Vedanta Ltd
NSE:VEDL
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
233.35
516.15
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Vedanta Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Vedanta Limited Full Year FY '20 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. James Cartwright from Vedanta Limited. Thank you, and over to you, sir.
Thank you. Good evening, and thank you, everybody, for joining Vedanta Limited's Fourth Quarter and Full Year Results Call. On the call today, we have Sunil Duggal, our group CEO; Arun Kumar, our Group CFO; as well as Ajay Kapur, our Aluminum CEO. From the start, may I point you all towards our results press release and presentation on our website, including the disclaimer on Page 2 of the presentation. Likewise, the primary purpose of this call is to discuss earnings and operational performance. But all questions surrounding the delisting proposal, I'd like to refer you to the frequently asked questions posted on our Vedanta Limited website and also the presentation on the Vedanta Resources website that goes into further details of the delisting plan. Myself and the rest of the IR team will be happy to engage in further questions around the delisting post the call. With that, let me turn the call over to Sunil to start today's presentation.
Thank you, James. Good evening, ladies and gentlemen, and welcome to Vedanta Fourth Quarter FY 2020 Earnings Conference Call. This is my first set of results ever accepting the role of group CEO of Vedanta Limited, and I'm honored to be leading the company, which I have been proudly part of for the last 10 years. I must begin by acknowledging Mr. Srinivasan Venkatakrishnan for his leadership to our company over the last 2 years. Under his guidance, we further strengthened our foundation that will benefit our organization long after his departure. We are grateful for his service. And now coming and starting with the year gone by, to describe FY 2020 as a dynamic year is an understatement. The macro environment has been extremely challenging, with the impact of COVID-19 pandemic during the final quarter. The virus outbreak, which saw lockdown across geographies has become one of the biggest threats to the global economy, disrupting businesses and supply chains the world over. During these testing times, our priority is to ensure the health and safety of our employees, contractors and stakeholders, while ensuring the business continuity to the extent possible. I will talk more about the direct impact of COVID pandemic, but our responsibility to the communities we work in remains paramount to what we do. With that, amongst other measures, Vedanta set up dedicated INR 201 crore fund catering to 3 specific areas: livelihood of the daily wage workers across the nation, preventive health care, support to all our employees and contract partners across our planned location as part of its endeavor to join ranks with the government of India to combat the widespread outbreak of COVID-19. Multiple relief measures were taken across the country through initiatives like providing meals to 10 lakhs daily wage earners and treating over 50,000 stray animals daily on an entire month to name a few. We also leveraged our existing community program like Sakhi, Khushi, et cetera, to create grassroot capabilities at village to make interventions sustainable and locally owned. In a move aimed at supporting frontline health workers, doctors during COVID-19 times, Vedanta Limited has enabled mass production of personal protective equipments in Gurugram. The company has imported 23 PPE machines recently in collaboration with the Ministry of Textile and has teamed up with authorized apparel manufacturers to roll out over 5,000 PPEs per day. During these difficult times, our efforts are aligned to the singular vision of making our communities, the state and nation, self-reliant and self-sufficient. We are committed to extending all help possible to help alleviate the pain which pandemic has caused. We are closely working with the government alongside our people and partners to emerge from these trying times stronger and better. So now moving on to the operational performance. The COVID pandemic has hit the world hard and us in the last quarter of the year. We have taken a proactive approach to keep our assets and people safe, while ensuring optimum operations during these difficult times. With respect to our operations, our Zinc India operations were halted from March 22, and most employees were encouraged to work from home, barring some employees who attended the call for duty to keep production assets safe, including critical care and maintenance. The operations were restarted on the 8th of April, and April itself, we ramped up all of our mines and smelters from 40% to 80% of capacity, respectively. In our Zinc International business, operations started safely on 17th April with strict compliance to government regulation and SOPs. Our BMM plant and digging at Gamsberg plant is operational, supported by ore stockpile. In our Oil and natural gas business, we have managed to continue our operations at all our 3 producing blocks with minimum manpower. Oil production had minimal impact as we continue to supply to our domestic crude oil buyers. Gas sales was impacted by around 50 million [ scuffs ] due to lower demand during lockdown, which has been normalized now. Our growth projects, which were the drivers to our near-term volume addition faced some temporary impact. However, our surface facilities contractors for enhancing liquid handling capacity at MPT and constructing new gas terminals have started ramping up manpower now and activity level while maintaining adequate safety measures. In our Aluminum business, all our facilities have been categorized as essential services and continuous process industries by government authorities and continue to operate at current production levels, while largely maintaining flattish volume Y-o-Y. In Iron Ore, all our plants and mines' operation requiring continuous process is deemed essential services were working with limited operations, and currently, we are operating at about 75% capacity. With respect to the steel business, ESL has been operating at 2/3 of the capacity. In order to ensure volume support, ESL tapped the export market, largely due to constraints in domestic market. Now moving on to the key operational highlights for the year. Zinc India MIC production was marginally down 2% and metal production down 3% for the year. Major developments to take capacity to 1.2 million tonnes per annum now is in place. Zinc International, overall production was up 63% Y-o-Y. Gamsberg production ramped up to 108 kt. Oil & Gas, gross production at 174 kboepd. RDG early gas production ramped up to 90 mmscfd. Aluminum production at 1.9 million tonnes per annum. Aluminum cost was $1,690, down 14%. Record