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Vedanta Ltd
Earnings Call Analysis
Q4-2024 Analysis
Vedanta Ltd
Vedanta Limited closed the fiscal year 2024 on a high note, achieving the second highest annual revenue in its history at INR 141,793 crores, alongside an EBITDA of INR 36,455 crores. The EBITDA margin reached an impressive 30%, driven by stringent cost optimizations amounting to INR 10,000 crores. Despite a moderate commodity cycle, these financial results were noteworthy as they reflected the company's robust operational efficiencies and cost management strategies.
Operationally, FY 2024 was a year of records for Vedanta. The Aluminium business achieved its highest-ever annual production of 2.37 million tonnes, accomplishing a 23% cost reduction from the previous year. Hindustan Zinc became the world's third-largest silver producer with 746 tonnes of silver and recorded its highest-ever mined metal production. The Iron Ore and Steel divisions also reached new heights, with substantial year-on-year growth in production and sales.
Looking ahead to FY 2025, Vedanta is poised for significant growth across its portfolios. Key projects include expanding the Lanjigarh refinery capacity to 3.5 million tonnes per annum, commissioning new facilities in Zinc India, and ramping up production in Zinc International. These expansions are expected to enhance production capacities and improve cost efficiencies further, with the Aluminium segment alone anticipated to generate an EBITDA of over $3 billion.
The company's financial health remains strong with a quarter-on-quarter EBITDA increase of 3% to INR 8,969 crores in Q4 FY24. Free cash flow before capex saw a remarkable 131% increase quarter-on-quarter. Debt reduction was a priority, with a significant decrease of INR 6,135 crores quarter-on-quarter. The net debt-to-EBITDA ratio improved from 1.7x to 1.5x. Vedanta Resources also reported a $1.6 billion debt reduction this fiscal year and plans to further deleverage by $3 billion over the next three years.
Vedanta is committing $1.9 billion in growth CapEx for FY 2025, aimed at completing major projects like the world's largest alumina refinery and expansions at BALCO and ESL Steel. This strategic investment underscores the company's commitment to driving transformative growth and enhancing value for stakeholders, leveraging the rising demand, particularly in the domestic market.
On the environmental, social, and governance (ESG) front, Vedanta received strong ratings with an A- in CDP water and B in CDP climate change, surpassing the industry average. Vidanta and Hindustan Zinc ranked prominently in the S&P Global Corporate Sustainability Assessment for 2023. These achievements reflect Vedanta's commitment to sustainability and responsible business practices, which are integral to its growth strategy.
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Ladies and gentlemen, good day, and welcome to Vedanta Limited Quarter 4 Financial Year 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Prerna Halwacia, Deputy Head Investor Relations and Company Secretary, Vedanta Limited. Thank you, and over to you.
Thank you, Yashashri. Good evening, everyone, and welcome to our quarter 4 and year-end earnings call for FY '24. On behalf of the entire Vedanta team, I would like to thank you for joining us today to discuss our financial results and business performance. The transcript and audio of this call will be made available on our website. The financial statements, press release and presentation are already available on our website.
Today from our leadership team, we have with us Mr. Arun Mishra, our Executive Director; Ajay Goel, our Chief Financial Officer; Ajay Agarwal, President, Finance, we also have leaders from a couple of our key businesses, Mr. John Slaven, CEO, Aluminium business. Steve Moore, Deputy CEO, Oil and Gas; and Hitesh Vaid, CFO, Cairn Oil & Gas.
Please note that today's entire discussion will be covered by the cautionary statement on Slide #2 of the presentation. We will start with an update on our operations and financial performance, and then we'll open the floor for Q&A. Now I would like to hand over the call to Mr. Arun Misra.
Thank you, Prerana. Good evening, everyone. Thank you for joining today's quarterly business performance update. Before sharing the quarterly performance, I would like to share that continuing on our ESG journey, Vedanta has been rated A- in CDP water rating and rated B in CDP climate change. Compare this to the industry average of rating of C, whereas Hindustan Zinc has been rated A- both in CDP Water and CDP Climate ratings. Also, along with Vedanta being ranked third and Hindustan Zinc being ranked first position in S&P Global Corporate Sustainability Assessment 2023. Our Vedanta Aluminum has also been ranked first in S&P Global corporates Sustainability Assessment 2023.
Moving on to quarter 4 FY '24 performance. We delivered a revenue of INR 34,937 crores, almost same as last quarter with an EBITDA of INR 8,969 crores, up 3% quarter-on-quarter, while protecting our margins by significantly reducing our costs across all our business segments. Aluminum and zinc continue to be among the lowest cost producers globally, consistently ranking in the first quartile and the first decile of the global cost curve, respectively.
Moving on to the annual performance. We exited the year with second highest ever annual revenue of INR 141,793 crores and EBITDA of INR 36,455 crores with EBITDA margin of 30% in spite of moderate commodity cycle, purely driven by total cost optimization to the tune of about INR 10,000 crores year-on-year.
On operational performance, this financial year has been a remarkable year for Vedanta. Aluminium business delivered highest ever annual production of 2.37 million tonnes, with impressive cost reduction of 23% from the previous year. Hindustan Zinc has set a new benchmark as the world's third largest silver producer with an all-time high annual silver production of 746 tonnes. Zinc India also recorded highest ever mined metal of 1.08 million tonnes and highest ever refined metal of 1.03 million tonnes, with annual costs down 11% year-on-year.
