Vedanta Ltd

NSE:VEDL

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Vedanta Q3 FY '21 Earnings Declaration Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arun Kumar, the Chief Financial Officer of Vedanta Limited. Thank you, and over to you, sir.

[G. R. Arun Kumar, CFO & Whole Time Director]

Thank you, operator. Good evening, and good morning to all the participants in today's call. A very warm welcome to the quarter 3 earnings call of Vedanta. It's my pleasure to introduce Mr. Varun Kapoor, who has joined us as the IR Head of Vedanta. I now hand over the call to Mr. Kapoor to introduce himself and conduct the rest of the proceedings. Thank you.

[Varun Kapoor, Director of Investor Relations]

Thank you, Arun, and good evening, everyone. I'm Varun Kapoor, and I have an overall experience of about 18 years, primarily in oil and gas and earlier in equity research. I have been with the Vedanta Group for about 12 years now. I look forward to a fruitful engagement with all stakeholders in the coming quarters as the company is well positioned to deliver growth through the cycle. So with that, I'll request our CEO, Mr. Sunil Duggal, to present the results. Over to you, Mr. Sunil.

[Sunil Duggal, Chief Executive Officer]

Thank you, Varun. Good evening, ladies and gentlemen, and welcome to Vedanta Limited Third Quarter FY '21 Earnings Conference Call. Before we commence a detailed update on Q3 performance, I would like to provide overall broader perspective. India is entering into a golden era, with projected growth at 11% to 12% with commensurate high commodity growth and it finds Vedanta in a sweet spot, being a diversified portfolio with production ramping up across our assets. Some of the top achievements of the business in the quarter are EBITDA at INR 7,695 crores, up 18% Y-o-Y, highest quarterly performance for the last more than 2 years. Industry-leading EBITDA margin of 39%, highest in the past 4 years. Aluminum sustained lower cost of production and highest EBITDA margin of 28%. Hindustan Zinc, highest ever quarterly ore production of 4 million tonnes, ever lowest underground cost of production in current year. Hindustan Zinc ranks first in Asia Pacific Dow Jones Sustainability Index in metal and mining sector for third year in a row. This is best feat achieved by any Indian company. Zinc International, Gamsberg, highest ever production of 43 kt. Electrosteel, ever highest hot metal production of 372 kt. Pig iron, ever highest margin of $129 per tonne. A landmark achievement, 2000th Nand Ghar became operational. Quarter 4 looks more robust with high focus on pulling all levers to drive value for stakeholders. Aluminum poised to deliver ever highest production. March exit could be 2.2 million tonnes and sustaining the cost trajectory. Hindustan Zinc inching towards 1.2 million tonnes at $900 per tonne; silver beating guidance. Gamsberg ramping up to achieve full potential in quarter 4. Cairn, new gas facility commissioned, production ramped up by 15,000 barrels per day. Surface facility and liquid handling facility to add 12,000 barrels per day. Polymer injection ramp-up going on. Iron Ore, capitalizing opportunities in Iron Ore Goa. Pig iron margin improvement through efficiency and enhancing projects in our largest blast furnace. Electrosteel, maximization of value-added products, EBITDA contribution. FACOR, our newly acquired business, 3x EBITDA contribution in quarter 4. I would like to express my deep gratitude to all our employees who have worked hard to deliver yet another strong operating quarter. This year has been incredibly challenging and has uniquely tested the strength of the business and our ability to adapt and work together in extraordinary circumstances. This is a testament to their resilience and dedication that Vedanta has safely maneuvered these unchartered conditions and emerged out stronger. We have confidence in being able to deliver our best by relying on our exemplary talent pool and asset base; continued focus on cost discipline and efficiency; commitment to our core values around safety, environment and social responsibility. Vedanta is at an exciting transition, a transition that will see the company accelerate in the expansion of its reserves and resources base over coming quarters. This exciting period for us is augmented by a strong presence in India. Commodity prices, particularly the base metal and silver extended their gains in quarter 3, touching multiyear highs on the back of strengthening Chinese economy, ample cheap liquidity and buoyant sentiment across about vaccines. Crude oil prices also made handsome gains from the start of November on the back of voluntarily production cuts by OPEC+ to balance market fundamentals. Prices of iron ore and steel in India remain extremely bullish. Festive season brought a cheer to the industrial sector. Passenger vehicle sales continued to grow in October and November. Finished steel consumption up, coal uptake, electricity generation, all registered positive growth in quarter 3. The recovery during the rest of the financial year is likely to be fueled by the government financial -- final consumption expenditure, which is likely to grow 17% Y-o-Y in H2 vis-à-vis 3.9% in H1 of this fiscal. A progressive and forward-looking union budget likely to focus on infrastructure spending and incentivizing industrial production would augur well for base metal and energy commodities. Now let us turn to the key highlights of the quarter. Our Aluminum business continued with its strong performance in quarter 3 with hot metal cost of production down 18% Y-o-Y at $1,387 per tonne and the alumina cost at $249, down 7% Y-o-Y, with a sustained high EBITDA margin of 28%. In our Zinc business, we remained on track to become the world's largest integrated zinc, lead, silver producer while maintaining our cost leadership with a strong operational performance from Hindustan Zinc and increased volume from Zinc International. We witnessed highest ever ore production of 4 million tonnes in Zinc India, supported by record mine development of 27 kilometers in the quarter. We are at the lowest 9-month cost of production at $958 since transition to underground. Our silver production at 183 tonnes, soaring 23% Y-o-Y on account of higher lead production. We are also very happy to share that we achieved the highest ever production of 43 kt, up 39% Y-o-Y at Gamsberg in our Zinc International business. In our Oil & Gas business, we are pleased to announce that the new gas terminal is online, ramping of the gas production by 15,000 barrels per day. We have made considerable progress in our Iron Ore business with its EBITDA increasing significantly this quarter. We have capitalized the opportunity to increase Goa sales by 3x Y-o-Y. Our pig iron margin has increased sharply from $24 per tonne in quarter 3 to $129 per tonne, supported by global prices. We achieved the highest ever quarterly hot metal production of 372 kt since acquisition of our Electrosteel business with a robust margin of $111 per tonne, supported by increase in value-added product mix from 71% to 85% Q-o-Q. Our key growth projects are back on track, and the expansion is being delivered through strict capital allocation and balance sheet focus, aimed at creating value for our stakeholders. Continuing with the trend started in quarter 2, our quarter 3 EBITDA is at INR 7,695 crores, up 18% for Q-o-Q, highest in more than 2 years and with a robust EBITDA margin of 39%, highest in last 4 years. It is worth highlighting that this has been achieved in what can still be seen as a challenging environment. Attributable PAT at INR 3,017 crores, up 51% Q-o-Q. Net debt at INR 35,357 crores, with net debt-to-EBITDA ratio of 1.5x, maintained at low level, indicating a strong balance sheet. Liquidity position with total cash and liquid cash investment of INR 27,055 crores. Before we start with the operational and financial details, I would like to give an overview of our health, safety and environment. Our environment management, our focus remains on meeting the vision of zero waste, zero discharge. In this regard, we have undertaken a group environment risk assessment study and have initiated an environment dashboard for improved governance of concerning parameters. We have implemented plastic-free protocols across 3 businesses. The improvement in Dow Jones Sustainability Index ranking certainly encourages us to take further steps in the right direction. We are proud to announce that 2,000th Nand Ghar as a part of Vedanta's flagship CSR project has touched a new milestone in transforming lives of India's women and children. A group