28 January 2016 3QFY16 Results Update Sector: Metals Vedanta BSE SENSEX S&P CNX 24,470 7,425 Bloomberg VEDL IN Equity Shares (m) 2,964.7 M.Cap.(INRb)/(USDb) 199.4 / 2.9 52-Week Range (INR) 233 / 62 1, 6, 12 Rel. Per (%) -21/-35/-49 12M Avg Val (INR M) 1156 Free float (%) 40.5 Financials & Valuations (INR b) Y/E Mar 2015 2016E 2017E Net Sales 749.2 640.5 652.8 EBITDA 221.4 141.6 125.5 PAT 60.8 18.8 5.3 EPS (INR) 20.5 6.3 1.8 Gr. (%) 19.4-69.1-71.7 BV/Sh (INR) 181.7 171.6 167.6 RoE (%) 17.4 5.4 1.6 RoCE (%) 9.9 6.6 5.6 P/E (x) 3.3 10.6 37.5 P/BV (x) 0.4 0.4 0.4 Estimate change TP change Rating change CMP: INR67 TP: INR68 (+1%) Neutral In-line result; net debt up; a few positives for aluminum Vedanta s (VEDL) 3QFY16 EBITDA declined 20% QoQ (49% YoY) to INR29.1b (adj. for INR2b one-time benefit in copper business), 6% miss. The beat at zinc India and aluminum was partly offset by weaker oil, zinc international and power. Adj. loss after tax of INR1.8b was on expected lines. Net attributable debt was up INR28b. Aluminum: Receives long pending approvals; cost too trending down VEDL has received the approval to convert 1,800MW IPP to CPP; this will help in ramping up Jharsuguda 1.25mtpa Phase-2 smelter. The company plans to commission the first 312kt pot line w.e.f. April 1, 2016. VEDL has also received approval to expand the Lanjigarh refinery by 4mtpa to 6mtpa. However, alumina production is unviable at current prices. The aluminum segment benefited from lower cost of alumina and coal. Production cost was down 7% QoQ to USD1,599/t for Balco and USD1,485/t for Jharsuguda. The cost will trend further down due to declining alumina prices and aggressive cost reduction exercise. High-quality assets, but equity value volatility high due to leverage VEDL is taking great efforts to reduce cost and preserve cash to tide over the cyclical downturn. Indian zinc and copper businesses are still strong, while merchant power, iron ore, oil and international zinc businesses are stressed. Although VEDL has high-quality operating assets, the capital structure is highly inefficient with huge cash flow and liability mismatch (Exhibit 5). The announced merger with Cairn India is critical to maintain liquidity. However, the divergence in stock performance has put the merger at risk. Further, the hope of minority buyout in HZL too has faded with recent Supreme Court advice to Govt. of India against further divestment. Despite a sharp correction in stock price, the risk to equity value still remains high owing to high leverage. Maintain Neutral with a target price of INR68. Sanjay Jain (SanjayJain@MotilalOswal.com); +91 22 3982 5412 Dhruv Muchhal (dhruv.muchhal@motilaloswal.com); +91 22 3027 8033 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.