Iron ore Karnataka has recorded highest ever annual sales, which is up 19% year-on-year also achieved highest ever annual production at value-added business, up 19% year-on-year. At ESL Steel also, we achieved highest ever annual crude steel production of 1.39 million tonnes, up 8% year-on-year driven by debottlenecking and improved operational efficiency. Looking forward, financial year '25 promises significant growth across entire business portfolio. In aluminum, we have already expanded the Lanjigarh refinery capacity to 3.5 million tonnes per annum with the commissioning of Train-1 of 1.5 million tonnes per annum. We are on schedule to commission Train-2, which will add another 1.5 million tonne per annum in quarter 2 of FY '25 with a full ramp-up anticipated by the end of this fiscal year.
BALCO expansion to 1 million tonne per annum is also making steady progress. These projects position us to achieve our targets of reducing 90% value-added aluminum products and alloys securing 100% captive alumina and coal supplies, 3 million tonne per annum of aluminum production with a strong margin of $1,000 per tonne, generating in excess of $3 billion EBITDA.
In Zinc India, following successful commissioning of Fumer plant and the mill revamping, we are geared to commission 160,000 tonnes per annum roaster plant in quarter 3 of this fiscal year and 5.1 lakh tonne per annum fertilizer plant in quarter 2 from next fiscal year.
We have produced 700 tonnes of alloy from our Hindustan Zinc alloy plant and are ready to ramp up their capacity further. In Zinc International, with one of the world's largest zinc deposit is poised to deliver significant value. Gamsberg Phase 2 expansion project is running under full swing and is expected to ramp up by quarter 2 of financial year '26.
In iron ore, during the quarter 4 financial year '24 end, we operationalized the Bicholim mine in Goa of 3 million tonne per annum capacity, making the commencement of first mining operation in Goa region in nearly 6 years. Our target for next year is producing 12 million tonne per annum of iron ore in our iron ore business and the value-added business production is estimated at 1 million tonne per annum.
In ESL Steel, the expansion to 3.5 million tonne per annum is on track for completion in Financial year '25 with the VAB expansion to 1 million tonnes per annum at IOB and ESL steel together will be able to produce overall 4.5 million tonnes per annum of steel and pig iron in our facilities.
In Oil & Gas, moving forward, with growth CapEx of USD 400 million in financial year '25, we remain committed to drilling more infill wells, maximizing resource recovery and discover more resources for future growth by focused development and exploration. In power, we are proud to have supplied one of the largest units of commercial power to our national grid. Furthermore, synchronizing unit 1 of 150-megawatt Meenakshi power plant along with securing financing for [indiscernible] takes further step closer to delivering on our goal of supplying 5 gigawatt of commercial power within next 2 years.
In this financial year, we'll be fully commissioning Meenakhsi power plant. In FACOR, we exited last financial year with a run rate of 110,000 tonnes per annum capacity will further ramp up the Ferrochrome production to 150,000 tonnes per annum in financial year '25.
In summary, FY '25 is going to be a transformative year for Vedanta with completion of most of our growth projects. For this, we are allocating an estimated $1.9 billion of growth CapEx. This strategic investment reflects our determination to drive transformative growth for all our stakeholders.
With the recent surge in commodity prices, particularly aluminum, zinc and silver, we are going to unlock tremendous value. Our low cost and world-class assets across businesses coupled with strong financial position and commitment to ESG, position us perfectly to capitalize this opportunity from rising demand and unlock exceptional growth for all of our stakeholders.
In conclusion, as we welcome the new financial year, we'll carry forward the current momentum with the knowledge that each milestone we achieved is a stepping stone towards greater success. We believe that this is going to be our historical best-ever year in terms of volume, revenue, cost and bottom line. We also believe looking at the macroeconomic trends and analysts' consensus, current northward movement of commodity cycle will continue helping us in this effort.
This year, will also be historical in terms of commissioning of many of our large projects, including the world's largest alumina refinery in Lanjigarh expansion at BALCO to 1 million tonne per annum, expansion at ESL Steel to 3.5 million tonnes per annum, which not only impact favorably in our input costs, but will also help us increase [indiscernible] percentage in a big way.
Our transformative cost focus will continue, that will optimize cost across all our portfolio by 10% to 20%. We continue to see increase in demand, especially in domestic markets in double digits across our portfolio, especially in aluminum, where the likely growth may cross 15%. We are uniquely positioned in this optimistic environment that our production and most of the consumption are in the same geography that is India, which is recording highest ever growth among all emerging economies.
Across our portfolio, we will also add about 10% additional capacity by aggressive debottlenecking efforts and asset optimization. We have invited all of you to visit our marquee operational sites in Jharsuguda, SK mines and Barmer. I am sure you will be pleasantly surprised to see our global best quality assets. Our journey thus far has been remarkable, but the path ahead is even more promising. Together, we will continue to push the boundary, redefine excellence and create lasting value for all our stakeholders. Thank you, and over to Ajay.
Thank you, Arun, and good evening, everyone. I'm very happy to provide an overview of our financials for the fourth quarter and for the full fiscal FY '24. Capitalizing on our momentum from the last couple of quarters, our teams have achieved impressive financial performance, evidenced by highest ever annual volume and substantial cost savings across our key businesses, which ultimately led to strong financial results. Speaking of the full year first, I'm very happy to share that we have delivered second ever highest annual revenue and EBITDA of INR 141,793 crores and INR 36,455 crores, respectively, despite a downward trend in pricing.
