Vedanta

Last modified by Wilton Risenhoover on 2022/07/01 18:49

Overview

Vedanta Limited (NSE:VEDL) a subsidiary of Vedanta Resources Limited, is one of the world's leading diversified natural resource companies with business operations in India, South Africa, Namibia, and Australia. Vedanta is a leading producer of Oil & Gas, Zinc, Lead, Silver, Copper, Iron Ore, Steel, Aluminium & Power.¹

Good governance and sustainable development are at the core of Vedanta's strategy, with a strong focus on health, safety and environment, and on enhancing the lives of local communities. The company has been conferred with the CII-ITC Sustainability Award, a FICCI CSR Award, Dun & Bradstreet Awards in Metals & Mining, and The Great Place to Work Award.

For two decades, Vedanta has been contributing to India's growth story. The company is among top private sector contributors to the exchequer with the highest ever contribution of INR 42,560 Crore in FY 2019. Vedanta's operations contribute 1 per cent to India's GDP as per the IFC report.

Vedanta Limited supplies natural resources that help the world grow. The company's major products are zinc-lead-silver, iron ore, steel, copper, aluminium, power, oil and gas. The company's strategic capabilities and alliances are singularly focused on creating and preserving value for its wide stakeholder groups and its clientele.²

Vedanta Ltd has a portfolio of world-class, low-cost, scalable assets that consistently generate strong profitability and have robust cash flows. The company holds industry-leading market shares across its core divisions.

Value Chain:

Exploration

Vedanta has consistently added more to its Reserves and Resources ('R&R') through brownfield and greenfield activities. This helps it to extend the lives of its existing mines and oilfields.

Asset Development

Vedanta has a strong track record of executing projects on time and within budget. The company take special care to develop the resource base to optimise production and increase the life of the resource. The company also strategically develop processing facilities.

Extraction

The company's operations are focused on exploring and producing metals, extracting oil & gas and generating power. The company extract zinc-lead-silver, iron ore, steel, copper and aluminium. Vedanta has three operating blocks in India producing oil & gas.

Processing

The company produce refined metals by processing and smelting extracted minerals at its zinc, lead, silver, copper, and aluminium smelters, and other processing facilities in India and Africa. For this purpose, the company generate captive power as a best practice measure and sell any surplus power.

Value Addition

The company meet market requirements by converting the primary metals produced into value added products such as sheets, rods, bars, rolled products, etc. at its zinc, aluminium and copper businesses.

Business Overview

Zinc

Vedanta Limited is India’s largest and world’s second largest zinc-lead miner. With more than 50 years of operational experience, the company give highest priority to safety of its people and conservation of scarce natural resources through technology and innovation. The company's fully integrated zinc operations currently hold 78% market share in India’s primary zinc industry. Vedanta is among the Top 10 silver producers globally with an annual capacity of 21 moz (600 tonnes).³

The demand for zinc in India is robust with 70% of it coming from galvanizing sector which is witnessing rising penetration of galvanized steel in domestic car models. The ongoing restructuring of the steel industry and adherence to upcoming IS277 coating standards bodes well for zinc consumption in India. Alloys & die cast alloys have increasingly been finding applications across sectors. Zinc demand in India will be a beneficiary of higher construction spending with projects under metro rail, Smart Cities Mission and Swachh Bharat Abhiyaan (Clean India Mission) driving investments in urban infrastructure

Vedanta Ltd owns 64.9% stake in Hindustan Zinc Limited (HZL), while the Government of India retains a 29.54% stake; HZL is listed on the NSE and BSE in India.

Hindustan Zinc’s operations comprise five lead-zinc mines, one rock phospate mine, four hydrometallurgical zinc smelters, two lead smelters, one pyro metallurgical lead-zinc smelter as well as sulphuric acid and captive power plants in northwest India. It has facilities located in Rampura Agucha, Chanderiya, Dariba, Kayad and Zawar in the state of Rajasthan, along with zinc-lead processing and refining facilities and a silver refinery at Pantnagar in the state of Uttarakhand.

HZL has built a sustainable underground mining business capable of delivering superior business performance. The financial year 2018 marked the completion of operations at Rampura Agucha open cast. Vedanta is proud of the seamless and one of the most successful transitions globally from a predominantly open cast operation to a fully underground mining company.

HZL’s mining projects are progressing in line with the expectation of reaching 1.2 million tonnes per annum of mined metal capacity in FY2020. Further, it has undertaken Phase I of next phase of expansion which will take mined metal capacity from 1.2 million tonnes to 1.35 million tonnes per annum with matching smelting capacity over next three years. Phase I will be done concurrently with the ongoing mining expansion, which is now in its final stages and will take total annual ore production capacity from 17.7 million MT in FY 2020 to 20.4 million MT.

