CFO on how Vedanta maintain a healthy balance sheet

Synopsis

“Our portfolio is very diversified. So, many eggs of different brands in the same basket have played a vital role for us. This has helped us to maintain a healthy cash flow and balance sheet. As far as commodity prices are concerned the coal crisis of quarter one has started easing out and coal prices have started softening. This has impacted the coal import and eased the coal stocks in various plants and industries including IPPs.”

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“We are making a lot of efforts to make our business more integrated. We are raising alumina capacity from 2 million tonnes to 5 million tonnes by arranging the domestic bauxite through auction of mine,” says Sunil Duggal, Group CEO, Vedanta.





Let us talk about the start of the year that we thought of as a multi-year bull cycle but suddenly there is inflation and recession fears.This led to a massive fall in commodity prices. So, what is your outlook on the commodity cycle going ahead? Do you think there is more steam left?

From my viewpoint the prices have bottomed out. The current commodity prices are a result of the geopolitical and global events.

The metals we deal with are required to decarbonise this world and the energy crisis is still going on in Europe and in other parts of the world.

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Some of the smelters are shutting down and curtailing their capacity. The minerals and metals we deal with like zinc, aluminium, copper, lithium, nickel, cobalt, etc. are going to be in great demand now. Thus, the prices will start rising again.

Do you think as commodity prices are cooling off the demand growth will be enough to support that bottom line growth?

Our portfolio is very diversified. So, many eggs of different brands in the same basket have played a vital role for us. This has helped us to maintain a healthy cash flow and balance sheet.

As far as commodity prices are concerned the coal crisis of quarter one has started easing out and coal prices have started softening. This has impacted the coal import and eased the coal stocks in various plants and industries including IPPs.

So the coal realisation is becoming better and the auction prices are easing out. Also, other commodity prices are easing. I believe that the cost pressure won’t be there now and with these commodity prices we should be able to maintain healthy EBITDA margins in our portfolio.

Your margins were impacted in this quarter, we saw a double whammy of both declining commodity prices as well as rising cost of production but going forward how will the margin shape up for your company?

Aluminium markings eased out from $1000 plus to $500 and as I believe that with better coal realisation and commodity prices, we should be able to get back to the EBITDA margins that we had earlier.

We are making a lot of efforts to make our business more integrated. We are raising alumina capacity from 2 million tonnes to 5 million tonnes by arranging the domestic bauxite through auction of mine.

We are operating three coal mine blocks which we have won through auction and working on value added product capacity to take it to 100 per cent so that it can fetch us a better premium and the demand of the value added product could also be better as we have potential of an EBITDA margin of $1500 plus.

Similarly, we are working in all our other businesses like Zinc International. The volumes are rising because of that the cost is also getting curtailed. There are other KPIs which are becoming better like recovery, productivity and digital efforts with the volume rising structural measures that we are taking.

Maybe next year we will have a full potential of $30-35 billion revenues with EBITDA of $12-13 billion. With that, we will have healthy cash flow to meet the requirement, to deleverage and to feed our capex requirement.

You stated that inorganic acquisitions will be a part of capital allocation policy and also because is now out of the way, are there any other acquisitions on the mind?

We keep evaluating many options through NCLT or privatisation of the public sector companies. Whenever the right situation or right opportunity will come we will definitely participate in that.

Also your company has invited an Expression of Interest (EOI), for the copper smelter situated in Tamil Nadu. Is there any update on that particular front and how much could that plant fetch?

We have received a very good response because of EOI from across but the real priority is to start operations of this plant. As we speak there is a lot of pressure coming up from various stakeholders such as the community, business partners, MSMEs and users of copper. As copper plays a very important role in the country and globally in decarbonisation.

So, with support and ground swelling we feel that there is enough pressure building up to restart the plant. This case has also come up in the court, there is a day to day hearing in the coming days and we are quite hopeful of the favourable judgment from the court.

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