This delivery stems from volume augmentation and cost compression through structural changes. Furthermore, our EBITDA margin improved by 240 basis points to 30% and ROCE again by 240 basis points to 23% in comparison to FY '23. For fourth quarter, our singular focus was on operational excellence and cost management. It has helped us deliver yet another good quarter. Three of the key highlights for the quarter are. Our controlled revenue remains steady quarter-on-quarter at INR 34,937 crores amidst lower LME and the fluctuation in exchange rates.
We achieved fourth quarter EBITDA of INR 8,969 crores, marking a 3% increase quarter-on-quarter with a margin improvement of 75 basis points quarter-on-quarter. We also could generate robust free cash flow pre-CapEx of INR 9,948 crores, with a substantial increase of 131% quarter-on-quarter. Our debt has reduced by INR 6,135 crores quarter-on-quarter. I will repeat at Vedanta console level, we deleveraged in the current quarter by INR 6,135 crores quarter-on-quarter. It also led to improvement in net debt-to-EBITDA ratio from 1.7% in the previous quarter to 1.5% as of March and fourth quarter.
Let me move to EBITDA bridge. EBITDA increased by 3% quarter-on-quarter, majorly due to increased volumes stemming from enhanced operational efficiencies and cost reduction despite lower LME. Moving to debt bridge. In the fourth quarter, our net debt reduced by INR 6,135 crores from December '23, reaching to INR 56,388 crores primarily driven by strong cash flows from operations and working capital release.
In terms of the balance sheet, our commitment to a disciplined allocation of capital is evident from prioritizing, maintaining a robust balance sheet, sustaining healthy payout ratio with good dividend yield. As of March 24, we had a healthy cash and cash equivalents amounting to INR 15,421 crores, which marks an increase of 21% quarter-on-quarter.
I would like to highlight the significant progress our holdco, VRL has made in reducing its debt, having deleveraged by $1.6 billion during the last fiscal year. Further, I'd also like to highlight that we have deleveraged VRL, our holding company by $3.7 billion over the last 2 years, bringing down its debt at holdco from $9.7 billion to $6 billion as of March '24.
As we usher into a new fiscal FY '25, let me reemphasize a few things. We are well positioned to sustain the current momentum. And this year will mark our historical peak in terms of volume, revenue, cost efficiency and bottom line, which will be strongly benefited by ongoing upward trajectory of pricing cycle. In FY '24, we allocated 1.4 billion to growth CapEx, bringing several projects close to completion.
Consequently, now we are allocating and committing $1.9 billion CapEx in FY '25, which will not only positively impact our input costs but will also enable a substantial increase in evaluation to higher value for it. Moreover, we foresee robust demand growth, particularly in the domestic market with the double digits across our key businesses.
We are engaged with analysts and investors over the last few weeks. This has been -- there has been significant inbound interest from marquee, domestic and foreign investors. Over the last few months, our stock price has surged to 2 years high. I would like to reiterate that we are well on our path to meet delivery, deleveraging and demerger as we have committed in FY '25. Thank you. I hand over to operator for Q&A.
[Operator Instructions] We have a first question from the line of Ashish Kejriwal from Nuvama Wealth Management.
Congratulations on the good set of numbers in this environment. A few questions just to get a sense on our status on different things like status on steel plant sale, where we are in the vertical split of the businesses and especially in the coal blocks where we are. These are the 3 questions. And then I can go for some retrieving that has peaked out for us or not.
Arun Misra here. So let me address the strategic sale of our steel implant asset. Yes, it is still under consideration. And of course, there are certain regulatory clearances which are yet pending, and we are very hopeful considering the advance that we have been able to make in the last quarter that in this quarter -- first quarter of this fiscal itself, all the regulatory clearances will be over. So then [indiscernible] transaction if it were to happen, it could happen at that time.
So at the outset, sir, what could be our outer limit in that?
I wouldn't say there's an outer limit. It is under consideration and the moment it is -- anywhere between quarter 1, quarter 2, if the clearances are over and the buyers are ready, it should happen. On the vertical split, I will ask Ajay Agarwal to brief. Ajay?
So on the demerger part, Ashish, you would recall during our meeting as well, I have identified and informed you that all the questions which were raised by both NSE and BSE has been appropriately resolved. The only thing which is pending now is to get the NOC from the lenders for us to file the application with the NCLT. That's a step 2 in our milestone.
I'm happy to let all of you know that on the lenders LOC as well, we have started to receive few of the NOCs from the private lenders. And from the PSUs, the discussions are on, and we are very confident to get a few of the NOCs by the end of this month, and the rest will also follow start of the next month. I hope that answers your question, Ashish.
Sure. So sir, we are maintaining our CY '24 and guidance of this vertical split of the businesses.
Absolutely. We are very strongly confident about achieving this milestone.
And on the issue of coal mines for our aluminum sector, Jamkhani coal mines produced 2.1 million tonnes in last year and is slated to produce more than 2.6 million tonnes in the coming fiscal year. Radhikapur coal block, it is likely to start in quarter 4 of the current fiscal year. Its environment clearance is in place. Forest clearance, Stage 1 has been obtained. Now the compliances of Stage 1 is being done. After that, the Stage 2 clearance will be obtained.
On the Kurloi mine, environment clearance is recommended, forest clearance Stage 1 is in progress, likely commissioning again, quarter 4 of financial year '25, that's current fiscal year. And Ghoghrapalli allocation has been done. It's likely to come into line in financial year '26 that next fiscal year.