Oil and Gas

Vedanta Limited's Oil & Gas operations comprise the assets of Cairn contributing over 26% of India's annual production, as India's largest private sector crude oil producer.⁴

Cairn Oil & Gas, a vertical of Vedanta Limited, contributed ~25 per cent to India's domestic crude oil production in FY 2017-18.

The Indian oil and gas market is characterised by very high dependence on imports. Over 80% and 45% of oil & gas demand is met by imports. Petroleum imports constitute 23% of India’s total imports. Given India’s high dependence on imports, the Hon’ble Prime Minister in 2015 announced a vision to increase the domestic production of oil and gas to reduce import dependence by 10% by the year 2022.

Cairn Oil & Gas is the largest private crude oil producer in India. It has been operating for over 2 decades and is well positioned to reduce the country's energy import burden. Cairn has been playing an active role in developing India's oil and gas resources.

With a portfolio of 6 blocks, of which 5 blocks are in India and one in South Africa, Cairn has made over 50 hydrocarbon discoveries in the last decade and operates the largest producing oil field in the Indian private sector. The Mangala field in Rajasthan, discovered in January 2004, is the largest onshore oil discovery in India in more than a decade. Mangala, Bhagyam and Aishwariya fields, the three major discoveries in the Rajasthan block, together have gross hydrocarbons in place of about 2.2 billion barrels of oil equivalent. Oil and gas are currently being produced from Rajasthan, Ravva in Andhra Pradesh and Cambay in Gujarat.

On 11 April 2017, Vedanta Limited announced the effectiveness of merger with Cairn India, unanimously recommended by the independent directors, at both Vedanta Limited and Cairn India. The merger marks a significant step towards achieving its long-term vision of a simplified group structure and creation of long-term sustainable value. Consolidating its portfolio of Tier-I assets which, combined with strong management, will deliver superior returns for all shareholders and the combined entity is uniquely positioned to help unlock India’s wealth of world-class energy and mineral resources.

Aluminium

Vedanta is the largest aluminium producer in India with a capacity of 2.3 mtpa and a 40% market share in India’s aluminium industry. Vedanta has strategically located large scale assets with integrated power from captive power plants in Indian states of Chhattisgarh and Odisha.⁵

Due to Aluminium’s light weight and low cost, the demand for the metal is increasing in India boosted by increased investment in infrastructure, power and transportation. Government programmes such as ‘Make in India’ and ‘Electricity and Housing’ for all, will drive increased demand from the electrical power; transport and construction industries there are opportunities for downstream industry in India to develop value added products, including alloys for defense and automobile applications. Vedanta’s portfolio is focused more on the value added products and demand for its rods, billets and rolled products is likely to increase substantially.

Power

Vedanta is one of India’s largest private sector power generators. The availability of power in India is increasing, but demand outstrips supply leading to a substantial power shortage. Around 280 million people in India do not have electricity connections and the Government aims to supply power to all homes by 2019.⁶

The company’s power business also include Talwandi Sabo Power Limited (TSPL), a wholly-owned subsidiary of Vedanta Ltd. TSPL had signed a power purchase agreement with the Punjab State Power Corporation Limited (PSPCL) for the establishment of 1,980 MW (three Units of 660 MW each) thermal coal-based power plant. All three Units have been commissioned and plant became fully operational in August 2016. In FY 2016-17, TSPL supplied 6379 Million Units and in FY 2017-18 (Till 31st Jan 2018), TSPL supplied 6399 Million Units to Punjab State Power Corporation Ltd. (PSPCL).

Iron Ore

Vedanta is a major supplier to the domestic market with the Goa iron ore mine also serving the Chinese and Japanese export markets.⁷

Sesa Goa Iron Ore, a Vedanta Group company is engaged in exploration, mining and processing of iron ore. The company was founded in 1954, as Scambi Economici SA Goa. Since then, it has grown to be one among the top low-cost producers of iron ore in the country. During 1991-1995, it diversified into the manufacture of pig iron and metallurgical coke. It has also developed indigenous and environment-friendly technology for producing high quality metallurgical coke. Sesa Goa Iron Ore also has a 60 MW power plant that produces clean power by using the waste heat recovery from its coke ovens and blast furnace gas.

In 2007, it became a majority-owned subsidiary of Vedanta Resources Plc., when Vedanta acquired 51% controlling stake from Mitsui & Co., Ltd. In June 2009, Sesa acquired VS Dempo & Co. Private Limited (now Sesa Resources Limited) along with its fully owned subsidiary Dempo Mining Corporation (now Sesa Mining Corporation Limited) and 50% equity in Goa Maritime Private Limited.