of carbon forum has been initiated. Vedanta has signed the carbon neutrality pledge along with 24 other private companies. We are leading the India CEO forum for climate change, which is designed to chart a road map and share challenges for companies and government bodies. We are committed to reduce GHG emissions intensity by 25% by FY '25 and substantially decarbonize operation by 2050. We are in the process of developing low carbon solutions and piloting projects that focuses on sharing more energy and fuel. Now if you come to Slide #2, throughout the COVID-19 pandemic, our fore most priority has been to ensure safety of our employees, business partners, communities, along with maintaining business continuity. Vedanta Aluminum conducted COVID vaccination program for our health worker staff in partnership with district health administration. We are deeply saddened by the loss of 3 lives at our Gamsberg and TSPL operation. Our business have taken further measures to ensure safety. We aspire to have strong zero harm vision and are taking steps to achieve this goal. During the last quarter, we launched a critical risk management pilot initiative at our Aluminum business. We have initiated a group-wide ICAM training for better learning from the fatalities. In line with improving the design adequacy, we are doing a group-wide review of LOTO and permit to work. We have initiated a safety dashboard for tracking safety actions closer and cross-business safety audits. We are having significant gains in implementation of our safety programs and aim to further fine tune our safety road map to carry out best-in-class practices. Now if you refer to Slide #3 and turning to the business verticals. First on Aluminum. In our Aluminum business, we yet again saw a good quarter in terms of our alumina and aluminum production and costs. LME aluminum looked up for most part of quarter 3 with an average of $1,916 per tonne, up 12% quarter-on-quarter. Through continued team effort, we continue to run our supply chains and operations well and expect supportive trends to continue. Our aluminum hot metal production for quarter 3 FY '21 stood at 503 kilo tonnes, including trial run, up 6% quarter-over-quarter with a record 9 months cost of production at $1,315 per tonne, down 26% Y-o-Y and lowest in the last 5 years. Consequently, we also witnessed strongest EBITDA margin of $565 per tonne in the last 5 years with the completion of the quarter. The aluminum production is at 407 kt, 12% down sequentially due to equipment availability issues with the cost of production at $249 per tonne. Now if you refer to Slide #4, the Aluminum segment made significant progress in its structural cost reduction journey across its strategic key levers. In the past few quarters, we have brought down our hot metal cost in the range of $1,300 to $1,350 per tonne, primarily driven by our lower Lanjigarh cost of production through operational excellence, optimized local and global bauxite source mix, and regulatory changes like reduction of renewable power obligation. We benefited from commodity tailwinds across lower alumina and carbon prices and lower e-auction coal premiums. For long-term coal security, Vedanta had bid for and won the Radhikapur West coal block recently. We have now signed the coal mine development and production agreement with the Government of India for this block. The operationalization of our captive and commercial coal block at Jamkhani and Radhikapur, respectively, will be one of our key focus areas and a key lever. Line 6 of Jharsuguda smelter 2 is also undergoing ramp up currently and about 150 ktpa additional run rate has already been achieved. The volumes will show up in coming quarters as we stabilize the production. We are focusing to expand Lanjigarh from approximately 2 million tonnes per annum to 5 million tonnes per annum and similarly ramp up further volume at Jharsuguda, both subject to obtaining required government approvals. The improving vertical integration will help us in our sustainable cost production journey. As a strategy, we are focusing to increase our captive alumina mix and local bauxite mix, operationalize our coal blocks and target to significantly reduce our cost to $1,200 per tonne over the next 2 to 3 years. Now if you turn to Slide 5 and coming to our lead, zinc and silver business, we are one of our -- which is one of our key pillars of Vedanta. Zinc India is delivering consistently on volumes despite the challenging time and has achieved a few milestones this quarter. Our MIC production was 244 kt, up 4% Y-O-Y, while the metal production was 7% up Y-o-Y at 235 kt. We are on track to achieve the guided metal production -- guided metal volume of 925 kt to 950 kt as well as expect to keep costs well below $1,000, as indicated towards the end of first quarter of FY '21. Our 9 months to date cost is at $958, down 10% Y-o-Y. It is at the lowest level since transitioning to underground in 2018, and we further aim for the near-term target of $900 per tonne. We plan to leverage volume and efficiencies to maintain first decile COP by structural initiatives on digital transformation in all of our underground mines, energy basket optimization, minor metal extraction, among other levers of efficiency and productivity. Our current production run rate gives us confidence to deliver 1.2 million tonnes from near-term fiscal and projects to eventually reach to 1.5 million tonnes. We are focusing not only on increasing production from our existing resources and enhancing the recoveries via technology, levered disciplined operations, but also working towards assessing new mining zones and partnerships. Now if you turn to Slide #6, in addition to being a global leader in the zinc and lead business, we are soon to get a similar position in our silver business. We expect to be among top 3 silver producer and the largest integrated silver producers globally in the next 2 to 3 years. The volumes have more than doubled in the last 5 years. And at completion of this quarter, we recorded higher ever 9 months silver production of 503 tonnes. We are likely to exceed the target of 650 tonnes this year and are planning towards a production of 800 tonnes in near future with medium-term goal of 1,000 tonnes, driven by higher mining rate and silver recovery initiatives. Turn to Slide #7 and moving to Zinc International. The performance at Gamsberg mine has been very encouraging. We recorded the highest ever production of 43 kt, up 39% Y-o-Y and 23% Q-o-Q with the cost of production at $1,267 per tonne, down 10% Y-o-Y. In Q3, several best demonstrated monthly performances were achieved, including mill throughput, recovery and plant availability. Production at the Gamsberg mine was suspended due to a geotechnical failure, but mining was recommenced in early January after a comprehensive risk assessment. Steps are being taken to avoid occurrences of such incidents in the future. We continue to ramp up the Gamsberg site, which is on track to reach its designed capacity soon. We aim to exit the quarter 4 with an average daily production of 600 tonnes and target recovery of 82% plus, supported by identified debottlenecking opportunity, which will improve the reliability and sustainability of the plant.Black Mountain mine produced 16 kt MIC in quarter 3, an increase of 1% Q-o-Q. Skorpion zinc mine and refinery remains under care and maintenance following geotechnical instability in the open pit. Overall, cost of production at $1,317 per tonne, down 17% Y-o-Y due to better recoveries, cost control measures, offset by exchange rate appreciation. Significant production improvement initiatives like blending of transition ore, short burst lower ore body recovery. Recovery improvement initiatives are underway, along with continuous focus to reduce costs. Turn to Slide #8. On Oil & Gas business now, we are happy to share that the new gas terminal is online and sales shall commence in quarter 4, ramping up the gas production by 15,000 barrels per day. Gross oil production for the quarter was 160,000 barrels per day as compared to 165,000 barrels per day in quarter 2. This is mainly due to the delay in execution of growth projects and natural reservoir decline in the field. This is partially supported by new wells built as part of growth projects. 