Vedanta Ltd

NSE:VEDL

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Vedanta Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sandep Agrawal, Head Investor Relations with Vedanta Limited. Thank you, and over to you, sir.

[Sandep Agrawal, executive]

Thank you, Nirav, and hello, everyone. I am Sandep Agrawal. Once again, thanks for joining us today to discuss our financial results for first quarter of fiscal year 2023 that ended on June 30. We have with us today Mr. Sunil Duggal, our Group CEO; Mr. Ajay Goel, our Group CFO. We are also joined by leaders from our key business, Mr. Arun Misra, CEO of Zinc business; Mr. Prachur Sah, Deputy CEO of Oil & Gas business; and Mr. Rahul Sharma, Deputy CEO, Aluminum. We will start with update on key highlights of our operational and financial performance. And then we will open the floor for questions and answers. Please note, today's entire discussion will be covered by the cautionary statement and disclaimer mentioned on Page 2 of the presentation.

Now without further ado, I will like to hand over to Mr. Duggal to take us through the presentation. Over to you, Mr. Duggal.

[Sunil Duggal, executive]

Thank you, Sandep. Good evening, everyone. Welcome to the Vedanta Limited First Quarter FY '23 Earnings Conference Call. Currently, global economy is facing volatility amidst high inflation, potential rate hikes by central banks, slackening consumer confidence and China zero COVID policy led lockdowns. This has led to recent softening in commodity prices. However, we also see that China has announced stimulus and has started to ease lockdown restrictions. Amidst ongoing energy crisis, especially in Europe, manufacturing costs are higher. This has potential to further suppress supplies and support commodity prices. Crude oil price is expected to remain supported on supply concern.

Indian economies relative resilience is reflected in strong industrial production, export competitiveness and non-food credit growth. Indian government's increased capital expenditure continues to support demand, although inflation level is above the RBI's tolerance band, RBI expects inflation to fall below 6% level by March '23 quarter.

During the June '22 quarter, we have again demonstrated our ability to execute well through all these challenges. We have started FY '23 with best ever first quarter EBITDA as key businesses continued to deliver strong operational and financial performance, underpinned by world-class asset quality and strong business model.

We recorded first quarter EBITDA at INR 10,741 crores, which translates into 7% Y-o-Y growth. We have started dynamic commodity hedging for proactive risk management amidst unprecedented price volatility. In July '22, we commenced operation on nickel cobalt Goa plant, and Liberia Iron Ore mine. Our capital allocation and dividend policies are well articulated and designed to create sustainable long-term value. We have invested more than $14 billion across businesses over the last 10 years without raising further capital from equity markets. We are investing $3 billion over next 2 years and $2 billion in FY '23 alone for growth volume. Value-added products, backward integration, operational efficiency and digitization. These projects will make our businesses more sustainable and predictable. We have one of the best dividend yield among peers. We have paid dividend of more than INR 65,000 crores over the last 10 years.

In quarter 1, we declared first interim dividend of INR 31.5 per share with another interim dividend of INR 19.5 per share, in July '22. This translates into a very attractive dividend yield of 15.4% on YTD basis. We have impeccable track record of meeting all capital market commitments in line with our commitment to delever by $4 billion in the next 3 years, VRL has deleveraged by $1 billion in quarter 1 and is on path to further delever $5.5 billion by this month end. We believe in Atmanirbhar Bharat, Vedanta Group is one of the highest contributor to national exchequer.

We are committed to contribute towards uplifting people's life. This transition to a lower carbon world also offers a unique opportunity to grow and remain an attractive investment case for decades to come. Our ESG program has now moved from planning phase to execution phase. You will hear more on progress during the year. In June '22 quarter, we achieved our net zero commitment. We have completed climate risk assessment, both physical and transitional risk. We also completed inventorization of our supply chain emissions. That is Scope 3 emissions, 2 years earlier than our committed target.

India's first battery electric vehicle in underground mine introduced at HZL Zawar mine. We are continuing industry-leading people practices on diversity and inclusion with 29% women in decision-making bodies, Vedanta is also among the few Indian companies that have actively recruited members from transgender community as part of our workforce. We are working to ensure a zero-harm workplace through learning from mishaps in FY '22 and before. In June '22 quarter, despite our best effort, we have started with the loss of life of one business partner employees at Hindustan Zinc. We are taking various initiatives to drive safe work culture, including focus on critical risk management to reduce hazardous activities at site. We have launched across businesses audit to ensure best safety practices across the group.

Now if I turn to our business verticals. At our aluminum business, in line with Jharsuguda ramp up aluminum quarterly production grew by 3% Y-o-Y. Alumina production was also up. Quarterly COP was $2,653 per tonne, impacted by input commodity headwinds, particularly power cost. Zinc India achieved highest ever quarterly refined metal production of 260 kt with 10% Y-o-Y growth. Silver production grew by 10% Y-o-Y. EBITDA margin supported by higher volumes, better recovery, commodity prices and hedging.

