Ebitda fall was due to low LME prices, high input costs, closure of Tuticorin copper smelter, partly offset by strong USD and contribution from Electrosteel plant.
Q4 EBITDA at Rs 61 bn, down 18% y-o-y (+9% q-o-q), was in line with consensus/our estimate of Rs 60 bn. Ebitda fall was due to low LME prices, high input costs, closure of Tuticorin copper smelter, partly offset by strong USD and contribution from Electrosteel plant.
During Q3, Vedanta, through one of its subsidiaries, purchased economic interest in a structured investment in Anglo American PLC from its parent Volcan Investments. Investments till now stand at $270 mn out of a total $520 mn. Vedanta secured the investment with put option, ensuring minimum realisation of ~`42 bn. M2M gains for Q4/FY19 at `8.3/10.4 bn. Investment would be redeemed between April’20 and Oct’20. We have Add rating on the stock.
Copper smelter shutdown: The Tuticorin smelter shutdown (matter under appeal) has impacted copper performance. Q4 Ebitda with loss of `0.7 bn vs. `3.5 bn y-o-y.
Zinc International: Gamsberg commercial production started in March, 2019. Gamsberg is the new mine which would partially replace old mines of Skorpion in FY20. Management guided for 136%-150% growth in production at 350-370 kt with contribution of 160-180 kt from Gamsberg.
Steel business: Electrosteel steel plant continued to better performance q-o-q/y-o-y. Plant operated at 347 kt, up 7% q-o-q/15% y-o-y with utilisation at 93%. Ebitda rose 35% q-o-q /2.1x to `3.4 bn with margin at $122/t.
Captive alumina: Vedanta has ramped up its captive production of alumina. Production during Q4/FY19 was 0.4/1.5 mt, up 21%/ 24% y-o-y with exit run-rate of 1.8 mtpa. Local sourcing of bauxite supply now increased to 50%.
Aluminum business: Q4FY19 Ebitda was at `4 bn vs. `6 bn (post adjusting `3.5 bn one-off gains) in Q3FY19 and `12 bn in Q4FY18 due to (i) high input cost, (ii) sluggish Aluminum LME price and (iii) appreciation in INR.
Estimates & valuation
We reduce our FY20/21e EPS to `19/19 (`23/25 earlier) to factor in lower LME prices. Accordingly, we cut our target price to `187 (`214 earlier), implying 14% upside from CMP of `163.