And sir, Ajay, this is for you. Are we still reiterating that our debt has peaked out in FY '24. And all of the ongoing expansion will be funded through internal accruals as well as the dividend payment to the -- dividend payment, which can help in deleveraging balance debt?
No. Absolutely, Ashish, and we met last, we made one more commitment that beyond the existing deleveraging of $3.7 billion. VRL will be further deleveraging by $3 billion over 3 years. And if you simply look at our guidance value and transport with the spot LME. EBITDA will be no less than $6.5 billion. So over the next 3 years, cumulatively, our EBITDA to be almost $20 billion plus and with at the cash flow, $7 billion to $8 billion.
That cash is sufficient to meet our needs for the CapEx in India at the same time, paying dividend. So both Vedanta Resources and Vedanta Limited will deleveraged over the next 3 years.
We have our next question from the line of Indrajit Agarwal from CLSA.
I have a couple of questions. Can you please highlight the cash outflow, broad cash outflow either for debt repayment or royalty payment due in the next 3 months and 12 months, both at Vedanta Limited level and on the parent level?
Yes, sure. So if I start Indrajit first with the Vedanta Resources. And as you have seen that beyond the deleveraging in the current fiscal, sometimes in January, we also went for debt restructuring. Hence, the need for money at Vedanta Resources in the current fiscal is about $1 billion to $1.1 billion, out of which maybe a small portion impact is required in the first quarter. It's about [indiscernible] -odd million, including the interest cost.
How do we plan to service this? As you know, the brand fee is payable in the first quarter, contractually have been paid in line with the last year. Now dividend is a board matter. But if I look at our historical numbers and pay even a smaller dividend, so net-net in the prior fiscal for the Q1 a combination of the brand fee on a normalized dividend will be sufficient to meet the obligation at Vedanta Resources about $1, $1.1 billion.
Speaking of Vedanta Limited, at Vedanta standalone, the maturity is about $1.5 billion out of a very small portion in the first quarter. Most of the maturity at Vedanta Limited are fully secured. We have secured loans. Hence, refinancing is an option. Additionally, as I mentioned with the current outlook of the pricing and our guidance on the volume and cost at VDL will have sufficient cash to manage any maturities. So net-net in terms of our CapEx and the maturities will be managed mostly in-house. No new debt need to release on the current levels.
So in your current interaction with lenders, is there any sharp difference between the current cost of borrowing versus what the refinancing cost would come through it at Vedanta limited level?
Given our size, Indrajit and our historical engagement with the multiple lending cohorts, be it PFC bankers, be it Indian private bankers or international bankers, we've got deep engagement, be it in India or in I think, across the world in London. If you look at our recent borrowings, I can point out to one lending through PFC, almost INR 4,000 crores for 11 years at about 10.5%. So all ongoing discussions, any refinancing will be done at a lower cost than the previous one. Not only deleveraging, including the cost of funding will come down in the current fiscal.
And my next question is on bauxite availability from OMC. Any progress on that? What is the status? Are we getting sufficient bauxite, what kind of time lines we can look at for that?
Bauxite on AMC contract is in place, I'll ask Sunil or -- bauxite is in place. And our own Sijimali mine that we are going to start that forest clearance Stage 1 is due, once Stage 1 is done, then we will -- we're getting the environment clearance and also we'll start our own bauxite mine. Further, maybe, John, if you are there, anything you would like to add?
Arun, thanks very much. We continue to get bauxite from OMC as they -- we agreed contract with them. It is producing at full approved capacity and we are getting great materialization from the mine to the refinery such meeting a part of our full requirements. But as you mentioned, we're really looking forward to ramping up Sijimali in the second half of this year, which will enable us to avoid further procurement from some overseas bauxite.
We have a next question from the line of Vikash Singh from Phillip Capital.
I just wanted to understand that since we are demerging our business, a bulk of our debt is in the stand-alone business, while the stand-alone business current EBITDA probably would not be sufficient enough. So in terms of debt redistribution, can you give us some insight that how this stand-alone debt would be redistributed among the other companies?
I request my colleague, Ajay Agarwal to [indiscernible].
See, so far as demerger regulations are concerned, it is quite sacrifice to say that all the debt will get allocated across each of the demerged entity in the ratio of the assets in which the asset gets allocated amongst the 6 different demerge entities. So there is very less leeway for any one of us to really play with a product to be a tax-neutral demerger. So this is the regulation, we have apportioned the debt across the 6 entities -- and based on this formula, we have gone to the lenders for the specific approval.
Understood, sir. Sir, second question pertains to our Oil & Gas business, while the realizations and volumes are lower, operating performance had been pretty good. So am I missing something because sequential also, there was a significant improvement.
No. What has been achieved is in spite of decline in production, the cost management has been very good. So the target of keeping the cost between $14 to $15 per barrel has been achieved. Further, Steve, anything you'd like to add?
Yes. Just like to add that we've also really focused on keeping the production as high as possible and growing it in the fields where we have the highest margins. So although we've seen production fall in some areas, the areas where we make the biggest margins, we've actually seen production increases or very stable production. So that has helped the return on the production that we've been making.
Understood. Just one clarification. The USD 3 billion debt repayment in Vedanta Resources, which you're talking about. This is exclusive of the Zambian, basically Konkona Coppermine [indiscernible] right? If that happened, then it would be over and above that? Or is overall basically.
So just to clarify, the number I quoted for the Vedanta Resources that $1.1 billion requirement in the current fiscal. It is Vedanta Resources. There's no debt requirement for Konkona [indiscernible] and any funding needs for [indiscernible] over from the mine.