249 wells were drilled and 131 are hooked up. The operating costs are at $7.6 per barrel versus $7 per barrel in quarter 2 in FY '21. The increase is due to increase in workover activities. MBA infill and polymer projects, all 87 wells are drilled and are online as we speak. Polymer injection in Bhagyam and Aishwariya is being ramped up gradually. All wells in Aishwariya Barmer Hill are drilled. The surface facility work shall complete in the current quarter, leading to an increase in volumes of 8,000 barrels per day currently to 15,000 barrels per day. Liquid handling upgradation project is expected to be completed during the current quarter, leading to an increase in volume by 5,000 barrels per day. We plan to exit the next quarter with a gross production of 185,000 barrels in FY '22 with a gross production of 220 barrels per day. The volume growth shall be driven by 2 factors: increasing recovery and new exploration targets. One of the key enablers on increasing recovery shall be early adoption of digital opportunities, digital transformation with modern analytics platform and powering data-driven decision can bring significant improvement in recovery. It can enable focus on preventive maintenance and management of integrity of our wells and facilities. Moving on to exploration in OALP. We have drilled the first well in Rajasthan now. The discovery has been notified, and we are further evaluating the results to establish the potential, which we will bring online with a modular concept. Drilling of wells in Assam and Cambay is expected to begin during the quarter. In respect of audit exception, the arbitration tribunal has granted interim injunction. Tribunal directed the Government of India not to take coercive action to recover the disputed amount of auditor exceptions, which is a subject matter of arbitration. The Government of India has challenged such interim order before the Delhi High Court. The challenge is now listed on 12th February, 2021. Move on to Slide #9 and moving to our Iron Ore business. Our Iron Ore business performed very well, with its EBITDA increasing significantly from INR 256 crores to INR 570 crores this quarter. In Goa, we clocked sales of 0.6 million tonnes, taking the YTD sales to 1.3 million tonnes, and it was well supported by rising global prices. The increase in sales was an effect of mobilization of 1.1 million tonnes stock post Supreme Court judgment and beneficiation of low-grade ore through our facilities. We also strategically sourced 0.5 million tonnes in 24th DMG auction in November '20. Further, for the resumption of mining in Goa, we are continuously engaging with state and center government with the support of people adversely impacted by Supreme Court's state-wide ban. The pig iron production was 145 kt because of the temporary shutdown taken for maintenance and efficiency improvement. We hope to alleviate the margins by $10 to $15 in the near-term once these enhancements activities are through. Our value-added segment greatly benefited by domestic steel prices and international coal prices. It has achieved highest ever margin of $129 per tonne, up 53% Q-o-Q compared to $84 per tonne in Q2 FY '21, mainly it was greatly aided by strategic procurement of iron ore through e-auction and third-party and captive consumption of Karnataka iron ore. Karnataka production is at 1.4 million tonnes, up 21% Y-o-Y, though the sales were down 21% Y-o-Y at 1.2 million tonnes, 10% down sequentially due to temporary logistic issues. The margin was supported by ever highest domestic iron ore prices in Karnataka. Turn to Slide #10. Our Electrosteel business recorded highest ever quarterly hot mental production of 372 kt since acquisition with a robust margin of 22% at $111 per tonne, highest since FY '21 on account of improving macro factors and steel prices. The businesses achieved designed run rate of 1.5 million tonnes hot metal production this quarter. The sales were at 333 kt for the quarter, up 5% Y-o-Y and 23% Q-o-Q. With higher deliveries of value-added products by 47% this quarter, the VAT mix increased to 85% in quarter 3 versus 71% in quarter 2. FACOR was acquired by Vedanta in September '20. At the time of acquisition, FACOR had a presence in the business of producing feroalloys and owned a ferrochrome plant. The acquisition complemented Vedanta's existing steel business as the vertical integration of ferro manufacturing capabilities has the potential to generate significant efficiencies and is helping Vedanta increase its portfolio in steel business. Since acquisition, we have operationalized and enhanced the production at both the mines. The production has increased by 38%, with margin improvement of 145%, around 2.5x post acquisition. We are now currently using 100% of the captive ores as compared to 50% utilization at the time of acquisition. The domestic market share has increased to 75% in quarter 2 -- quarter 3 post acquisition as compared to 35% in H1. We also introduced e-auction of ferrochrome resulting in the NSR improvement of 20%. We have currently reduced cost by 5% with the near-term possibility to reduce it by 20%. The near-term focus is on 100% integrated production, cost optimization and discovery of price rises to improve NSR to leverage the medium-term opportunity and tap true potential. The integrated function -- if you turn to Slide 11, we at Vedanta has always believed in a transformational approach to improve our performance with a strong focus to further strengthen the contributing pillars of our business. We are bolstering our function with the game-changing initiatives. One of the major shifts have been evolving our marketing and commercial functions into an integrated structure, enabling us to simplify the buying and selling organizations, creating core category expertise and unlocking greater efficiencies. We have a vision of unlocking potential saving of $1 billion through this restructuring. The integrated function will act as a group captive center in charge of all buying across commodities, spares and services and will be responsible for marketing and market development while bringing the best practices in contracting, operation planning and supply chain, digitization and e-commerce. It will be the single face for selling of key commodities and consolidated buying for majority spends across businesses, bringing in economies of scale and value-driven buying in line with the globally benchmark best practices. The function will be strongly focused on strategic buying by bringing best-in-class partners and technologies, featuring aspects like process automation through digitization and satellite processes, e-commerce sales for connecting with SME and MSMEs, the group synergies will further help in optimizing our working capital, increasing our cross-selling opportunities with improved opportunity with new product development and market growth. Now if you turn to Slide #12. We have always been a leading adopter of new technologies, and we have now reaffirmed our priorities by launching a group-wide digital transformation program called Project Pratham, with a vision of transforming Vedanta Group into a truly digitized first organization and embedding digital in our DNA. The digital function cut across the Vedanta group from manufacturing that is mining, power, coal, oil and gas, et cetera; commercial functions, procurement, marketing, logistics, et cetera; HSSEQ, HSE, security, quality to other enabling functions like HR, finance, PR, et cetera. The objective is to deliver a combination of tangible value in the form of driving volume, cost impact and other intangible gains such as zero harm to enhance safety and security, zero waste, zero theft, better governance, compliance, visibility across value chain, predictive capability and improved employee experience and productivity. To bring about this transformation, a focused digital road map has been created, supported by an organization design, focusing on augmenting capabilities in the area of digital, analytics and automation. Project Disha is an integrated group-wide cloud-based data platform for predictive analytics and accelerated data-driven decision making. We also have ongoing projects around smart manufacturing, advanced process control, integrated data and decision platform, unified HSE and HR platform, digital logistic control towers and quality automation. In addition, we have also launched Vedanta Spark incubating global start-ups across our businesses. Our Vedanta Spark, global startup platform and innovation cafes, we have created across all our businesses, which is helping transform mindsets and drive personal change across our businesses. This initiative will increase cross-pollination opportunities in other businesses and all locations. The function aims to provide governance on complex initiatives as we tend to debottleneck constraints and unlock value at a fast track. Now I would like to hand over to my friend, Arun, for the financials.