At Zinc International, Gamsberg recorded highest quarterly production at 53 kt. It achieved a record annualized MIC production of around 25 kt in June '22. Cost of production also improved despite inflationary cost pressure. In Oil & Gas business, volume was lower by 4% quarter-over-quarter due to natural declines which was partially offset by additional volumes from infill wells and polymer injection in Bhagyam and Aishwarya fields. OpEx increased by $0.6 per barrel Q-o-Q to $13 per barrel, primarily on an increase in polymer prices. We are focusing on infill well drilling to maximize near-term volumes and rest natural decline. We expect to commence production from Jaya and Hazarigaon field from September '22. Our shale pilot is also on track, first part in September '22 quarter.

From July 1, '22, the government of India has started levy the special additional excise duty on crude oil. We are engaging with the government on this within the framework of PSC and RSC and are quite hopeful on the favorable outcome. In iron ore, our Karnataka business saleable ore production was lower as heavy landfall impacted poor handling.

Pig iron business production was lower on Y-o-Y basis in line with plant shutdown at one of the blast furnace. However, margin improved by 148% Q-o-Q to $159 per tonne. We have completed the first step towards steel capacity expansion to 3 million tonnes per annum during the quarter by debottlenecking one of our blast furnace. This shutdown impacted quarterly hot metal production and consequently a 7% Y-o-Y decrease in saleable production.

EBITDA margin was majorly impacted from export duty imposition, driving steel price decline and high coking coal prices. FACOR achieved highest ever ore production since acquisition with 14% Y-o-Y growth. Quarterly ferro chrome production grew by 3% to 18kt, Vedanta is uniquely positioned to deliver sustainable value.

In FY '23, our key priority will be to deliver volume on committed lines, timely execution of projects and integration of our aluminum business. We'll focus on production cost production and dynamic hedging to proactively manage commodity price volatility risk. We remain committed to improve margins increased free cash flow generation and deleverage. We have an outstanding foundation of world-class long life and low cost asset producing vital commodities for global decarbonization transition. Our strategy, high-quality assets, strong balance sheet and capability position us well for future growth.

With this now, I would like to hand over to my colleague, CFO, Ajay Goel, our financial performance.

[Ajay Goel, executive]

Thank you, and good evening, everyone. So as Sunil said, we have an outstanding foundation of high-quality assets, along with a strong balance sheet, which positions us well for future growth. I'm pleased to share that despite inflationary macro environment and fiscal and monetary headwinds we commenced the year with our best ever first quarter financial performance.

Before I walk you through the numbers, I wish to talk about few key accomplishments for the first quarter. We achieved the highest ever first quarter EBITDA of INR 10,741 crores. Increasing shareholder returns paid a total dividend of INR 11,684 crores, which is 31.55 shares in Q1 and second interim dividend of INR 7,000 to INR 49 crores which is 19.5 shares in July. This translates to an attractive dividend yield of 15.4%.

Proactive risk management through strategic hedging in major commodities to protect margins. The realized hedging gain in Q1 was INR 764 crores. We are continuously working towards dynamic liabilities management and has increased our maturity profile to around 4 years and lowered the average borrowing cost to 7.6%.

And lastly, we are progressing well on the path of committed deleveraging. You may have noted the release by our holding companies Vedanta Resources Limited of $1.5 billion debt reduction in YTD July '23. That is in the first 4 months. This is in line with our commitment of $4 billion deleveraging over the next 3 years.

Operationally, Gamsberg and FACOR delivered highest quarterly production, while zinc and aluminum volumes continues to be strong. We also successfully acquired Athena power plant having 2 units of 600 megawatts each which gives long-term energy security and cost certainty.

Now coming to a few of the key financial highlights of the quarter. Our quarterly group revenue stands at INR 38,251 crores, which is up 36% year-on-year, Y-o-Y, highest ever first quarter EBITDA of INR 10,741 crores, up 7% Y-o-Y with a strong EBITDA margin of 32%, driven by operational performance despite inflationary cost pressures and moderating commodities prices.

PAT, profit after tax stands at INR 5,592 crores, higher by 6% Y-o-Y, and that demonstrates a strong financial performance. ROCE, return on capital employed at about 30% it is higher by almost 780 basis points from last year's 32%. We also continue to maintain healthy cash and cash equivalents of INR 34,342 crores, which is up 7% quarter-on-quarter. And finally our net debt at INR 26,799 crores, with net debt to EBITDA, the leverage ratio at 0.6x same as last year and 0.6x put in the perspective is amongst the lowest in Indian peers. We also have a detailed income statement in the presentation. And I want to just share a couple of more updates.

Depreciation charge for Q1 was at INR 2,464 crores, 16% up Y-o-Y due to higher overall depletion charges at Oil & Gas and higher Ore volumes at Zinc India. The finance cost for Q1 at INR 1,206 crores, up 2% due to an increase in average borrowings, which has been offset by reduced average rate of borrowings. Income from investment in Q1 at INR 583 crores, up 12% quarter-on-quarter, in line with the change in the mix of investment and down 20%, majorly on account of mark-to-market.