S.N. Business 2QFY16 update 3QFY16 update 1 Zinc India (1) Mine production grew 13% YoY (+3% QoQ) to 240kt. Zinc production grew 11% YoY while lead production was up 28% YoY. Silver production was up 45% YoY given higher silver content in new mines. (2) Integrated zinc/lead/silver sales increase was higher at 22%/53%/64% YoY on account of conversion of existing inventory and smelter efficiency. (3) CoP (ex-royalty) was down 9% YoY and 1% QoQ to USD771/t, leveraging from higher production volumes and decline in diesel and other consumable costs. Zinc Int (1) Refined zinc production was down 19% YoY (-9% QoQ) to 64kt due to maintenance shutdown at Skropion mine and decline at Lisheen as mine nears closure. (2) CoP was higher QoQ to USD1,477/t on lower volumes. (3) At Gamsberg pre-stripping work commenced in July 2015, as per the revised plan. Capex is cut by USD40m to USD40m for FY16E resulting in delay of 9 months. 2 Cairn India (1) Rajasthan production grew 3% YoY / -1% QoQ to 168.1kbpd. Production at Ravva and Cambay was higher by 19% YoY to 37kbpd. (2) Rajasthan realization discount to Brent was higher at 14.3% as against at 9.9% in 1QFY16. Management expects the discount to get back to historical average. (3) Opex/boe was reduced to USD5.5/boe from 5.8 in FY15 on operating efficiency. (4) DCF value of Cairn is INR192/share (long term Brent crude of USD65/bbl). Capex has been cut by USD200m to USD300m and MPT shutdown postponed. 3 Iron ore (1) Karnataka produced 0.6mt, in line with production plan. (2) All approvals in place for Goa mining operations. Production has commenced and will be rampedup in 3Q. First export shipment of purchase ore in E-auction flagged in Oct 2015. 4 Copper (1) Copper production down 6% YoY to 94kt, due to maintenance shutdown. (2) Implied EBIT remained healthy at USc40/lb. Reported TcRcs was USc25.2/lb, as against USc22.9/lb in 1Q. (3) Management has guided for TcRcs to remain above USc24/lb for FY16. (1) Mine production was down 5% QoQ to 228kt on lower production from RAM mines. Zinc metal production was however down by just 2% QoQ on better smelter efficiency and inventory draw-down. Silver was 5% higher QoQ to 116kt. (2) CoP (ex-royalty) was up 4% QoQ to USD795/t, on lower production and increase in exploration activity. (3) It has put under review the expansion of Dariba and Zawar mines amid the low price environment. These mines together were to contribute ~186kt of incremental metal production by FY20-21. Deferral could put at risk its target of 1.2mt metal production by FY20-21 would become difficult. (1) Refined zinc production was down 19% QoQ (-36% YoY) to 51kt on Lisheen closure and delayed restart post the maintenance at Skorpion. (2) CoP was higher QoQ to USD1,579/t on lower volume, higher maintenance cost and lower grade. CoP for 4Q is guided at ~USD1,100-1,200/t on higher grade and volumes. (3) Pre-stripping at Skorpion for extension of the mine life has been deferred due to the current low price environment. (1) Rajasthan production declined 5.3% YoY / +1.4% QoQ to 170.4kbpd led by EOR polymer injection. Production at Ravva was