Vedanta Q2 Results Review - Expansions, Backward Integrations Remain In Focus: Systematix

Systematix Research Report

Vedanta Ltd.’s Q2 FY25 consolidated Ebitda at Rs 98.3 billion (-14.4% YoY, -1.2% QoQ) was 4% above our estimate. Vedanta reported consolidated revenue of Rs 376.3 billion (-3.4% YoY and +5.2% QoQ), 8% above our estimate. Ebitda margin for the quarter was reported at 26.1%, a contraction of 336bps/169bps YoY/QoQ.

On a YoY basis, aluminium, zinc India, and Zinc International were the key profitability drivers during the quarter. The aluminum segment reported Rs 41.6 billion Ebitda (+111%/-6% YoY/QoQ), where the sequential decline can be attributed to lower London Metal Exchange and higher alumina cost this quarter.

Aluminium realisations for Q2 FY25 came in at $2,639/tonne (+12%/-3% YoY/QoQ) in line with LME price movement. Cairn oil and gas Ebitda fell 80% YoY due to exceptional arbitration revenue recognition in Q2 FY24, a 22% YoY fall in gross operated production, and lower Brent. Hindustan Zinc (Sell) and Zinc International reported Ebitda of Rs 41.2 billion (+31%/+4% YoY/QoQ) and Rs 3.8 billion (+31%/+104% YoY/QoQ), respectively.

Zinc International reported 44kt volumes, sequentially higher by 19% but fell 33% YoY. The steel segment reported an Ebitda loss of Rs 120 million compared to profits of Rs 2.3 billion in Q1 FY25 and Rs 1.2 billion in Q2 FY24.

Iron ore division Ebitda came in at Rs 1.4 billion (-57%/-25% YoY/QoQ). Vedanta’s net debt stands at Rs 569 billion as of Q2 FY25, posting a reduction of Rs 44 billion QoQ maintaining leverage (net debt to Ebitda) ratio sequentially flat at 1.5x.

The company raised Rs 85 billion through QIP in July, contributing to debt reduction this quarter. Vedanta has additionally raised Rs 31.3 billion through HZ OFS this month.

Vedanta generated strong free cash flows (pre-capex) to the tune of Rs 85 billion a growth of 50% YoY. We maintain Buy rating on the stock based on 5.5x FY27E EV/Ebitda with a target price of Rs 545/share.

The stock currently trades 3.9x one year forward EV/Ebitda.

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