No, no, sir, actually, my questions pertain to that there was a lot of food in the media that we wanted to sell part of the stake in the mine. So the 3-year plan of $3 billion debt repayment in Vedanta Resources cumulatively does that include -- does that number include your internal calculation of stake sale also or that is over and above. This $3 billion is entirely from the internal repayment or dividend repayment from the Vedanta Limited, that's what I want to understand.
Sure. Vikash, I understand the $3 billion is purely organic cash flows. From the operating cash flows, we will be deleveraging the VRL and the group over the next 3 years' time. Any actions strategically will be incremental over these numbers.
We have a next question from the line of Rashi Chopra from Citigroup.
Just coming back to the same question on the liability of Vedanta Resources, the $1.1 billion is long-term debt, right? The interest amount is separate over and above this.
That's correct. So almost 0.6 of interest, so $1.1 billion plus $0.6 billion about circa $1.7 billion is a need at Vedanta resources.
Okay. And what about the ICR, the $450 million?
That is internal, Rashi, I mean, almost [indiscernible] So between the Vedanta Limited and Vedanta Resources, net it becomes a wash. So if we are in pace which they will, as scheduled in December, we get cash flow at Vedanta Limited.
Sure. So that's your schedule for December '24.
That's right.
Secondly, the BALCO expansion, when is that scheduled for like which quarter of this year?
The BALCO expansion is scheduled to be commissioned by the third quarter of this year.
And lastly, what is the retained earnings at the moment at the Vedanta level?
At Vedanta, it is INR 15,000 crores. At zinc, it is about INR 4,000 crores. So as of the first April at the year beginning, we'll be as the group has a INR 5,500 crore as RE balances. I also like to point out, Rashi, if you look at our EBITDA numbers, we don't guide in terms of EBITDA.
But as I mentioned, if you simply transpose the spot elements with our guidance on production and the cost. EBITDA [indiscernible] $6.5 billion. With that, almost $2.5 billion will be the PAT number. So net-net, $2.5 billion to $3 billion being the reserves in the current fiscal, in case we are leaning towards the fee and the payment of dividend.
Got it. And just last question, sorry, on the transfer of the general reserves to the retained earnings at the Vedanta level. Is there any movement there on the lenders approval?
It is where it was last time. And I think the significant I must point out. So nothing much on Vedanta side. But they will process in terms of zinc discussion. And as you know, we are done through all steps including approval shareholders. The second motion is also filed with NCLT. The hearing was done on 18th of April. It has been postponed to 17 of May. And we hope this will get finished in the current quarter.
The next question is from the line of Sumangal Nevatia from Kotak Securities.
First question on the aluminum business. Our volume guidance is very similar to this year. So we're not expecting any contribution from BALCO's expansion is one clarification there. And secondly, our cost also is around $1,700 range, which is what we've achieved in 4Q. So directionally, can we say that large part of the commodity deflation is already factored in our cost?
As far as cost is concerned, we will continue the current drive. So the deflation is factored, but we will continue our current drive of cost reduction. And in quarter 3, we had a cost of $1,854. And in quarter 4, we reduced to $1,823. And in the guidance, we are talking about between $1600 to $1700 so maybe another $100 a $200 reduction in cost.
Whereas if you look at the BALCO's expansion likely to come in quarter 3. First quarter will be stabilizing the new facilities and ramping up. So we expect if it happens. So that incremental over and above the guidance that we are giving.
Just want to reconfirm when is our brand fees contract expiring and when is it due for renewal?
The brand fee, right now is a long-term agreement for 15 years. 2028 is expiry date.
But the percentage rate is, I guess, to be decided every 2 or 3 years, right? So I just want to know that expiry.
In the last revision of the last fiscal, from 2% to 3%, it was blocked for next 6 years. And hence, the next revision will be due only in 2028, '29 unless the board want to review earlier.
Okay. Okay. Got it. Okay. So the board has the discretion to change the date, right? or prepone it or postpone it?
Correct. But right now, it is for next 6 years, starting the last fiscal and in case the Board want to change earlier, they have the discretion.
And the ICL, which is outstanding, what is our sense on the time line? Currently, I think December '24 is the payout expected. But in the past, we've pushed it several times. So just want to understand what -- how are we looking at this ICL coming in December '24 expiry?
ICL has been getting paid on time. I think with the one board approval, only once it has been deferred by mutual agreement. The next -- the summer is due in December. It will get repaid on schedule.
Understood. And lastly, on the steel business, we are running at good utilization around 1.3 million, 1.4 million tonnes volume when the margins have been quite poor. So I mean, is there an issue with the -- I mean, what are the key reasons? I mean, our margins have been quite inferior versus the industry. So if you could just explain on that?
So on the cost side, although has been managed, the cost has come down what our bigger, which is a substantial portion of the output did not face good [indiscernible] in the market. And that has squeezed the margin. However, that's why our DI plant expansion project that should get commissioned this time will add more value-added products and is likely to improve the margins going forward.
Understood. And any rough sense on what is our expectation? Any broad range from the divestment of these assets?
I didn't get you divestment of?
Of the steel business.
The broad range of how much would be the price of it you are asking?
Yes. Yes.
I'm afraid that I will not be able to disclose just now.
Okay. But 1Q this quarter and is where we are expecting to conclude.
So you should see if we get the environment clearance in quarter 1, and so that it will take some 3 to 4 months' time for transaction and all that, maybe in quarter 1, end or quarter 2 sometime in the middle.
