z e svv Result Update Rating matrix Rating : Buy Target : 375 Target Period : 12 months Potential Upside : % What s Changed? Target Unchanged EPS FY18E Changed from 26.7 to 25.3 EPS FY19E Changed from 39.7 to 35.9 EPS FY20E Introduced at 41.0 Rating Unchanged Quarterly Performance Q3FY18 Q3FY YoY (%) Q2FY18 QoQ (%) Revenue 24,361.0 19,4.1 25.5 21,590.0 12.8 EBITDA 6,763.0 5,879.6 15.0 5,669.0 19.3 EBITDA (%) 27.8 30.3-252 bps 26.3 150 bps Rep.PAT 2,3.0 1,866.3.4 2,036.0 6.7 Key Financials ( Crore) FY FY18E FY19E FY20E Net Sales 72225 84057 97627 105212 EBITDA (Core) 21332 243 29153 3 Adj Net Profit (Attrib) 5627 9388 13359 15252 Adj EPS ( ) 15.1 25.3 35.9 41.0 Valuation summary FY FY18E FY19E FY20E PE (x) 21.0 12.6 8.8 7.8 Target PE (x) 24.7 14.8 10.4 9.1 EV/EBITDA (x) 5.9 5.2 4.1 3.6 P/BV (x) 2.0 1.7 1.5 1.3 RoNW (%) 9.3 13.9.9.6 RoCE (%) 12.1 13.9.5.9 Stock data Particular Amount Market Capitalisation 1182 Crore Debt (FY) 67342 Crore Cash, Liquid Invests (FY) 48318 Crore EV 137240 Crore 52 week H/L 356 / 218 Equity capital 372 Crore Face value 1 Price performance (%) Return % 1M 3M 6M 12M Hindustan Zinc -6.6-9.1 2.5-0.6 Vedanta -3.2-2.7 13.8 31.1 Hindalco Ind -10.8-8.3 9.5 28.6 Research Analyst Dewang Sanghavi dewang.sanghavi@icicisecurities.com Akshay Kadam akshay.kadam@icicisecurities.com Steady performance... February 6, 2018 Vedanta Ltd (VEDLIM) 322 The consolidated topline stood at 24361 crore (up 25.5% YoY, 12.8% QoQ, our estimate: 24505.7 crore) EBITDA for the quarter came in at 6763 crore (up 15% YoY, 19.3% QoQ) as against our estimate of 7095.9 crore. The EBITDA margin came in at 27.8% (vs. our estimate: 29.0%, Q3FY: 30.3% and Q2FY18: 26.3%). The ensuing reported attributable PAT of 23 crore. Management iterates healthy production guidance for Oil & gas... The company is incurring a capex of US$1085 million towards the growth oriented projects. The incremental peak production from these projects is expected at 1 kboepd, wherein the Enhanced Oil Recovery (from Bhagyam and Aishwarya) is likely to be 19 kboepd, Tight Oil & Gas projects in Rajasthan to be 45 kboepd, while other projects (Mangala Infill, Liquid handling upgrade and CB/OS-2 infill) to contribute 53 kboepd. The ultimate recovery is estimated to be ~218 mmboe. The projected IRR generation is over 20% estimated at Brent price of US$40/bbl indicating a positive free cash flow post capex every year. Going forward, the management has guided a production of 185-190 kboepd for FY18E, 220-250 kboepd for FY19E and 275-300 kboepd for FY20E. Zinc vertical to chart growth prospects Vedanta s expansion of zinc mines at both Indian operations [Hindustan Zinc (HZL)] and Zinc International (ZI) operations will be a key growth driver, going forward. At the Indian operations, the company envisages mined metal capacity of 1.2 MT to be achieved by FY20. At ZI, the expansion at the Gamsberg project is likely to be kick-started in mid-cy18 with 100 KT of likely volume in FY19 and further ramped up to 250 kilotonne (KT) by FY20. Within other facilities of ZI, in Skorpion and BMM also, the company plans to reach 0 KTPA in FY18 and 200 KTPA in FY19 and FY20. Overall, for the consolidated ZI operations for FY19, the company expects volume of 240-260 KT at less than US$1200/tonne CoP. For FY20, Vedanta expects volume of 410-430 KT at less than US$1100/tonne CoP. Aluminium CoP to moderate in Q4FY18 Aluminium segment reported operational improvement during Q3FY18, the aluminium production stood at 445 kilo tonne (KT) (up 39.5% YoY, 11% QoQ). The profitability was however constrained by higher cost of production on a QoQ basis (CoP: US$1945/tonne), primarily due to increase in power cost on account of coal shortages, high import alumina prices and carbon cost. Going forward, the management has maintained aluminium production guidance of 1.5-1.6 MT (excluding trial runs) for FY18 with a CoP estimate of US$1850-1900/tonne for Q4FY18. The CoP is likely to moderate in Q4FY18 with materialisation of coal linkages and elimination of one-off impacts of power imports and revival costs. To benefit from strength in commodity prices, maintain BUY