You may have noted that the 2 recent reported hikes that lead to mark-to-mark accounting. But added to maturity will not change. So it is temporary. I want to underscore that. The average investment income stood at 4.7% pretax for the quarter. The normalized ETR, the tax rate for Q1 at 23%, which is lower on account of a onetime impact of MAT, the minimum alternate tax asset recognition of INR 505 crores on a full yearly basis, which is the right way to look at, on a full yearly basis, we foresee that ETR will be within the guidance range of 26% to 28%, which is more or less same as last year as well.

I'll now move to EBITDA bridge. EBITDA is up 7% Y-o-Y and INR 709 crores. As evidenced from the bridge, strong demand for all our commodities, and improved prices have positively impacted our EBITDA, supported by strong operational performance of key businesses. We also benefited by strategic hedging and higher CapEx and OpEx recoveries in our Oil & Gas portfolio. However, this has been partly offset by higher cost of production due to input commodities inflation.

Moving on, next page, on net debt. Net debt, as you can see, as of June 30 stands at INR 26,799 crores, impacted by working capital investment, which is cyclical in nature, and CapEx requirements in the short term. Despite softening of the prices, we believe that this year as well, Vedanta will continue its growth journey, and free cash flow generation will be sufficient to meet the CapEx requirements and still deleverage as we have committed as a group.

A quick word on balance sheet. Our long-term focus remains in proactive grade management. During Q1, we have increased the average maturities to 4 years from 3.4 years in the last quarter. while we have been able to further lower the average cost of borrowings to 7.6% from 7.9% in fourth quarter. So quarter-on-quarter, 30 bps lower cost of funding. Our credit rating is maintained at AA with a stable outlook both by India Rating and CRISIL.

Now finally, each of our businesses are on growth journey. We want to grow across the value chain, focusing on vertical integration and cost efficiencies while targeting higher capacity. Our growth CapEx plan of around $3 billion over 2 years is aimed in the same direction and is in line with our capital allocation policy without compromising on the key priority of deleveraging at group level.

Overall, with our resilient portfolio, we are well positioned to increasingly able to deliver strong performance across cycles and create value for all the stakeholders. Thank you.

And I go back to operators for any Q&A.

[Operator]

[Operator Instructions] First question is from the line of Amit from Edelweiss.

[Amit Dixit, analyst]

Can you hear me now?

[Operator]

Yes, now we can hear you.

[Amit Dixit, analyst]

Congratulations for a good set of numbers. I have a couple of questions. The first one is on the hedging positioned in Oil & Gas and Aluminum division. How much of the OpEx was used in volume terms in Q1? And what is it outstanding right now? And did we do any further hedging in Q1? That is the first question.

[Ajay Goel, executive]

Yes, sure, Amit. So let me take it up for. So if I speak of Aluminum, our large portfolio the hedging in the Q1 covers 20% of the volumes and the rate of hedging is about $3,500 per tonne. So net-net 1/5th volume in Aluminum is hedged for the Q1. If I ever speak of zinc which again is quite critical. So almost 1/3, 34% volumes for the first quarter are hedged. Oil & Gas, our working interest almost 16%. But effectively, if I leave aside the share of the government.

Again, almost 1/3 of volumes are hedged. So net-net, 20% in Aluminum and almost 1/3 across zinc and Oil & Gas. As I mentioned, Amit, the realized gain in terms of our positions, we got matured, the gain is about INR 764 crores. Let me also take a word -- it forward. The hedging of the forward quantities, which basically are for second quarter as in the current quarter, and a little bit for third quarter. Right now, the unrealized gain is about 3x of what we already realized, but that will unwind only in second quarter in October and November, depending on the prices.

[Amit Dixit, analyst]

Okay. Great. The second question is essentially on the coal cost. What was the movement in Q-o-Q? And what -- how much you will guide for this quarter -- and is it possible to separately give TSPL EBITDA?

[Sunil Duggal, executive]

In coal cost, you are asking for Aluminum or which business you are asking?

[Amit Dixit, analyst]

Coal cost for Aluminum, sorry, I should have specified this.

[Sunil Duggal, executive]

Okay. Yes. So the coal cost -- the average coal cost for aluminum business was INR 1.91 per GCV and the overall power cost was $1,238 per tonne. This is softening now. And the linkage coal realization, which came through Tranche 5 is looking very healthy now in this month. And with this, I think a sizable portion of the usage will go back to the linkage. And apart from that, the auction coal prices are also softening because of the international energy prices also getting soften and some of the imported coal flowing on in some parts of the country, depending on the landed price leverage they have. This is about the coal cost. So anything, Rahul, you want to add on the coal cost for the current quarter and the quarter 1?

[Rahul Trivedi Sharma, executive]

No. I think we have already touched, Q1 must -- basically total coal requirement was $4.2 million and the cost was INR 1.9 per GCV. But as Mr. Duggal said, that I think things will start moving and growing at because we have the -- in terms of security, we have 100% always the challenge is the metalization. And I see that in Q2, things are coming back. Last quarter, we had almost 22% of a linkage. And this quarter, we are looking close to 36% plus kind of things, we see a great improvement going forward.

