8 November 2020
2QFY21 Results Update | Sector: Metals
Vedanta
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
CMP: INR95
TP: INR104(+10%)
Neutral
Capital allocation holds key
VEDL IN
Inter-corporate loan to parent raises investor concerns
3,717
Vedanta (VEDL) reported better-than-expected 2QFY21 result with EBITDA
352.2 / 4.7
up 48% YoY to INR65.3b, the highest in 10 quarters. With LME prices
166 / 60
expected to stay strong, near-term earnings outlook is even better.
-37/-13/-44
2940
Investor concerns on capital allocation; however, are expected to override
49.9
the strong earnings outlook, leading to muted stock price performance.
Financials & Valuations (INR b)
Y/E MARCH
2020E 2021E 2022E
Sales
EBITDA
Adj. PAT
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. Yield (%)
FCF Yield (%)
*Attributable EBITDA
Shareholding pattern (%)
As On
Sep-20 Jun-20
Promoter
50.1
50.1
DII
16.3
19.1
FII
17.9
15.4
Others
15.7
15.4
FII Includes depository receipts
10.8
0.6
5.0
4.1
37.0
4.8
0.7
4.7
10.0
37.1
5.4
0.7
4.0
16.1
33.8
0.7
5.6
8.4
53.4
1.0
13.8
13.6
0.9
12.6
13.9
831.7 807.7 877.9
194.1 238.5 254.4
32.6
23.3
8.8
73.0
29.5
19.6
65.2
29.0
17.5
-10.7
-52.7
123.7
146.9 138.3 140.1
VEDL, through its overseas subsidiary CIHL, has advanced an inter-corporate
loan of USD956m to its parent Vedanta Resources (VRL) during Apr-Oct’20
(1QFY21 – USD307m, 2QFY21 – USD200m and Oct’20 – USD450m),
repayable gradually over the next three years. At the same time, VEDL has
passed on <50% of dividend received from subsidiary Hindustan Zinc (HZL).
Given lack of clarity on distribution of HZL’s dividend and capital allocation
concerns, we have raised Holdco discount for HZL to 30% (from 10%).
Moreover, high leverage and scheduled debt repayments at parent VRL
remains an additional overhang for VEDL. Maintain
Neutral.
58.1 104.6
Sep-19
50.1
18.6
17.5
13.8
Price recovery/cost deflation drives EBITDA to highest level in last 10 quarters
2QFY21 EBITDA rose 64% QoQ (48% YoY) to INR65.3b due to sharp recovery
in commodity prices and lower costs. Adj. PAT increased 143% QoQ to
INR25.1b. EBITDA (excl. HZL) improved 48% QoQ to INR35.8b.
HZL
had earlier reported EBITDA of INR29.5b, up 87% QoQ (39% YoY) driven
by higher metal volumes and prices (refer
note).
Aluminum
business’ EBITDA improved 28% QoQ to INR16.7b (v/s loss of
INR1.1b in 2QFY20) due to ~14% QoQ rise in LME Aluminum prices.
Aluminum hot-metal cost of production (CoP) remained low at USD1,288/t
(+2% QoQ) supported by lower coal and alumina cost.
The
Oil and Gas
(O&G) segment’s EBITDA increased 62% QoQ to INR7.9b
(down 56% YoY) due to sequential recovery in lower oil prices (+37% QoQ).
Net debt for 2QFY21 was flat QoQ to INR271.9b. Cash and cash equivalents
stood at INR338b. Net-debt (excl. HZL) increased by INR24b QoQ to INR450b
and would rise further in 3QFY21 due to dividend payments and inter-
corporate deposits (ICDs) to parent.
1HFY21 OCF/FCF stood at INR5.1b/INR2.1b, down 63%/76% YoY due to
increase in working capital as well as loan given to parent.
1HFY21 EBITDA/adj PAT stood at INR105.2b/35.4b, +9%/+288% YoY, due to
lower depreciation cost in oil & gas business on impaired asset value.
Highlights from management commentary
VEDL, through its overseas subsidiary CIHL, has advanced inter-corporate
loans of USD956m to its parent company during Apr-Oct’20 (1QFY21 –
USD307m, 2QFY21 – USD200m and Oct’20 – USD450m) repayable over the
next three years.
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.