production at Lanjigarh, 1.8 million tonnes, up 21%. Lanjigarh cost $275 per tonnes, down 15%. Electrosteel, record production of 1,231 kt, up 3%; sales, 1,179 kt, almost flat. In Iron Ore business, our sales from Karnataka were up 125% Y-o-Y at 5.8 million tonnes. Nand Ghar, our flagship CSR initiative, has crossed 1,000 Anganwadi mark and is currently standing at a count of 1,250 plus. Continuous improvement as per Golder recommendation is under implementation across all tailings dams. Now coming to our safety records. We began this fiscal year with a strong commitment to improve our safety performance. While there have been significant gains made across all our businesses, I'm deeply saddened by the loss of 2 lives in the fourth quarter of the year, bringing the total loss of lives to 7 in this year. Our LTIFR stands at 0.66 in FY 2020. We have completed the incident investigations for every accident and are taking measures to ensure repeats do not occur. Learning from all incidents are being implemented across our businesses. Occupational health and safety are nonnegotiable factors for us, and we are determined to achieve absolute 0 harm in our operations. As discussed above, the last quarter of FY 2020 has been a time of global crisis as a result of COVID-19 spread. We are fully committed to the safety of our employees. Our strategy has been threefold: practice physical distancing for all essential works teams, rely on early diagnosis for our workforce to prevent an outbreak, and share knowledge and best practices across our businesses to ensure safe work places. While the average footfall at our plants has been reduced significantly, our employees are actively involved in building homegrown solutions to the challenges created by COVID-19. For example, we now have one-touch-based hand washing system, which was built by our employees. Additional safety measures in terms of sanitizer fogging, social distancing through on-ground marking, et cetera, are also in place to ensure minimum contact. We have also launched a health care help line for our employees in partnership with Apollo Hospital, through which they can tele consult with a general physician or a psychologist. Now turning to sustainability. Our unwavering focus on operating a sustainable and responsible business continued to deliver results in FY 2020 as well as affirmed by third-party experts. Work on improving the stability and the management of our tailings dams continues. Business units are implementing the recommendations from the audit conducted by Golder Associates in the previous year. In addition, we have updated detailing them performance standard and have added a detailed set of guidance notes that all our business units must adhere to when managing their tailings facilities. 2020 also is the end of our cycle for GHG emissions intensity reduction target. We have managed to reduce our GHG emission intensity by 13.81%. This is below our target of 16% from a 2012 baseline, and indicative of the stretched target we had taken. This reduction is equivalent to 9 million TCO2. We have begun work on setting our next set of long-term GHG reduction targets, and we'll be disclosing those numbers in coming quarters. Our highlights for us in 2020 include 7 million meter cube of water saving over the past 3 years as well as more than 100% fly ash utilization for our second year running. Now coming to contribution to the communities. With nearly 190 initiatives spanning health care, education, community infrastructure, drinking water, sanitation, sports, women's empowerment, environmental production, restoration, livelihood, skill development, Vedanta is a force for good in the communities, where we impact more than 3.2 million people across 868 villages. At our flagship Nand Ghar program, we crossed the 1250th Nand Ghar mark, and we are rapidly moving forward, reaching 4,000 Nand Ghar, which is our target. Now, coming to business unit reviews. First, on Zinc India. Mined metal production for the quarter was 2% -- up 2% Y-o-Y to 249 kt despite operation shutdown from March 22 onwards in compliance with lockdown to combat COVID-19. Mine metal was higher Y-o-Y on account of higher ore production and better overall grades. Sequentially, mine metal production was up 6% on account of continued improvement in ore grades across the mines. For the full year, mine metal production was 917 kt, down 2% Y-o-Y, primarily on account of fewer days of production in March due to lockdown-related COVID-19 and lower grades at Sindesar Khurd during H1, you may remember, and Kayad mine. Integrated metal production was 221 kt for the quarter, down 3% Y-o-Y and up 1% sequentially due to lockdown in March. Integrated zinc production was 172 kt, down 2% Y-o-Y and 4% sequentially. Integrated lead production was 49 kt, down 7% Y-o-Y, but it was up 20% sequentially as Dariba lead smelter resumed normal operations during this quarter. Integrated silver production was 168 tonnes, down 12% from a year ago due to power -- due to lower lead production, partly offset by better SK silver grades and improving silver recovery rate, while it was 12% up sequentially on account of higher lead production, better grades and higher silver recovery. For the full year, metal production was down 3% to 870 kt and silver production was lower by 10% to 610 tonnes on account of few days of production in March due to lockdown. Lower lead production in Q2 and Q3 due to temporary operational issues and lower silver grade. Going forward, we do expect volume growth at HZL given the completion of 1.2 million tonnes per annum mining infrastructure. Now coming to Zinc international, in our Zinc International business, the total production for the year stood at 240 kt, 63% higher Y-o-Y, primarily due to ramp-up of first phase of Gamsberg expansion plan. The cost of production was $1,665 per tonne, down 13% Y-o-Y. The Gamsberg production volume increased from 17 kt in FY '19 to 108 kt in FY 2020 at the COP of $1,445 per tonne. We are working towards improving volumes at Gamsberg with more consistent feed-grades and recovery percentage. Work is on full earnest there. The operation at Skorpion mine has been suspended on safety grounds, and the mine has been put under care and maintenance. With respect to demand, the key market for zinc and lead concentrate, that is Korea, China, is ramping up now post initial COVID-19 setback in February and March. Major smelting groups like Korea Zinc, Nyrstar and Glencore plan to continue normal production at respective facilities in Australia and Europe. Coming to Oil & Gas. In pursuit of our vision to contribute to 50% of India's domestic crude oil production, we have increased our block acreage by acquiring 51 blocks in open acreage policy -- licensing policy, OALP, and 2 blocks in discovered small fields. The acquisition has established us as one of the largest