Vedanta: Over time, technology has advanced, resulting in the development of various products tailored to the needs of customers. Metals and minerals are required for the production of any type of finished product. These companies mine and extract minerals, which necessitates the use of technology, a skilled workforce, and thorough research to determine the best location and extraction method.

Commodity demand varies depending on the industry, such as real estate, automobiles, and others. China, one of the major economies in the world, can influence global prices through demand and supply. The rise in commodity prices determines the company’s growth. In this article, we will look at Vedanta, a company that operates in the metals and mining industries. 

Company Overview Of Vedanta

Vedanta Limited is a conglomerate that primarily invests in aluminium, zinc-lead-silver, oil and gas, iron ore, steel, copper, power, ferroalloys, nickel, semiconductors, and glass. With significant assets spread across India, South Africa, Namibia, and Liberia. Anil Agarwal leads the company, which was earlier known as Sesa Goa Pvt Ltd.  Its operations span India, South Africa, Namibia, Ireland, and Australia.

Cyclicality in the Metal Industry & Outlook

Steel and other metals are used in the automotive, construction, oil and gas, and domestic home sectors, as well as almost every other major industry in the globe. Metals and the oil and gas sector, for example, are inextricably linked and reliant on one another. This is because they employ resources created by one another. When one industry suffers, the others follow. The same can be said about the automotive industry and any other significant industry in the manufacturing sector, as they all rely on metals.

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Since 2021, India has emerged as the strongest driver of steel demand growth, and our projections indicate that Indian steel demand will continue to surge, with 8% growth in 2024 and 2025, driven by continued growth in all steel-using sectors, particularly strong growth in infrastructure investments. In 2025, India’s steel demand is expected to be over 70 million tons more than in 2020.

The Debt bubble

Vedanta Resources, the parent company of listed company Vedanta Limited, was concerned about liquidity due to the upcoming maturity of its bond repayment. The company raised further debt from financial institutions and private investment funds to cover its liabilities, a process known as debt syndication. Earlier, due to concerns about its debt restructure, S&P and Moody downgraded Vedanta Resources, causing bond prices in the market to fall below 80 cents per bond, indicating distress. The company has been able to clear its liabilities and has not defaulted ever since.

Unlocking Value through De-merger 

After the debt allocation problems, Vedanta announced a demerger of Vedanta Limited. The demerger will create 6 different companies: Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Materials, and Vedanta Ltd. These companies can unlock value by improving individual company profit margins, which can result in higher returns for shareholders, capital allocation, debt burden borne by their respective companies and different businesses, and allowing investors to gain exposure to a single business or industry, among other benefits.  

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Financial and Segment Overview Of Vedanta

Vedanta posted revenue from operations in FY24 of Rs. 1,43,727 crore compared to Rs. 1,47,308 crore in FY23, a decrease of 2.43% YoY. Net profits in FY24 were at Rs. 7,539 crore, which is a decrease of 48% YoY from Rs. 14,503 crore. In FY24, the majority of revenue comes from zinc, lead, and silver – 19.56%; zinc – international around 2.49%; oil and gas – 12.49%; aluminium – 33.89%; copper – 13.82%; iron ore – 6.35%; power – 4.31%; and the remaining 7.06% for others.

Particulars/ Financial Year2019-202020-212021-222022-232023-24
Revenue (Cr.)₹84,447₹88,021₹132,732₹147,308₹143,727
Net Profit (Cr.)-₹4,743₹15,033₹23,709₹14,506₹7,537
RoE (%)0.00%25.72%37.14%22.74%13.79%
RoCE (%)0.00%17.83%29.37%19.89%24.09%

Future plans Of Vedanta

For FY25, the company expects to increase the domestic bauxite mix in the Sijmali mine, expand the alumina refinery to 5 MTPA, increase power linkage from coal, and operationalize captive mines. BALCO smelter expansion, increasing the proportion of rail versus road for overland transport, and increasing the VAP mix by completing expansions at BALCO and Jharsuguda. 

Hindustan Zinc is planning to increase its underground mine capacity to 1.25 MTPA. Fumer Plant ramps up to produce 33 tonnes of silver, increasing domestic consumption by 40%. Gamsberg Phase 2 is now being commissioned.

In other businesses like Oil and Gas, drilling of more than 50 infill wells across onshore and offshore blocks. ESL capacity increased to 3.5 MTPA, synchronizing four units of the Meenakshi Power Plant. Iron ore & VAB ramp up from 3.2 MTPA to 12 MTPA. The FACOR volume ramps up to 150 KTPA.

Key Metrics

ParticularsAmountParticularsAmount
CMP₹454.10Market Cap (Cr.)₹167,441.00
Stock P/E (TTM)52.32EPS (TTM)₹8.61
RoE (%)10.42%RoCE (%)24.76%
Promoter Holdings (%)61.95%FII Holdings (%)8.78%
Debt to Equity Ratio2.37Interest Coverage Ratio4.26
Current Ratio (TTM)0.91Net Profit Margin (%)9.85%

Conclusion

As we approach the end of the article, we have learned about Vedanta’s recent developments in their efforts to deleverage the business and demerge to unlock value. Commodity prices determine the growth of these companies, which is solely dependent on the growth of their respective economies. Infrastructure development, construction activities, electronics, and automobiles are the primary drivers. 

These developments and high demand can potentially increase volumes, benefiting shareholders. Understanding the company’s business and market is crucial before investing. The metals sector is prone to volatile changes and to invest, one must understand the industry carefully. What does the future hold for Vedanta? What would be their potential? Let us know your views in the comments section below.

Written by Santhosh

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