Vedanta targets $7.5 bn in earnings in 2 years, deleverage group by $3 bn

The ambitious 50% jump in pre-tax profits from the expected $5 billion of Ebitda in FY24 follows the group’s demerger plan that entails a reorganization of its Mumbai-based Vedanta Ltd. into six separate entities based on their sectors.

“As we step into the new fiscal year, we have set targets that reflect our pursuit of sustainable growth while maintaining a healthy balance sheet,” said Agarwal in a note to the shareholders of the metals, mining and energy conglomerate.

Agarwal said the group will also be deleveraging its cash-starved flagship Vedanta Resources Ltd. by $3 billion in the next three years.

At the parent company level, Vedanta Resources has deleveraged its balance sheet by over $3.5 billion in the last two years, said Agarwal.

To deleverage Vedanta Resources further, the group has been approaching several lenders both globally and in India.

A 6 March report by J P Morgan on India metals and mining sector said that for Vedanta the two most important monitorables in the near term are debt reduction roadmap and the demerger progress. “While near-term concerns have abated after the refinancing at holdco, we expect Vedanta’s net debt to remain elevated at ₹65,000 crore levels in FY25-26E (vs FY22 at ₹ 21,000 crore),” the report said.

Regarding the demerger process, the J P Morgan report said it believes the street is expecting the process to be completed by FY25-end and any delay around the demerger or stated divestiture of steel assets could be viewed negatively. “Vedanta has the highest dividend yield in our metals coverage (around 10%+ levels) and we also expect its earnings trajectory to improve,” said the report.

The group has an outstanding debt of $6.4 billion, including $4.5 billion that becomes due in FY25.

The group has been attempting to extend the maturities of its debt and make amendments to certain bond terms.

In January, Vedanta Resources announced it has secured the backing of its bondholders to restructure portions of its debt that become payable imminently.

The company had last year proposed a restructuring of four series of bonds maturing in 2024, 2025, and 2026 to reduce liabilities.

“FY25 will be a transformative year for us on many fronts as we prioritize disciplined growth, operational excellence, and exploring opportunities along the value chain,” he said.

To deleverage the group and enhance the efficiency of each of the businesses for better operating incomes, Vedanta Resources in 2023 announced a plan to undergo a mega-demerger, for which the group is awaiting its lenders’ nod.

As per the demerger plan, for every share of Vedanta Ltd, investors will receive one share in each of the five new businesses—aluminium, oil and gas, power, steel and ferrous, base metals and an incubator for new businesses including semiconductors. They will retain their original shares in Vedanta Ltd, which will continue to hold 65% of Hindustan Zinc Ltd.

Agarwal said the group’s strategy is clear, its foundation is solid, and their team is energized to achieve the targets the group has set.

“The past year was marked by significant achievements and the unwavering pursuit of our vision—creating long-term value for all our stakeholders. This commitment is further amplified by the transformative Vedanta demerger plan, a bold initiative designed to unlock the full potential of our diverse businesses,” said Agarwal.

The demerger, according to the group’s chairman, will promote each company to leverage its own independent strengths and attract targeted investments, ultimately driving sustainable growth and long-term stakeholder value creation.

“We expect to complete the demerger by December 2024,” he added.

During FY2024, Agarwal said in the aluminium business, the group achieved the highest-ever annual production of 2,370 kilotonne (kt).

“We aggressively reduced our cost of production (CoP) by 35% and increased our margins by about 4 times in the last six quarters,” said Agarwal.

The group is expanding its Lanjigarh alumina refinery (now 3.5 MTPA capacity) and ramping up captive coal mines.

On the renewables front, Agarwal said the group has already secured 1.3 GW of renewable energy and is on track to produce 100% value-added products, 100% captive alumina and bauxite (aluminium-rich ore) along with 3 MTPA aluminium.

Apart from the growth in the aluminium business, Vedanta’s subsidiary HZL too has delivered its highest-ever annual mined metal production of 1,079 kt in FY24.

“Operational efficiencies led to a 15% cost reduction in the last six quarters. Recent project completions like the HZAPL Alloy Plant will further boost margins, while the fumer plant enables waste recycling and paves the way for additional silver production,” he said.

On Monday, Mint reported that Vedanta has entered into an agreement with state-run Power Finance Corporation Ltd. to secure $470 million worth of financing for expediting completion of two of its key power projects in Chhattisgarh (Athena Power) and Andhra Pradesh (Meenakshi Energy) in line with the group’s target to achieve a capacity of 4.8 GW by FY2027.

On Wednesday, Agarwal confirmed the financing plan and said, “Synchronizing Unit 1 of 150 MW Meenakshi Power Plant, along with securing financing for Athena takes us a step closer to deliver on our goal of supplying around 5 GW of commercial power within next two years.”

In FY24, Agarwal said Vedanta’s iron ore business delivered its highest-ever yearly volume of 5.9 million tonnes.

The group also operationalized the Bicholim mine in Goa (3 MTPA capacity), marking the commencement of its first mining operation in the region in nearly five years.

At ESL Steel also, Agarwal said, the group achieved its highest ever annual crude steel production of 1,386 kt in FY24, driven by de-bottlenecking and improved operational efficiency.

“The ESL Steel expansion to 3.5 MTPA is on track for completion in the coming year. With this expansion, we will be able to produce overall 4.5 MTPA of steel and pig iron at our facilities,” said Agarwal.

“India’s steel supply-demand balance should tighten, forecasting a 9% steel demand CAGR (through FY23-26E) driven by the government’s infrastructure push,” said the J P Morgan report.

During FY24, Vedanta’s board approved growth capex of around $320 million for capacity expansion to 450 ktpa in ferrochrome business.

“This will make us India’s largest ferrochrome producer by FY27. We also recognize the potential of our captive manganese mine and are exploring the exciting possibility of diversifying into ferromanganese alloy production,” said Agarwal.

Vedanta Group added over 15,000 employees in FY24, taking its total workforce to around 100,000.

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Published: 17 Apr 2024, 06:36 PM IST