down 18.6% YoY while at Cambay grew 1.8% YoY. (2) Rajasthan realization at USD34.5/bbl implied a discount to Brent of 21.1% v/s. 14.3% in 2QFY16. (3) Opex/bbl stood at USD7.9/bbl up from USD7.6/bbl on polymer injection cost. (4) DCF value of Cairn is INR153/share (based on Brent crude forward curves). The oil industry is lobbying for a reduction in cess from fixed to ad-volerum. (1) Karnataka produced 1.1mt, as production stabilized. Goa sales volume stood at 0.6mt against production of 0.3mt. Operations at Goa were impacted due to trucker s strike. (2) Lobbying the government for removal of double taxation (DMF + Goa Royalty), enhancing EC/mining cap of counter the lower global iron ore prices. (1) Copper production was down 5% QoQ to 89kt, on maintenance shutdown. Smelter is up and set to achieve 90% CU in 4Q. (2) Implied EBIT improved to USc33.2/lb from USc40/lb in 2Q. Reported TcRcs was at USc23.5/lb, as against USc25.2/lb in 2Q. (3) Tc/Rcs are expected to decline from current levels. 5 Aluminum (1) Aluminum production was flat QoQ at 233kt, as (1) Aluminum production was flat QoQ at 234kt. ramp-up at Balco is delayed while at Jharsuguda-II (2) CoP at both Balco and JH declined QoQ on lower alumina awaits CPP approvals. (2) CoP at Balco was down to USD1,725/t on lower alumina and coal cost. JH CoP was unchanged QoQ at USD1,599/t. and coal cost. Balco benefited from replacing old CPP with new 300MW CPP. Balco CoP was USD1,599/t and JH was USD1,485/t. CoP is guided to decline further. (3) FY16E aluminum volume guidance is 0.9mt. (3) Lanjigarh refinery operations are now reduced to (4) JH has got the approval to convert 1,800MW from IPP to single stream and will now operate at a capacity of ~800kt. Such measures drove CoP down to CPP of its 2,400MW plant. JH 312kt (of 1,250kt) will rampup from April 1 st. USD299/t from USD340/t earlier. 6 Power (1) Jharsuguda vols. at 1,554mkwh (PLF of 32%) was 6% lower YoY due to low demand/rates. (2) Talwandi Saboo 1 st unit operated at 86% availability The balance units will be commissioned in H2FY16. (1) JH vols at 1,593MU were flat QoQ. Realization was down to INR2.6/kWh from 2Q INR 2.95/kWh. (2) Tal. Saboo Unit II was commissioned in the quarter. Unit III would be commissioned by end of 4Q. 28 January 2016 2
Exhibit 1: Production (TONNES) 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 FY16E Copper- India / Australia Copper - MIC 1,000 0 0 0 0 0 0 0 0 Copper - Cathodes 98,000 66,000 100,000 99,000 97,000 98,000 94,000 89,000 378,000 power sales (mkwh) 144 136 183 164 158 175 118 40 Alumina (lanjigarh) 277,000 233,000 226,000 244,000 274,000 269,000 272,000 218,000 977,000 Aluminium 200,000 192,000 201,000 223,000 229,000 232,000 233,000 234,000 932,750 Jharsuguda 136,000 132,000 130,000 138,000 145,000 152,000 149,000 150,000 601,000 Balco 64,000 60,000 71,000 85,000 84,000 80,000 84,000 84,000 331,750 Power sales (m kwh) 2,093 2,599 2,028 2,161 1,847 2,685 2,025 2,141 9,717 Jharsuguda 2,400 MW 1,701 2,154 1,653 1,873 1,525 2,266 1,554 1,593 7,069 Balco 270 MW + 1200MW 84 70 1 0 18 99 186 455 1,684 MALCO 231 229 204 233 231 193 127 