Sesa Goa Iron Ore operations in India are in Goa and Karnataka.

The annual capacity of Sesa Goa Iron Ore Business is 5.5 MT per annum. The recent SC verdict of February 7 , 2018 has brought entire mining industry in Goa to a halt .Vedanta Sesa Goa Iron Ore is hopeful of quick resolution for resumption of mining. The capacity for Iron Ore Business for Karnataka is 4.5MT per annum.

Vedanta has signed a MOU with the state government of Jharkhand to set up a 1 MTPA capacity integrated steel plant in Jharkhand. The plant would contribute to employment generation of nearly 5000 people in the state.

Vedanta Star a subsidiary has taken the management control of Electro Steel Ltd. as directed by the National Company Law Appellate Tribunal (NCLAT) on May 30 2018.

Steel

Vedanta forayed into the steel business through acquisition of 90% stake in Electrosteel Steels Limited (ESL).⁸

In June 2018, Vedanta Limited acquired the management control of ESL through the Corporate Insolvency Resolution Process initiated for addressing resolution of non-performing assets of the Indian banking system.

ESL, an Integrated Steel Producer, was incorporated in 2006 as a Public Limited Company with operations in Bokaro, Jharkhand, India. The company has set up a green field integrated manufacturing facility, which is currently commissioned at a capacity of 1.5 MT per annum. The facility primarily consists of Sinter Plants, Coke Oven, Blast Furnaces, Oxygen Plant, Basic Oxygen Furnaces, Billet Caster, Wire Rod Mill, Bar Mill, Ductile Iron Pipes Plant and a Power Plant. The Company's product range includes Pig Iron, Billets, TMT Bars, Wire Rods and Ductile Iron Pipes.

The Company has recently introduced its rebranded product range in the market under three new brands, V-DUCPIPE for Ductile Iron Pipes, V-XEGA for TMT Bars and V-WIRRO for Wire Rods.

ESL has established excellence in every stage of production by bringing international expertise and solutions from reputed manufacturers. The Company registered its business turnaround in less than a year since its acquisition, becoming a profitable business in 2019.

Vedanta aims to scale up its steel operations in Bokaro through brownfield expansion and be amongst the top steel producers in the country. It looks forward to expanding horizons and pushing boundaries, both in its existing and future endeavors, and to providing continuous growth, profit and prosperity to all its stakeholders.

Copper

The company operate one of the largest custom copper smelters in India, and are also among the largest copper rod producers in the country. The company's copper operations comprise among the most efficient custom copper smelters globally, with the lowest operating cost.⁹

According to experts, the domestic demand for refined copper, currently at 6,70,000 tons, is set to grow exponentially, creating a huge market in the coming years. India is expected to be the sixth largest copper market by 2020, driven by key government initiatives such as developing smart cities, producing renewable energy and driving adoption of electric vehicles. Vedanta contributes to meeting this growing need by ensuring the availability of the right quality of copper to various industrial sectors. Currently, Vedanta serves over 800 small, medium and large enterprises in the downstream industry, including the country's electrical, defense, construction and automobile sector.

Sterlite Copper has the distinction of meeting 36% of the national demand. The company's Indian facilities include a custom smelter, a refinery, a phosphoric acid plant, a sulphuric acid plant and a copper rod plant. In addition, the company also operate a captive power plant in Thoothukudi, Tamil Nadu, and a refinery and two copper rod plants operating in Silvassa, western India. In FY2018, the company achieved a record 403,000 tonnes of copper cathode production through in-house technological upgrades and debottlenecking.

The company's international copper operations include the Mt. Lyell copper mine in Tasmania, Australia. CMT remains under care and maintenance as the company continue to evaluate various options for restart.

Financial Highlights

6 June 2020, Vedanta Limited today announced its audited consolidated results for the fourth quarter (Q4) and full year ended 31 March 2020 (FY2020).¹⁰

Revenue

Revenue for Q4 FY2020 was at ₹ 19,513 crore, lower by 8% sequentially, primarily due to lower commodity prices further impacted by COVID-19, lower volume at Aluminium business and lower power sales at TSPL, past exploration cost recovery at Oil & Gas business in Q3 FY2020 partially offset by higher sales volume at Zinc & Iron Ore business and rupee depreciation.

Revenue for Q4 FY2020 was lower by 16% y-o-y, primarily due to lower commodity prices further impacted by COVID-19, lower volumes at Zinc, Oil & Gas, Steel business and lower power sales at TSPL partially offset by higher volume at Aluminium and Iron Ore business, and rupee depreciation.

