Vedanta Ltd

NSE:VEDL

Earnings Call Transcript 2018-Q4

[Operator]

Ladies and gentlemen, good day and welcome to Vedanta Limited Q4 and Full Year FY 2018 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mrs. Rashmi Mohanty from Vedanta Limited. Thank you, and over to you.

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

Thanks, operator, and a very good evening, ladies and gentlemen. This is Rashmi Mohanty, Head Group, Investor Relations for Vedanta. Thanks for joining us to discuss our fourth quarter and full year results for FY '18.We will be referring to the presentation that is available on our website.From our management team, we have with us our CEO, Mr. Kuldip Kaura; our CFO, Arun Kumar; and we also have several of our business leaders with us; Sudhir Mathur from Oil & Gas; Amitabh Gupta from Hindustan Zinc; Deshnee Naidoo from Zinc International; and Samir Cairae and Ajay Dixit from aluminum and Power Division.Let me hand it over to Mr. Kaura to provide an update on the company's operational performance.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Thank you, Rashmi. Good evening, ladies and gentlemen. I am pleased to welcome you to Vedanta Limited's fourth quarter and FY '18 earnings conference call. Starting with the commodities market, commodity prices saw a sharp appreciation over the year, fueled by supply-related reforms and disruption, stable demand, a weakening dollar, and the bullish global growth indicators. Our commodity basket benefited from the favorable price movements, with the ramp-ups across various businesses leading to record production levels.Let me take you through our performance for the year, I'll start with safety and sustainability. Vedanta remains focused on Zero Harm, Zero Waste and Zero Discharge. It is therefore with great sadness, we reported 7 fatalities during the year. We remain committed to bring Vedanta to the best HSE performance in the resourcing sector. These fatalities have resulted in some serious introspection within the Group, including increased oversight from the group executive committee.Some of the areas we are focusing on are; visible leadership, rigorous implementation of safety standards, and management of high-risk areas; we have augmented our HSE organization by induction of 10 HSE experts with global experience; a focus on training, where last year our employees and contractors spend 1 million hours in safety training.On the positive side, our Oil & Gas business has been awarded British Safety Council 5-Star rating for all of its Rajasthan and Midstream assets. In the area of environment, we were able to exceed our water savings targets by 109% last year and exceeded our energy savings target by 275%. Last year, we started that because we expected to reduce our GHG intensity by 6% by 2020 from 2012 baselines. I'm pleased to report that nearly 2 years before the target date, we have reduced the GSG intensity by 14% and are well on our way to meeting the expectations.Third-party audits for our tailing and ash management practices were completed. Improvement opportunities were identified and corrective actions are being implemented by businesses. Individually, our businesses continue to improve on the sustainability practices. On the Dow Jones Sustainability Index for the metal and mining sector, Hindustan Zinc improved its overall ranking to 11th position and was inducted into the prestigious Dow Jones yearbook. In the environmental category, Hindustan Zinc moved from 11th to 3rd place and Vedanta Limited improved its ranking from 17th to 15th place.Finally, work on our flagship CSR program Nand Ghars continues. Till-date, we have built 154 centers in Rajasthan, UP and MP and we are perfecting the pilot. We remain committed to building 4,000 Nand Ghars.FY '18 highlights. Our operational performance was strong this year on various fronts. We had record annual production at Zinc India and successfully completed the full transition to underground operations with no significant increase in costs.At Oil & Gas, we achieved an exit production run rate of 200,000 barrels at March end. We also delivered record annual production at Aluminium and exited the year at a productions run rate of 2 million tonnes per annum.We also delivered strong financial. I'm happy to report that full-year EBITDA was INR 25,500 crore, 19% higher year-on-year and PAT was [ INR 8,200 crore ], 10% up year-on-year. We have maintained a robust EBITDA margin of 36%, supplemented by favorable markets, despite inflationary cost headwinds. We delivered free cash flow of INR 7,900 crores and reduced our gross debt by INR 8,500 crore. We also paid the highest ever interim dividend by INR 21.2 per share, summing up INR 7,881 crores during the year.The strong performance of 2018 paved the way of an exciting 2019 as we remain committed to developing all the growth opportunities available to us. I'm excited about these opportunities and happy to take you through these growth projects.In Zinc India, in 2019, we'll hit a run rate of 1.2 million tonne mined metal capacity and are on track to achieve this steady state capacity by financial year 2020.Moving to Zinc International, the Gamsberg project is on track to commence production in mid-calendar year 2018. In the Oil & Gas segment contracts of USD 1.3 billion have been awarded on the new projects and execution on the ground has commenced with first oil from these projects coming in this quarter.The announcement on intention to acquire Electrosteel under the IBC process is a step towards value addition for our iron ore businesses. We see favorable market dynamics for steel in India and together with integration efficiencies with our iron ore business, see this acquisition as valued accretive for Vedanta. We'll talk more about the progress on each of these projects later in the presentation.During the year, we focused on all around operational excellence by debottlenecking our assets, adopting technology and digitalization, strengthening people practices, vendor and customer base enhancement, and spend based optimization.For example, in the Oil & Gas business, we have provided our partners with end-to-end responsibility for project management providing incentives on measurable outcomes on production, delivery and safety. At the SindesarKhurd mine, we have piloted digital technology for transformation to an automated mines. At Gamsberg, the project will boost leading-edge systems that report the state of mine, the quality of ore, the conditions of the concentrator and quality of the concentrates all in real time to enable minute-by-minute decisions.Business-wise highlights. Moving on to our business-wise highlights on our operations, we have delivered strong volumes in the quarter and continue with production ramp-up across our portfolio. At Zinc India, we had record annual refined metal production of 960,000 tonnes along with record silver production of 558 tonnes. Our cost of production ex. royalty were USD 976 per ton, 18% higher year-on-year in dollar terms, due to increases in input raw material prices, primarily coal and met coke, lower grade, and India rupee appreciation. We remain on track to achieve our 1.2 million tonne target in FY '20.At Zinc International, we have delivered stable production. We had some cost headwinds this year due to higher stripping cost of Pit 112 Skorpion from early ore production and unfavorable local currency appreciation. At Gamsberg, we are track for coal commissioning of the concentrator plant in quarter 1 this year and expect to commence concentrate production in mid CY '18.At Oil & Gas, as mentioned earlier, we exited the year at a production rate of 200,000 barrels per day. On the growth projects, the drilling of 15 Mangala infill well at Rajasthan has been completed. The 3 well Cambay infill program has also been completed in this month. We have successfully ramped up RDG Phase 1 to 45 mmscfd.Aluminium, we delivered record volumes and exited the year with a run rate of 2 million tonnes per annum. However, inflationary cost pressures in alumina and carbon as well as availability issues for coal impacted the cost of production. We have taken measures to address this cost which we will cover in detail later.Moving to Power; TSPL delivered a record 90% availability in the second half of the year and delivered strong year-on-year growth. At Iron Ore, we produced 4.9 million tonne this year. As you must be aware, the Supreme Court in February has put stop on all mining operations in the state of Goa with effect from March 16, 2018, and our Goa mining operations are shut since then. In Karnataka, we produce 2.2 million tonne during the year and [indiscernible] increase in capacity allocation as the mining cap of the state has been increased.Copper India business recorded a production of 403,000 tonnes this year. Average TC/RCs were lower 5% year-on-year at the back of strong copper demand and prices. Our operations at Tuticorin are currently shut down as our application for renewal of the Consent to Operate has not been approved. We are working with the regulatory body to provide the required clarifications in order to obtain a positive outcome for our application.At this point, I would like to remind you of the company's strategic priorities which drive our business model and approach. Operational excellence is something I have spoken about earlier. We continually strive to improve our operations, sweat our assets, optimize costs, and improve realizations.We remain committed in our efforts to achieve our objectives of Zero Harm, minimizing environment impact and creating sustainable value for all of our stakeholders. We are focused on generating strong cash flows and maintaining a strong balance sheet through prudent capital allocation.On growth, I'm excited about the growth opportunities, both organic and inorganic, which align well with the demands of the fast-growing Indian market. We have various brownfield opportunities in our businesses and we took key steps to monetize them in FY '18. We also continue to identify superior inorganic opportunities in the natural resources segment that synergize and add value to our portfolio.Our world-class mines have long lives and we have been continuously having good results through exploration. For instance, at Zinc India, gross addition of 19.5 million tonnes were made to Reserves & Resources, thus ending the year with estimated RR of 400 million tonnes. Overall, mine life continues to be more than 25 years.I will now hand over to Arun, who will take you through financials.