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes. Thank you, Sunil, and good evening, good morning, everyone, again. On the financials, I'm on the Page, Financial Snapshot Q3. Last quarter, we talked about a good comeback amidst a tough operating environment. Q3 has been all about sustaining that performance and predictability in both volume and structural cost reductions and, of course, reaping the benefits of the favorable price scenario globally. We are now near normalized our most businesses in India and globally. Aluminum continued at its hot metal cost around $1,300 per tonne. Volumes on the last line, 6 line in Jharsuguda also started to grow as we start commissioning that potline. Zinc volumes grew, and more importantly, development rates increased sharply. Gamsberg moved to higher production levels and nearing its capacity as we speak. Iron Ore business making significant EBITDA contribution, including from Goa. Steel business doing well and more than tripling the margin at FACOR in a short period post takeover. Last but not the least, all the oil growth projects nearing completion in quarter 4. Collectively, we delivered about INR 7,700 crores EBITDA, which is the highest in the last 11 quarters. The next 12 months of the near future, as you would have noticed, from the business section is all about gradual volume growth, sustaining the cost structures and driving organic growth while allocating capital responsibly. This should help weather cycles and reap the benefits of the current up cycle. At INR 7,700 crores EBITDA, it's up 18%, both quarter-on-quarter and year-on-year. Margins at 39%, again, close to all-time highs. ROC at 13% continues to be in healthy double digits. Attributable PAT before exceptional items and tax and dividend at about INR 3,000 crores is 51% higher quarter-on-quarter and 35% higher versus last year. No change in any of our guidance around the operating parameters. We believe quarter 4 will be a volume theme as the guidance number would suggest a 10% increase in volumes compared to the last 9 months average. We -- as usual, we have a detailed income statement in the appendix. However, some key updates on the income statement are as below: Depreciation, lower year-on-year, majorly due to the impairment of oil and gas in the last quarter of last year. Again, as guided earlier, depreciation for Q4 will be marginally higher due to volume ramp-ups expected in zinc as well in oil. Finance cost was flat quarter-on-quarter. Average borrowing costs for the quarter are about 7.8%, not much change in that. Investment income increased quarter-on-quarter as well as year-on-year, primarily due to some onetime interest income from recovery of power debtors and tax refunds. Underlying earnings around 6% pretax to continue into next quarter as well, broadly in line with guidance. Normalized ETR, effective tax rate, is about 27%. This is excluding the tax on dividend compared to the 29% last quarter, and that will be sort of the guided number, but that's changed due to the change in the consolidated PBT mix. With higher contribution from aluminum and zinc, the ETR is starting to tend down. So 27% can be more like guidance for the year as against the earlier 29%. On the intercompany loan, there are details on the annexure page. The only update is that there's been a reset in the interest rate based on the external arm's length study. And technically, some fair value accounting entries have been passed, including credit loss estimates, refer to notes as part of the Reg 33 release. So 2 takeaways from an investor point of view is: a, there's no more audit qualification; and b, the interest rate has been reset in sort of low double-digit level compared to the current 7% that we had based on the external study, which augurs well for Vedanta. Moving on to the EBITDA bridge year-on-year page. It's self-explanatory. Better volumes, improved costs, and we also reap the benefits of deflation, depreciating currency and, of course, the favorable price. The Others bar is just the one-off of the oil business revenue of booking of the past exploration that we did in the same quarter of last year. So it's a base year effect. In fact, excluding that number, the EBITDA growth is nearly 50%. On the next page, we have the sequential EBITDA bridge. Again, very simple. It's a continuity of the last quarter. And it's fundamentally banking better LME while continuing to keep the costs well under control as well as continuing to deliver on the volumes. Moving on to the net debt walk. The reported net debt on December 31 is about INR 35,000 crores, higher by about INR 8,000 crores compared to the last quarter. While we made a positive free cash flow of INR 1,550 crores, increase is due to the outflow of dividend as well as the intercompany loan, which we had already shared the updated number, including October month during the last earnings call. So to be clear, there's no change or increase from the $956 million. With tighter gross working capital, including collections from power debtors, tax, likely to sign fresh prepaid export advance at this time of the year, and in general, driving excellence through our working capital program management, quarter 4 should be typically a significant quarter with an expected free cash flow of anywhere from $750 million to $1 billion in the quarter. So the net debt is expected to come down by at least INR 5,000 crores and the net debt-to-EBITDA back to around 1.0x is a level that we've held consistently in the last couple of years, in fact, several years. The YTD growth CapEx number is also about $350 million. Full year will be significantly lower than the guidance of $600 million that we had shared at the time of quarter 2 results. Again, that demonstrates a tight allocation, though not at the cost of any volume growth, which I had mentioned earlier, should be close to 10% volume growth in quarter 4 versus the first 9 months, which if one goes by the guided numbers and no change in that. So that takes us to the last page in this section, balance sheet. Just a summary is that the key focus continues to convert short-term to long-term maturities, refinancing well in advance for any upcoming maturities, not only at Vedanta Limited, but also Vedanta Resources that you would have seen in the quarter that just went by and use the cash to reduce the gross debt. Our focus this quarter will be to continue the engagement with the credit rating agencies to re-rate upwards on the back of robust operations, improved group structure, thanks to the [ scraping ] done by the parent as well as the strong price environment. As you noticed, at least S&P at the parent level have changed outlook to positive a few days ago. And given that the Indian rating agencies consider the whole group debt and structure, I'm sure we'll have fruitful engagements in this direction in the next couple of months. To sum up, we have delivered a steady and predictable quarter and sustained all operational gains while benefiting from the market prices. This really sets up a good foundation for a strong finish in quarter 4 and given the volume growth I talked about, one can easily call the direction of the EBITDA. Not only that, we will have the FY '22 guidance during the quarter 4 earnings. And we do hope to see the momentum continuing into the next fiscal year as well. Thank you. With this, I hand it over to Sunil, again, for his final wrap-up comments.