[Sunil Duggal, executive]

There's one point I want to...

[Rahul Trivedi Sharma, executive]

Also because of issue now, another point which I'm forgetting to mention, I think last quarter also we mentioned we have got Jamkhani as a coal mine wherein we have got all that coal, including opening of the mine approval, and we'll be starting the Jamkhani mine in early next month. And we see that it will be also some brief for us or we'll have a great business for us.

[Amit Dixit, analyst]

Okay. Just as you said 22% linkage materialization in Q1, right, or 32%?

[Rahul Trivedi Sharma, executive]

22% was Q1 and 36% we are looking for this product as a overall bucket of my total calculation.

[Amit Dixit, analyst]

Okay. So is it possible to quantify the benefit that we might get in Q2? I mean total -- as a result of all these measures.

[Sunil Duggal, executive]

I cannot give any guidance as such on this. But at least the -- broadly, what it looks like that it should fall to the level of quarter before, at least.

[Operator]

Next question is from the line of Pinakin Parekh from JPMorgan.

[Pinakin Parekh, analyst]

My first question is on Aluminum. Given that the cost of production was $2,600 in the first quarter and LME is roughly at around $2,400, at what point of time do you think that the company would look to cut production?

[Sunil Duggal, executive]

So there is no plan to cut the production. In fact, the last part we are powering up. The average LME for the month is lying somewhere between INR 2,450 to INR 2,500 and with the premium. And as we have said that the cost is out in the current quarter, not only because of the power cost, but also because of the processing cost and the alumina cost. Alumina cost because of the related LME going down could soften, say about by around $150, $200, another $300, $400 could soften in power cost and balance in processing costs. So even at the current LME prices, you will make a good EBITDA margin, and it makes a good business for us. And that is why, even the remaining part from the line 6, we are ramping up.

[Pinakin Parekh, analyst]

So just to clarify, sir, what you are saying is that even at current LME aluminum prices, Vedanta's aluminum business would be profitable. Is that correct?

[Sunil Duggal, executive]

Absolutely. Absolutely. This is what I'm saying, it will make a good EBITDA margin even at the current prices.

[Pinakin Parekh, analyst]

Sure. My second question is on the oil business. Now this is a segment which has consistently disappointed in terms of production, in terms of OpEx. The government of India's latest tax essentially create another burden for this business? And even the earlier 16.67% stress was never removed when the oil prices went lower. Given the policy headwind and given the increasing OpEx. Is the company looking to stop investments in oil because clearly, this is not a business which has -- can generate good strong returns, given what the policy headwind in terms of taxes are and given the increasing OpEx. So given the original CapEx plan, which was announced for F '23, if the oil stress stays as it is, would the company look to cut the oil CapEx?

[Sunil Duggal, executive]

See the energy security for the country, one of the important thing for us. And we want to partner with the government. So in that direction, we have no intention to think given an iota on the line of what you are talking. All our projects are moving ahead with the same energy what we were possessing earlier, infill projects, drilling in our gas assets exploration in our RD asset, all that everywhere. ASP project, shale oil project, pilot project on the shale oil, ASP project. So everywhere, the efforts are on, and we want to triple or quadruple our results from the current level. And ultimately, we want to partner with the energy security of our country. As far as the additional special excise duty is concerned.

In the background, whenever we have talked to the government, government has always been supportive of looking at how they can partner with us on the new projects and where it can help the country and help us to make the projects viable. As far as specific to the special excise duty is concerned, we believe that the windfall tax for the government is already built in the PSC, and we have represented this to the government at the various levels. Government is quite favorably placed on this, and we are quite hopeful that it could get retracted.

[Pinakin Parekh, analyst]

Just to clarify because we keep on getting this question, the $30 test would translate into what kind of realization impact for Vedanta? Or just to make it more simpler, if the tax was there in quarter 1 when the Brent was 114 and Vedanta's average realization was 110. What would have been the new realization or the new EBITDA if this $30 test? Is it a straight $30 negative impact? Are there trade-off available?

[Sunil Duggal, executive]

No. You see you have to understand what they are talking. They are talking that depending on the average crude prices of the last fortnight they will keep revising on that number. So this number will remain very dynamic. All our projects are conceived and evaluated at a much lesser price like we evaluate our -- all our projects at $60. So $60, we make a healthy IRR. And in any case, the government thinks of putting up this special excise duty at $80, it does not impact our operation much and impact our margins beyond that.

But the question is -- the broader question which I'm saying and which broadly we have been able to sell to the government is that, this windfall even beyond $80 is built into the contract. If it is built into the contract, let us suppose from $80 to $120, the $40 directly does not flow back to the government. But in any case, the 70% of this goes back to the government. And that is why the government is quite favorably placed to look at this. And look at how they can differentiate between the nomination blocks and the auction blocks.