[Arun Kumar]

Thanks, Mr. Kaura. I'm happy to report yet another operation-led strong quarterly financials. Before I dive deeper into our numbers, the few highlights. Based on the quarter 4 run rate, our yearly net revenue, you can easily see crosses INR 1,00,000 crore. This is the highest ever quarterly EBITDA in 5 years. The full-year EBITDA at INR 25,000-crores-plus is yet another landmark.For the year, the EBITDA growth was about 9% compared to previous year. The margins continued to stay strong at 36%. This is reflected in the double-digit growth in the attributable net profit as well, at the bottom line at INR 8,025 crores.On the balance sheet, you would note that we continue to be strong on the net debt-to-EBITDA ratio, below 1; and closing cash of around INR 36,000 crore. These are best-in-class numbers that I've been alluding to for over the past year. The gross debt, again, as you noted, has come down by approximately INR 8,500 crores and if you include the temporary borrowing at Zinc India, then it's down almost INR 16,500 crores. ROCE again measured conservatively on a post-tax basis has crossed 15% for us, ending at about 17.5% for the year. Quarter 4 annualized will be about 20% impact.Cash flow post CapEx continue to be strong. We believe these are important milestones achieved through strong operational performance with volume growth across all businesses, supported of course by a good price environment as well. The volumes and costs were largely in line with the guidance during various point of the year.While I have a detailed income statement in the appendix, but important to cover a few details out here. End-March, we announced an impairment charge in Iron Ore business at Goa, essentially the mining reserve of goodwill in the pre Ind-AS days with was written down consequent to the Supreme Court judgment on leases.Today, I'd like to focus on the INR 4,200 crores of net of tax impairment reversal in the Oil & Gas business. Over the last 6 quarters, more specifically in the last 2, we've been talking about this 7 or 8 key growth projects with over $2 billion of gross CapEx in next couple of years with IRRs exceeding 20% at a conservative 40 Brent. This has led to a re-rating of the reserves and resources and hence, overall valuation of the Oil & Gas business, and hence Vedanta, with the accounting impact manifesting as an impairment write-back.Sudhir our CEO will -- of the Oil business will talk a little bit more about the excitement in his section coming up after the finance section. Finance cost or interest cost, as you'd have been observing over the last 2, 3 quarters was in a downward trend. Our interest cost has been less than 8%, I think about 7.87% for the year on an average. Of course with the yield curves hardening in the recent times, we expect the costs to move up, maybe 25 basis points to 40 basis points during FY '19.On the interest income line, pre-tax, we earned about 7.4% and continue to invest in high-quality AA plus safe and -- safe instrument certified by CRISIL. The reported numbers, of course, from quarter-to-quarter get impacted by mark-to-mark, given the various up and down movement from the feedback of the yield curve.For FY '19 one should expect around 7% underlying pre-tax return of our investment portfolio, of course, subject to again mark-to-mark. Depreciation for FY '19 should be significantly higher, given higher volumes at the mining and oil businesses, which is basically Zinc and Oil & Gas. Full-year impact of ramped-up assets like in aluminum, depreciation impact of the new capitalization proposed like the [indiscernible] mine and the higher asset based now the impairment reversal in the Oil & Gas business.For FY '18, the final tax rate was just about 30%, excluding DDT and tax on special exceptional items. It's marginally higher than what I had guided during the year. I had guided a range of 25% to 30%, and specifically mentioned, we'll be at the higher end of the range earlier in the year. So that, of course, would have meant a higher tax rate for the current quarter as can be seen in the numbers, largely a function of profit mix, legal entity mix and deferred tax accounting. For FY '19, the overall effective tax rate will likely to be in the similar range of, let's say, 26% to 29% or 30%.In March '18, we also declared and paid the highest ever interim dividend of INR 7,881 crores or INR 21.20 per share. This is also the total dividend for the year, in line with our dividend policy. The contribution to ex-chequer for the year is around INR 33,000 crores, third year in a row that it's above INR 30,000 crores. So with that, I hope you have a good sense on the quarter's numbers as well as headline guidance for FY '19, especially below the EBITDA line.Moving on to the next page, on the EBITDA bridge. As you can see on this page, full-year EBITDA was up about INR 4,000 crores; as I mentioned earlier, a 19% growth over last year. 50% of this incremental EBITDA was driven by strong volume performance across all businesses; record annual production in Zinc India, with 18% increase in integrated metals, 23% up on silver; record aluminum production exit run rate of about 2 million tonnes, exactly what we'd guided, benefiting from the continued ramp up; and Oil also exited at 200 kboepd, which was touched after a couple of years. So it's on its way up.This lays the foundation, I would say, for a further increase in volumes for FY '19, as per the guidance given in this presentation across Oil & Gas, Zinc, Zinc International, and the full year impact of a stabilized volume in aluminum.On the external side, while prices helped but significant input inflation offset nearly half the price gain. So more or less the INR 4,000 crore you could say was half-half operational and the other half being price on the overall year basis.Moving on to the next page, on net debt; during the year, we remained focused on our stated financial priorities, which is strengthening the balance sheet by focusing on the free cash flow generation. We generated cash of nearly INR 20,000 crores from the operations. This was deployed in CapEx and other activities and forced CapEx and some proactive adjustment to managing working capital funding given the ramp up and some of the disruption in the banking sector around LOUs et cetera in March. The movement of almost the INR 4,000 crore is entirely a result of shifting into term loan funding instead of working capital products.Net of that we generated around INR 7,900 crores of healthy cash. Due to record dividends, which I alluded to earlier INR 21.20 and the acquisition [ glass ], we defrayed the earnings, thus taking the net debts higher. But again, needless to say, I keep reminding all of us about the net debt-to-EBITDA ratio which continued to remain below 1, precisely at 0.9x; again, best-in-class as mentioned earlier.Moving onto the next page, the company continued to manage its debt book with the dual objectives of de-levering and reducing the cost of borrowing. We've spoken about the gross debt reduction earlier. And again, if I have to focus on the credit ratings, the agencies have moved up, both agencies -- the local agency have moved us into AA positive.We will continue to generate strong cash flows on the strength of higher volume in FY '19 and allocate it wisely to high return growth projects, further de-lever the gross debt and provide adequate returns as well as appreciation to the shareholders. On that note, let me move to the next page on our CapEx guidance, talk a little bit about the allocation of the earnings.CapEx guidance for FY '19 comes at around USD 1.5 billion as against the FY '18 actuals of about USD 800 million. It was marginally below our guidance at mid-year. The increased level of CapEx for next year is driven largely by the increase in Oil & Gas, given all the project announcements which we have made. It will also lead to higher production levels with the immediate FY '19 guidance at 225 to 250 kboepd, which will be an increase of 20% to 35% as compared to FY '18 at either end of the range and we'll talk more about it.Our Zinc India management team covered their guidance in the Hindustan Zinc results day before with plans announced to take the production beyond 1.2 to 1.35 per annum in the near future. Zinc also include the spends on Gamsberg as it achieves commercial production mid-calendar 2018. The CapEx will all be self-funded from [ the end ] of the year, all of them returning an IRR of well above 40% at conservative price ranches and that you can appreciate is well above our WACC or the weighted average cost of capital.In summary, focus is on fundamentals of operating excellence, thus generating free cash flows to fund growth CapEx, de-levering and shareholder returns will be our fundamental endeavor.The balance sheet will continue to remain strong. We'd stay proactive on refinancing, credit improvements and keep improving on the ROC which is already at global standards.With that, thank you all and back to Mr. Kaura for the business section.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Thank you, Arun. The India slide; India is the fastest growing G20 economy in the world with strong fundamentals demographics. According to the IMF WEO April 2018, the Indian economy is projected to grow around 7% to 8% per annum over the next few years.Currently, per capita consumption of metal in India is 70% to 80% below global average. As the country expands, domestic consumption of key commodities will increase, substantially both through the demand growth and higher intensity of usage.Furthermore, the Government of India has introduced a number of important reforms like amending mining laws to make mine auctioning transparent and encourage private ownership, which has improved the business improvement, attracted global investment and is driving faster growth. Vedanta, as the only diversified natural resources company in India, is uniquely positioned to cater to that demand.Next slide, high return growth projects with further optionality. Vedanta stands out from its peers as it has many brownfield opportunities for growth. This slide is a snapshot of our growth projects across various businesses, detailing the near-term growth, which is underway and on track by -- completion by FY '20 as well as the medium-term growth projects.As an organization, we are well equipped to deliver on this growth projects with the requisite management bandwidth, global talent base, and systems in place. I will now hand over you to our Oil & Gas CEO Sudhir Mathur who will give you an idea about Vedanta's potential in Oil & Gas segments and cover details about our growth projects, Sudhir?