The next question is from the line of Ritesh Shah from Investec.
Couple of questions. Sir, first, a very basic one. You indicated that the debt will be [indiscernible] in the ratio of assets. Sir, why should it be in the ratio of assets? Why not on the basis of cash flow? How should we understand this?
Ajay, are you there?
Yes. Yes, I'm there. So why it needs to be on the basis of assets? It is largely driven under the income tax act. Given the fact that it will be a tax neutral demerger. For it to be a tax-neutral demerger, you have to allocate all the assets, sorry, all the liabilities, especially the bank loans and borrowings basis, the assets which is getting allocated across each of the businesses.
And but I take your point, obviously, the lenders will also consider when they give their NOC, whether the strong business that it has -- each of the businesses, which is getting demerged, whether it has strong cash flow or not for them to get comfortable in order to get the NOC. So be rest assured, while the formula says that the debt will get allocated. This is the assets being allocated across each of these businesses. Each of these businesses will have strong cash flow as well for it to meet both asset cover as well as the interest coverage ratio.
Sir, you touched upon asset cover. So if hypothetically get proportion on the basis of asset, what is the debt-to-EBITDA ratio that one would possibly look at for each of the segments? Because if I do the math on the basis of assets, we are looking at debt to EBITDA potentially upwards of 5x. Is this something which is sustainable? Or will a lender be okay with it? Or is there something off and what I'm looking at?
Well, the assets which they consider at the moment is the historic value. The value which is standing in the balance sheet is not necessarily the realizable value. And when we submitted our proposal basis, which we don't believe that the asset cover -- sorry, the debt-to-EBITDA ratio will be around 5. Most of the lenders are fairly comfortable with the numbers which we have proposed to them. It will be in the range in which we are today. Some businesses maybe have the ability to take on larger debt, for example, power.
And certain businesses, for example, the residual company, which will be Vedanta standalone, which will house FACOR, Nicomet, and Hindustan Zinc may also have a slightly higher debt, but it has the capacity to really service quarterly the debt, but it will have a larger asset base as well. For example, Hindustan Zinc's entire equity will be in that company.
Sure. This is helpful. Sir, my second question was, sir, we have indicated $3 billion of repayment at the VRL level. including the interest component of servicing over the 3 years, what will that number be? Like if I assume like 13%, 14%, it will be like $5.5 billion. How should we look at this number, including ICL and the interest cost?
See, when we see the need of the money at we are -- it is about $1.6 billion, $1.7 billion, including interest in the current year FY '25. This in fact is a far lesser in the year next. So net-net, we say we'll be deleveraging about $3 billion at Vedanta Resources.
Now do the broad math, we are paying a brand fee give and take out $0.4 billion every single year that makes about $1.3 billion, $1.35 billion over 3-year time frame. And if you pay the nonlife dividend almost $1.8 billion to $2 billion, it will make $3 billion of dividend at Vedanta Resources plus give and take, $1.5 billion is a brand fee. Total cash organically between bank fee and dividend will be almost $4.5 billion. And if you do it from their interest cost, still almost $3 billion is left for deleveraging. So the combination of the brand fee, the routine dividend will be sufficient to meet target of $3 billion deleveraging over 3 years and at Vedanta Resources.
That is helpful. And just last 2 bookkeeping questions. Have we got into hedges into any of the segments like historically, we have done this. So are we taking any commodity call? Are we getting into any hedges?
Very much, Ritesh impact of risk management on the pricing is a continuous process. And you're right, we hedged a couple of years ago. And it proved to be a good measure. We gained more than $0.5 billion on the hedging part. Recently, we have begun to hedge knowing the pricing will be a word. We made a small beginning almost 120 kt almost a 5% volume for aluminum has been hedged.
The average pricing is about $25, $50 per tonne. Similarly for in case of zinc, a small quantity, almost 30 kt has been hedged in the current year, about 2%, 2.5% of the volumes at average pricing of [indiscernible]. So near the beginning and looking for tracking it as the market progresses. Now I also like to point out, if you look at the forward curve for most pricing that. It is showing all content growth, which means can everybody believes the pricing of all commodities will keep going loss walls and hence, hedge, not to hedge will be a continuous process.
Sure. If you permit, just last question. I think a couple of quarters back, we had indicated a number of $7.5 billion of EBITDA. I think it's said in the last presentation as well. Would it be possible for you to give a segmental breakup over here, Aluminum Zinc, Oil & Gas and Power, the top 4 ones?
So Ritesh, in our analyst investor meet in mid of March, we indicated about $6 billion EBITDA for the current fiscal. That number was given almost 6 weeks ago. And thereafter, as you would agree, the pricing has taken a big northward trend. That would continue. And one can look at our guidance of volume and the cost. If you take a midpoint of that and it transports with the spot price. In that case, the EBITDA is about $6.3 billion, $6.4 billion.
And if you also look at the pricing uptick, one can reach towards $7 billion. That's the math. If you like, we can share with you offline the breakup by businesses. You can write to us [indiscernible].
The next question is from the line of Pallav Agarwal from Antique Stockbroking.
I had a question on the copper smelter impairment that we have taken. So have we only written off part of the total value so the carry value [indiscernible] moves to accounts was something like INR 1,681 crores. But we've impaired only about INR 746 crores. So is the balance -- or the balance assets like can they be sold? Or can they be used somewhere else?
