Vedanta keeps cost guidance unchanged, pushes capital expenditure pedal

Anil Agarwal, in a shareholder message, highlights doubling of capacities across its key businesses

Anil Agarwal, chairman of Vedanta group, informed shareholders on Sunday that the group would be doubling capacities in its three main businesses — zinc, aluminium, and oil and gas — in the near future.

 

In addition to the capital expenditure (capex) spree, company executives, in media interactions and with analysts, expressed confidence in meeting cost guidance and controlling debt.

 

In his address sent to Vedanta shareholders early on Sunday, Agarwal noted, “We are aiming to double the production levels at our subsidiary, Hindustan Zinc (HZL), increase oil production at Cairn Oil & Gas to 300,000 barrels of oil equivalent per day, and expand the capacity at our aluminium smelter to 3 million tonnes per annum.”

 

Some of Agarwal’s noted expansions are at different stages, while the zinc expansion is still in the planning phase.

 

For instance, regarding plans to expand zinc mining capacity to 2 million tonnes, executives from HZL informed analysts that the company is now inviting discussions with mining contractors to start mine development as the first step in increasing production.

 

As part of the aluminium expansion at Bharat Aluminium Company, Vedanta’s board approved an increase in the committed capex to Rs 11,816 crore, up from the previously approved Rs 9,247 crore.

 

Executives noted that the increase in capex is due to “cost to finish” and enhanced capacity opportunities from de-bottlenecking. The board also approved an additional Rs 5,209 crore in capex for increasing power capacity at its Chhattisgarh unit.

 

In the oil and gas business, executives informed analysts on Friday that the company is seeking partners for its deepwater East Coast project to help monetise the venture and support further exploration.

 

According to Nuvama Research data, the group has spent $695 million across its businesses in the first half of the current financial year (2024-25), with $3.8 billion remaining from its total approved capex of $8.6 billion, which will be spent over the next few years.

 

Vedanta, in its statements to the BSE, noted that it plans to fund some of its expansions through a mix of debt and internal accruals. Despite the expansions and dividend payments, group executives remain optimistic about debt levels.

 

In a call with analysts on Friday, Ajay Goel, chief financial officer of Vedanta, commented on Vedanta Resources’ (VRL) debt, saying, “We believe most of the second-half (of FY25) debt servicing requirement will be met through free operating cash flows. One may expect a debt figure of around $4.6 billion or so at VRL once the year is closed.” He added that VRL’s debt is currently at $4.8 billion, the lowest in a decade.

 

For HZL, company executives have previously informed analysts that they expect to end the current financial year with a net debt of Rs 2,000 crore. As of September, HZL’s net debt was upwards of Rs 5,700 crore.

 

Both analysts and company executives are relying on the business’ potential for further cost reduction to aid cash flows. Executives from HZL, during their earnings call, maintained confidence in meeting their cost of production guidance of $1,050 to $1,100 per tonne, particularly the lower end of the range. For the second quarter, HZL’s cost of production was $1,071 per tonne.

 

In a call with Business Standard, Goel said, “One may expect that the cost curve will continue to decline in the near future.” During the Friday earnings call, he also said that the company is on track to achieve “the lowest full-year cost of production in the past four years of operation”.