[Sudhir Mathur]

Thank you Mr. Kaura, and good evening to you all. In the Oil & Gas business, we are moving ahead in the right earnest towards our vision of contributing 50% to India's total fuel production. A key to realizing our vision is to augment our results, which is essentially the quantity of oil and gas that can be produced during the remainder of the license period. Our initiative here are 2-pronged, we're trying to frontload production and extend the license period, both of these within the construct of a superior commercial value.Let me take you back in history which will put our performance on this ground in perspective. In the year [ 2009 ], the year we started producing in Rajasthan, we had estimated gross reserves of 539 million barrels of oil equivalent. Since then, we have produced 604 million barrels of oil equivalent.Now let me add another data point. At the end of 2018, we are sitting on a potential of 683 million barrels. So by leveraging leading-edge technologies, focusing on growth projects, pursuing the PSC extension, we've been able to generate a production and reserves of 1.3 billion barrels of oil equivalent since 2009.With the PSC getting extended and incremental 176 million barrels get added to results, for which capital investments have been made. As you would see from the graph, we have another 580 million barrels of contingent resources that we are yet to commercialize.Now let's talk of our growth projects.

[Operator]

Mr. Sudhir, I'm sorry to interrupt. May I request you to come closer to the mike, you're not clearly audible.

[Sudhir Mathur]