private acreage holders in the country with a ten-fold jump in acreage from 6,000 square kilometers in August 2018 to 65,000 square kilometers. The PSC block offers a rich project portfolio comprising of enhanced oil recovery, tight oil, tight gas, facility upgradation and exploration and appraisal prospects. These projects are being executed under an integrated development strategy involving leading global oilfield services companies and are on track to deliver near-term additional volumes. During the year, 235 wells were drilled and 45 wells were hooked up. Early gas production facility has been commissioned to design capacity of 90 mmscfd. Project execution is the key to focus and bringing some of the gas facilities, EOR and additional wells related project into fruition will be our key focus in attempting to deliver net of decline volumes increase on schedule. We had a planned shutdown at the Mangala processing terminal in February, as announced in the last quarter call, which has enabled us to tie in the key surface facilities and carry out activities to enhance the asset integrity. In October 2018, Rajasthan production sharing contract was granted extension of 10 years with effect from 15 May 2020, subject to certain conditions pursuant to the Government of India policy on PSC extension. One of the conditions for PSC extension related to audit exception issued as part of routine audit in 2018. The conditions stated that if the audit exception results into creation of liability, the same needs to be settled prior to expiry of PSC. These audit exceptions have been [ declined ] as per the provisions pertained in the PSC and stand disputed now. These were again notified for payment in May 2020 to the tune of USD 364 million relating to the group share. Total amount was $522 million. Since the audit exceptions were disputed, they do not result into creation of liability. As per PSC provision, we have invoked dispute resolution as per PSC in November 2019 and now initiated arbitration to resolve this. Due to extenuating circumstances surrounding COVID, MoPNG has permitted continuation of petroleum operations in the RJ block with effect from 15 May 2020 until extension addendum is signed or 3 months, whichever is earlier. In OALP blocks, our objective is to reduce the cycle time from exploration to production. We have implemented the largest onshore, full tensor gravity gradiometry, airborne survey in India to optimize time- and cost-intensive seismic data acquisition to fast track drilling. The seismic acquisition program has been initiated in Assam and the mobilization of the crew is underway in Rajasthan. Now coming to the Aluminum business. In our Aluminum business, we saw record aluminum production from Lanjigarh refinery at 1,811 kt, up 21% Y-o-Y. Through continued debottlenecking, quarter 4 FY 2020 saw one of the lowest costs of production at Lanjigarh at $258 per tonne due to benefits from increase in locally sourced bauxite, continued debottlenecking, improved plant operating parameters and rupee depreciation. On aluminum hot metal cost of production, we have already achieved an earlier production target -- announced target of $1,500 per tonne with Q4 FY 2020 cost of production at $1,451 per tonne, 20% lower Y-o-Y. We expect the cost to be even lower in quarter 1. And going forward, given stable OMC bauxite supply and lower alumina and cost -- coal cost and the business will take -- will make a reasonable cash margin even at $1,500 level. In wake of COVID-19 concerns, the outlook for the initial months of FY 2021 was volatile with some aluminum consumers either reducing or shutting production, a trend seen across geographies and LME taking a nosedive. Now, however, we see announcements by many industries to resume production in some form at the earliest. The global primary aluminum market is currently at surplus, but we also see LME looking upwards at $1,500 per tonne plus in the last few days. We continue to actively monitor the market and will dynamically adopt our product and geography mix to cater to changing market requirements. The Coal Block Allocation Amendment Rule 2020 was notified by the government in line with measures announced to free up coal market over the past few months from intent to auction 50 coal blocks in Finance Minister's speech and the Parliament passing the Mineral Law Bill 2020 to remove captive and use eligibility for coal mining by private companies. The government is also introducing a revenue-sharing-based bidding model with no technical or financial eligibility criteria. Being one of the largest captive coal consumers in India for power in our aluminum smelter, we see this as a very welcome move in freeing up the coal market. This will reduce our dependency on Coal India and improve the competitiveness of coal suppliers in addition to transparency. We'll actively evaluate all opportunities that these amendments will present to improve our coal security and power cost performance of our aluminum operations. Now coming to iron ore. In our iron ore...[Technical Difficulty]
Participants, the line is disconnected. [Operator Instructions] Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead.
So I don't know where I was disconnected, but I'm coming to Iron Ore now. In our iron ore business, sales at Karnataka at 5.8 million tonnes for the year, up 125% Y-o-Y due to an increase in production and stock liquidation at Karnataka. Production of pig iron was marginally down by 1% to 681 kt in FY 2020. On Goa, we continue to engage with the government and local communities to restart our operations. Coming on Steel, our Steel business saw healthy margins for the quarter at $127 per tonne, up 132% Q-o-Q. The full year production was up 3% Y-o-Y at 1,231 kt. With the domestic market showing positive response, we plan to resume our full-scale facility with more focus on value-added product in our product portfolio and continuously work towards reducing cost. Coming on outlook, we are deferring guidance for FY '21 to the end of quarter 1. After studying the overall situation and when there is a better clarity, we will come back. Our current focus remains around efficient operations, active management of cost and capital conservation. As we conclude, I would like to emphasize that this call is to discuss the results of the year gone by, and we will not be taking questions on the recently announced offer from Vedanta Resources to take the company private in this call. The proposed delisting process will be a fair and transparent process in accordance with SEBI regulations. The details and respective timings around the postal ballot are on our website as are all the releases relating to the transaction. Our Investor Relations team will be able to help with any further questions you may have in this regard. Now I would like to hand over to Arun for the financials. Arun?
