Vedanta - Aluminium drives Q1FY21 beat - ICICI Securities

Vedanta reported higher than expected Q1FY21 numbers. Aluminium EBITDA constituted ~72% of the EBITDA beat. The segment's EBITDA/te surprised at US$360/te, of which US$101/te was on account of RPO liability reversal. Adjusted for RPO liability, costs reached US$1343/te, down ~US$110/te QoQ and ~US$420/te YoY. Power contributed ~12% of the EBITDA beat, which can be attributed to 97% Talwandi Sabo (TSPL) PAF, while sales from TSPL was only 643mn units (down 76% YoY). TSPL receivables reduced in FY20. There has been significant cost reduction in Zinc International (22% YoY and 24% QoQ) and currency depreciation of the host countries played a big part. Production at Gamsberg is still at 25kte as at June. Covid lockdown makes assessment difficult for Rajasthan assets. The delisting process is underway; US$300mn again has been extended as an intercompany loan to Vedanta resources. Downgrade to REDUCE from Hold.

- Cost reduction in aluminium business results in significant beat. Cost of production (CoP) reduced from US$1,764/te to US$1,268/te YoY. This was helped by RPO liability reversal of US$101/te. Alumina production costs in aluminium dropped by ~US$54/te QoQ, power costs fell by ~US$100/te QoQ while other hot metal and conversion costs were down ~US$40/te QoQ. CoP in Jharsuguda reduced by 13% QoQ while that in BALCO shrunk 11% QoQ. While cost reduction directionally is more pronounced in Jharsuguda (QoQ), BALCO EBITDA increased by 76% QoQ while VAL EBITDA declined 5% QoQ. Hopefully, Vedanta holds on to the improvement in BALCO.

- Zinc International witnessed meaningful cost reduction. CoP for Zinc International reduced by US$435/te QoQ, which largely explains the US$394/te QoQ improvement in EBITDA/te. This is despite ~US$170/te QoQ reduction in LME zinc and lead prices and sales dropping by ~40% QoQ to 35kte in Q1FY21. Gamsberg production run rate has gone back to Feb'20 level.

- Rajasthan oil and gas production failed to reach its potential given Covid impact. Rajasthan production fell 14% YoY. There has been a substantial reduction in the company's operating costs in Rajasthan (from US$10/boe to US6.9/boe), but how much of it can be sustained in subsequent quarters remains to be seen.

- Iron ore and steel operations were in line with expectations. Iron ore witnessed 41% QoQ decline in revenues as sales fell 17%. EBITDA was in-line at Rs1.85bn. Higher iron ore prices helped EBITDA/te for the segment despite ~56% QoQ reduction in iron ore volumes. While Electrosteel (ESL) could maintain its sales volumes QoQ, its product mix suffered - Q1FY21 being more billet-heavy as TMT and wire-rod sales declined substantially. Thus realisation/te was down 16% QoQ and EBITDA/te down from Rs8,787/te to Rs3,311/te QoQ.

- Downgrade to REDUCE from Hold. US$300mn has been extended as an intercompany loan to VRL from overseas sub; US$1.05bn is the total commitment.

Shares of Vedanta Limited was last trading in BSE at Rs.137.45 as compared to the previous close of Rs. 136.9. The total number of shares traded during the day was 302345 in over 1461 trades.

The stock hit an intraday high of Rs. 139.2 and intraday low of 136.75. The net turnover during the day was Rs. 41753274.

Source : Equity Bulls

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