Sure. Thank you for that. Our growth projects include a rich mix of enhanced oil recovery, tight oil and tight gas project involving gross CapEx of USD 2 billion over the next 2 to 3 years. These growth projects have an [ INR ] in excess of 20% and an oil price of $40 per barrel. These investments are expected to deliver an incremental peak production of 200,000 barrels per day.Let me dwell on these projects one at a time, next slide, please. Our model of project execution has yielded substantial benefits with our CapEx in the range of $5 to $7 per barrel. Contracts of over $1.3 billion for these projects are already in place. Project execution is underway with 4 rigs currently at site in Rajasthan, which we are looking to scale up to 9 rigs by August 2018.The Polymer Enhanced Oil Recovery at Mangala, which is now a global benchmark is been replicated in the Bhagyam and Aishwariya fields with a target to deliver incremental 5% recovery.The first well has been spud both at Bhagyam and Aishwariya in the last month. Now we are going for alkaline-surfactant-polymer or ASP to further boost recovery by about 10% [indiscernible] is taking the overall recovery to around 45%. The success of ASP pilot in Mangala has paved way for the phased implementation of ASP in the MBAC.The expected ultimate recovery is about 200 million barrels at CapEx of over USD 950 million. We have awarded the drilling contract and are on track to commence drilling from August 2010 and tendering for the surface facility is underway.Moving on to Tight Gas; the Rajeshwari Deep Gas project presents an opportunity to scale up our gas business in [indiscernible]. The first well has spud in RDG in April 2018. The Surface facility contract, primarily to build the terminal has been awarded and execution is scheduled to commence by the end of this quarter.We are also looking at an early production through a rental arrangement of surface facilities as soon as the [VAGA] pipeline is ready in H1 FY '19.We are on track to monetize the Aishwariya Barmer Hill, a Tight Oil project. The 2 rig drilling program comprising 39 wells is on track to spud May 2018. We have commenced a 45 well infill program in the prolific Mangala field to generate an additional [ 18 million ] barrels of oil in the near-term. The rig is onsite with the first well spud target of May 2018.We are upgrading liquid handling capacity at the Mangala Processing Terminal to accommodate post expansion volumes. Contracts will be awarded during the current quarter. In aggregate, we are seeking to add around 375 million barrels of gross reserves on account of our growth projects. We have set ourselves a target of 220 to 250 kboepd average volume in FY '19 as against 186,000 barrels we achieved in the past year. Going by, our April production would exceed the FY '18 average monthly production by around 9% and a clear road-map ahead, we should be well within reach.Moving on to the next slide, we're investing in exploration. We have identified a number of high, in fact under leads and prospects in Rajasthan, and we will start drilling on 7 to 18 wells in August, 7 to 18 wells? Contracts of which have already been awarded.Beyond Rajasthan, we have a 100% participating interest in KG offshore block in the Krishna Godavari Basin. The first well of the 2 well program campaign has spudded April 2018 [indiscernible] to our current acreage. We are also looking actively to add to our current acreage across the key producing basins business in India under the government's operators licensing policy. We have bid for the 55 blocks on offer and expect to increase our exploration portfolio significantly to continue building the reserve and the resource base aggressively.Now that you have a fair idea of our efforts to enhance and monetize our reserves and resources, let me leave you with one parting thought. At the [indiscernible] when it was listed separately, started producing in Rajasthan in 2009, we had potential reserves of 539 million barrels, with an oil price of around $50 per barrel and market cap stood at $7 billion. Today we are sitting on a potential reserve of $683 million with a proven track record of producing well in excess of our reserve estimates.The current price per barrel today is about $70, [indiscernible] start looking at valuation. Thank you all. Over to Mr. Kaura.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Okay. We go on slide on Aluminium. Aluminium has been a strong ramp up story this year. We enter FY '19 with confidence in converting our exit run rate of 2 million tonnes into a stabilized production level. The Final set of thoughts, in the third line of 1.25 million tonnes Jharsuguda smelter will fully ramp up within the first half of the year.This year was, however, not without its challenges. Inflationary cost pressures across alumina, coal and carbon escalated the cost in the business. Alumina continues to trade at all-time high, driven by the supply tightening from Alunorte's partial refinery shut down and uncertainties due to U.S. sanctions on Rusal.Therefore, as a strategy, we have looked at ways to optimize our controllable costs, while also increasing the price realization in order to improve profitability in a sustainable way. In the medium-term, we are aiming at a COP target around $1,500 per tonnes level by focusing on a number of assets.Let me detail some of the key points. On Alumina, we are targeting production of 1.7 billion tonnes of captive alumina in financial year '19 with the potential to move up to 2 billion tonne. Part of the bauxite sourcing will be from the state of Odisha, which will add higher-quality low-cost bauxite to our refined feed mix. Together, these 2 factors will lead to reduction in alumina cost.On Power, we are working towards improving plant operating parameters, which will deliver higher PLFs and overall reduction in non-coal costs. We are also working towards increasing our linkage coal mix from 45% currently to a target of 70% through full materialization from linkages and increased coal linkages.In summary, we expect to reduce cost of production by about $120 to $170 range in FY '19 by optimizing controllable costs and through elimination of one-offs. However, the supply dynamic for global alumina and prices for other input commodities remain uncertain. While it's difficult to guide a COP for FY '19, today, assuming costs of imported alumina, coal's e-auctions and carbon at average FY '18 levels, would imply a cost of production of around $725 to $775 range per tonne in FY '19. Concerted efforts on these cost initiatives will continue to support us in achieving our $1,500 tonnes target.On the product and marketing side, we are targeting a 35% increase in value-added production in FY '19 to about 1.1 billion tonne. These and other efforts, along with improved headline premium, is expected to contribute about $50 per tonne to the EBITDA margin in FY '19. Our target is to progressively increase value-added production and long-term OEM sales further.Moving to Zinc India. At Zinc India, our strategic vision is to grow our zinc-lead output to 1.5 million tonnes per annum, and our silver portfolio to 1,500 tonnes. I'm pleased to announce that the Board of HZL this week approved the Phase 1 of this expansion which will increase the mined metal and smelting capacity from 1.2 million tonnes per annum to 1.35 million tonnes over a period of 3 years at a CapEx of approximately INR 4,500 crore.Phase 1 will be done concurrently with ongoing mining expansion, which is now in its final stages. We are capable of delivering 1.35 million tonnes of mined metal in 3 years from now, while silver production capacity will double from the current level. A salient feature of this next phase of expansion will be the use of technology to increase productivity, efficiency, and safety.We are deploying autonomous machines enabling 24x7 mining to increase production hours and fleet availability. Our mines will be digitalized to a centralized monitoring and control to maximize equipment effectiveness and improve safety. These measures along with some other initiatives like predictive maintenance will create capabilities for cost optimization in future. In short, our mines will be smart, connected, intelligent mines, which will be safer and more productive.We'll be expanding our smelting capacities simultaneously to match mined metal capacity of 1.3 million tonnes per annum via debottlenecking of our existing smelters and addition of a new smelter. Also, a new silver refinery of 200 tonnes per annum will be set up in Chanderiya to process higher silver feeds.Gamsberg expansion. Gamsberg is the anchor project for our growth plans at Zinc International. It has a huge potential with its large R&R of 215 million tonne with 15 million tonnes of zinc. We have been following a modular approach by developing this huge resource in a phased manner.Phase 1 of the project is currently under execution and on track as per schedule for production from mid-'18. Phase 1 will have a capacity of 4 million tonnes per annum run-of-mine production, with a 6.5% Zinc grade and 250,000 tonnes metal in concentrate.In terms of resource, Phase 1 is only targeting 1/4th of the total resource. This gives us flexibility to scale up. Gamsberg Phase 2 can start immediately after completion of Phase 1 projects and this should be quite straightforward with a lot of synergy with Phase 1. It is -- the mine plans have been developed and expanded mega pit designs completed to enable a faster and efficient phase 2 execution.In terms of output, we can expect to add another 200,000 to 250,000 tonnes metal in concentrate in 2 to 3 years. It's our vision to sell finishing zinc metal from Gamsberg, and towards this, we are evaluating various possibilities on converting concentrate to metal.Let me cover Iron Ore and Copper briefly. Iron Ore, in early April we received a favorable order from NCLT for our bid to acquire Electrosteel. We are working towards completing this acquisition. This is an exciting step towards adding value to our iron ore business. We see steel as a natural value add for Vedanta's Iron Ore business and the Indian steel sector is among the fastest growing globally.The IBC process gave us an attractive entry opportunity to enter this sector. Electrosteel runs a blast furnace and produces long steel in the state of Jharkhand. We see a number of opportunities to turn around this asset, including the immediate ramp up to 1.5 million tonnes and subsequently to 2.5 million tonnes and synergies to be developed with Jhankhand Iron project.Copper; at Copper India, our expansion plan to double smelter capacity from 400,000 tonnes to 800,000 tonnes per annum is underway. The EPC contracts for all main packages, power distribution and automation packages have been awarded.Slide on key investment highlights. Let me wrap up summarizing our key investment highlights. Vedanta's large-scale diversified portfolio with attractive cost positions in the core businesses position us well to deliver strong margins and cash flows through the commodity cycle.We have positioned ourselves in base metals and oil makes our commodity mix particularly attractive. India is Vedanta's core market and one which has huge growth potential. We are strongly and uniquely positioned to benefit from this growth. With a number of capital investment programs completed, we are ramping up production across businesses.Along with the new growth plans in Oil and Gas, we expect further delivery on ramp-ups going forward. We are consistently striving to improve our operations, integrate our businesses through the value chain and optimize our performance through operational efficiencies and innovative technological solution.Our operational performance coupled with a strong focus on optimization of capital allocation has helped strengthen Vedenat's financial profile. We have a global management team with a diverse and extensive range of sector and global experience to ensure that operations are run efficiently and responsibly. These factors enable us to deliver sustainable long-term returns to our shareholders and to create value for our broader stakeholder base.With that, I would like to thank every one of you and open the call for question and answers.