Yes. Thanks, Sunil, and good evening, everyone. I'm on the quarter 4 FY '20 financial highlights page. In the current situation, as Sunil pointed out, we stay focused on getting the best out of what we influence, which is volume cost efficiency and clawback as much as possible of the lower LME of brand. That explains some of the strong performance on cost and efficiency, be it sequential quarter or versus previous year. Again, FY '20 over FY '19, on a constant price basis, has been the best performance in the last 5 years in terms of EBITDA growth, obviously driven by cost and volume, more details in the coming pages. The other key focus is on cash preservation of liquidity, curtail capital spends to high-return projects, thus generating positive and substantial free cash flows. This is similar to 2016, where the low price scenario brought out the best free cash flow post CapEx in the company in the last decade. On this page, you see us maintaining a robust EBITDA margin, thanks to the cost improvements. ROCE is still in double digits. And exiting the year with significant cash reserves, which has served us well in the current quarter as well. The EBITDA at INR 4,800 crores is better than quarter 3 on a comparable basis, though on an absolute basis is lower. ROCE has followed the past trend. The liquidity of INR 38,000 crores has helped in the current quarter in choppy money markets, especially. And as a consequence, our net debt stands at roughly around INR 21,000 crores, down 41% year-on-year with the annualized net debt EBITDA continuing at 1.0x. As usual, we have a detailed income statement in the appendix, Page 24 and 25. However, some key updates on the income statement. On below EBITDA line items, be it depreciation, interest costs, interest income, all are asked for expectation and guidance, which was reiterated in quarter 3 as well, as well as during the whole year in the earnings calls. On top of it, the tax charge or the ETR for the year is also at 32%, which is broadly in line with guidance of 30% to 32% that we've been giving for the year, right from the beginning of the year. However, I'd like to help you understand the tax line a bit more. There are 3 things on the tax line, which matter this quarter. I'll go in that order. Number one, as per accounting standards, the INR 1,700 crores tax charge on the dividend income or potential dividend income from Hindustan Zinc has been created given the fact that any income from there creates a deferred tax liability for the recipient of the dividend given that it is not potentially brought forward or carried forward tax losses, as we call, during the normal tax computation. And the accounting standards suggests that one estimate and hence, the charge is INR 1,700 crores. And you have a better visibility to it given the actual dividend declared by Hindustan Zinc for the year-end. Item #2, in quarter 2 of this year, FY '20, if you recollect, we had a deferred tax liability write-back of INR 2,500 crores driven by changes introduced in the tax regime, wherein as per the future earnings model, deferred tax liabilities would have been released due to the lower rate of tax, consequent to shifting towards new tax regime down the line post exhaustion of the current benefits of MAT assets. Several other corporates have taken similar write-backs. These deferred tax liabilities largely pertain to the tax versus [ stat ] carrying value, fixed assets, if I may remind you all. Now based on the trued up model in quarter 4, which was actually driven by the newly introduced Finance Act 2000 and primarily, the way the dividend gets -- future dividend streams get taxed, the trued up reversal amount for the year stands at INR 1,800 crores, still a significantly large sum. However, the quarter 4 impact would hence have a charge of INR 700 crores. Removing the impact of the underlying -- removing the impact of these 2 items, the underlying tax is around INR 700 crores to INR 800 crores for the quarter, though from a full year perspective, both of these offset each other. The item #3, which is anyways available as separate line, tax credit on the impairment charge taken of INR 6,500 crores is a third item, which is clearly classified as exceptional as well. Both the impairment-related deferred tax reversal as well as the dividend-related tax are shown as separate line items in the Regulation 33 format in any case. These are all -- as you know, these are accounting complexities of deferred tax. Moving on, on the investment income for quarter 4 FY '20, the only point is that versus last year quarter 4, it is lower given the onetime income we had last year. Hence, the whole portfolio earns around 7% pretax income as guided earlier. No surprises there as well. The same trend would be noticed on a full year basis on that line. Now coming to the impairment. We've added an extra page, as you can see, Page 25, I guess, the net of tax charge is about INR 10,800 crores. This is 2 broad components. First is pertaining to the oil and gas, which is INR 9,700 crores and is primarily driven by price assumptions and some owing to exploration-related write-offs. The policy approach standard operating procedure for price assumptions and a variety of other assumptions, which are largely -- price is largely consensus driven, is completely unchanged as compared to the earlier years. The impact of the Ind AS account will be higher than IFRS, which will come out later, given the lower yearly depreciation charge and the difference in depreciation standards of the 2 accounting standards. On oil of consensus assumed in FY '20, '21 and '22 at the end of FY '18 when the last true-up was done, they were all in the mid- to late 60s in terms of Brent. The current assumptions all indicate about INR 20 lower -- sorry, $20 lower on an average for the next 3 years. And the medium term, it used to be 70s as per our earlier FY '18 true-up is now down to the 50. This is what the consensus estimates are. WACC is almost same, slightly upward bias. OpEx is lower. OpEx assumptions are lower because we've seen better OpEx and certain potential lower NPV given the project delays and the delayed realization of the benefits and some of the litigation items. The lower depreciation over the last few years versus the IFRS base are the contributors to this impairment. On the second item, nearly 70% of the carrying value of the work in progress of the