26 539 HZL Wind Power 77 146 170 55 73 127 158 67 425 Zinc India 0 Mined metal content 200,000 163,000 213,000 242,417 269,000 232,000 240,000 228,082 920,082 Refined zinc 183,000 141,000 181,000 196,000 217,000 187,000 211,000 206,322 786,602 Integrated only 179,500 139,000 174,000 192,000 217,000 187,000 211,000 206,322 786,602 custom 3,500 2,000 7,000 4,000 0 0 0 0 0 Refined lead 36,009 31,000 30,000 30,000 36,000 31,000 40,000 35,352 140,352 Integrated only 29,009 27,000 26,000 25,000 33,000 27,000 39,000 35,352 135,352 custom 7,000 4,000 4,000 5,000 3,000 4,000 1,000 0 5,000 Saleable silver (kg) 84,000 90,777 89,100 97,500 97,900 98,600 112,000 116,000 437,100 Integrated only 78,000 64,777 76,100 82,500 90,900 86,300 110,000 116,000 422,800 custom 6,000 26,000 13,000 15,000 7,000 12,300 2,000 0 14,300 Zinc - international 83,000 84,000 79,000 80,000 70,000 70,000 63,000 51,000 229,000 Zinc refined skorpion 33,000 33,000 27,000 26,000 17,000 26,000 17,000 13,000 86,000 MMC (BMM & Lesheen) 50,000 51,000 52,000 54,000 53,000 44,000 46,000 38,000 143,000 Oil & Gas (m boe) - Gross 20.42 19.83 17.89 20.14 19.38 18.92 18.92 19.11 76 O&G - Working Interest 12.99 12.55 11.33 12.58 11.95 11.86 11.75 11.93 48 No. of days 91 91 92 92 90 91 92 92 Avg. daily Gross Production 224,429 217,869 194,509 218,890 215,347 207,965 205,640 207,680 208,091 Rajasthan 190,881 183,164 163,262 180,000 174,000 172,200 168,126 170,444 172,406 Ravva 24,225 23,940 20,596 27,783 31,738 26,030 28,556 26,064 25,588 Cambay 9,323 10,765 10,651 11,107 9,609 9,736 8,958 11,172 10,097 Avg daily working Interest 142,797 137,907 123,178 136,694 132,785 130,291 127,697 129,644 130,481 Rajasthan (70%) 133,617 128,215 114,283 126,000 121,800 120,540 117,688 119,311 120,685 Ravva (25.5%) 5,451 5,387 4,634 6,251 7,141 5,857 6,425 5,864 5,757 Cambay (40%) 3,729 4,306 4,260 4,443 3,844 3,894 3,583 4,469 4,039 Iron ore (m dmt) sales 0.0 0.5 0.3 0.2 0.2 0.5 0.6 1.5 5.8 Goa 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 3.0 Karnataka 0.0 0.5 0.3 0.2 0.2 0.5 0.6 0.9 2.7 Saleable production 1.5 0.0 0.0 0.0 0.3 0.2 0.8 1.1 2.1 Goa 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Karnataka 1.5 0.0 0.0 0.0 0.3 0.2 0.8 1.1 2.1 Pig iron 133,000 146,000 154,000 166,000 145,000 170,000 150,000 146,000 615,000 Met coke 119,000 126,000 52,000 129,000 133,000 131,000 119,000 113,000 477,130 28 January 2016 3
Exhibit 2: Quarterly performance INR m Y/E March 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 FY16E FY17E FY18E Net Sales 192,189 178,046 170,169 165,609 148,766 640,461 652,850 711,405 EBITDA 61,466 40,247 45,353 38,601 29,057 141,598 125,533 150,459 Standalone 14,504 9,323 10,553 8,753 7,327 34,889 34,408 41,322 Cu TcRc 5,469 3,698 5,828 6,152 4,370 21,200 18,100 18,900 SEL - power 1,836 915 1,496 1,041 717 4,115 3,444 3,444 VAL - aluminum 6,750 5,250 2,960 1,520 1,630 8,022 11,311 17,425 iron ore and others 450-540 270 40 610 1,553 1,553 1,553 Cairn 20,269 7,878 12,904 9,107 6,661 32,668 21,652 33,303 HZL 20,892 19,891 19,655 20,245 14,783 67,057 53,116 57,968 Balco 1,260 1,220-510 -710-110 -907 2,190 3,305 