[Pinakin Parekh, analyst]

Sir, just to clarify, so far, there is no official directive from the government on the nomination blocks in the auction block. So while you have represented to the government, there is no official confirmation. So if the government does not agree, should we expect legal challenge to this, sir, because $30 is a very meaningful number given the context of the oil segment EBITDA.

[Sunil Duggal, executive]

See, I don't want to jump the gun, and we are very hopeful, let us wait, and let us not think something which is not in the best interest of any of the stakeholders.

[Operator]

The next question is from the line of Ashish Kejriwal.

[Ashish Kejriwal, analyst]

Sir, my question is again on Aluminum cost. Cost on both alumina as well as coal. One thing is currently how much difference is there between our cost of production of alumina and the purchase. And second is in terms of coal costs, have we purchased any electricity in quarter 1 or the entire increase in power cost is due to the expensive coal which we have bought?

[Sunil Duggal, executive]

It's a combination. It's a combination of a bit of the partial power and the coal cost. While I will request Rahul to give the answer on this. As far as alumina and our -- even our imported alumina is concerned, there is a differential of say, around $100 to $150 per tonne depending on the prices, LME and the prices. So Rahul, any more detail or any more color you want to add to this?

[Rahul Trivedi Sharma, executive]

No, I think when we go, generally it remains in the range of $100. But in Q1, for sure, it was EBITDA maybe $60 around -- $60 to $65 that was the data between Lanjigarh versus imported alumina point of view.

[Ashish Kejriwal, analyst]

So sir, your alumina cost of production is something like $371 in first quarter. And when we spoke about, I don't know, $150 decrease in alumina price. So even after the decrease you are seeing that it's a difference of between $60 to $70?

[Rahul Trivedi Sharma, executive]

Sorry, come again -- that's what I'm saying, that's the arbitrage between imported versus your domestic.

[Ashish Kejriwal, analyst]

Okay. Okay. So $60, $70 is still there.

[Rahul Trivedi Sharma, executive]

Yes, yes.

[Ashish Kejriwal, analyst]

Okay. Second question is, sir, aluminum hedging only. You've mentioned about 20% of first quarter volume was hedged. And if I remember correctly, in first -- fourth quarter, you said that for the full year around 15%, 16% of the volume was hedged. So the entire difference in volumes now, will it be front-ended or it will be across the quarters? And if that is the case, what would be the second quarter volume, which is hedged at around $3,500.

[Ajay Goel, executive]

Right. Right. So see, I mean, you cannot calibrate volume in line with the hedging, right? I mean in terms of front ending the volume in second quarter and third quarter won't work. If I give you a bit of context, as you know, Vedanta historically. Our policy has been that we want to realize the average LME of the month of production. But given the current environment, it is quite tumultuous, very volatile, this cost correction was warranted. And also in the hindsight, we feel it was a good step.

So if I speak of the second quarter for aluminum, against our planned volume for the second quarter, almost 28% volumes are hedged and the hedging price is about $3,630 per tonne. So net-net more than 1/4 volumes for second quarter are hedged. Same way if I speak of zinc almost 40% volumes, planned volumes for the second quarter are also hedged and same number almost 30% for Oil & Gas. Net-net, I think we are decently covered in terms of second quarter hedging point.

[Ashish Kejriwal, analyst]

That's great. And sir, lastly, we are going to operate our Jamkhani mine next month. So is it possible to share some cost benefit which we can -- not next month, maybe 6 months down the line from this mine?

[Sunil Duggal, executive]

I'll give you some idea that we have 3 mines. The projected cost from these 3 mines is ranging somewhere between INR 45 paisa to INR 85 paisa. So Jamkhani the cost will be somewhere between INR 80 paisa to INR 85 paisa And Radhikapur is somewhere between INR 50 paisa to INR 55 paisa. And Kuraloi could be around INR 45 paisa to INR 50 paisa. So this is the range. And the weighted average you can work out, could be around INR 60 paisa to INR 65 paisa versus INR 1.90 paisa, which we incurred in first quarter.

[Operator]

Next question is from the line of Vishal Chandak from Motilal Oswal.

[Vishal Chandak, analyst]

Yes. Am I audible now?

[Operator]

Yes, sir, you are.

[Vishal Chandak, analyst]

Sir, my question was with regard to the Oil & Gas business again. From time and again, we have been trying to improve the production run rates. I mean we have been talking about improving production run rates, but it has been a disappointment even today also. What kind of IRR do we target for Oil & Gas business? And what kind of -- how does that compare to our IRR targets for Zinc business to understand how do we evaluate project or do a capital allocation across various businesses?

[Sunil Duggal, executive]

Prachur, if you can take the question about Oil & Gas and then I will try to add on Zinc. Prachur?

[Prachur Sah, executive]

Sure, yes, yes. Can you hear me, sir? So on the projects for Oil & Gas, typically at a $50 oil price, we are targeting an IRR of 20%, and that's been the case so far. That's all the projects that we have targeted at $50 oil price, we are looking at a 20% IRR as a threshold to take up the projects.