[Operator]

[Operator Instructions]. The first question is from the line of Abhishek Poddar from Kotak Securities.

[Abhishek Poddar, Research Analyst]

My first question is regarding the -- one item in the aluminum operations. So this is regarding capitalization of pot relining expenses. I want to understand what is this item? Which period it pertains to? And how much was the amount involved for this?

[Arun Kumar]

Yes, I think -- this is Arun here. Let me take that. It was just an accounting correction of what normally happens in the industry where the pot relining gets depreciated over the next 5 years, instead of what we used to do earlier is charge it off in the same year. So we took a period-to-date correction as well it has literally zero impact on the net profit. It just moves between depreciation and EBITDA lines and about 300-odd-crores movement between the lines. EBITDA is up, depreciation is up, so it's pretty much an accounting thing.

[Abhishek Poddar, Research Analyst]

And so this pertains to previous quarter?

[Arun Kumar]

No that -- it pertains to the year. So it's, as I said, the impact on the bottom line is nil. So let's move on.

[Abhishek Poddar, Research Analyst]

And Sir, the second question is regarding the Tuticorin Copper Smelter, what is the state right now and when you expect a resolution?

[Arun Kumar]

So, as you are aware that the consent of operate of Tuticorin was not approved and we have engaged with the authorities with our responses to some of the questions which they raised. And we believe the resolution for this should happen soon.

[Abhishek Poddar, Research Analyst]

And Sir, the last question on the bauxite mining in Odisha, what kind of bauxite do you expect to get from Kodingamali mine, whether we have already [ formed ] any of the sourcing? And are there any other mines also that you are looking -- OMCs looking to start mining from?

[Arun Kumar]

The OMC at present is operating this mine only and we started sourcing the bauxite only from the recent past this mine has come into production and this mine will ramp up progressively and our off take will correspondingly increase.

[Operator]

[Operator Instructions] The next question is from the line of Vineet Maloo from Birla Sun Life Insurance, please go ahead.

[Vineet Maloo, Fund Manager]

Sir, my question is on Aluminium. Just wanted to understand little bit in detail because it seems that [Technical Difficulty]

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

Yes, Vineet, can't hear you. Can you repeat your question?

[Vineet Maloo, Fund Manager]

Yes, I'm saying that we've done I NR 1,310 crore of EBITDA in Aluminium, was this...

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

Vineet, we can't hear the question?

[Vineet Maloo, Fund Manager]

Hello, is it better now? Hello. Am I audible now?

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

No. I think just why don't you dial back, we can't hear the question.

[Operator]

Okay, in the meanwhile, we take the next question from the line of Sumangal Nevatia from Macquarie.

[Sumangal Nevatia, Senior Analyst]

First question is with respect to the Zinc International. Now there has been a sharp increase in cost at around almost $2,000 versus guidance of $1,700 last quarter and even that was said to be temporary whereas for FY '19, we are talking about a similar range now continuing. Can you explain little bit on this?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

I'd say this increase in cost is because of this development of this open pit and we are pre-stripping the pit in this year and next year. We're almost done half of it, 45% this year. So that actually element of pre-stripping cost adds to this unit operating cost. Arun, do you want to supplement anything?

[Arun Kumar]

No, I think that absolutely said -- well said, and the other -- the bigger point in Zinc International is the Gamsberg mine coming on stream middle of this year at extremely competitive cost. The mining costs we have indicated will be about $500, $550 in the overall, including TC/RC et cetera is $1000. Very much in line with the guidance we've been talking about for the last 1 year or so and that will be the majority of the production coming from Zinc International going forward.

[Sumangal Nevatia, Senior Analyst]

Second is with respect to a plan to now evaluate a smelter refinery at Gamsberg. Now, are there any challenges in selling concentrate and also given TC/RCs are at recorded low, what IRR are we getting with this expansion?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

See, I think this subject, you need to see it from a philosophy point of view. We actually like to sell finished metal as you see in most of our businesses. And that thought process is actually the pillar for evaluating what are the options we have in Gamsberg. So these options are being sort of churned out and evaluated and we will take a final call. But there are no issues at all in selling concentrate as it is. In fact, some of the concentrate has been advanced booked also for sales which will be our immediate production now once this -- the concentrator gets commissioned in middle of this year.

[Sumangal Nevatia, Senior Analyst]

Just one last question, slide 18 mentions 3 million tonne aluminum capacity or production in medium term. This is the first time we are reading this number, so where is this 0.7 million tonne expansion envisaged? Is it at BALCO or VAL?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Basically, this is a little bit of gazing into the future and we have, I mean, Power capacity with us in BALCO and other facilities also. So it's obviously up for evaluation that whether going forward producing more Aluminium will be a better option rather than current selling of the power to the grid.

[Operator]

The next question is from the line of from Vineet Maloo from Birla Sun Life Mutual Fund.

[Vineet Maloo, Fund Manager]

So my question is about Aluminium. So we have about INR 1,310 crores of EBITDA this quarter compared to INR 600-odd-crores in Q3. But I'm just not able to understand, where is the major source of incremental EBITDA coming from? I mean, what is the major source? Because our volume has gone up by about, let's say, 35 kt; our costs have gone up a bit; realization have gone up a little bit. But somehow we are not able to match the total numbers to the ones shown in your Aluminium slide.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

I think it's a good observation. And as I confirmed earlier, there is this pot relining which has come up in the aluminum. It's a play between the EBITDA and the depreciation line. So for your modeling purposes, as you rightly observed, this [ INR 300 crore, INR 350 crore ] need to be backed out from an ongoing point of view.

[Vineet Maloo, Fund Manager]

Okay, so it's just INR 350 crores, is it? Because even then it doesn't explain it completely, that why I was little confused.