Zinc-International 3,960 1,250 2,570 800-410 3,702-25 313 TSPL 0 483 335 604 732 3,546 10,513 10,570 Others 581 202-154 -198 75 643 3,679 3,679 Interest 13,293 13,208 13,578 14,181 13,906 56,936 63,785 66,834 Depreciation 23,279 7,635 17,175 16,602 17,704 68,703 70,859 75,822 Other Income 8,221-1,428 11,480 12,152 7,154 41,274 43,082 45,011 PBT (before XO item) 33,114 17,976 26,080 19,969 4,602 57,233 33,971 52,814 Extra-ordinary gain (loss) 0-202,682-4,143 0 2,000-2,143 0 0 PBT (after XO item) 33,114-184,706 21,937 19,969 6,602 55,090 33,971 52,814 Tax 4,776 5,494 3,525 2,040 1,606 10,219 12,382 16,893 Reported PAT 28,338-190,199 18,412 17,929 4,996 44,871 21,589 35,921 Less: Minority int. 12,463 5,177 8,459 9,587 4,819 26,133 16,271 20,230 Adjusted PAT 15,875 7,306 14,096 8,342-1,823 20,880 5,319 15,691 Source: MOSL, Company Exhibit 3: Net debt break-up by businesses (INR b) 31 December 2015 (actual) 31 Sep 2015 (actual) Debt Less: cash Net less: MI Attribut-able Debt Less: cash Net less:mi Attribut-able Standalone 426 31 396 396 394 22 372 372 Cairn acquisition SPV 249 1 248 248 264 2 262 262 Talwandi Sabo 74 0 74 74 69 2 67 67 Zinc International 1 7-6 -6 10-10 -10 Zinc India 0 282-282 -100-182 304-304 -108-196 Cairn India 0 186-186 -185-1 181-181 -180-1 Balco 59 0 59 29 30 57 1 57 28 29 Others* 0 0 10 1 9 9 Sesa Sterlite 810 507 303-256 559 794 523 271-260 531 Source: Company, MOSL 28 January 2016 4
Valuation TP: INR68, upside 2%; Neutral Implication from results We have cut out estimates for Jharsuguda power business on lower PLF and realization. We make other minor tweaks factoring in 3Q results. Our FY16E/17E EBITDA is cut by 4.9%/3.8% to INR105/97b. High class assets, but equity value volatility high due to leverage VEDL is putting tremendous amount of appreciable efforts to reduce cost and preserve cash to tide over the cyclical downturn. Indian zinc and copper business are still strong, while merchant power, iron ore, oil and international zinc business are stressed. Although VEDL has high class operating asset, the capital structure is highly inefficient with huge cash flow and liability mismatch (Exhibit 5). The announced merger with Cairn India is critical to maintaining liquidity. However, the divergence in stock performance has put the merger at risk. Further, the hope of minority buyout in HZL too has faded with recent Supreme Court advice to Govt. of India against further divestment. Despite sharp correction in stock prices, the risk to equity value still remain high due to high leverage. Maintain Neutral with target price of INR68. Key catalysts over the next 12 months Securing coal /bauxite mines as and when mines are auction. Ramp-up of iron ore production Government decision to divest HZL and Balco stake. Key risks Further pressure on crude oil and iron ore prices. INR appreciation to USD. Exhibit 4: Vedanta target price derivation Net Net Valuations EV CWIP Equity Sales EBITDA PAT Debt Net Basis Value Stake Attrib. INR/ (A) (G) Worth (B) C=(AxB) (D) {C-G+D} (%) Equity Share Stand-alone # 289 34 8 382 330 6.5 x EBITDA 224 140-18 100-18 -6 Acquisition SPVs -22 470-85 6.5 x EBITDA -470 100-470 -159 Hindustan Zinc 128 53 57-376 513 6.5 x EBITDA 345 20 741 64.9 481 162 Balco 38 2-8 71 27 6.5 x EBITDA 14 12-45 51-23 -8 CMT+inter seg. 39 4-11 54-575 6.5 x EBITDA 24 7-22 100-22 -8 Zinc International 16 0-2 -72 100 2.0 x EBITDA 0 72 100 72 24 TSPL 59 11 0 83 29 DCF 92 9 100 9 3 Cairn India 84 22 0-236 590 153 =Cairn TP(INR/sh) 50 291 59.9 174 59 Attributable 556 97 5 568 498 196 SOTP 203 68 Aluminium = USD 1556.75/ton, Zinc = USD 1572.75/ton, lead prices = USD1749/ton Silver = USD14.04/oz, USD/INR =67; FY17 estimates, Brent crude = USD 39.3/bbl Source: MOSL, Company 28 January 2016 5
Exhibit 5: Vedanta has huge cash flow and liability mismatch Note: EBITDA has been annualized for understanding (2H EBITDA are likely to lower) Source: MOSL, Vedanta PLC s 1HFY16 presentation Exhibit 6: Metal sector valuation Rating Price MCAP EPS P/E (x) EV/EBITDA (x) P/B(x) (INR) (USD M) FY15 FY16E FY17E FY16E FY17E FY16E FY17E FY15 FY16E Steel Tata Steel Sell 254 3,657 2.9-7.0-29.6-36.5-8.6 15.7 11.3 1.4 1.4 JSW Steel Neutral 1,093 3,910 74.5-28.9 37.6-37.9 29.1 12.7 8.3 1.2 1.4 JSPL Neutral 64 868 6.9-27.5-18.6-2.3-3.4 15.1 12.0 0.3 0.3 SAIL Sell 43 2,619 5.2-12.8-18.2-3.4-2.3-18.1-22.4 0.4 0.5 Non-Ferrous Hindalco Buy 70 2,132 13.5-2.0 7.1-35.4 9.8 8.3 6.8 0.7 0.7 Nalco Buy 34 1,314 4.8 2.4 2.4 14.3 14.6 4.6 4.7 0.7 0.7 Vedanta Neutral 67 2,951 20.5 6.3 1.8 10.6 37.5 7.3 7.9 0.4 0.4 Mining Coal India Buy 306 28,565 21.7 23.2 27.4 13.2 11.2 6.3 5.4 4.8 4.6 Hindustan Zinc Buy 165 10,305 19.4 17.8 13.5 9.3 12.2 5.2 6.0 1.6 1.5 NMDC Sell 79 4,609 16.6 8.3 6.6 9.5 11.9 4.0 6.5 1.0 0.9 Source: MOSL, Company 28 January 2016 6
Story in charts Exhibit 7: Diversified commodity exposure (FY15 EBITDA) Copper Power 9.4% Iron ore 17.0% 139 5.0% Oil and Gas 20.9% Zinc and Lead 32.0% Aluminium 15.7% Exhibit 8: Moderating capex to drive FCF (INR b) 16 73 83 Capex 107 Free Cash flow 71 40 39 73 48 FY13 FY14 FY15E FY16E FY17E Source: Company, MOSL Source: Company, MOSL Exhibit 9: Global zinc deficit to decline Exhibit 10: Aluminum capacity to more than double Source: Company, MOSL Source: Company, MOSL Exhibit 11: Strong iron ore volume as Goa mines reopen Iron ore sales - mt Exhibit 12: Power segment volumes to increase Power sales (m kwh) 18 18 16 24,710 3 0 1 6 6 794 3,443 8,389 10,059 9,377 8,635 12,995 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Source: MOSL, Company FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Source: MOSL, Company 28 January 2016 7
Financials and Valuation Vedanta Income Statement (INR Million) Y/E Mar 2011 2012 2013 2014 2015 2016E 2017E 2018E Net Sales 92,051 83,101 25,544 725,850 749,223 640,461 652,850 711,405 Change (%) 57.1-9.7-69.3 2,741.5 3.2-14.5 1.9 9.0 EBITDA 52,063 35,001 4,808 256,640 221,381 141,598 125,533 150,459 EBITDA Margin (%) 56.6 42.1 18.8 35.4 29.5 22.1 19.2 21.1 Depreciation 964 1,061 1,975 84,250 71,243 68,703 70,859 75,822 EBIT 51,099 33,939 2,833 172,390 150,138 72,895 54,674 74,637 Interest 901 4,333 4,394 61,110 56,264 56,936 63,785 66,834 Other Income 5,399 2,346 539 23,090 28,910 41,274 43,082 45,011 Extraordinary items 0 0 0 580-186,441 0 0 0 PBT 55,597 31,952-1,022 134,950-63,656 57,233 33,971 52,814 Tax 13,372 10,214-429 10,000 18,939 10,219 12,382 16,893 Tax Rate (%) 24.1 32.0 42.0 7.4-29.8 17.9 36.4 32.0 Min. Int. & Assoc. Share 0 0 0 73,430 43,024 28,238 16,271 20,230 Reported PAT 42,225 27,616-593 51,520-125,618 18,775 5,319 15,691 Adjusted PAT 42,225 26,955-1,310 50,940 60,822 18,775 5,319 15,691 Change (%) 60.6-36.2-104.9-3,988.3 19.4-69.1-71.7 195.0 Balance Sheet (INR Million) Y/E Mar 2011 2012 2013 2014 2015 2016E 2017E 2018E Share Capital 869 869 869 2,965 2,965 2,965 2,965 2,965 Reserves 127,235 150,313 173,885 727,122 535,788 505,709 494,030 491,403 Net Worth 128,104 151,182 174,754 730,087 538,753 508,674 496,995 494,368 Debt 9,995 37,413 45,015 805,660 777,523 847,590 850,983 865,271 Deferred Tax 682 1,046 253 27,352 33,297 32,460 34,434 34,619 Total Capital Employed 138,781 189,641 220,022 1,901,073 1,704,870 1,757,015 1,758,296 1,782,104 Gross Fixed Assets 15,903 25,976 29,314 770,871 881,415 1,007,143 1,119,141 1,155,510 Less: Acc Depreciation 6,492 7,651 9,626 291,200 358,233 403,504 454,539 508,339 Net Fixed Assets 9,411 18,325 19,689 479,671 523,181 603,639 664,601 647,171 Capital WIP 7,287 9,830 7,225 431,277 387,480 301,912 229,322 221,514 Investments 1 136,626 158,820 2,086 2,134 2,134 2,134 2,134 Current Assets 124,530 24,484 21,481 835,766 812,120 827,409 839,108 897,020 Inventory 7,374 8,752 9,610 90,338 87,250 88,231 88,181 96,982 Debtors 6,830 5,494 1,424 46,537 36,051 35,426 37,020 41,080 Cash & Bank 96,968 6,017 2,130 453,850 450,889 465,362 475,517 520,569 Loans & Adv, Others 13,358 4,222 8,318 245,041 237,929 238,390 238,390 238,390 Curr Liabs & Provns 17,193 14,370 8,870 240,110 197,942 155,977 154,767 163,633 Curr. Liabilities 11,695 11,502 5,471 41,346 52,782 20,894 20,526 27,523 Provisions 5,498 2,868 3,398 198,764 145,160 135,083 134,241 136,109 Net Current Assets 107,337 10,114 12,612 595,656 614,178 671,432 684,341 733,388 Total Assets 138,781 189,641 220,022 1,901,073 1,704,870 1,757,015 1,758,296 1,782,104 28 January 2016 8
Financials and valuation Vedanta Ratios Y/E Mar 2011 2012 2013 2014 2015 2016E 2017E 2018E Basic (INR) EPS 48.6 31.0-1.5 17.2 20.5 6.3 1.8 5.3 Cash EPS 49.7 32.2 0.8 45.6 44.5 29.5 25.7 30.9 Book Value 147.4 174.0 201.1 246.2 181.7 171.6 167.6 166.7 DPS 3.5 3.5 3.5 3.3 3.5 4.5 3.5 3.5 Payout (incl. Div. Tax.) 8.4 13.2-271.7 22.1 20.0 83.1 228.3 77.4 Valuation(x) P/E 1.4 2.2-44.6 3.9 3.3 10.6 37.5 12.7 Cash P/E 1.4 2.1 88.0 1.5 1.5 2.3 2.6 2.2 Price / Book Value 0.5 0.4 0.3 0.3 0.4 0.4 0.4 0.4 EV/Sales -0.3 1.1 4.0 1.0 0.9 1.2 1.2 1.1 EV/EBITDA -0.5 2.6 21.1 4.0 4.4 7.3 7.9 6.6 Dividend Yield (%) 5.2 0.0 0.0 4.8 5.2 6.7 5.2 5.2 Profitability Ratios (%) RoE 40.7 19.3-0.9 11.8 17.4 5.4 1.6 4.9 RoCE 40.7 25.7 1.9 10.8 9.9 6.6 5.6 6.8 Turnover Ratios (%) Asset Turnover (x) 0.8 0.5 0.1 0.7 0.4 0.4 0.4 0.4 Debtors (No. of Days) 27 24 20 23 18 20 21 21 Inventory (No. of Days) 29 38 137 45 43 50 49 50 Creditors (No. of Days) 107 87 96 32 36 15 14 18 Leverage Ratios (%) Net Debt/Equity (x) -0.8 0.2 0.3 0.5 0.5 0.5 