[Ajay Goel, executive]

If I may supplement again, Vishal, I would again go back to our group policy on allocation of capital. And the fact we committed that any CapEx project for the group, our minimum IRR will be at least 18%. In case of Oil & Gas, our internal numbers, you heard from Prachur, we assume $50 by the bill barrel as of pricing. Even with that kind of pricing, our IRR in Oil & Gas business is higher than the group average.

[Vishal Chandak, analyst]

So we are saying that the Oil & Gas business probably generates a IRR higher than what our Zinc business generates because Zinc still gives you the highest proportion or share of the EBITDA, as the IRR over there is lower, that means the overall IRR should be somewhere far steeper down? Would that be a correct?

[Sunil Duggal, executive]

You cannot calculate like that because the structure of Oil & Gas is much different than the zinc. Zinc any price goes up the entire contribution of the increased LME goes to the bottom line. But in the Oil & Gas business, the structure is such that it attracts duties, success and then profit petroleum. And not more than 30% flows back to the business.

[Vishal Chandak, analyst]

I think, that was the important question that I was trying to try down the IRR and other businesses are fairly higher compared to this Oil & Gas business, where investment is continuously required. Sales are declining. There is a windfall gains tax from the government. Why do we still want to continue with this kind of an investment? Why not propel the investment further in other spaces like Aluminum and Zinc where the possibility on returns, especially with our own coal mines on opening up, there is a higher probability for a better return worth.

[Sunil Duggal, executive]

That is an internal call that we keep our portfolio very diversified, number one. And we don't want to put all our eggs into one basket. The other is that we want to partner with a country where the energy security for the country is very important, and we want to play a very important role in that. And we are the only private player in the country who actually contribute 25% of the India's domestic production. And we remain excited about it that we want to evaluate the new resources, all that, discovered small fields, methane, coal bed methane. So we will keep participating there. And the Government of India is also quite favorably placed to partner with us in that to look at across the table with a more mindset of the open book to see that how the new projects, still why you see viable. And that is why you see even for putting up the ASP project, they have come up with the policy of reducing the such to have to make the project viable.

But apart from that, our other projects and even on this project, they remain open as to what needs to be done to make these projects viable because the country suffers the most because of the Oil & Gas import.

[Ajay Goel, executive]

I just want to also add 2 more points here. See, allocation of capital and the move to CapEx and the resulting IRR is also a function of opportunities. So it is not necessarily either or, say, between one portfolio to other. If you look at our current year's guidance on CapEx, almost $2 billion. So in fact, we are investing the half of that, almost $1 billion in aluminum example, BALCO, almost $380 million in terms of rolled production expansion 250 kt. And also for smelter capacity to 420 ktpm. Same as an example, Lanjigarh is a good example. So net-net, one should look at CapEx production in terms of forward-looking outlook.

And finally, it is the nature of the business as well. I mean, as you would appreciate, maybe the one discovery in Oil & Gas perhaps will pay back 450 in the past. So net-net, it is all the businesses. And in our businesses, we got to invest in a market where there might be a bit of a downturn. In that case, the portfolio becomes resilient and we can deliver across the cycles.

[Operator]

Next question is from the line of Rahul Jain from Systematix.

[Rahul Jain, analyst]

Sir, one firstly on -- we keep hearing in the press a lot about your semiconductor business. What plans do we actually have? And is there any capital commitment that we are doing in the next 6 months to 1 year? That's my first question.

[Sunil Duggal, executive]

So as far as the semiconductor business is concerned, the government of India has made a policy that how they can support the sector where this is also a very strategic sector for the country where the government is quite inclined to make this work in the country, and that is why they have declared the new policy. And given the state government, each of the state government is quite excited about it. So currently, we are in engagement with the various state governments.

And they are ready to make all shops available to us to make the project exciting and viable. So we are evaluating the final location, and you will hear from us as we will progress.

[Rahul Jain, analyst]

And sir, also on Hindustan Zinc, so the government will likely exit. So are we going to participate in the government segment and increase our stake? Or what is our stance on this?

[Sunil Duggal, executive]

So government is doing its process. We are appointing the banker now. And in any case, we cannot acquire more than 5% in any given year or 25% of the stake sale at any point of time. Depending on whether the government would request us to participate in acquisition beyond the legal limit, we will evaluate. But if they will offer, we will definitely consider.

[Rahul Jain, analyst]

And any color on BALCO, if you have in -- on similar lines?

[Sunil Duggal, executive]

No, we have no way forward for BALCO as of now, neither the government has made any plan as far as our information goes.

[Operator]

Next question is from the line of Ritesh Shah from Investec Capital.

[Ritesh Shah, analyst]

Sir, my first question pertaining to the debt maturity profile of the parent, would you be able to provide some more color on that? To my understanding, it was around $3.7 billion for the fiscal, which included around $300 million for ICL and interest cost of around $700 million. If you could help on a quarterly road map over here, that will be quite useful. The reason I ask this is I'm also trying to understand the payout for the full fiscal.