copper expansion, core LTP expansion has been taken at about INR 470 crores after an assessment of the asset recoverability test. These are the 2 fundamental items. There are a couple of other minor items as well there. And finally, on this page and the detailed income statement, the PSC extension and DDH demand are part of our Reg 33 notes and have been very well covered in Sunil's update that you just heard now. With that if I move on to the next page, dealing with the sequential quarter EBITDA bridge. As can be seen from the bridge, if we remove the LME impact and the base quarter impact of both together around INR 2,250 crores, INR 750 crores plus INR 1,500 crores, then the EBITDA would actually be up around 10%. One could conclude, it is largely driven by the Aluminum sector, which if you'd recollect, we had highlighted even during the quarter 3 earnings calls that quarter 4 costs were tracking lower. We believe this cost performance in Aluminum will sustain during the current year, as Sunil highlighted. Again, on volumes, while it shows up flat, it does not have the impact or rather it has suffered from the impact of the lockdown in March month. Of course, the lockdown was in the second half of the month, but majority of the March sales also happened in the second half of the month, which also confirms that we did exit with higher inventory across, which is now being liquidated in quarter 1. Again, on the -- moving on to the next page on EBITDA bridge versus the previous year fourth quarter, fairly similar story, excluding the price impact, EBITDA is again higher. And in the appendix, there is a full year EBITDA bridge as well, probably Slide 29. EBITDA for FY '20 as a whole, as I mentioned earlier, was around INR 21,000 crores, lower 12% year-on-year, driven by lower commodity prices, which contributed to a negative INR 8,000 crores. But more than 50% of the drop in price was recouped to improve costs, sadly some of them are cost deflation as well. Of course, volume lines could have been better, but for the lockdown in the month of March, as I just alluded to a little while ago. Moving on to the next page on net debt. During the year, net debt reduced by INR 5,600 crores, reflecting our long-term trend of positive free cash flows post CapEx. Some of the full year sales contracts and customer advances, typically a 4Q phenomenon, did not materialize given the market disruption in March and as well as the financial market segment, hence a negative on the full year working capital. These are expected to be a timing issue, should set itself right during the H1 of the current year. Briefly, on the CapEx page, 2 pages down the line, the numbers are well within the guidance as well, we plan to conserve capital, as I articulated earlier, though the formal guidance will be shared during quarter 1 call. Moving on to the next page on balance sheet. Again, a fairly self-explanatory page. The liquidity for the group remains strong with cash and cash equivalents of nearly INR 3,800 crores, albeit the tightness in the domestic capital markets in March due to COVID-19. In the wake of tightened liquidity, the company used its internal cash accrual during Q1 to meet some of the short-term debt obligations, primarily around commercial paper comfortably. We also opted for some selective loan moratoria as applicable given the preference to conserve liquidity and timing, which will confirm and help the rating level in this scenario, which is comforting. We are focused on improving the term debt maturity profile, and we believe we will make meaningful progress this quarter given various discussions in advanced stages with banks and financial sector. Hence, the fundamental Vedanta Limited consolidated balance sheet looks fine, with net debt EBITDA maintained in one. Our investment portfolio is being monitored closely in the scenario. We don't have any new risks during the quarter. It continues to be CRISIL Tier 1 rated largely. Vedanta had indeed declared interim dividend of INR 3.90 per share earlier in the year. Given the need to preserve and build liquidity around operations in this price scenario, final dividend for FY '20 was not on the agenda of the Board meeting. The Board will evaluate further during FY '21 as the scenario unfolds. Overall, we continue to focus on costs and efficiencies, cash and liquidity in the scenario. Formal volume and cost guidance can be expected in the next earnings call for us. As we conclude, I'd like to emphasize again that this call is to discuss the results operations. We will not be taking questions on the recently announced offer from Vedanta Resources to take the company private. As Sunil articulated, the details of the process, FAQs, timings around postal ballot are all on the website. And our Investor Relations team will be more than happy to help with any further questions you have in this regard, which will be taken offline. With this, I hand it over to James for the Q&A session.
Thanks very much, Arun. Operator, over to you to start Q&A.
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Indrajit Agarwal from CLSA.
A couple of questions from my side. One, you have announced -- you have just said that you will again evaluate the dividend distribution for FY '21. We had a dividend distribution policy earlier, that whatever dividend we get from Hindustan Zinc will be upstream. Is there a change in that dividend policy? Or is it still effective?
Arun?
Yes. As far as the dividend policy is concerned, there is no change in the dividend policy. The dividend policy states that minimum payouts when profit is available, both the companies, as well as a pass-through of Zinc dividend as long as it's not a special dividend, right? So to that extent, this policy will be maintained in FY '21. As I mentioned earlier, it will, of course, be subject to liquidity situations and what the Board decides finally.
Sure. In case this dividend from Hindustan, which was not distributed, the deferred tax was INR 1,700 crores, does that mean excess cash outflow or it can still be adjusted against the other group income?
No, it has nothing to do with whether the dividend gets distributed or not, simply because any dividend income is offset with the tax change carried forward, post which APM comes into play after all that gets exhausted. So till such time, this is a normal accounting. It has nothing to do whether you distribute it or not.