0.5 0.5 Cash Flow Statement (INR Million) Y/E Mar 2011 2012 2013 2014 2015 2016E 2017E 2018E Adjusted EBITDA 52,063 35,001 4,808 256,640 221,381 141,598 125,533 150,459 Non cash opr. exp (inc) 1,270-3,458-1,426-46,653 15,811 0 0 0 (Inc)/Dec in Wkg. Cap. -1,570-235 -2,818-10,239-25,345-42,781-2,754-3,995 Tax Paid -13,372-10,214 429-43,741-33,796-10,566-10,324-14,924 Other operating activities 0 0 0 0 0 0 0 0 CF from Op. Activity 38,391 21,094 993 156,008 178,051 88,251 112,455 131,541 (Inc)/Dec in FA & CWIP -9,637-12,617-733 -72,836-106,561-40,162-39,407-28,561 Free cash flows 28,754 8,477 260 83,172 71,490 48,089 73,047 102,979 (Pur)/Sale of Invt 0-136,626 19,088-4,105 60,735 0 0 0 Others 3,343 14,112-26,443 14,967 4,371-26,000 8,819 9,842 CF from Inv. Activity -6,294-135,131-8,088-61,974-41,455-66,161-30,588-18,720 Inc/(Dec) in Net Worth 9,376 0 0 0 0 0 0 0 Inc / (Dec) in Debt -9,611 27,419 7,602 18,380-45,596 70,067 3,394 14,288 Interest Paid -901-4,333-4,394-46,752-62,898-56,936-63,785-66,834 Divd Paid (incl Tax) & Others -3,559 0 0-22,144-31,063-15,610-12,141-12,141 CF from Fin. Activity -4,696 23,086 3,208-50,516-139,558-2,479-72,533-64,687 Inc/(Dec) in Cash 27,401-90,951-3,887 43,518-2,961 19,611 9,334 48,134 Add: Opening Balance 69,566 96,968 6,017 410,333 453,850 450,889 465,362 475,517 Closing Balance 96,968 6,017 2,130 453,850 450,889 470,500 474,696 523,651 28 January 2016 9
Corporate profile Company description Vedanta is formed with the merger of Sesa Goa and Sterlite Industries. Vedanta is one of the largest natural resource company globally with exposure to all the major commodities. It has refined zinc and lead capacities of 1.5mtpa in HZL and Zinc International, Crude oil production capacity of 225-240kboepd, Iron ore production capacity of 17mtpa, Aluminium capacity of 2.3mtpa and 8.8GW (including current expansion) of power capacity. Exhibit 1: Sensex rebased Source: MOSL/Bloomberg Exhibit 2: Shareholding pattern (%) Sep-15 Jun-15 Sep-14 Promoter 59.5 59.5 59.2 DII 8.4 6.8 5.9 FII 22.1 23.8 24.7 Others 9.9 9.9 10.2 Note: FII Includes depository receipts Source: Capitaline Exhibit 3: Top holders Holder Name % Holding Citibank NA New York NYADR Department 4.2 Franklin Templeton Investment Funds 2.3 Life Insurance Corporation Of India 2.2 Bhadram Janhit Shalika 1.4 NA 0.0 Source: Capitaline Exhibit 4: Top management Name Navin Agarwal Anil Agarwal D D Jalan Tom Albanese Rajiv Choubey Designation Executive Chairman Chairman Emeritus Director & CFO Director & Chief Executive Off Company Secretary Exhibit 5: Directors Name Lalita Gupte Ravi Kant Anuradha Dutt Name Naresh Chandra Tarun Jain Exhibit 6: Auditors Name Chandra Wadhwa & Co Deloitte Haskins & Sells LLP R J Goel & Co Ramnath Iyer & Co Source: Capitaline Type Cost Auditor Statutory Cost Auditor Cost Auditor Source: Capitaline *Independent Exhibit 7: MOSL forecast v/s consensus EPS MOSL Consensus (INR) forecast forecast Variation (%) FY16 8.1 8.6-5.4 FY17 3.5 11.7-70.1 FY18 7.1 17.7-59.9 Source: Bloomberg 28 January 2016 10
N O T E S 28 January 2016 11
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