[Arun Kumar]

I think we can work with the IR team offline on this for any specific reconciliations.

[Vineet Maloo, Fund Manager]

Okay, sure. Another question is that we have guided in last quarter, that our Aluminium COP you should be around $1,850-to-$1,900-odd, whereas, it has continued to increase. So just wanted to understand, how are we dealing with this situation and what is happening in alumina market currently, and as well as the external cost?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes. As I was talking during the slides [ presentation ], so there are few things which we are doing; #1 on alumina, what we are doing is, current year, we produced little over 1 million tonnes of alumina. Now, our capacity is to produce about 1.7 million tonnes of alumina and that is what we are aiming to produce this year. So our local production of alumina will increase and that will reduce that much, corresponding imports; that's point #1. Point #2, we will also add local bauxite feed from Odisha to this refinery, which will reduce the other import of bauxite, plus it will also give a high-quality bauxite to this refinery, so reduce the overall cost of production. So this is on alumina, I mean some reductions will take place because of these 2 factors. Then, we are also working to take our power plant operations both in terms of PLF and operating efficiencies to peak benchmark levels and that has the potential to improve our non-coal costs. As far as the coal is concerned, our linkages materializations were lower last year because of transportation and logistics issues with railway and similarly some GCV issues with what we get and what we pay for. So there is an increased focus on both these elements and that also gives us lot of improvement in terms of overall cost. So what I'm trying to say is, these are the factors which are very much within our control and we are working really on this in a very focused way. The alumina market internationally is quite volatile as you yourself are aware about, and similarly, with the auction prices of coal in India, I mean, last year we tried predicting it, but I think we were proven quite wrong. So what we are saying is, without those 2 factors we have an improvement potential of about $125 to $150 per tonne, and that is what we will get. And anything more happens on this, which is favorable to us, so that will also add to our overall cost reduction. But at the end of the day, we are actually looking to drive a number of $1,500 per tonne as Aluminium production cost.

[Vineet Maloo, Fund Manager]

Sir, last one on this topic only to -- just to close this. So from Coal India, you mentioned that we haven't got complete linkages and also there was issues about calorific value et cetera. So I presume, we will get our linkages fulfilled this year, but about calorific value issue, I mean is there a third-party sampling that you are...

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes, we have a third-party sampling.

[Vineet Maloo, Fund Manager]

And do you get a compensation in case of difference in...

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes, there is a possibility of getting compensated if the contracted quality and received quality based on third-party verification is not the same.

[Vineet Maloo, Fund Manager]

So, you were expected to get something from last year?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

I'll have to check that in detail and we can come back to you on that.

[Operator]

The next question from the line of Sanjay Jain from Motilal Oswal.

[Sanjay Jain]

First question is on Oil and Gas, on the Slide 19, you are guiding in the bar chart about that production to 220 to 250 kboepd. So these are like the average production we should expect for the full year or is it the exit rates we are talking about?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

This is the average production for the full year. Sudhir, anything supplement on this?

[Sudhir Mathur]

That's right Mr. Kaura and we are already at about 203,000, 204,000 barrels compared to an average of 186,000 barrels last year.

[Sanjay Jain]

And the second question is on Aluminium business. Actually, there are 2 parts which -- one is that regarding the sourcing of alumina, you did mention domestic production will increase. My question is that, how are we sourcing the remaining part? Like, how much of that is already tied up in contract and how much of that is -- we are exposed to the spot market?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

I mean, I will ask Samir to supplement, but let me respond to perhaps what you're trying to aim at. Given the long-term contracts agreements are also fundamentally offtake agreements and the price determination is on the current KPIs. And so it's not a fixed price offtake contract which have been signed. So Sameer, please supplement.

[Samir Cairae, Chief Executive Officer of Diversified Metals]

Yes. So Mr. Kaura, basically as you rightly said, the long-term contracts...

[Sanjay Jain]

Sorry, I can't hear you. Can you be -- either close to the mike or something.

[Samir Cairae, Chief Executive Officer of Diversified Metals]

Hello, can you hear me? Yes. So I was saying that long-term contracts are 70% as a policy of our total requirement, so of course we always keep 50% plus. But Mr. Kaura has rightly said that most of these contracts, we don't actually [indiscernible]

[Operator]

Samir, I'm sorry to interrupt, I would request you to come more closer to the mike, sir. You are not clearly audible.

[Samir Cairae, Chief Executive Officer of Diversified Metals]

Yes, is it better now?

[Operator]

Yes sir, thank you.

[Samir Cairae, Chief Executive Officer of Diversified Metals]

Yes. So I think that to say in a nutshell, we are covered 70% long-term and 30% short-term alumina which is our strategy and that is the right strategy. But the pricing of the long-term is on an index base and index is a market base. So while we get the security of alumina, the prices of alumina are of course linked to market, but which we start cooking, let's say a month or so because we buy now and we will consume in a month so that there is a lag on how we see the prices impacting the P&L but the prices are linked to the market.

[Sanjay Jain]

One clarification from the earlier discussions on this aluminum EBITDA, Mr. Arun, you mentioned that in your comments that potline expenses we are capitalizing which will depreciate over 5 years, and at the same time, you are saying that this is bottom line neutral. I mean, is it bottom-line neutral in the quarter or it is bottom line neutral over a 5-years period. I mean can you -- I mean, this is slightly confusing?

[Arun Kumar]

Yes, very quickly, from an accounting basis, historical to-date, you tend to do a reserves catch up, so the difference comes into depreciation. So from an accounting point of view, it's neutral for the year as well as neutral going forward. It's just correcting the presentations till date, that's it.

[Sanjay Jain]

Okay. But for the quarter, it is not neutral, right?

[Arun Kumar]

Quarter also it's neutral; for the year it's neutral; going forward it's neutral. As I said, it's a pure accounting policy kind of disclosure.

[Sanjay Jain]

But I think you are saying, it will be depreciated over 5 year, but here you are depreciating in single year. If it is depreciated in single year then only it is neutral, otherwise...

[Arun Kumar]

I think we can -- we'll be delighted to engage with you offline and just walk through the accounting treatment.

[Operator]

[Operator Instructions] The next question is from the line of Anuj Singla from Bank of America.

[Anuj Singla, Vice President in Equity Research]

Sir, my first question is on the coal side, have we seen a material improvement in the coal linkage materialization in this quarter? We had it lower from 37% in last quarter and have we seen any improvement in this quarter as well as in the month of April?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Samir, would you like to comment, please?

[Samir Cairae, Chief Executive Officer of Diversified Metals]

Yes, it is indeed better. I think at the SECL [MTN] continues to be a struggle because there was some strike at one of the mines and some issues at [ Samaleswari ]. But overall still, we have seen a large improvement in 1Q of this year which is why what Mr. Kaura said about getting a price improvement and a cost improvement in the cost of power, of course knowing fully well that the rest of the year can be different, but as of now we are seeing improvement, yes.