We believe Vedanta would be a key beneficiary of the up-tick in global commodity prices. For 9MFY18, the average prices of zinc, lead, aluminium and copper increased 32%, 22%, 23% and 28% on a YoY basis. We expect the company to report healthy performance over the next couple of years on the back of volume growth and strength in the base metal prices. Furthermore, Vedanta s healthy balance sheet and prudent capital allocation strategy augurs well over a longer term horizon. We value the company using SOTP valuation and arrive at a target price of 375. We maintain our BUY recommendation on the stock. ICICI Securities Ltd Retail Equity Research
Variance analysis Q3FY18 Q3FY18E Q3FY YoY (%) Q2FY18 QoQ (%) Comments Revenue 24,361.0 24,505.7 19,4.1 25.5 21,590.0 12.8 Revenue came in marginally lower than our estimates Other Income 573.0 1,715.8 1,032.9-44.5 876.0-34.6 Raw Material Expense 8,328.0 8,377.5 5,396.0 54.3 7,707.0 8.1 Employee Expense 601.0 604.6 618.8-2.9 653.0-8.0 Power & Fuel 3,992.0 4,015.7 2,781.7 43.5 3,453.0 15.6 Other op. Exp. 4,677.0 4,412.0 4,741.0-1.3 4,108.0 13.9 EBITDA 6,763.0 7,095.9 5,879.6 15.0 5,669.0 19.3 EBITDA came in lower than our estimates EBITDA Margin (%) 27.8 29.0 30.28-252 bps 26.3 150 bps EBITDA margin came in lower than our estimates Depreciation 1,549.0 1,813.8 1,520.3 1.9 1,426.0 8.6 Interest 1,306.0 1,463.4 1,508.2-13.4 1,384.0-5.6 Exceptional item (158.0) - 0.0 LP 186.0 0.0 PBT 4,323.0 5,534.5 3,884.0 11.3 3,921.0 10.3 Tax Outgo 1,364.0 1,826.4 896.8 52.1 935.0 45.9 PAT 2,959.0 3,708.1 2,987.2-0.9 2,986.0-0.9 Minority Interest & others 786.0 1,112.4 1,120.9-29.9 895.0 NA Attributable PAT 2,3.0 2,595.7 1,866.3.4 2,091.0 3.9 Adjusted PAT 2,3.0 2,595.7 1,866.3.4 2,036.0 6.7 PAT came in lower than our estimates Key Metrics Gross Production (bopd) 184,133.0 184,575.1 181,818.0 1.3 180,955.0 1.8 Net Production (bopd) 1,828.0 1,639.7 115,829.0 1.7 115,332.0 2.2 Rajasthan Production (bopd) 157,096.0 156,302.8 154,272.0 1.8 153,238.0 2.5 HZL, Zinc Sales (tonne) 2,000,000.0 200,000.0 211,000.0 847.9 193,000.0 936.3 HZL, Lead Sales (tonne) 46,000.0 42,000.0 36,000.0 27.8 40,000.0 15.0 Zinc Int, Zinc-lead production (tonne) 47,000.0 45,000.0 33,000.0 42.4 42,000.0 11.9 Copper Production (tonne) 101,000.0 108,120.0 102,000.0-1.0 106,000.0-4.7 Aluminium Production (tonne) 445,000.0 415,500.0 319,000.0 39.5 401,000.0 11.0 Eletricity Sales (million units) 3,4.0 3,413.0 3,413.0 0.1 2,950.0 15.8 Change in estimates FY18E FY19E FY20E ( Crore) Old New % Change Old New % Change Introduced Comments Revenue 85455 84057-1.6 95353 97,627 2.4 Downward revised topline estimates for FY18E, upward revised for 105,211.6 FY19E, introduced FY20E Downward revised EBITDA estimates for FY18E and FY19E, EBITDA 25622 243-5.7 31448 29,153-7.3 31,7.0 introduced FY20E EBITDA Margin (%) 30.0 28.7-124 bps 33.0 29.9-312 bps Downward revised EBITDA margin estimates for FY18E and FY19E, 30.1 introduced FY20E PAT 9919 9388-5.4 14758 13,359-9.5 Downward revised PAT estimates for FY18E and FY19E, introduced 15,252.0 FY20E EPS ( ) 26.7 25.3-5.4 39.7 35.9-9.5 41.0 Assumptions Current Earlier FY18E FY19E FY20E FY18E FY19E HZL, Zinc Sales (tonne) 783181 814770 851435 783908 814770 HZL, Lead Sales (tonne) 6500 185000 190550 6500 185000 Silver sales(kgs) 499500 555000 650000 440531 555000 Copper Production (tonne) 364500 376650 380700 364500 372600 Aluminium Production (tonne) 54500 54500 54500 54500 54500 Eletricity Sales (million units) 18901 22681 40646 18901 22681 LME Zinc (US$/tonne) 3000 3200 3250 2850 3000 LME Lead (US$/tonne) 2300 2400 2450 2250 2350 LME Aluminium (US$/tonne) 2100 2200 2300 2000 2100 LME Copper (US$/tonne) 7000 7000 7000 6500 6500 Brent Prices ($/bbl) 53 55 55 53 55 Comments ICICI Securities Ltd Retail Equity Research Page 2
Company Analysis Hindustan Zinc (HZL) Mined metal production during the quarter was up 10% QoQ to ~240 KT on account of higher ore treatment. The YoY decline of 13% was driven by a decline in overall ore grades due to mine mix and lower production from Rampura Agucha open cast mine, even as total ore treated was higher. For the nine-month period (April-December), mine metal production was up ~% YoY to 693 KT on account of higher ore production from underground mines, partly offset by lower open cast mine production For Q3FY18, integrated zinc metal production was at 200 KT (up 4% QoQ, down 3% YoY). Integrated lead metal production was at 46 KT (up 20% QoQ, 18% YoY). Zinc-lead production was in line with availability of mined metal & smelters. Integrated silver production was at 132 tonnes, down 6% QoQ primarily due to accumulation of WIP but up 12% YoY in line with higher lead production For 9MFY18, integrated zinc, lead and silver production was up ~28%, 26% and 24% on a YoY basis, respectively, in line with higher availability of mined metal Capital mine development during the quarter increased 55% YoY and was flat QoQ at 9685 metre across all mines. For 9MFY18, the capital mine development was 28126 metre, up 69% YoY Rampura Agucha Mine: Mine development of 5958 metre was achieved during the quarter. The underground mine has crossed ore production of run rate of ~2 MT. The main shaft hoisting system was commissioned during the quarter and is now in operation for waste hoisting. South primary ventilation system is progressing on fast track and is expected to be commissioned by the end of January 2018. Off shaft development is on track while production from the shaft is expected to start as per schedule from Q3FY19 Sindesar Khurd: The mine achieved mine development of 4527 meters during the quarter. The mine crossed 4.5 MT run rate for ore production during the quarter. Main shaft equipping is progressing as per schedule and on track for completion in Q4FY18, with production from the shaft expected to start as per schedule in Q3FY19. Civil and structure erection for the new 1.5 MT mill is going on at full swing and is expected to be commissioned in Q2FY19 Zawar mine achieved mine development of 6555 metre during the quarter. Post commissioning of the Zawar mill debottlenecking to 2.7 MT, detailed engineering and site construction work for the new mill of 2 MT has commenced. The new mill is expected to be commissioned in Q3FY19 Kayad and Rajpura Dariba: The Expert Appraisal Committee of MoEF has approved expansion of ore production at Rajpura Dariba from 0.9 MT to 1.08 MT and at Kayad from 1.0 MT to 1.2 MT. This will pave the way for higher production from these mines in the near future Fumer projects at Chanderiya are progressing as per schedule. Civil construction work is 70% complete while the project is on track to get commissioned by mid-fy19 Production guidance for FY18 is reiterated with mined metal to be higher than FY, refined zinc-lead production of ~950 KT, refined silver of 500 tonnes. Zinc CoP for FY18 is projected to be in the range of ~US$950-975/tonne due to continued increase in commodity prices offsetting benefits of higher volume and cost efficiency measures. The company is on track to achieve 1.2 MT mined metal production capacity by FY20. ICICI Securities Ltd Retail Equity Research Page 3
750,000 737,614 759,000 696,000 783,181 121,500 127,188 814,770 851,435 145,000 138,000 6,500 185,000 190,550 tonne /tonne tonne During 9MFY18, ~85% of the volumes came from underground mining. The same is likely to reach 100% from Q1FY19 For 9MFY18, cost of production (CoP) of 64079/tonne (US$994/tonne) was up 12% YoY (% in dollar terms) primarily on account of an increase in coal and input commodity prices The management has indicated that by FY20 as hauling activity commences through shafts, the long term CoP is likely to decline to US$800/tonne (from US$950-970/tonne currently) The company has won bids in coal auctions held recently, which is likely to normalise prices. The management indicated coal contribution from linkages will go up ~20% in Q4FY18 (vs. nil currently) The other income during the quarter was lower primarily on account of smaller corpus and unfavourable treasury rates. The lower corpus was due to special interim dividend payout, reduced customer advances and repayment of all issued commercial paper Depreciation during the quarter increased on account of increased integrated metal production (MIC), capitalisation of mills and some other equipment The management indicated the tax rate for full year FY18 would be ~24% (as witnessed during 9MFY18) The management indicated the company s capacity levels can possibly reach 1.2 MT by FY20 As on December 31, 20, the company s cash and cash equivalents was at 196 crore invested in high quality debt instruments Exhibit 1: Zinc sales & realisation trend Exhibit 2: Lead sales & realisation trend 1,000,000 800,000 600,000 400,000 200,000 - FY14 FY15 FY FY FY18E FY19E FY20E Zinc Sales Zinc Realizations 250,000 200,000 150,000 100,000 50,000-250,000 200,000 150,000 100,000 50,000 - FY14 FY15 FY FY FY18E FY19E FY20E Lead Sales Lead Realizations 200,000 180,000 0,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - ICICI Securities Ltd Retail Equity Research Page 4
Cairn - Oil & Gas For Q3FY18, the gross average production stood at 184133 boepd. The Rajasthan production came in at 157096 boepd while the offshore production came in at 27037 boepd The Rajasthan Q3FY18 waterflood operating cost at US$4.3/boe, the blended cost including EOR stood at US$6.4/boe The production to ramp-up in Q4 as per planned o Of the 15 infill wells at Mangala: 8 wells have been brought online, balance 7 will be online in Q4FY18 o The satellite fields of 8 well campaign has been commenced o RDG phase I has been successfully ramped up to 45mmscfd o The upgradation of liquid handling facilities for 1.2 bn bbls is progressing as per plan o At Cambay, 3 well infill drilling campaign has been commenced in January FY 2018 outlook Rajasthan production expected at 5 kboepd Net capex estimate at US$250 million. o 90% for development including EOR, Tight oil and Tight gas projects o 10% for Exploration and Appraisal Execution of growth projects Enhanced oil recovery Contracts awarded for Bhagyam & Aishwarya EOR Rigs to be mobilised during Q4FY18 Tight Oil & Gas project Contracts awarded for tight oil and gas wells Rigs to be mobilised during Q4FY18 Contracts for RDG tight gas facilities to be awarded in Q4FY18 Exploration Rajasthan prospects identified to drill in FY19, drilling tenders to be awarded in Q4FY18 KG offshore drilling of 2 exploration wells to commence in Q4FY18; contracts has been awarded. OLAP Expression of Interest submitted in prioritised blocks Evaluating opportunities for bid submission ICICI Securities Ltd Retail Equity Research Page 5
Zinc International Q3FY18 production stood at 47 kt, the Skorpion production stood at 26 kt (highest in last 6 quarters due to higher blended grades and refinery performance), while the BMM production stood at 21 kt (highest quarterly production in the last 4 years, driven higher grades and plant improvement initiatives). The cost of production (CoP) at US$1383/tonne was lower driven by higher production and targeted improvement projects In terms of projects, for the Skorpion pit 112 extensions. The contractor mining has fully ramped up; 25% of waste stripping completed, full completion by Q4FY19, first ore extraction in Nov was before schedule. The project to extend mine life by further 2.5 years and produce 250 kt metal For FY18, management reiterated production guidance of ~0kt. YTD CoP at US$1495/tonne, the Q4 CoP to be temporarily higher at US$00/tonne due to early production from Pit 112 and currency appreciation Gamsberg project The company has made significant progress at 250kt Gamsberg project. It is on target for first production by mid CY18 with ramp-up to its full capacity in the next 9-12 months. On budget for a capex target of US$400 million. The CoP expected at $1000-1150/tonne. 