Vedanta announces further cost cuts to boost margins as first-quarter profit surges

Mumbai: Vedanta Ltd.’s cost-cutting efforts, which helped it post a solid profit in the June quarter, will continue to bear fruit, helping the mining and natural resources major further improve its margins, a top executive said on Tuesday.

One factor driving structural cost reduction will be the company’s use of renewable energy in its zinc and aluminium businesses, said Chief Executive Officer Arun Misra. The use of renewable energy will also help insulate the company from coal price volatility, he added.

In the April-June quarter, cost reductions helped the company achieve a 54% increase in consolidated net profit year-on-year ₹5,095 crore. Consolidated revenue grew by 6% during the period to ₹35,239 crores.

“Our results were primarily driven by structural cost reductions,” Misra said on a post-earnings call Tuesday. “Nearly half of our profit came from cost reductions.”

Among the company’s cost-cutting 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 capacity at its 2 million tonnes per annum (mtpa) Lanjigarh refinery earlier in the quarter, reducing its dependence on imports. Alumina is an intermediate in aluminium production, which is made from bauxite ore.

Similarly, Misra said, subsidiary Hindustan Zinc has modified its equipment to use cheaper domestic coal that has a higher ash content.

These actions resulted in the company achieving margins of 56% year-over-year and its earnings before interest, tax, depreciation and amortization (EBITDA) increasing by 56% year-over-year. ₹9,420 crore. EBITDA margin increased by 865 basis points to 26.7%.

One hundred basis points is one percentage point.

“The company has done a great job of reducing its production costs by 20% year-on-year,” said Kunal Kothari, research analyst at Centrum Broking.

The company’s net debt increased to ₹61,324 crore as on June 30 as compared to ₹56,338 crore at the end of March. However, the net debt to EBITDA ratio remained stable at 1.5 times year-on-year, the company said in a press release.

Fundraising for Vedanta

During the quarter, Vedanta collected approximately ₹8,500 crore (USD 1 billion) through qualified institutional placement (QIP). The funds are expected to be used to further deleverage, which could help the company achieve one of the best debt-to-EBITDA ratios in the metals and mining industry.

“The latest fundraising through QIP will help the company reduce its debt and be better positioned to manage its capex,” said Kothari of the Centre.

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

“The foundation built on these assumptions delivered a great quarter and put us on a path toward a transformational fiscal year 2025,” he added.

Sterlite and ESL copper sales

Vedanta is still exploring legal options to resume operations at the shuttered Sterlite Copper plant in Thoothukudi. In February, the Supreme Court upheld the decision to close the plant, dismissing an appeal to reopen it. The plant was closed in 2018 after violent protests over pollution allegations.

Meanwhile, the company was in no rush to sell its steel division ESL Limited, which had been up for sale for more than a year.

“The sale of ESL is not due to deleveraging or necessity. It is due to change in portfolio priorities. We will wait for the right offer,” said Ajay Goel, CFO, Vedanta Ltd.