Sure. Second question, on your CapEx on Slide 26 of the presentation, the $1.35 billion Cairn CapEx. So how much is avoidable? How much CapEx do you have to actually incur to maintain production Y-o-Y? And how much of this can be avoided to preserve liquidity?
So in the -- I will take this question. So in the current context, it is very clear that the CapEx discipline has to be maintained. So whatever the volume, which will be delivered in the near term, only those CapExes will be taken up. And whatever the CapExes, which are in the pipeline, like 3, 4 projects are there, tight gas, tight oil, the liquid handling facility, the polymer feeding facility. So these are 4, 5 CapExes, which are in pipeline along with Ravva. So these CapExes only are getting completed. And the other CapExes are being reevaluated in the current context of Brent prices and other liabilities.
Sure.
And if I may just add a line broadly, the unspent that you see on -- the unspent you see on Page 26, the biggest project of ASP. So we -- as Sunil said, we'll evaluate it in the course of time, and we'll take it up only if it is absolutely feasible and making a lot of return at low oil prices.
Just 5 projects are in pipeline, gas, liquid handling facility, tight oil, offshore Ravva and MBA infill and polymer.
Sure. Last question is on Slide 35, your Aluminum profitability. The power cost over there has dropped sharply by about $140 per tonne Q-o-Q. So if you can shed more light in terms of what was the coal cost? How much of this reduction is sustainable, et cetera?
So Ajay will give you the detail. But of course, the drop in cost is the basic realization of the linkage coals and better availability of the mix. So these are the basic reasons. But Ajay, you might like to add.
Yes, yes, sure. Thank you, Sunil. So basically, we've had a good mix of both coal. What Sunil was mentioning, the coal availability was better at a lower cost also. So that gave us about $55, $60. Additional to that performance, technical parameters, including the PLF of the plants, that also gave additional about 25, 30. And the remaining came from RPO, where earlier, we had a much higher percentage, but after the Orissa government's notification, after Ministry of Finance -- Ministry of Power notification, so now the RPO for Orissa was pegged at 3 and Chattisgarh at 7.5%. So that also gave additional $30, $35. And most of it, the RPO, the technical parameters are sustainable. Coal impact in quarter 1, we are actually seeing the benefit of even lower procurement prices, so -- which I think also Arun mentioned and Sunil also mentioned, we believe that, that will help us in a much better cost of production going forward in quarter 1 and beyond.
The next question is from the line of Amit Dixit from Edelweiss
I have a couple of questions. The first one is on impairment in Oil & Gas division. While Arun explained, I mean, in detail that what led to the impairment. Just wanted to understand because it is quite peculiar that none of the global payers have taken this kind of impairment, including BHP in their latest production report, they have not indicated anything. In fact, they have said that price outlook will get better as we go ahead. So the question is that how much of it -- of this impairment is related to price? And is there any chance of this getting reversed in subsequent quarters if the outlook improves?
So Arun, you may like to take this.
Amit, thanks for the question. So fundamentally, let me make a few distinctions. One, global players, there could be multiple assets and multiple headrooms [ operating ]. Here, it's broadly, the Rajasthan asset, as you know, which has the maximum value. Of course, there are a few other assets like Cambay and Ravva. And second is that, in a language that you would appreciate, it's almost mark-to-market in a manner of speaking, simply because this is the fourth time in the last 6 years that you've taken an impairment. Twice you've taken impairment charge in and once you've taken impairment reversal. And hence, any sharp movements in price or reserve, you would have a higher likelihood of impairment in Cairn rather than probably other companies, which may not be strictly comparable. I think at the asset level, it might be comparable. Now your second sub-question there, how much of it is really price. You'll realize that the $20 number that I gave you is lower price assumption on average compared to the earlier one when we true-up in March 2018, as pertains to FY '21, '22, '23, which is a go-forward period and of course into the future. Simply a 3-year impact on $20 would itself give you a number of $700 million, $800 million. With that, you add the NPVs, you add the exploration bit, et cetera, you almost arrive at your number. So an overwhelming majority of it is price-driven as a point I was trying to make as I explained the impairment. And the third sub-question that you had here. Of course, the possibility of write-back is very well there. But obviously, in our accounting world, as you know, the threshold for write-back is far higher than a threshold for a write-down. And as is the common language, we call it conservative. And to take you back down memory lane a couple of years ago, there was a write-back, but that was very, very clearly led by addition of reserves, physical reserves got added, thanks to the EOR programs and other CapEx, which are related to the CapEx question that was raised by Indrajit. All those CapEx items created reserve. So we wrote it back actually, otherwise possible, but thresholds are definitely normally higher. I hope that helped answer the question.
The second question is on oil and gas production itself. Despite investing close to $1 billion in last 2 years, we have seen that oil production has come down from 200 kboepd to 160. Of course, this quarter, there could be one-off because you had shutdown at Rajasthan block. However, in the last presentation, we had given guidance of 225 kboepd of exit capacity. And the number of wells hooked at the end of H2 were 90. However, we see just 75 at the end of H2. So how long do you think will it take for us to achieve this 225 kboepd that we guided at FY '20 exit?
So I mean the lesser production was a combination of the decline and the new projects and the liquid facility which was to be upgraded. So as the water cut goes up, you have to feed more water and polymers. So if the liquid facility is limited, so that means you have to cut down the production. So until the new facility is hooked up, there will not -- you will see the decline faster. So -- but as I said, that there are 5 projects which are coming up, which are almost nearing completion now. And by this time, some of the projects might have already got completed if the COVID would not have happened and the labor would not have run away from there. And some of the equipment which were held up in Italy, China, those would have come in time. So -- but there was a bit of the delay. Some of the projects which were to get completed last year got delayed for some reason or the other. Now we are in the process of getting these projects completed. So gas, which was from where we got the early supply of gas, which is contributing to 20,000 barrels per day. When this project will get commissioned in quarter 2, this will contribute additional 20,000 barrels. Liquid handling facility, as I just said, that how this will add, this will add to a volume of around 10,000 barrels. This will also get completed in quarter 2. Tight oil, another project which is getting hooked up, will get completed in quarter 2. This will add around 10,000 barrels again. Offshore Ravva, this project is about to get completed in a month or 2. This will add 5,000 barrels. And MBA infill and polymer facility, which is being done by the Halliburton, where all wells are done and the surface facility is about to get completed. This will get completed in the next 2 to 3 months' time, again, early quarter 2. And this will also give you 10,000 barrels. And all this addition, including the base volume, we are confident that the exit volume this time should be definitely between 220,000 to 240,000 barrels.
That means by Q2 end, we should see a tangible increase in oil production. This is what you're trying to say, right?
So from Q3, you will see the tangible increase in production because the commissioning will happen. The project completion will happen in quarter 2 in stages from month-on-month, and then the ramping up of the facility has to happen and stabilization of the facility. But definitely, this volume will start ramping up from Q3 onward. Some indications will also come in Q2 also.
The next question is from the line of Amit Murarka from Motilal Oswal.
I just wanted to understand the aluminum cost reduction. So can you help break up that cost reduction in terms of how much is coming from the fuel cost? How much is from the lower cost of alumina just to understand? Basically, what has led to the commodity price deflation? And how much is structural reduction?
So you're right. The cost reduction is a combination of alumina, which is -- the government are sourcing from local Orissa or the contribution of the Lanjigarh or the purchase alumina and power also. Ajay said that there are serious factors in the carbon. But Ajay, you would like to give the details?
Yes, sure. So Duggal has already mentioned. So essentially, on one hand, as Mr. Duggal mentioned in the beginning, Lanjigarh achieved its lowest cost of production in the last quarter, close to 258. And then -- so that is from one production. Second, of course, the API index itself, the alumina index alone, along with the LME, which you've also seen. So both added together gave us a good alumina cost. Coal and power, I've already handled, I think the answer remains the same, where there are 3 levers. RPO was one, which is structural. Coal, also, I would say, structural in the midterm because a lot of good coal and excess coal is available now. And third, of course, planned reliability also was much better than last quarter, which I think will continue. On top of it, the commodity prices, things like CP coke, CT pitch, they were also on the lower side. So that also helped us. I believe that should also remain more or less in the same range bound. That collectively, and we are also running commercial and manufacturing excellence programs, which I also spoke last time, they are also yielding very good results.
Just to clarify one thing, that the plant availability reduces the power import, which also makes a lot of difference.
Okay. Sure. And on the Rajasthan asset -- block, so the 3-month extension has been given now or is in operation now. But how does it resolve itself? Like, let's say, for the PSC, if the extension signing is not done at the end of these 3 months, so will you continue to get this extension? Until the time the extension happens, will your production sharing and the investment multiple with the government remain the same as it was in the earlier PSC?
So as we told you that the addendum is to be signed. The PSC extension -- when the PSC extension was given, there was a principal agreement, which was reached between us and the government that this extension of PSC will continue and there will not be any strings attached to this, like the earlier demand has to be settled. So we have principally agreed. And based on that, they have given the approval. And now this is lying with the Law Ministry. We can get approval from Law Ministry any day. And my own belief is that in the next 1, 2, 3, 4 weeks, this should be signed.
Sure. And the production sharing is going up to 60% as part of the extension or that is still under discussion?
No, it is -- we are signing the PSC as per the new policy, which is 50%. And the investment multiple recovery remains same as earlier. But that is a separate thing that we are disputing with them that it should remain at 40%.
The next question is from the line of Ritesh Shah from Investec Capital.
My first question is for Arun. Sir, how should we look at the debt maturity profile and the cash flows into FY '21. I understand on one of the slides, we have given INR 9,100 crores. Sir, how much is the outstanding commercial paper? And how should one look at cash flows for this year? It looks like it's like walking on a tight rope.
Arun?
Well, not really, not really because I think the outstanding commercial paper is probably down to about INR 3,000 crores or INR 4,000 crores at this point of time, very, very manageable levels, right? Even otherwise, the credit supports higher level. And secondly, in terms of refinancing broadly, we believe that in the next -- with some luck 30 days, if not 60, 70 days, we should be done with the majority of the refinancing for the year. So we are comfortable of that. And as I alluded to in my talk track, we are in advance discussions with some of our key banking partners.
Yes. So basically, we are looking at refinancing of nearly INR 12,500 crores this year, that's not something which is comforting for us despite tightness in the credit markets. Is it a fair way to understand it? Or should one look at a significantly lower CapEx? I understand we are not giving guidance, but some color over here would be quite useful.
So on CapEx -- sorry, go ahead, Sunil?
No, no, no, you go ahead. You go ahead. I'll add later. Yes.