Yes, as you know, the accounting needs to follow the consortium as a basic principle. And given the recent ruling, which we have gone for now review petition, from accounting report, we have taken an impairment charge. Now there are 3, 4 components.
Land has not been revalued. So we keep the land as the original cost, which means in future, that can be only an upside. So the remainder assets, be it property plant equipment, inventory and rest all, you've gone for the valuation by your third-party expert. In that case, the market value of those assets has been retained, [indiscernible].
So in summary from impairment to Viewpoint particularly. There'll be no further downside in future irrespective of what the outcome is of that asset.
And also just on the steel business. So I think ESL has a captive iron ore mine. So I'm guessing the recent -- I mean, the EBITDA loss would probably because of coking coal prices. So can coking coal prices coming down, can this turn back into a positive EBITDA in the coming quarters?
Yes. Obviously, the coking coal prices start coming down and at the same time, the DI plant 5 plants get commissioned, so they're adding more MSR to the margins to the products then of course, it will turn profitable. There is no reason why it should not.
Yes, sir, because I mean selling an asset at an attractive valuation which is not...
See, the strategic call. The strategy is in Vedanta, we would like to be in business of metal where we are counted among the top 3 in that businesss, right? Whereas in steel with a 3 million tonne capacity, you would be on the bottom 3 of the business. Now would you like to be in a market which is such a small or let somebody else who has a mark larger capacity make best use of it. So that's a strategic call we have taken.
Okay. And in terms of Zinc International, we, I think, have been probably behind the guidance in terms of production and cost. So when can we actually start seeing a significant improvement over there.
Significant improvement I didn't get you properly?
I think in terms of volume guidance and in terms of profit...
On the Zinc International?
Yes, yes, on the Zinc International.
So currently, there was a timing gap in overburden removal and gold production. And so they missed targets for overburden removal for the last few quarters, which has resulted in lack of production from their front Currently, they will continue at the current rate of about 33, 30 to 35 kt MIC in a quarter from first quarter, ending the year at about 65, 70 -- 65 kt MIC this year, as we see, they're likely to produce between 160 to 180 kt of MIC.
The next question is from the line of Kunal Kothari from Centrum Broking.
Sir, can you please explain what led to the sharp decline in the working capital requirement?
One of the focus areas Kunal in the last 6-odd quarters have been in terms of managing the working capital. And we've done multiple changes structurally. So If you see the fourth quarter alone, the number of working capital days has come down by almost to 77 days which is for Vedanta historical best over last -- all the years.
So we could compare almost all the components. So in the INR 2,700 crores lower working capital, almost INR 900 crores are the receivables and the balance INR 1,800 crores plus is from inventory. So it is the sale of inventory at the year-end and the lower returns. Net-net, over the last 6-odd quarters, our working capital is lower by more than $1 billion. So we give a structure, and that will continue.
So largely, the reduction is coming from which segment, aluminum, Zinc or other segment? The contribution is largely from this segment?
It is across -- for sure, aluminum has played a bigger role. But across the businesses, be it aluminum, Oil & Gas and zinc as well it is across.
And can we expect further reduction in working capital? Or is it the optimal level that one can assume for FY '25 and going forward?
No. So from 75 days of sales, we have an internal target to take it to a close to 65 days of sales. But yes, that will put a lot of pressure on operations and also seeing the logistics like many of the shipments, if they have a cycle time of 3 months to 6 months. So there are challenges in that, but we believe that we -- this is -- although it is ever lowest, we can still go further down, and we'll continue to work in that direction.
And sir, second question is largely all -- most of our CapEx is getting complete in FY '25. Can you also spare your view on FY '26, what CapEx that we are looking for and further as well?
See, the way we work is why we will be commissioning all these fast designed CapEx in this financial year -- this financial year will also see us going back to drying board to look for further growth in all our businesses. Once that is done, the conceptual studies over somewhere in H2 of this year, we'll be able to tell you that what will be the kind of CapEx outline we'll have to do for next financial year.
We have a next question from the line of Amit Dikshit from ICICI Securities.
Just a couple of questions from my side. If I look at Slide 33, where you have given the waterfall chart for aluminum. Now in cost of production, power costs have gone up despite e-auction prices going down significantly in the quarter. So just wanted to understand whether it is the inventory effect and if so, then the coal cost should go down significantly actually in Q1 FY '25. Is it the correct assessment?
Yes. John, would you like to comment on that?
yes, certainly. So in the quarter, we had 2 major overhaul events, which means that we are incurring higher costs for the maintenance events. And at the same time, we need to purchase power from third-party sources to supplement that. And that's higher than our internal generation costs. So those are the 2 big drivers for the increase quarter-over-quarter. In terms of our coal cost, the coal cost has continued to be around the same level quarter-over-quarter.
Can you please quantify the impact of these 2 outages on the coal cost this quarter?
Well, you'll see the -- you'll see the number there, essentially $20 per tonne.
Okay. Got it. The second question is on Oil & Gas division. So while in oil and gas, despite our efforts at helpline of polymer injection and all, we have seen that the natural decline has somehow caused production to go down. And our current guidance that we have given 120 to 140 [indiscernible] for this year against 118 what we have achieved.
So I mean, how do we intend to increase the production, whether it could be closer to 120 and for it to reach 140, what are the key enablers? If you can just shed some light on these so that we can keep a tab on these enablers as the year goes by.
Steve, would you like to comment on this?