Revenue for FY2020 was at ₹ 83,545 crore, lower by 8% y-o-y, mainly due to subdued commodity prices, lower volume at Oil & Gas, Zinc India and lower power sales at TSPL. This was partially offset by higher volume from Gamsberg operations, higher sales at Aluminium, Iron Ore and Steel business, past exploration cost recovery at Oil & Gas business and rupee depreciation.

EBITDA and EBITDA Margin

EBITDA for Q4 FY2020 was at ₹ 4,844 crore, lower by 26% sequentially, primarily due to lower commodity prices further impacted by COVID-19, past exploration cost recovery at Oil & Gas business and RPO reversal at Aluminium business in Q3 FY2020, partially offset by improved cost of production at Aluminium and Steel business, lower input commodity prices and rupee depreciation.

EBITDA for Q4 FY2020 was lower by 23% y-o-y, primarily due to lower commodity prices further impacted by COVID-19, lower volume Zinc, Oil & Gas and Steel business, partially offset by higher sales at Iron Ore business, improved cost of production at Aluminium & Steel business, lower input commodity prices and rupee depreciation.

EBITDA for the FY2020 was at ₹ 21,060 crore, lower by 12% y-o-y, mainly on account of lower commodity prices, lower volume and higher cost at Zinc India & Oil & Gas business partially offset by higher volume from Gamsberg operations, higher sales at Aluminium, Iron Ore and Steel business, improved cost of production at Aluminium business, lower input commodity prices, past exploration cost recovery at Oil & Gas business and rupee depreciation.

The company had a robust EBITDA margin of 29% for the year amidst strong headwinds (FY 2019: 30%).

Attributable Loss after Tax before exceptional items for the quarter was at ₹1,914 crores.

For FY2020, Attributable Profit after Tax (PAT) before exceptional items was at ₹ 3,993 crore, lower by 42% y-o-y.

EPS for the year before exceptional items and was at ₹ 10.78 per share compared to ₹ 18.50 per share in FY2019.

Recent developments

Vedanta ups open offer price for Indian unit to Rs 235/share ¹¹

March 17, 2021; Anil Agarwal-led Vedanta Resources Plc on Tuesday raised the open offer price for buying shares in its flagship Indian firm to Rs 235 per share, nearly 4 percent higher than the current trading price. In January, Vedanta Resources had offered to buy up to 10 percent in Vedanta Ltd at Rs 160 apiece.

It on Tuesday raised the offer price to Rs 235 per share and offer size to 651 million shares representing 17.5 percent stake in Vedanta Ltd, the company said in a filing to the stock exchange. If successful, it will cost Rs 15,298.5 crore.

The price announced is at a nearly 4 percent premium to Tuesday's closing of Rs 226.55 on the BSE. The previous offer price of Rs 160 apiece for 37.17 crore shares was less than Vedanta's trading price.

The open offer starts on March 23 and closes on April 7, it said. In October last year, Vedanta Resources had failed to garner the required number of shares to delist its Indian arm at the offer price of Rs 87.5 apiece.

In December, the promoters increased their stake from 50.14 percent to 55.11 percent through block deals totalling Rs 2,959 crore. "Vedanta Resources Ltd, along with persons acting in concert with it (PACs), had issued a public announcement on January 9, 2021, for a voluntary open offer for the acquisition of up to 37.17 crore equity shares, representing 10 percent of the fully diluted voting shares capital of Vedanta Ltd at a price of Rs 160 per equity share.

"The acquirer and PACs have decided to increase the number of equity shares to be acquired in the open offer to up to 61.5 crore shares, representing 17.5 percent of fully diluted voting share capital, and increase the offer price to Rs 235 per share including interest of Rs 1.29 per equity share," it said. At the time of raising its stake in December 2020, Vedanta Resources had said the move was aimed at simplifying the group structure.

"This is in line with our stated strategic priority for simplifying the group structure to align the group's capital and operational structures, streamline the process of servicing the Group's financing obligations and improve a range of important credit metrics," it had said. The simplification process — which has been underway for several years — has involved mergers of group companies and may involve other share acquisitions in accordance with applicable law, the company had said.

During the delisting offer in October, promoters were able to get only 125.47 crore confirmed bids against the required 134.12 crore shares. Vedanta had tied up USD 3.15 billion in loans to finance the buying of shares but returned the money to lenders no sooner had the delisting bid failed.

As of December 31, LIC held 5.58 percent of Vedanta Ltd while ICICI Prudential Mutual Fund and HDFC Mutual Fund owned 3.14 percent and 1.28 percent stake, respectively.