Mining major Vedanta’s Consolidated net sales stood at `341 bn in Q3FY23, in line with MOSL estimated. The reduction in revenue q-o-q was due to a decline in commodity prices and lower strategic hedging gains, partially offset by favourable forex movement.
The consolidated Ebitda stood at `71 bn, below our estimate of `94 bn due to lower Ebitda from aluminum, steel, zinc and power businesses. Ebitda fell q-o-q due to (i) lower commodity prices, (ii) higher input costs and lower strategic hedging gains. APAT stood at `16 bn, 52% below our estimate of `32 bn due to weak operating performance and higher depletion from the oil & gas vertical.
LME prices continued to decline q-o-q/y-o-y. Copper/ aluminum/ zinc prices declined 17%/16%/ 11% on a y-o-y basis. On a q-o-q basis, sales volumes of zinc/iron ore were up 11%/8%. On the other hand, lead/silver/aluminum/steel fell 19%/17%/ 4%/6%. In the last three quarters, net debt increased by `179 bn. Coal linkage for the aluminum business improved to 66%, and it should improve further as the Jamkhani coal mine increases its production, thereby lowering CoP in coming quarters.
On track to be self-sufficient in coal: Vedanta recently commenced its operations at the Jamkhani coal mine and with more mines scheduled to open, VEDL is on track to achieve 100% self-sufficiency in thermal coal. This would be a structural move towards reducing CoP. Vedanta expects the deal with Hindustan Zinc to fructify as it is value accretive to both. The funds received by the company would be deployed based on its capital allocation policy. It could be used to pay dividend, capex and other purposes.
The company continues to focus on volume growth and increasing the share of value-added capacity, which should improve margins. Aluminum demand is improving and the company expects the prices to improve. The share of aluminum Ebitda in the company’s total Ebitda would continue to rise. Iron ore volumes to improve with the removal of restrictions on exports. Ore production from Liberia has started and the company exported its first batch of shipment in Jan’23. The global macro environment is likely to weigh on any improvement in LME prices. The China opening is expected to support demand and prices, but fears of recession in Europe continue to raise concerns.