[Anuj Singla, Vice President in Equity Research]

And so, sir when Coal India moves to the GCV based pricing, which they have already communicated, through yet to be implemented, what kind of impact do we see in our coal procurement cost? Coal India tends to believe it's going to be positive for their top line, so is that -- our cost is going to increase, is that our assessment of that?

[Samir Cairae, Chief Executive Officer of Diversified Metals]

Mr. Kaura, I can take that. So we will see a cost reduction of anything from $10 to $20 depending on of course the coal we get. But as compared to an era where we were not able to charge off the [indiscernible] because we were always getting negative GCV [indiscernible]. So we are forecasting an improvement in our cost of $10 to $15, of course, depending on the actual GCV.

[Anuj Singla, Vice President in Equity Research]

And secondly sir, on the second question, this is for Mr. Arun. Sir, on the CapEx optionality, most of the CapEx here were very well detailed in the presentation. Just on 2 parts, the investment plan for Gamsberg where we are talking about the refining and the smelter, media reports talk about $800 million of CapEx. Is that the number we are looking forward to as well, as and when the plan gets decided?

[Arun Kumar]

No, I think we'll -- closer to time, we will come back with the estimates. If you see the experience that we've had in the past, at some point of time, we had significantly high estimates for Gamsberg mine, but we did technology interventions and commercial strategies to bring the CapEx costs down. So that's like a vision that we do want to invest to get the refinery up at the right point of time. The specific guidance will be given during our quarterly updates.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes. And the decision to go for it or not will also be dictated by the kind of costs and return equation which we see for the particular technologies and smelter installations.

[Anuj Singla, Vice President in Equity Research]

And Sir, lastly for Electrosteel 1.5 to 2.5 any CapEx guidance we can or any benchmark there?

[Arun Kumar]

Yes, I think it should not be more than a couple of hundred million dollars, as a broad estimate. But I think the biggest point there is which enables a good integration of the Jhankhand mine leases that we already have, which are in various stages of approval, and it's plays into what the country has laid out in terms of ensuring that the iron ore gets end utilized in the country. So I think that's a good integration thing, just as -- I'm sure you all have noticed it, one of our credit agency has come out with a positive credit rating report on the completion of Electrosteel process. That's Moody's came out about 10 days ago, I guess. So that's broadly the update on Electrosteel. Any questions further, I'm happy to take it.

[Operator]

The Next question is from the line of Ashish Kejriwal from IDFC.

[Ashish Kejriwal, Analyst]

My question is again on Aluminium only. You mentioned about INR 350 crore of one-time expenses or maybe for a year. Is it possible to give what it could be on a per tonne basis? Or continuously going forward, what will be in a quarterly basis?

[Arun Kumar]

I think -- this is Arun here. I think as we elucidated on the call, subject to the fall in alumina assumptions, we have 2 big levels in our hand, and in fact, 3 big levels and I think these are very exciting levers. We, last year had significant disruptions and spot outages and you must recollect that we spent about $70, $75 on an average during the year. But tonne of aluminum dealing with those and those have been handled quite well by our aluminum team and well behind us, that's 1 big lever. It's what I would say I think about 85%, 90% of our pots are what we call category A pots, firing extremely well on all parameters, ramped up well, and quite stable. The second lever as was outlined earlier in the call is bauxite and with every tonne of bauxite we use there, the Odisha bauxite which should bring the Aluminium costs down by about another $125 to $175 local production and the alumina refinery volumes going up to almost 1.5 million tonnes to 1.7 million tonnes is our guidance, though we know that we can stretch it to 2 million tonnes. That's yet another lever and I keep losing count of levers. The fourth one that the CEO had outlined is also the $125 to $150 lever on various things like GCV, dead-wagon realization, other efficiencies that are in our control, Samir even commented about it, and in fact, we could keep adding to the list, 2 of the levers...

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Plus the improving marketing realizations, our value-added productions will increase in tonnage...

[Ashish Kejriwal, Analyst]

Sorry to interrupt sir. My question was on pot relining expenses which you are saying it will be depreciated over the next 5 years. So my question was, when you are giving out guidance for the [indiscernible] cost of production are we considering anything on that side, because when we are giving Aluminium cost of production separately for this quarter, it is $1,970. Honestly, that does not include your pot relining expenses, but we include that in EBITDA.

[Arun Kumar]

It is considered in our guidance for next year.

[Ashish Kejriwal, Analyst]

So what could be that on a per tonne basis? I'm looking at on a quarterly angle, whether -- how to look into it going forward?

[Arun Kumar]

Sorry, we lost the audio for about 30 seconds.

[Ashish Kejriwal, Analyst]

Okay, I'll repeat it. My question is that this pot relining expenses, you mentioned that it is for a year. Now going forward, how do we look at Aluminium cost of production and thereby the EBITDA numbers of aluminum operation?

[Arun Kumar]

I think this -- part of the whole costs some $10, $20, $25 plus or minus, so perhaps we should have come out with a page on the accounting, but nevertheless, we can handle this offline, our team will be delighted to interact.

[Ashish Kejriwal, Analyst]

And secondly, in Talwandi Sabo though we have achieved this par availability at 93% this quarter, but then also we have given FY '19 guidance of 80%. So any specific reason for the same or it will be just...?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

So, I think the plant is operating very well and our availability is, we are always targeting above 90%. And so hopefully, it should, I mean next year also we should see those kind of numbers.

[Ashish Kejriwal, Analyst]

So this 80% is, you are saying it is very conservative?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes.

[Ashish Kejriwal, Analyst]

Okay. And lastly, can we have [ operation-based ] credit number.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

I think the [ operation-wise ] credit is around $1.4 billion.

[Operator]

The next question is from the line of Dhawal Doshi from PhillipCapital.

[Dhawal Doshi, Analyst]

Sir, on the slide 31, the EBITDA bridge, the others column of INR 258 crores that includes various aspects which is -- hello

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Sorry, we don't have an audio.

[Dhawal Doshi, Analyst]

Sir, can you hear me? Yes, can you hear me? Hello.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes, we are able to hear you again.

[Dhawal Doshi, Analyst]

Yes. So my question is on the EBITDA bridge slide, slide #31. The other section, which is INR 258 crores, can you give me a rough break up on that, because it includes some impact of the TPA business and Power?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Hello, again the audio is faded.

[Operator]

Dhawal, just one minute.[Technical Difficulty]Participants, you are requested to stay connected while we reconnect the management. We have the line for the management reconnected, Dhawal please repeat your question.

[Dhawal Doshi, Analyst]

Yes. Sir, my question was on the EBITDA bridge on slide #31, the others segment of INR 258 crores, can I get a break-up of that? So there is some one-off impact in the Power segment in that as well and the other cost? And the second will be sir, the INR 350 crores benefit in the Aluminium business, which line item on that EBITDA bridge would get reflected?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

That would be under Others. But the rest of the breakup, I don't have it offline. We have a small comment below the bar chart if I recollect, but we can send it to you offline.

