Diversified resources conglomerate Vedanta on Wednesday reported a 35% fall in quarterly profit to Rs 866 crore as decline in global crude oil prices adversely impacted margins. The decrease in profit was compounded by one-time expense related to renewable purchase obligations (RPO) provision of Rs 414 crore.
Net sales for the quarter ended June 30 dropped marginally to Rs 16,952 crore, compared with Rs 17,056 crore reported in Q1FY15. Ebitda for the quarter fell 29% to Rs 4,039 crore due to a steep fall in crude oil prices and aluminium premia.
Tom Albanese, CEO, Vedanta, said during a conference call that while the macro risks of supply-demand and commodities from the US dollar strengthening are important, the other things that have been weighing on confidence include recent challenges in Greece, the Chinese Shanghai Exchange recent equities selloff, additional oil supply that is anticipated to come into market as a consequence of lifting of Iran sanctions. “All these are leading to continued uncertainty. So we have a difficult market environment in many ways. I think this is a difficult commodity space we would have seen back in 2009,” Albanese said.
Vedanta accounted Rs 2,128 crore as an exceptional item for Q1FY15 due to change in method of depreciation at Cairn India for the period up to March 31, 2014.
Despite the fall in profit, the company’s net income beat Street expectations, as analysts had expected a net profit of Rs 544 crore, according to Bloomberg estimates. Sales, however, fell below the polled number – which had expected a topline of Rs 17,400 crore. Zinc business contributed nearly 47% of the Group’s Ebitda compared with 27% in Q1FY15.
“This strong performance at zinc during the period of commodity price pressure for other divisions in the group underlines our rationale for investing behind a well diversified set of tier 1 assets,” Albanese said.
Crude oil prices fell 44% y-o-y but it was largely offset by higher revenues from Copper India which had a maintenance shutdown during Q1FY15, higher volumes in Zinc India and start up of Unit I of Talwandi Sabo Power Plant.
“In Q1 we saw continued volatility in commodity prices, but zinc has held up quite well in view of its strong fundamentals and is now the largest contributor to our Ebitda,” Albanese said in a statement. He added that the company has broken ground at the Gamsberg zinc project in South Africa and will re-start iron ore production at Goa following the monsoons.
The company, previously known as Sesa Sterlite, had posted a non-cash impairment charge of acquisition goodwill about Rs 20,000 crore, or around $3 billion, in Q4FY15. Vedanta said on Wednesday that depreciation and amortisation for the quarter was marginally lower at Rs 1,717 crore post re-alignment of useful life of metal and mining assets and the impairment of goodwill mostly in the oil and gas segment in Q4FY15.
Finance costs fell 12% y-o-y to Rs 1,358 crore due to debt refinancing at a lower cost. However, interest expenses rose 2.8% sequentially due to increase in borrowings to fund projects and temporary working capital requirements. Gross debt rose 2% sequentially to Rs 79,530 crore and has an average cost of borrowing of 7.9%.
Vedanta said debt levels were expected to reduce as working capital is repaid in Q2FY16. Its cash and cash equivalents stood at Rs 47,091 crore as on June 30, 2015.
Debt of Rs 11,350 crore is due in FY16, of which Rs 2,700 crore has already been tied up and the balance is to be rolled over or refinanced through long term debt. Vedanta said it is evaluating different structures and options for future maturities with an objective to lower funding cost, not excluding the option to extend maturity profile.
During the quarter, Vedanta had announced a merger of Cairn India and Vedanta, subject to approval of minority shareholders.