On CapEx, of course, we have not given guidance, but all I can point you out to you is the trend chart that we normally plays, which shows what is the guidance at the beginning of the year and where did we land up? If you see, we're always much below our budgets. We absolutely conserve and would like to deploy it only where there is an immediate link to the volumes as Sunil articulated earlier. And broadly, if you see zinc spending program is almost done for the 1.2. And it's really only the 5 or 6 projects in oil, which are at advanced stages as Sunil said. And anything new, we would have to look at and evaluate sharply, even though all our projects, as we have said earlier, even at 40 Brent and assuming higher profit petroleum share are still producing well above 30% from an IRR perspective, which as you can appreciate is much higher than our cost of capital, WACC. So from that aspect, you may be short of a number of guidance in this call, but I think you have enough comfort in terms of understanding our mines like it will be rationed and it will be absolutely closely monitored.
Right. Sir, honestly, given your commentary, it looks like we're in a comfortable position. And as a minority, definitely, at Vedanta level, one would be looking at a dividend payout, at least what has transpired through HZL to the parent? Is it something that one can expect during the year going forward? Any commentary over here? Or is it something -- and then how to look at it at a later stage based on cash flows?
No, feedback is quite valuable, and we will definitely share it in general with the Board when we meet.
Sir, my second question is for Mr. Duggal. Sir, any update on the Hindustan Zinc second call option? We understand the CBI file is still pending. Any particular reason over here for the delay? And are there any time lines that one should look at?
While I would not comment on anything which is going on, but one thing I would like to clarify at this point of time that the CBI file is closed. The closure report has been filed by CBI, and it has been handed over to the court.
Ladies and gentlemen, we take the last question from the line of Rajesh Lachhani from HSBC.
Sir, my question is with regards to the employee cost. We have seen that in this quarter, the employee cost has reduced substantially compared to prior year as well as sequentially. Just want to understand the reason. And is this the new norm? Or should we see employee cost rising from the next quarter? That would be question #1.
Maybe that's sort of a very technical financial question. Let me quickly address it, right? We do always true-up certain performance bonuses-related provisions simply because we do know the numbers by the time, so you could say it broadly relates to that because a lot of the component is variable in nature. So with performance comes bonus. With this low price environment, right, you can understand that some of them may have been deferred.
But just to build on what Arun has said, in the current context, actually, we have risen to the occasion, and we are proud of what we are doing in terms of how we are liquidating our stock. However, capacity utilization has gone up. We are almost operating at 89 -- 90 -- 100% of volumes. But on cost, I may tell you that we have redesigned ourselves. And we have divided the total cost into the various buckets, in 7, 8 buckets. So -- and we have made the Mancom in each organization, where the 3, 4, 5 people are there who are the key decision-makers who may meet on a daily basis to make this season. But on the cost, we have divided this into 8, 9 buckets and we have given the ownership of that cost bucket to the each senior individual in each company. And these all costs are reviewed in the [ board ] rooms on a daily basis. And I am very proud to tell you that we have decided ourselves that we will try and endeavor to protect our margin, what was there in quarter 4 and quarter 3 last year, even in this low cycle of commodity prices.
Understood, sir. And sir, my question to Arun would be, on Slide 21, we have mentioned ROCE of 11%. So I just want to understand, this 11% is after the impairment, right?
That's right. This would be an average capital employed for the year.
Right. So this is post impairment. And Arun, if we remove Hindustan Zinc from this, can you let me know what is the ROCE for the remaining businesses?
I don't have the split ready hand, but you can -- we can definitely work it out and give it to you. The good news there really is that Aluminum business, as you saw in the appendix at post tax, let's say, EBIT post-tax as a percentage of capital employed is starting to turn a nice positive. So that should -- if that sustains, we believe it will -- that should help pull the ROCE upward even in a low-price scenario. Of course, as we speak, the prices are looking up, that's a different matter altogether. But I think there's some good tailwinds out there one should expect, especially in the light of the commentary that Sunil gave in terms of expecting the margins and pulling the cost down in this scenario.
Understood. Arun, but my question was more about a structural thing. So we have been talking about considering only those projects, which have a high IRR, so we talk about 20% and if we remove Hindustan Zinc, then the ROCEs for the remaining business, even in the years when the commodity prices were relatively much better, the ROCEs for the remaining business has been much lower. So just wanted to understand, isn't there some issue with the capital allocation previously as well as shouldn't that be a review of the capital allocation strategy going forward?
I think it's a good question. A lot of it is history, as you mentioned. If you look at the last 3-, 5-year scenario, and take the CapEx spend from an allocation perspective, it has gone into sectors and areas and projects where the IRR is much more than your cost of capital at that point of time. It's a different matter that prior to that it may not have got the returns desired or got the returns a little later than what was planned, right? So that's broadly where it is -- if you look at all the projects of oil, which will come into fruition this year, the IRR will be above the cost of capital. Zinc, as you know, is always -- even at a low zinc price, it's about plus 30%. And we have not spent anything in Aluminum in the last 5 years as such. It's been a story of making structural connections to enhance the incremental ROCE, right, or incremental yearly ROCE, so that the overall value goes up. So that's been sort of the efforts in the 3 big sectors. And of course, if copper comes back and Goa reopens, the numbers will automatically start looking up.
Thank you, everybody, on behalf of the entire Vedanta team. Thank you for dialing in today. And we'd just like to say, any further questions, please don't hesitate to contact myself and the rest of the Investor Relations team. With that, let me pass it back to the operator to close the call. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Vedanta Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.