Yes, certainly. Yes. So the key focus areas for this year are the gradual switchover from polymer injection to surfactant injection or just this month or later on this month because batch of surfactant will arrive, the facilities are ready to go, and we'll start to inject surfactant [indiscernible] through the reservoir. We'll see the water cuts fall and the oil production come up in Mangala. That's the first project.
The second phase of this, we've just awarded the contract to build the platinum. We'll see that coming in towards the back end or early next financial year. We also have a batch of infill project. This year has been largely looking back and making sure that we're planning to do the right activities. The activities that have the most impact for the dollars that we are spending.
So we haven't done a huge amount of drilling this year. We're going to really start to -- we've just retendered for Rick. We're bringing in some new additional rigs increasing the number of drilling units and the number of wells. We've been looking at how to drill wells quicker and cheaper. We've retendered all of our drilling services contracts -- and we're also starting to focus on a number of the discoveries that have been made from exploration over the last few years have been brought into production, largely with development techniques building from Americas. We're also in the process of mobilizing because we had a little over the last 2 years of drilling offshore.
So we're taking advantage in Saudi Arabia, shedding some jackups. We're going to bring either in 1, 2 or 3, maybe even 3 jackups. We've got a whole batch of wells to drill on the Cambay fields on the West Coast rather field on the East Coast plus we're going to start to go after our DSF blocks both costs as well and do tiebacks to the main facility. So activities are ramping up.
This will allow us to reverse the natural decline and see production start to increase. Following year, we'll see even bigger -- should see even bigger increases, some of those longer-term development projects into fruition.
We have our next question from the line of Aditya Welekar from Axis Securities.
Sir, my question is on the recent run-up in prices. We have witnessed in aluminum and zinc. So given the backdrop that [indiscernible] may postpone its rate cuts and dollar may strengthen. So what is driving this strength in prices? And do you think this is sustainable at the level of aluminium prices, which we have seen recently at $1,600 per ton.
So John, would you like to comment on the price remaining strong in the coming quarters?
What we are seeing in the quarter is impact.
I'm sorry, sir, your voice is not clear.
I'll try that again. What we are seeing in the current months and probably over the next couple of months is an impact of decisions taken by the U.S. and the U.K. to ban import of Russian metal. This is having an impact on the LME. The LME has imposed certain limitations on storing Russian metal in the LME warehouses and what metal can be taken out.
So I think all the market participants are trying to understand how that will impact supply and demand, and what we are seeing is elevated prices as a result of that. So that's playing out over the short term. As we look medium and longer term, what we are seeing is sustained strong growth in demand for the metal and constraints and ability to ramp up supply. So we maintain a positive medium- to longer-term outlook.
I'm not sure whether we're going to maintain the current levels and as Ajay mentioned, we are doing some initial hedging, but very small quantities because we do see contango in the market. We are expecting, as other market participants there are some continued strength in the market over the medium term.
And my next question, continuing on the cost of production and aluminum dividend. So -- we have a near-term target of $1,550 per tonne on cost of production in aluminum. And I mean you have already touched based upon the guidance for FY '25. So -- is it the least which we can achieve or to achieve the $1,550 per tonne, it is contingent upon the operations of captive coal mines like Kurloi and Radhikapur. So once they get operational, we will be able to get near the number of $1,550.
John, are you coming online?
I was going to answer, but I'm happy for you, too.
Please go ahead.
Okay. So obviously, the operation of our own coal mines will be probably the biggest driver of cost because we will be able to significantly reduce the cost of coal, but there are other drivers as well as we operationalize the Sijimali bauxite mine. We will avoid having to purchase imported bauxite. And as we ramp up [indiscernible] refinery, again, that will enable us to displace third-party purchases of alumina. And then the other major driver is as we move our overland logistics from road to rail that enables us to achieve further cost reductions.
So it's that combination together with a whole range of operational performance improvement that will enable us to get that down.
And my last question is on Power. So where are we with respect to the Meenakshi and Athena with respect to their commissioning.
So Meenakshi 150-megawatt is about to be commissioned. We are on that process. And on Athena, the financing and all being taken care of, and it should also come in line sometime in the next financial year.
We have a next question from the line of Amit Lahoti from Emkay.
Some of my questions have already been answered. So one on strategy around M&A with BHP looking to acquire Anglo-American. And given that Vedanta was involved with Anglo-American in the past, what are your thoughts around consolidation in the sector? And maybe more specifically on how Vedanta sees this in terms of strategy for international assets?
No. So we are very focused on growing all our assets primarily in domestic market in India at the center of our international assets, if you look at, which is in South Africa, where our 30 million tonne reserve that we have. We need to grow that business. Currently, it is getting some challenges on overburden stripping but we'll continue that effort. [indiscernible] When it comes into operation, then we will be able to talk about whether -- how big it can be as far as copper is concerned.
It is one of the best copper assets in the world, and we are very sure that, that will be a huge addition to our overall VRL cum Vedanta performance. But we are not really worried about consolidation in this field because we are in the metals where there is hardly -- we are either #1 or #2 in the domestic market and internationally, are #1 or #2 or #3. So consolidation is not going to affect much.
Ladies and gentlemen, we'll take that as a last question for today. I now hand the conference over to Ms. Prerna Halwasiya for closing comments. Over to you.
Thank you. Thank you all for taking out the time to join us today. I hope we were able to answer most of your questions. In case you have any further questions, please feel free to reach out to me or my colleagues at the IR team. This concludes today's call. We look forward to reconnecting with you for the next quarter's earnings call. Thank you, everyone, and have a good day.
Thank you. On behalf of Vedanta Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.