[Sunil Duggal, Chief Executive Officer]

Thank you, Arun. Before we open the floor for question and answer, I'd like to reiterate our strategic priorities that will drive long-term value for all stakeholders: One, ethics, health and safety, and our social license to operate; two, expanding our reserve and resource base in a sustainable manner; three, delivering the best from our assets and people with a focus on cost leadership; four, continued track record of delivering value-added growth in all our businesses; five, strict capital allocation and balance sheet focus. Now I declare the floor open for question and answer. Over to operator.

[Operator]

[Operator Instructions] First question is from the line of Indrajit Agarwal from CLSA.

[Indrajit Agarwal, Research Analyst]

A couple of questions from my side. First, on aluminum cost of production, it has increased by about 8% to 9% from a sequential basis. So what is our outlook from here on? How should we look at the aluminum COP in the fourth quarter and heading into FY '22?

[Sunil Duggal, Chief Executive Officer]

So thank you for the question. I have my colleague, Ajay, also on the call. But before that, I mean, the cost has gone up slightly. And it is a factor of the aluminium LME also. As you know, that we import the alumina and the API index drives this cost. And apart from that, it depends on the coal cost depending on our linkage materialization and the auction coal. But going forward, we have, as we said in the call that we have the structural measures in the pipeline where we are securing the bauxite -- local bauxite from Orissa. But also, as we said that Jamkhani coal block and Radhikapur coal block, and we are also participating in the coal auctions by way of which we feel that we will be able to drive the cost in a structural manner, and we will have the sustainable cost curve going forward. But over to you, Ajay, whatever you want to add?

[Ajay A. Kapur]

Yes. Thank you, Mr. Duggal. I think more or less, you've added the main elements. I will just reiterate structurally, our power plant operations have also undergone improvements, and we continue to work with the best-in-class business partners, which is also mentioned by Mr. Duggal in his opening. That itself gives us some advantage in the cost. On top of it, our coal cost for the next quarter, most of the auctions have already been purchased in this quarter. So I don't see major headwinds coming on the coal side. Yes, because of higher alumina -- aluminum, the imported alumina has gone up, and that's the reason you see that cost increase. We are also working in improving the local bauxite mix. And that on top of other measures I mentioned on the power plants, I'm confident our cost and EBITDA per tonne trajectory should more or less be in the positive direction.

[Indrajit Agarwal, Research Analyst]

Sure. And the sense I got from the call is we are embarking on most of our next phase of growth projects, be it aluminum or zinc. So I understand you will not give a guidance specific now. But can next year's project CapEx or growth CapEx will be significantly higher than this year?

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes. Let me give overall color on that. As you see, zinc sector has reached the end of its CapEx cycle. So it's all about delivering and realizing the 1.2 million at zinc India and Gamsberg really performing to peak as this year was a ramp-up to the peak as we speak now. And oil, again, all these projects are coming to fruition. So we can expect much next year unless the ASP project is one that needs to be launched, which has huge volume potential. And apart from that, aluminum is so well placed that Line 6 is something that we talked about earlier, delivering volume with a very small thing. And we've always maintained that the right time for refinery expansion in Lanjigarh will come when the EBITDA is good, and we have visibility on bauxite. So let's look forward to this space in the near future. And apart from that, we will give the guidance at the end of the quarter 4 results. And we've always had a range in terms of CapEx. So we will come up with that number. And the better part is whatever guidance we gave at the beginning of the year, in the last 5 years, we've always delivered in a very disciplined way, below guidance.

[Sunil Duggal, Chief Executive Officer]

Just to add, we are on a drawing board, evaluating different opportunities that what could be the near-term opportunities, especially through digitization, efficiency improvement, APCs, debottlenecking of furnaces, unfinished projects where the marginal CapEx could be spent, maybe the aluminum pots, which are half done. So how we can spend a little CapEx to ramp it up. So various opportunities we are trying to evaluate. And based on the quick with quick IRR, the quick return or maybe the volume addition opportunities next year, we are evaluating that. But as Arun said, that we'll come back by the end of the quarter and let you know as to how we are going ahead in the next year.

[Indrajit Agarwal, Research Analyst]

Sure. And lastly, on the Videocon acquisition, will it be on our books or on the parent in books? And if so, what kind of investments or CapEx can we look forward for that?

[G. R. Arun Kumar, CFO & Whole Time Director]

See, the Videocon acquisition right now is done by the parent, the promoter level. So if there is any update or any involvement of any Vedanta Group company in the future, we will update at that time. Right now, we don't have any updates on it or any information.

[Operator]

The next question is from the line of Sumangal Nevatia from Kotak Securities.

[Sumangal Nevatia, Senior Vice President]

First question is on the capital allocation in dividends. This year, we've passed on almost 1/3 of the dividend we've received from our subsidiary Hindustan Zinc. Any thoughts on passing the remaining 2/3? And a follow-up to this is, till when do we have the tax shield of double dividend tax avoidance in case we choose to defer to next year?

[G. R. Arun Kumar, CFO & Whole Time Director]

Okay. This question has been raised in the earlier earnings call. And so I would defer to it as a Board decision in terms of how much dividend to declare or not to declare for Vedanta Limited. And as a reminder, the dividend policy is very comfortable dividend policy yet, at the same time, it gives enough flexibility to retain the sum of money as required by Vedanta Limited. The last 5 years of trend, Vedanta Limited has been one of the highest dividend declaring companies in the corporate sector with a dividend yield of around 9% on an average. In terms of the tax, the way it works is that the dividend has ability to offset it against the carryforward business losses or depreciation as available. And we have adequately used this in a very tax-efficient manner for this year. And in future, for FY '22, we will certainly update at that point of time what are the losses available and how we are utilizing them or optimizing on the tax outflows.

[Sumangal Nevatia, Senior Vice President]

Got it. The next question is with respect to our fundraising and balance sheet. As you shared, we are generating good free cash and our net debt-to-EBITDA is also reducing. Just wanted to understand the rationale as to why we have raised debt around INR 10,000-odd crores from SBI and that we also had to -- despite strong balance sheet had to pledge our Hindustan Zinc stake. So just wanted to understand the rationale there and what -- where have we used [indiscernible]?

[G. R. Arun Kumar, CFO & Whole Time Director]

Thanks. Again, I think we did address it in the October earnings call, first quarter earnings call. I think a strong balance sheet is absolutely true. While at the same time, as is typically called, there will always be certain asset liability mismatches. If you recollect early in the fiscal year, the COVID impact with the down cycle in the metals as well as inability to access the capital markets, especially where there was a lot of short-term exposure is what led to that long-term loans. Those were the conditions negotiated at that point of time and as the need was there. I doubt if any such conditions would be required. In fact, as I mentioned earlier, we do plan to reduce the net debt by about INR 5,000 crores in the coming quarter. I hope that answered your question.

[Sumangal Nevatia, Senior Vice President]

All right. I have a few more, but I'll get back in the queue.

[Operator]

The next question is from the line of Amit Dixit from Edelweiss.

[Amit A. Dixit, Financial Analyst]

Congratulations for a good set of numbers. I have 2 questions. The first one, if you can clarify a bit more on note #7, in which there is expected credit loss also mentioned. Is there a possibility of expected credit loss? If so, why? Because we are giving it to our parent this money?

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes, sure. So the expected credit loss accounting is absolutely a very technical accounting and something that we also kind of learned it is akin to a general provision created by a bank or an NBFC when you lend to a group of people. So apparently, thousands of transactions have been collated and some financial model and this kind of provision has been necessary. However, as and when the parent keeps repaying it, I see that these entities should get reversed. So -- and by the way, when we reset the interest rate in January, the entire reserve accounting will go away. So it has no impact on EPS per se at this point of time, other than a very small impact or on the profitability, the net movement on the interest line for the last 6 months is about INR 30 crores, INR 40 crores positive, if at all, in terms of the additional interest more than offsetting the ECL. So for a moment, I'll park it as very technical accounting. There is no real loss. As you -- as most of you are from the banking and NBFC background, you would understand that these are apparently statistical provisions being created.

[Amit A. Dixit, Financial Analyst]

Okay. Fair enough. The second question is essentially on the free cash flow guidance that you have given for Q4 given that we are going to have a fairly robust cash flow and our CapEx is also quite well-rounded at this point in time. So how do you intend to use this cash flow? And possibly for the next year, will it be towards repaying your debt or we can expect some money back to shareholders?

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes. As I mentioned that as it's true with every quarter 4, if you look at our pattern, I did mention that we would have a very good chance of generating $750 million to $1 billion free cash flow just in that quarter as you also rightly observed. And at the bottom end of the spectrum, $750 million broadly translates into INR 5,000 crores plus, which is why I mentioned that we would try and repay a minimum of INR 5,000 crores of net debt. And if there are any dividend decisions at that point of time, it will be a Board-driven decision. And hence, it's very difficult to guide on the dividends fall at this point of time.

[Operator]

The next question is from the line of Vishal Chandak from Emkay Global.

[Vishal Chandak, Research Analyst]

Congratulations on good set of numbers. Sir, my question was with respect to the change or reset in the interest rate for the loans given to the promoters. So how should we look at what is the basis of the loan reset? And how it is going to happen going forward? And what is the current rate of interest?

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes. I think the interest reset has happened through an external study as well as certified by the auditors as arm's length, which is exactly why their qualification which existed in quarter 1 and quarter 2 now doesn't exist anymore. And as I mentioned earlier in our earlier presentation, you would have noticed, 7% it is now in low double digits. And for commercial reasons, we don't want to give the exact number. And there will be, again, a reset in the fourth quarter, as agreed with the auditors. And as you're all quite aware, the comparable loans at the Vedanta Resources added borrows from third-party is already at single-digit yields than what you have seen in quarter 1 and quarter 2, signifying a huge favorable trend there as well as strength of the balance sheet and operations starting to reflect across the group. And hence, when we fix that number, during quarter 4, it will be lower than the current low double digits that I mentioned. And when we have the exact number, we will certainly share it in the next earnings call.

[Vishal Chandak, Research Analyst]

Sure. And my second question was…

[G. R. Arun Kumar, CFO & Whole Time Director]

I -- Maybe an afterthought, I'd just like to add. We've had a situation like this in the past where Vedanta Limited has only gained in terms of the interest earnings. So just a quick reminder that the opportunity earnings was about 1%. So what it's earning is more than 10x what is the other available opportunity. Yes, sorry. Go ahead with the next question.

[Vishal Chandak, Research Analyst]

Yes. Sure. That's helpful. Sir, the second question was with respect to the aluminum cost of production. Now with the hardening of the input costs also, do you expect a structural increase because of both coal and alumina are rising so do we expect a structural increase in the input costs? Or we plan to offset the same through the methods that you mentioned like optimization, digitalization and the cost of production for aluminum should be flattish going forward? How should we look at it?

[Sunil Duggal, Chief Executive Officer]

No, you can see that we have already said what we wanted to say, but we can reiterate that. I mean, the aluminum cost is a factor of the LME also because the API index and the alumina cost plays a role in that. And the -- as far as the coal is concerned, we are secured for this quarter and H1 also, we have secured it quite a lot. But going forward, we have the opportunity to address this cost more structurally. And that is why we said that with the new coal blocks, which we have in our hands, how to operationalize these blocks as soon as possible and get 1 or 2 more blocks, which are in the offing as soon as possible. So this will address our structural coal cost or the power cost going forward. And as Ajay also said that we are contracting in such a manner that the efficiency and productivity and the reiterate -- and the auxillary power consumption is in the scope of our partners and they bring the competence for that. Similarly, on the bauxite and the alumina cost, we said that we are eyeing and looking at increasing the capacity of Lanjigarh plant from 2 million to 5 million tonnes, and sourcing the local bauxite side. And you must have also seen that in MMDR amendment also, the government said that they want to tag bauxite and coal auction together and probably, they'll be -- they may be coming for this auction in the near future.

[Vishal Chandak, Research Analyst]

Sure. If I may squeeze in just 1 last question regarding the Radhikapur coal block. So what are the expected time lines for commissioning this block?

[Sunil Duggal, Chief Executive Officer]

Ajay?

[Ajay A. Kapur]

Yes, Duggal sir, I can comment, and thanks for that very detailed -- I think I'll only add 1 more thing on the cost side. Most of the costs, especially the biggest driver is the imported alumina, which is linked to LME. And generally, when LME goes up, it goes -- the alumina cost goes up, but we are also restructuring the local operations and by increasing domestic alumina, domestic bauxite, we have upside. And then it also reflects in better margin. So I pause on that. On Radhikapur, government has allowed us 60 months' time. But you know Vedanta, we will obviously try and expedite. I will not be in a position to give you exact time line, but I can tell you we'll do far better than 60 months. And as I speak to you, an active evaluation of various options on how to bring it in the fastest time. If you've seen in our guidance, we have already mentioned that as one of the initiatives to bring the cost down.

[Operator]

We'll take the last question from the line of Ritesh Shah from Investec.

[Ritesh Shah, Analyst]

Congratulations for a great set of numbers. I have a couple of questions. First, sir, you indicated that we might not give CapEx guidance, but I just wanted to have the thoughts on: One, Hindustan Zinc fertilizer plant; second, Gujarat smelter; and thirdly, you did touch upon Videocon assets, it being at the finance level what I understand is Twin Star Technologies, but would it have any value on the listed entity if at all? Hello? Am I audible now?

[Operator]

Yes, but there's some disturbance in the background.

[Sunil Duggal, Chief Executive Officer]

Yes, you are audible.

[Ritesh Shah, Analyst]

Yes. I had a couple of questions, sorry for that. First is on capital allocation. I understand you might not give CapEx numbers, but I just wanted to have some thoughts on the fertilizer plant, specifically for Hindustan Zinc, Gujarat smelter and lastly, you did indicate about Videocon assets, what I understand is a Twin Star Technologies to others. But would it have any bearing on the listed entity going forward? That's the first question.

[Sunil Duggal, Chief Executive Officer]

So Arun, you can take that question. But broadly, I would say that as far as the Gujarat smelter and the fertilizer project, we are in the process of getting clearances and doing the feasibility. And as we will complete our feasibility and other primary factors, we will come back and report to you that how and when we are going about this. But Arun on Videocon.

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes. So I think on Videocon, if ever Vedanta Group of companies are coming into play or have come into play, then we will certainly announce it ASAP. But at this point of time, I have no information or update on that one. It is outside of the Vedanta Group.

[Ritesh Shah, Analyst]

Great. Sir, my second question is on positive side. Duggal, sir -- Hello? Am I audible?

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes, go ahead.

[Ritesh Shah, Analyst]

My second question is for Duggal, sir. Any update on Hindustan Zinc arbitration? It has been lingering for quite some time. And any update on PSC? That's the second question. And I have 1 more question for Arun, sir.

[Sunil Duggal, Chief Executive Officer]

So on the Hindustan Zinc case, I think the Supreme Court vacated the stay in the last hearing. And I think the -- in the next few days, I think the next week itself, the final hearing is coming for that. Let us wait. And let us see that in all probabilities, the government may release and say to the government that they can disinvest their balance shares. But it is for the government to decide which way they want to go. As far as PSC is concerned, as I said in my commentary that the arbitrator has given a stay on the coercive action. And they have directed the government that they should not insist on the recovery of the dues because these are not established as yet. Secondly, on the 10% profit petroleum, we have a very strong case. Yesterday and today, the hearing was there, the detailed hearing has taken place. And some data, court has asked. Probably, Monday also, again, the hearing is there. The way the hearing has gone and the way our case is because you know the reason why we feel that 10% additional profit petroleum is not payable. In the earlier PSC, it was written that if we produce gas, we will get the PSC at the same terms, the condition which we have complied, and we have been producing gas. And as we speak, I also said that we are ramping up our gas volume, and there are near-term opportunities also. So -- but the government stand is that they have revised the policy, but it is more like a retrospective revision of the policy. The court will have to evaluate what is the merit what they are saying. But we feel that we have a strong case.

[Ritesh Shah, Analyst]

That's very useful, sir. Very detailed. Sir, just to follow up on the arbitration thing, you indicated that disinvest the balance shares. Does this mean that the Metals Corporation act as a hurdle given we have the full control of the asset as per the shareholders agreement?

[Sunil Duggal, Chief Executive Officer]

So that stay is vacated now. And the government is going for the final hearing.

[Ritesh Shah, Analyst]

Perfect. And sir, last question for Arun, sir. Sir, it's -- this was 1 of the questions earlier. This was regarding the pledge on Hindustan Zinc shares. But even if one looks at Vedanta's holding, 50% is encumbered and 5% is pledged, the company has a solid cash flow profile, you indicated about net debt reduction. How should one look at both for the pledge at Hindustan Zinc as well as Vedanta level? I'm not sure, but if you can couple this with how we are looking to fund or how promoters are looking to fund the voluntary open offer? Is it like pledge is out of the way out? Or how should one understand this entire tangle?

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes. Sorry, the voice was breaking in and out. I think you need to re-read the question.

[Ritesh Shah, Analyst]

I'll just repeat it. Sorry for that. Sir, my question is, if one looks at the Vedanta's holding, 50% is encumbered, 5% is pledged. And also there was a prior question about pledge at Hindustan Zinc level. Given there is a solid cash flow generation, how should one look at this variables, both at Vedanta level as well as Hindustan Zinc level?

[G. R. Arun Kumar, CFO & Whole Time Director]

Okay. I think we have to break it into 2 parts. One, to easily get the Hindustan Zinc pledge out of the way, at A point of time, A deal was agreed with A set of banks, right? That situation doesn't exist today, as you all have rightly observed from the set of numbers, not only what we've delivered, but what quarter 4 they're looking like and perhaps FY '22 is looking like. So there really one should think about how, in future, one can repay or substitute that borrowing and release the pledge or release the perception as to why we pledged it at that point of time. And I think the future is always very well for that situation. So that is independent. As far as the promoters activities in terms of voluntary open offer and the 5% pledge, I'm not in a position to comment on this earnings call, which we should, I think, restrict to the Vedanta Limited and its performance. But in a broader way, if one observed during the bond roadshows that we did for the Vedanta Resources bond that we issued in December, fundamentally, we are trying to create a 2-year runway of getting all the debts out of the way as well as we mentioned that part of it is being refinanced and part of it is also going to be organically delevered, simply on the strength of the huge cash flows that Vedanta Limited can generate at these price levels, especially with the end of the CapEx cycle in at least 2 of the key sectors and the LME and price levels and the 10% volume growth I talked about in Q4 versus the 9 months that went by. So there are lots of tailwinds for Vedanta, I would say. And I know there were questions on the CapEx guidance, et cetera. But at the same time, if you look at the trend, including sustaining CapEx, we've never exceeded $1 billion good year or bad year, and it will take some effort to go beyond that, but we will come with the right set of guidance numbers at that time. So bottom line is a lot of cash generation will help in organic delevering at the Vedanta Resources level. So on the VOO bit, I will avoid any comments. And as an afterthought, I also want to add a sentence on your earlier question on Videocon. Again, one thing clearly from an analysis perspective, I think somewhere that the asset is coming into the group is something for us to all cheer about, simply because it's going to be valuable oil and gas portfolio, including the Ravva asset of which Vedanta Limited itself holds about 22% and Videocon used to hold about 25% but still does. So someway that offers a fantastic opportunity to consolidate that very, very promising asset. So that's just an afterthought. But at the same time, right now, Vedanta Limited isn't involved. If at all, we will certainly announce and let you know. Thank you. I hope it answered your question.

[Operator]

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Varun Kapoor, for closing comments. Thank you, and over to you, sir.

[Varun Kapoor, Director of Investor Relations]

Thank you very much, operator. To conclude, again, thank you all of you for taking the time to join us this evening. In case you have any further questions, do not hesitate to contact myself or my team here and we'd like to help. So I just wish everybody a very good evening, and then I'll pass back to the operator to close.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Vedanta Limited, that concludes this conference. Thank you all for joining, and you may now disconnect your lines.