Vedanta costs es­ca­late

Financial Chronicle - - RISING METTAL STOCKS -

Vedanta has the fol­low­ing struc­tural pos­i­tives, i) cal­i­bra­tion of capex cou­pled with a fo­cus on re­duc­ing gear­ing through debt re­pay­ments and gen­er­at­ing higher free cash flow along with a strong pay­out pol­icy, ii) grad­ual ramp-ups at zinc, alu­minium and power op­er­a­tions de­spite con­straints such as spo­radic out­ages and the re­cent cost in­fla­tion, iii) steady com­mod­ity prices with im­proved out­look and iv) merger with Cairn In­dia, which has vastly strength­ened its cap­i­tal struc­ture. De­spite the earn­ings cut fac­tored by us post Q1 led by few head­winds on vol­umes and cost, Vedanta re­mains well po­si­tioned to de­liver strong earn­ings growth and is an ideal bet for in­vestors look­ing to ride the com­mod­ity up­cy­cle through a strong bal­ance sheet en­tity.

Op­er­a­tional per­for­mance sub­dued: Con­sol­i­dated EBITDA at Rs 4,870 crore was lower than our es­ti­mates by ~11%.

Out­look: Ramp-up of alu­minium as­sets at both VAL and BALCO has been hit by mul­ti­ple pot out­ages. The com­pany’s fo­cus on delever­ag­ing and op­ti­mis­ing capex re­mains strong. We have re­vised our con­sol­i­dated EBITDA es­ti­mates down­wards by ~14%/10% for FY18E/19E led by re­align­ment of vol­umes and costs.

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