[Ajay Goel, executive]

Yes, sure. I'll be kind of a brief on this one. Just being Vedanta Limited call. But you're right, in terms of -- for the current fiscal for Vedanta Resources, total maturities is $3.7 billion, including $1 billion, which is a combination of interest cost and ICL that leaves almost $2.7 billion for the full fiscal in terms of external debt. Out of which -- out of $2.7 billion, roughly $2 billion are falling due in H1. VRL, as we all know, is -- looks at the numbers on half yearly basis. So out of $2.8 billion, $2 billion in H1 and the balance of $0.8 billion in the second half.

You may have seen, given the recent 2 interim dividends by Vedanta Limited, the receipt and Vedanta Resources is about $1.5 billion. So $1 billion out of the first dividend and roughly $0.5 billion from the second interim dividend. So $1.5 billion is dividend. Roughly $200 million is brand fee. It makes it $1.7 billion. And finally, also, we got recently a couple of Indian PSU bankers lending to Vedanta resources, including SBI. So all of the -- with all of that, roughly $2.1 billion and $2.2 billion is already secured. So with that, until November, early December, we are fully taken care of at Vedanta Resources. And the reminder amount, 0.6%, 0.7%, we feel quite comfortable in terms of meeting those maturities. So either we refinance them or we repeat them?

[Ritesh Shah, analyst]

This is super useful. Extremely useful. Just a related question. I wanted to understand the extent of pledges and encumbrances, which are there at Vedanta India level, if it's possible.

[Ajay Goel, executive]

See, for Vedanta Limited, you might have seen one of our recent statutory filings that none of Vedanta Limited shares are pledged. Of course, while borrowing, there is one non-disposal undertaking which means the promoters cannot go under minority. Now as per SEBI requirements, that 54% is not pledged, but it is also reported legalized encumbered. Net-net, there is no pledge for Vedanta shares.

If I come to the second part of it, in terms of loans by Vedanta Limited and have we pledged Hindustan Zinc shares. So 5.77% of zinc stake is pledged for one loan, that number, you will remember, was roughly 14.9% with SBI. So 14.9% has come down to 5.7%.

[Ritesh Shah, analyst]

Useful. And one question for Duggalji. Sir, we had on an earlier call indicated that we had submitted EOI for Videocon and BPCL, any specific updates over here that would be useful, sir.

[Sunil Duggal, executive]

BPCL, government has redoing the process. And when the process will come, we will think at that point of time. And as far as Videocon is concerned, this is -- you know the legal process is going on.

[Operator]

Next question is from the line of Prashanth Kumar from Dolat Capital.

[Prashanth Kumar Kota, analyst]

So just wanted to understand the latest of the royalties that we pay to our parent, sir. Where is that -- where are we at in FY '22, what was the amount? And what is that expected for FY '23, sir?

[Ajay Goel, executive]

Right, Prashanth. I mean the agreement, as you know, remains same, so in terms of the coverage, in terms of entities and the rate of royalty remains same as the last couple of years. That has not got changed. The broad number for last fiscal FY '22, the royalty was almost $200 million. In the current year, as you know, it is largely end to the revenue. We think this number will be almost $250 million or $275 million in the current year.

[Prashanth Kumar Kota, analyst]

Sure, sir. Sir, just two cents on this. Sir, generally, in industries and sectors where there is an IP and patented knowledge or brand that is being given to the Indian entity, for example, auto, pharma, FMCG, et cetera. Royalty is a very well-established practice. But then, sir, in our industry and combining metals kind of setup, this is not a very widely prevalent. That is one aspect. Second, later as you -- you'd add back instead of giving it a royalty, you add this back to the dividend pool.

Anyway 70% goes to the parent. The rest 30% comes to minority. But then what that immediately does is, let's say it's $200 million, you added back to the dividend pool immediately, it raises your valuation by $2 billion. Out of the $70 billion anyways it's owned by the parent. So get -- there is a $1.4 billion net benefit in market value what they lose is $60 million, that's it. On the cash, that would have otherwise come as -- that would have otherwise gone directly to them.

So it wouldn't it be -- and that is one. Two, there also be a very good rerating in the overall multiple in the yields that the company would be getting because some investors may see this as an overhang. This is our feedback. Just your thoughts are also please clearly welcome and please share your insight on this, sir.

[Sunil Duggal, executive]

Thank you. Thanks for the input and your viewpoint. It could be your personal viewpoint what you are expressing. But this has gone through the required legal process and the Board approval and all the approvals have gone through. And after all the stakeholders and the Board members are convinced that there is a substantial value addition, which is done by the parent, and that is the royalty table. So that is what my broader viewpoint.

[Prashanth Kumar Kota, analyst]

Okay, sir. Understood, sir. Sir, my second question is, generally, Vedanta has never hedged their volumes forward. This is one exception that we did it, I think, in March or April. It has turned in hindsight turned out to be a fantastic more, saving about a couple of thousand crores for the company. This is to the CFO, sir, what was your thought process when you decided that back then based on the market, based on the pricing, et cetera, et cetera. If you could kindly share your thought process as to what made you to take this call you and your team together.

