BackVedanta profit slips 40% as lower commodity prices bite
The company posted a net profit of Rs973.97 cr, revenue of Rs16,561 crore; earnings higher than analysts' expectations
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Mumbai: Vedanta Ltd posted on Tuesday a 40% drop in consolidated net profit as lower commodity prices hit the company’s earnings during the September quarter.
The company, straddling mining, oil and gas sectors, reported a net profit of ₹ 973.97 crore for the quarter as against ₹ 1,639.93 crore in the same period a year ago. Revenue for the quarter fell 15% to ₹ 16,561 crore, compared to ₹ 19,549 crore in the same quarter last year.
The earnings were higher than analysts’ expectations.
A Bloomberg poll of nine analysts forecast consolidated net profit at ₹ 625.1 crore and revenue at ₹ 16,083.3 crore for the July-September quarter.
“Our diversified asset portfolio has delivered a strong operating performance, including record production from our Tier I zinc mines, resulting in strong free cash flow during the quarter. We are continuing to drive efficiency improvements and optimize opex (operational expenditure) and capex (capital expenditure) across the business,taking measured steps to reduce net debt and maximize free cash flow," said Tom Albanese, chief executive officer at Vedanta.
“While the near-term market outlook is challenging, we believe we have the right mix of low-cost assets fuelled with new technologies to benefit from future demand in India and globally," he added.
In a conference call following the earnings release, Albanese said the company is focused on maintaining positive free cash flows across its business segments, adding that it might be forced to “take tough decisions and make structural changes" if cash flows are threatened.
For the September quarter, the company managed to post profits in its zinc business (which also includes production of lead and silver), copper business and power generation business.
But its two main businesses—oil and gas under subsidiary Cairn India Ltd and aluminium, run under Vedanta Aluminium and Balco Ltd—posted losses during the quarter.
For the September quarter, Vedanta posted an operating profit, or Ebitda (earnings before interest, taxes, depreciation and amortisation), of ₹ 4,113 crore, down 35% on year-on-year basis.
Ebitda margin, a measure of a company’s operating profitability, fell to 32%, as against 45% in the same period last year. During the quarter, the company managed to reduce net debt and finance costs. As of September, net debt was at ₹ 27,105 crore compared with ₹ 32,440 crore at the end of September 2014.
“Finance cost at ₹ 1,418 crore was lower by ₹ 46 crore year-on-year, primarily due to debt refinanced at lower cost… The company was also able to renegotiate spreads on its existing term loan portfolio by an average of ~22 basis points. This, along with the declining interest rate scenario in India, led to a 30 bps reduction in the borrowing cost," said a note issued by the company.
One basis point is one-hundredth of a percentage point.
Going forward, Vedanta will further reduce interest cost by raising term loans at “very cost-effective rates" and refinancing high-cost debt during the second half of the fiscal year, said D.D. Jalan, whole-time director and chief financial officer at Vedanta.
While earnings beat street expectations, any substantial improvement will be linked to global commodity prices, said an analyst.
“There are a lot of moving parts in the company which are not in its control—the taxes in the state of Goa, price of crude oil in the international market and government’s stand on aluminium imports. These things will continue to pose challenges for Vedanta. However, we are of the view that this is the bottom for the company, and it cannot get any worse than this," said an analyst with a domestic brokerage. He didn’t wish to be named citing company policy.
He said that Vedanta has some scope in terms of pruning its balance sheet,and from that perspective, a successful merger of Cairn India is very important to service its huge debt.
Quashing rumours about a possible change in the swap ratio for the proposed merger of Cairn India with Vedanta, Albanese once again reiterated that there will be no sweetened offer to the minority shareholders of Cairn India—especially Cairn Energy Plc and Life Insurance Corporation of India (LIC)—and called the news “speculation".
The company plans to complete the merger process by June 2016, he said. As per the terms of the merger, for each stock held, shareholders of Cairn India will get one ordinary share and minority shareholders will receive additional 7.5% redeemable preference share of Vedanta Ltd, which can be redeemed at the face value of ₹ 10 at the end of 18 months.
Shares of Vedanta Ltd closed on the BSE at ₹ 104.85, up 0.14% on Tuesday, while the benchmark Sensex closed at 27,253 points, down 0.4%.
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