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IDFC Securities
Vedanta (Outperformer)
CMP: ₹238.05
Target: ₹304
Vedanta reported in-line operational results with EBITDA of ₹7,350 crore, up 25 per cent q-o-q. EBITDA ex-HZ stood at about ₹3,600 crore, up 17 per cent q-o-q. Almost 65 per cent of incremental EBITDA came from its aluminium segment which was up 52 per cent q-o-q to ₹990 crore, driven by higher aluminium prices and volume.
Significant volume growth from aluminium, firm aluminium prices and cost efficiencies to continue to boost earnings. In its international zinc operation, the Gamsberg project is progressing well and we expect the first ore to be produced by FY19E. Access to cash from Cairn India merger has provided strength and Vedanta starts pursuing its growth plans to unlock value without stretching its balance sheet. We expect the deleveraging process to slow down.
Key positives: Higher profits from aluminium operation; Dividend policy wherein it will distribute entire dividend it receives from its subsidiary, Hindustan Zinc and minimum 30 per cent of company’s profits before its share of profits in HZ. Expect FY18 DPS of ₹20
Key negatives: Higher aluminium CoP in FY18 due to increase in electricity duty in Odisha, lower iron ore prices.
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