Vedanta says will continue to cut costs to boost margins as Q1 profit soars

Mumbai: Vedanta Ltd’s cost reduction efforts, which saw it post a robust profit during the June quarter, will continue to bear fruit, helping the mining and resources major further improve margins, the company’s top management said on Tuesday.

One of the factors helping a structural reduction in costs will be the company’s use of renewable energy for its zinc and aluminium businesses, executive director Arun Misra said. Using renewable energy will also help decouple the company from volatility in coal prices, he added.

During the April-June quarter, cost reduction helped the company clock a 54% year-on-year growth in its consolidated net profit at ₹5,095 crore. The consolidated revenue grew 6% during this period to ₹35,239 crore.

“Our performance was primarily driven by structural cost reduction,” Misra said during a post-earnings call on Tuesday. “Almost half of our gain in profit was from cost reduction.”

Also Read: Tata, Vedanta, other business groups join the market upswing

Amongst the company’s cost reduction measures was backward integration in its aluminium business, Misra said. The country’s largest producer of the silvery-white metal added 1.5 million tonnes of fresh annual alumina production capacity at its 2 million tonnes per annum (mtpa) Lanjigarh refinery at the start of the quarter, reducing its reliance on imports. Alumina is an intermediate in the production of aluminium that is produced from bauxite ore.

Similarly, at subsidiary Hindustan Zinc, the company modified its equipment to be able to use cheaper domestic coal, which has higher ash content, according to Misra.

The efforts aided the company’s margins, with its earnings before interest, tax, depreciation and amortization (Ebitda) growing 56% year-on-year to ₹9,420 crore. Ebitda margin expanded 865 basis points to 26.7%.

One hundred basis points make one percentage point.

Also Read: Vedanta’s cost cut push is good, but some concerns linger

"The company has done a great job by bringing down the cost of production by 20% year-on-year," said Kunal Kothari, research analyst at Centrum Broking.

The company’s net debt grew to ₹61,324 crore as of 30 June, compared to ₹56,338 crore at the end of March. The net debt to Ebitda ratio, however, remained stable at 1.5 times at an annualized level, the company said in a press statement.

Vedanta fundraise

During the quarter, Vedanta raised about ₹8,500 crore ($1 billion) through a qualified institutional placement (QIP). The funds are to be utilised to pare debt further, which could help the company post one of the best debt to Ebitda ratio in the metals and mining industry.

"The recent fundraise through QIP will help the company deleverage and better position itself to manage capex," Centrum’s Kothari said.

“Disciplined growth. Operational excellence. Exploring opportunities along the value chain. And an unwavering commitment to sustainability,” Navin Agarwal, vice-chairman of Vedanta, wrote in a post on X.

Also Read: Vedanta to raise $470 million from Power Finance Corp for energy business

“A foundation based on these has resulted in a great quarter and has set us on a path to a transformative FY25,” he added.

Sterlite Copper and ESL sale

Vedanta is still exploring legal options for resuming operations at its shuttered Thoothukudi-based Sterlite Copper plant. In February, the Supreme Court upheld the closure of the plant, dismissing an appeal to reopen it. The plant was shut in 2018 following violent protests over allegations of pollution.

Meanwhile, the company was in no hurry to sell its ESL Limited steel unit, which has been on the block for more than a year now.

“The sale of ESL is not for deleveraging or out of need. It is for portfolio reprioritization. We will wait for the right offer,” said Ajay Goel, chief financial officer of Vedanta Ltd.