[Dhawal Doshi, Analyst]

Sir, second question would be with regards to the bauxite sourcing, so can we have a rough split of the various sources of bauxite that we are going to be having for FY '19?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

See, our refinery capacity as we were saying will be about 1.5 million to 1.7 million tonnes there. So fundamentally, we need approximately 5 million tonnes of bauxite, right. So the -- we have 3 sources locally; our own mines in Chhattisgarh, BALCO mine, and then this OMC mines in Odisha and third is some other supplement from domestic whenever required. And then, balance of this will be also import -- imported bauxite, because -- and as this -- as I was saying, this Odisha mines start ramping up, our supply volume will keep on coming up, and then some adjustment to the volumes up, other sources will get made, because this is the best and the cheapest bauxite source.

[Dhawal Doshi, Analyst]

Sir, can I have some numbers to this, so you said 5 million tonnes. So how much would come from captive, how much from OMC?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes. So maybe immediately, I may not be able to tell you this, but we can certainly advise you that, yes.

[Operator]

The next question is from the line of Pinakin Parekh from JPMorgan.

[Pinakin M. Parekh, Associate]

Three quick questions. My first question is, if I look at the standalone balance sheet, there has been a material increase in net debt. And I also understand that there was a large dividend which was paid out by...[Technical difficulty]

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

You're fading again, the voice. Sorry, operator?

[Operator]

Pinakin, just hold on, I'll check with the management.

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

Yes, we can hear you, operator, now. So let Pinakin continue with the question.

[Operator]

Okay, Pinakin, please repeat your question.

[Pinakin M. Parekh, Associate]

Yes. So basically on the net debt on the standalone entity, there has been a material increase on a quarter-on-quarter basis. Now, there was a large dividend paid out by the standalone entity, which was not[Audio Gap]There is a very large CapEx pipeline as slide #18 suggests, there would be debt increase because of the Electrosteel acquisition and we're not even counting the SR bid in place. So just trying to understand the balance sheet outlook going forward, especially as a Vedanta standalone entity, should we expect leverage to increase from here, I mean, if dividend payouts remain at this or will leverage on an absolute basis, net debt come off from here over the next 2 years?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

So it's a very good question Pinakin and we don't guide the specific debt numbers, as you're aware or the cash flow numbers, or for that matter the EBITDA. But if you look at the bigger picture here, the aluminum business is now matured into a 2 million tonne business, and based on all the underlying improvements that are completely in our control, the rest of the commodity market scenario. I think it's fair to assume a good $400, $500 margin from that business. Oil and Gas continues to do very well and, if you see the, as I outline 220 to 250 range, you could well be 20% to 35% growth in volume. And if you put this together, there is significant cash generation in the standalone balance sheet, needless to say that Hindustan Zinc continues to be exceptionally strong, as you also heard their management day before. And I think with these 3 sources of cash, one should look for a good trajectory, which very clearly underlines the fact that all our CapEx will be self-funded, as I mentioned earlier, and the net-debt-to-EBITDA ratio 0.9 for the Vedanta consolidated, I think that leaves behind a significant headroom to earn and spend wisely on growth CapEx as well as return to shareholders and de-lever the gross debt. So I think we have multiple sources of cash and the business is in good shape to handle whatever CapEx requirements that we have.

[Pinakin M. Parekh, Associate]

Sure. My second question is related to the news report on ET, which obviously Hindustan Zinc did not comment much on. But just trying to get a sense that over the last few years, the Vedanta Group has tried to reduce the number of listed entities that were there and now it's down to 3 entities. But going forward, are there thoughts to change the Group structure and have introduce other listed entities either below Vedanta Limited or above Vedanta Limited. I mean just trying to understand because that news flow was -- I mean it came something out of the blue for many investors.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

I mean, fundamentally, we did not understand the basis for your question, because there is no plans and to structure on that basis. So I don't know I mean whether we know there is any. Do you want to supplement?

[Arun Kumar]

No, I think there is no fundamental change in thought process, but we have to understand that Hindustan Zinc is a very, very high-quality asset. This is one of the few companies which has really 2 big EBITDA streams. One is zinc, which is one of the best mines in the world and a single defile on the cost curve and the other stream being silver. So I think these news reports are speculating about, why don't we split the streams of cash flow so that the earnings or rather the evaluation is enhanced because today a combined company perhaps gets a single valuation. So these are all thoughts in the public domain and probably the local board there. And we'll see how the future pans out, but otherwise the Group is pretty much thinks it's a highly valuable asset whichever cash stream you take.

[Pinakin M. Parekh, Associate]

And again apologies on a last question on aluminum, but we used to get segment slide which used to have the cost break up, now $1,970 was the cost as a 4Q average, $1,725 to $1,775 is the guidance assuming input costs revert back to FY'18. What would be the exit cost based on April input costs. I'm trying to understand what kind of mean reversion we need to see in input cost for us to go back to $1,770 because I would assume currency COP should be materially higher than the $1,970 that was reported in 4Q.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

So I think the -- what we are refraining to comment is on the way the volatility in the alumina market is there today and how the prices are moving. So our guidance of $1,770 was fundamentally to say that we have a potential to improve this costs by this margin of $150 or so. But these volatilities in the market can improve or upset these numbers. So that is the point which was being made.

[Pinakin M. Parekh, Associate]

So just the $1,970 of 4Q is based on what imported alumina cost, is it the overhead dollar?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes. So we can give you that number, I think,

[Arun Kumar]

I think Samir you can add here, but it's probably at about 23% to 25% alumina percentage Aluminium, Samir?

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

Samir, are you still there on the call?

[Samir Cairae, Chief Executive Officer of Diversified Metals]

Hello, yes, but I could not get the question. The question was how much is the alumina cost in the overall cost of Aluminium, is it?

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Yes, what is the...

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

Total alumina price.

[Kuldip Kumar Kaura, Interim Chief Executive Officer]

Alumina component in that.

[Samir Cairae, Chief Executive Officer of Diversified Metals]

It's about 21% alumina -- alumina cost is 21% of LME. I think as Mr. Kaura has said rightly, still volatile and you must have seen the prices have moved up in 1 day in alumina almost by $150. So I think you have be first cognizant of that and if the situation stabilize then...

[Operator]

Due to time constraints, that was the last question, I now hand the conference over to Mrs. Rashmi Mohanty for closing comments.

[Rashmi Mohanty, Head of Group Treasury and Senior Vice President]

Thank you, everyone, for joining us today for our quarter 4 our and FY '18 full year results discussion and presentation. If there are any further questions that you may have on the results, you can always reach out the investor relations team. Thank you.

[Operator]

Ladies and gentlemen, on behalf of Vedanta Limited that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines.