The steep fall in Vedanta Ltd’s shares in the first quarter was in anticipation of its performance suffering on multiple fronts. If the firm’s shares still fell by 1.8% on Wednesday, that’s perhaps taking cognizance of the time required for its performance to regain form. The rest of FY19 is likely to see a gradual return to better sales growth.

The risks are from the volatility in metal prices, due to the uncertainty caused by the trade wars that are playing out. That China is reporting slower industrial growth in recent months should also be a concern for metal producers globally.

Vedanta’s sales declined by 19.6% sequentially although it managed to hold its Ebitda (earnings before interest, tax, depreciation and amortization) margins steady. Its copper business suffered during the quarter due to the smelter shutdown at Tuticorin, while its iron ore division has seen business suffer from the mining shutdown in Goa. There is no clarity on when these operations can resume and to that extent, they will continue to cast a shadow on its performance in FY19.

The company’s zinc business is normally a star performer, but lower output in India and even in its international business saw it underperform. The good news, however, is that output will increase in the next three quarters. Considering that zinc contributed to 62% of segment profit in FY18, a recovery here will make a significant difference to Vedanta’s profits. Rising oil prices saw the profitability of the oil and gas business improve.

The aluminium business is expected to benefit in FY19 from higher usage of locally sourced high-quality bauxite and lower-cost coal supplies. Aluminium output is also expected to increase.

What should investors look out for in FY19? Global events pose an overarching risk. How Vedanta’s output ramps up in the rest of the year will determine how profitability improves. Higher output will add to revenues and lower the per unit cost of production. A sharp fall in metal prices is a main risk, as it can hurt margins even if output increases. Resolution of its stranded copper and iron ore businesses are crucial events.

Lastly, the company has sufficient cash on its consolidated books and its business generates enough cash to meet ongoing capital expenditure. The promoters are proposing to delist Vedanta’s parent company Vedanta Resources Plc from the London Stock Exchange. Once that happens, the question is if there is a plan to further expand the group’s presence in the global metals industry. And if yes, then the role Vedanta’s balance sheet plays in that expansion is something to watch out for.

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