[Sunil Duggal, executive]

No, this was done based on the valuation, which was done internally and based on the expert advice. And we have also set up the hedging desk set up the internal headed by a global hedging expert who has come on board. So depending on that and benchmarking and the valuation we took a call at that point of time. It was a very strategic call which was taken.

[Ajay Goel, executive]

But that risk management has to be a dynamic process. It must take into account the current environment, which, as I mentioned earlier, is quite tumultuous, very volatile. Typically, Vedanta, you are right, has never hedged. We are fine to capture the average LME for the month of production. But given the significant in terms of the pricing going up and down, that too within a very short time frame Vedanta decided to make this course correction. And you're right, again, that in the hindsight, it was a good step.

But let me also add that hedging is not to make money, Vedanta's expertise lies in metals and the mining. Hedging is to protect the margins. But again, I don't think is the right way to look at the hedging as success. Imagine, if we had hedging losses, which means on the remainder, 80% uncovered portfolio, the pricing would have been far, far higher than where it was. But you're right, we are glad that we covered our, one is to volumes and to that extent, we could protect the margins.

[Prashanth Kumar Kota, analyst]

And one all follow-up from previous participant. Sir, on the $30 new [indiscernible], how much of the hit will be on EBITDA, so after taking away all the government contributions, et cetera? Is it the 15-18 or less or more, sir. At the EBITDA level, what is that per barrel?

[Sunil Duggal, executive]

You have that calculation, Prachur?

[Prachur Sah, executive]

Yes. I mean, I can explain that a little bit. So at EBITDA level, because at $30 a barrel in our PC share, government -- the $30 barrel doesn't hit us directly on our EBITDA because government actually pays out of the $30, almost $70 as part of profit petroleum. So the net effect on EBITDA post cost and everything could be around $5 to $6 a barrel. At that price, you have to realize this is a price thing at $120, it was $40 and it's reduced to $30. So at that price, it's about $5 a barrel.

[Operator]

Ladies and gentlemen, we'll take the last question from the line of Sumangal Nevatia from Kotak Securities.

[Sumangal Nevatia, analyst]

My first question is on the Power division. The margin this time is almost a record lower INR 20 paisa per unit of power, is it possible to share the breakout between TSPL and other Jharsuguda business? And if you can just explain how should we look at earnings here because at least my understanding for the TSPL business was that it is a take or pay kind of an agreement, and our availability has been good, 77% to 80%. So we were kind of modeling around INR 1,000 crores of EBITDA run rate on an annual basis. The timeline, again this has basically undershoot our expectations. So just some explanation on that is requested.

[Sunil Duggal, executive]

While we will give you the exact calculation, but let me tell you that this -- construct of this contract -- the construct of this contract is that the goal is passed through. And we are paid based on the certain availability. The availability is on an annual basis. The quarter-to-quarter availability could vary depending on whether the annual shutdown is due in that quarter or not.

In the first quarter, one of the unit need the shutdown, major shutdown that we have taken. But over the year, our belief is that our availability will be more than the contractual availability.

[Ajay Goel, executive]

There are more breakup if you're interested in our IR presentation, it's Page #36, which covers the entire power panel across Jharsuguda, BALCO, TSPL and also Zinc Wind Power. If you want more information, please do to Sandep Agrawal, our Head of IR.

[Sunil Duggal, executive]

Or refer to this paper.

[Sumangal Nevatia, analyst]

Okay. All right. And just one follow-up on our coal mix and just the recent commentary. So if you can just explain -- just repeat what is the mix? And how is the mix changing? I mean our linkage is increasing? And are we replacing some more of imports or e-auction with linkage in the coming quarters? If you could just share something?

[Sunil Duggal, executive]

No, the last quarter was a mix of linkage, e-auction coal, import and the local purchase, spot purchase. This quarter, we believe it will be a combination of linkage and e-auction. As my friend, Rahul said that the linkage could vary somewhere between 35% to 40%. And the auction could be somewhere between -- around 60%.

[Sumangal Nevatia, analyst]

Okay. And at the peak, what can be our linkage mix at the peak. And what sort of inventory, how many days of inventory do we carry?

[Sunil Duggal, executive]

Rahul?

[Rahul Trivedi Sharma, executive]

So let me just answer the last question. We have 5 to 6 days inventory, which is better than the previous quarter from an inventory side. And another question would be there what we are talking about, which Sunil has already answered.

In terms of linkages, we will be almost 36%. But ideally, I have 55% of my contribution but it depends on metalization. So there is scope from, one is that moving from 32% to 36%, [indiscernible] 18% to 55% and Captive will also play a role as we said that Jamkhani is getting started now. I hope I have answered both your questions.

[Operator]

I now hand the conference over to Mr. Sandep Agrawal for closing comments.

[Sandep Agrawal, executive]

Thank you, Nirav. Thank you all for taking time out to join us. I hope we were able to answer most of your questions. In case you have further questions, please feel to reach at us. This concludes today's call. We look forward to reconnecting you for next quarter earnings call. Thank you.

[Operator]

Thank you very much. On behalf of Vedanta Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.