during the quarter alone.
• Aluminium and Zinc deliver, Oil & Gas declines: Aluminium EBITDA surged on higher LME prices and lower costs, while Zinc India posted record quarterly production. Oil & Gas production fell 17% YoY on natural decline, partially offset by infill wells.
• Demerger milestone reached: The scheme application has been filed with the NCLT after securing all requisite approvals, keeping the long-awaited restructuring on track.
• What to watch next quarter: The pace of production ramp-up at Gamsberg and new OALP fields to offset Oil & Gas decline, progress on the NCLT demerger process, and whether the cost reduction momentum can be sustained if commodity prices soften.

Cost & Margin Performance

• Structural cost reset: Overall cost of production declined ~20% YoY, a result management attributes to structural changes and operational initiatives rather than just input price tailwinds. This drove the EBITDA margin to an industry-best 34%.
• Aluminium CoP: Cost of production fell 11% YoY to \$1,716/MT, even as market-linked alumina costs rose, because of lower input commodity costs and higher buying efficiency. Alumina CoP dropped 13% YoY to \$323/MT.
• Zinc India CoP: Cost of production without royalty declined 6% YoY, putting HZL on track for a four-year low with an entry COP of \$1,107/MT in Q1.
• Steel turnaround: The steel segment swung from a near-breakeven EBITDA of ₹15 crore a year ago to ₹236 crore, with margin per tonne improving from \$6/t to \$84/t, driven by higher production and a better product mix.
• Power segment squeezed: Average power costs rose to ₹2.69/kWh from ₹2.36/kWh YoY, while realizations fell, compressing EBITDA despite higher sales volumes.

Arun Misra: "These achievements are a direct result of our strategic focus on cost, as reflected in a 20% year-over-year reduction in overall Cost."

Segment Performance

Balance Sheet & Deleveraging

• Leverage improvement: Net Debt/EBITDA improved to 1.5x from 1.9x YoY, which management calls industry-best. VRL gross debt has been cut from \$9.8 bn to \$5.5 bn over two years, with \$0.6 bn of that reduction coming in Q1 alone.
• QIP success: The ₹8,500 crore equity raise was oversubscribed 2.6x, making it one of the largest QIPs in Indian metals and mining. Proceeds are earmarked for deleveraging, high-cost loan repayment, and releasing HZL security of 4.64%.
• Credit profile strengthening: S&P Global upgraded Vedanta Resources to 'B-'. Domestic agencies CRISIL and India Ratings maintained ratings at AA- and A+ respectively, both on Watch with Developing Implications, while ICRA assigned AA- with the same watch status.
• Finance cost: Lower 8% QoQ because of one-time charges in Q4FY24, but higher 5% YoY in line with increased average borrowings. The QIP proceeds are expected to reduce this going forward.

Ajay Goel: "The overwhelming response to the Vedanta's \$1 bn QIP, one of the largest in industry, underscores investor's huge confidence. The proceeds from the QIP will be further instrumental in deleveraging balance sheet and reduction of finance cost."

Growth Projects & Energy Transition

• Alumina ramp-up: Lanjigarh delivered its highest-ever quarterly alumina production at 539 kt, up 36% YoY and 11% QoQ, driven by new capacity. This supports the strategic push toward alumina self-sufficiency.
• Gamsberg ramp-up: Production rose 25% QoQ on improved mining performance, higher zinc grades and recoveries. Phase 2 expansion is targeted for completion by end of 2HFY25, with VZI aiming for a 500+ KTPA MIC run rate within three years.
• Oil & Gas infill program: Five infill wells were drilled across RDG and Mangala fields during the quarter. Mangala ASP injection commenced on Pads 1 and 19, and an EPC contract worth ₹702 crore (gross) was awarded for Mangala ASP Cluster C, targeting ~24 mmboe.
• Renewable energy: Phase 1 of the 900 MW RE-RTC project (450 MW each for Aluminium and HZL) is underway, with supply commencing from Serentica's 180 MW solar project in May 2024. Another 835 MW is under construction.
• Low-carbon products: HZL launched Asia's first low-carbon 'Green' Zinc, EcoZen, with a carbon footprint ~75% below the global average. The company also introduced ultra-low carbon aluminium from dross with GHG intensity of 0.7-0.8 tCO2e/t.
• Net Zero commitment: The company aims to spend \$5 billion over the next 10 years to accelerate the transition to net zero by 2050 or sooner.

Demerger Update

• Process on track: All requisite approvals, including NOCs from secured lenders such as SBI and LIC, have been secured. The demerger scheme application has been filed with the NCLT.
• Next steps: The process now moves to NCLT hearings on the scheme application, conducting member and creditor meetings per NCLT order, filing the company scheme petition for sanction, and eventual listing and trading of the resulting companies' shares. No specific completion date was provided.

Guidance & Commitments

Key Metrics