Higher volumes, commodity prices drive Vedanta's Q3 net sales higher

Vedanta's prospects remain strong on the back of strength in metal and crude oil prices

Vedanta, the natural resources major, once again posted a good show helped by firm base metal prices and rebound in crude oil prices. The December quarter (Q3) performance was no different with growth boosted by aluminium, zinc, power and oil & gas segments. Even as iron ore and copper performance remained soft and currency appreciation partially offset the benefits, Vedanta's net sales at Rs 243.6 billion, up 19 per cent year-on-year and 13 per cent sequentially, came better than Bloomberg consensus estimates of Rs 236 billion.

Earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 67.80 billion, too, improved 13 per cent year-on-year and 17 per cent sequentially, coming ahead of estimates of Rs 66.28 billion. The impact of rising coal prices was evident as power and fuel costs increased by a sharp 44 per cent year-on-year, pulling down Ebitda margins to 35 per cent versus 39 per cent seen in the year ago quarter. Sequentially however, the number remained stable despite the 12 per cent rise in fuel costs and higher material expenses. Overall, the beat was aided by strong improvement in profitability in power and oil & gas segment, and Zinc international business.

The one-off charge of Rs 1.58 billion paid towards arbitration pertaining to a historical vendor claim in the aluminium business impacted net profit. Other income too was down 44 per cent year-on-year with investment corpus coming down post special dividend pay-out by Hindustan Zinc. Reported net profit at Rs 20.53 billion thus missed consensus estimates of Rs 24.98 billion.

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The company's prospects remain strong on the back of strength in metal and crude oil prices and capacity expansions. Average aluminium, zinc and copper prices on the London Metal Exchange were up 23-29 per cent year-on-year in Q3, and 4-9 per cent higher sequentially.

On the other hand, aluminium segment (a fourth of topline) continues benefitting from regular ramp-up in production; in Q3 output was up 40 per cent year-on-year and 11 per cent sequentially. Though the rising alumina prices (up 34 per cent sequentially) did impact the segment with energy costs rising and profitability was down 17.4 per cent year-on-year, the improvement on a sequential basis is positive.

Hindustan Zinc, which is the second largest contributor to Vedanta's numbers, too, is seeing regular increase in output and profitability. Notably, rising output in its Zinc International business is also driving growth. Zinc International's profits grew a strong 250 per cent year-on-year. Similarly, record plant availability of 97 per cent for Talwandi Saboo Power unit not only drove the segment's revenues, but profitability too by 46 per cent.

Though the oil & gas segment contributes just about 10 per cent to revenue, the rebound in crude prices is driving profitability; profits improved 232 per cent year-on-year and 21 per cent sequentially.

With overall profitability improving, deleveraging continues, which also meant finance cost were down 13 per cent year-on-year and eight per cent sequentially. Vedanta said that it is looking forward to a strong Q4, which will help finish the year with healthy cash generation.