70% or pre stripping completed with record 12.3 MT of waste achieved in the quarter, 500 kt ore stockpile targeted ahead of 1 st feed Construction of concentrator is underway. The ball mill shell and crusher mechanical erection completed. Power and water line infrastructure is 90% completed. Plant cold commissioning to commence in Q1FY19 Aluminium business The alumina and aluminium production during the quarter stood at 287 kt and 445 kt respectively o The current run rate of aluminium ~1.8 mtpa o The aluminium CoP was at US$1945/tonne, higher on a QoQ due to increase in power cost on account of continued coal shortages, high import alumina prices and carbon cost. o The Alumina CoP was at US$327/tonne vs. US$430/tonne for imported alumina 500 kt Jharsuguda I smelter: restart of pots impacted by outage in April 20, currently full ramped up Ramp up at 1.25 mt Jharsuguda II smelter: o 1 st line fully ramped up in Q3FY18 o 2 nd line fully capitalised in Q4FY o 3 rd line 193 pots operational, full ramp up by Q4FY18 o 4 th line under evaluation BALCO I (245 kt) and II (325 kt) fully operational FY18 Outlook Aluminium production 1.5-1.6 MT (excl. trial run). Alumina production at 1.2-1.3 MT for FY18 CoP estimated at US$1850-1900/tonne for Q4FY18 due to improved materialisation of coal linkages and elimination of one-off impacts of power imports and revival costs. ICICI Securities Ltd Retail Equity Research Page 6
Copper business The production during the quarter stood at 101 kt. Q3 TcRc s at 20.8 c/lb. The net cost of conversion was higher QoQ due to higher input commodity prices. FY18 production guidance maintained at 400 kt, the benchmark TcRc for CY18 at USc 21.3/lb, c.11% lower than CY. For Tuticorin II (400 kt), EPC contract has been awarded site mobilisation and civil work commenced. The contracts for balance construction to be awarded by March-18. The completion is expected by Q3FY20 Iron ore segment (erstwhile Sesa Goa) The production and sales volume for the quarter stood at 1.8 MT and 0.9 MT respectively. Goa commenced production of higher quality ore through beneficiation and blending Karnataka achieved full allocation production in Q3, inventory of 0.5 MT to be sold in Q4 Beneficiation and blending increased realisations from higher quality ore at Goa. Karnataka had string realisations of US$28/tonne in Q3, the company is working towards higher realisations in the domestic market For FY18, production allocation has been 5.5 Million tonnes per annum (Mtpa) for the state of Goa and 2.3 Mtpa for the state of Karnataka. The company has been granted additional allocation in Goa and is expecting to produce higher quality ore of c.2mt in Q4FY18 Mining cap increased from 30-35 MT for the state of Karnataka, company wise allocation is in progress Power business TSPL 3 x 660 MW Record quarterly plant availability at 97%; 9 months availability at 68% and targeting availability of 75% for CY18 Take or Pay arrangement with input coal pass through and EBITDA margin of 1/unit Other IPPs BALCO 600 MW: Q3 PLF of 43% was higher than Q2 Jharsuguda 600 MW: Low PLF of 5% due to the ash dyke incident and temporary coal shortage Coal Outlook Aluminium CPP Domestic coal supply situation o Lowe realisation of linkage coal in Q3 resulting in higher coal cost o In Jan 18 Coal India announced increase in coal prices across various grades Addressing challenges in coal supply and costs o Working towards improved materialisation of linkages and realisations of backlogs o Restrictions on linkage coal supply for captive power plants removed, better availability expected in Q4 o Total coal linkages secured, 8 MT from Tranche-I and II auctions, 2 MT from Tranche III auction; coal delivery from Tranche III to start Feb 18 o Third party quality control to help offset coal GCV losses ICICI Securities Ltd Retail Equity Research Page 7
Other highlights The company continues its focus on balance sheet management and cost optimisation. The term debt reduced by 11450 crore during YTDFY18. Improving credit profile lowered the spreads on bank borrowing and competitively priced debt market borrowings led to reduction in average borrowing costs by about ~40bps on term debt portfolio during YTD Dec-2018. The company had a strong liquidity with cash and liquid investments of 38923 crore and undrawn fund based line of credit of 3800 crore. The gross debt reduced by 11450 crore YTDFY18, partially offset by acquisition of AvanStrate Inc, Japan. Exhibit: 5 Debt profile ( crore) Company 30-Sep- 30-Dec- Debt Cash & LI Net Debt Debt Cash & LI Net Debt Vedanta Standalone 38,232 12,375 25,857 36,894 11,897 24,997 Cairn India Holdings Ltd 3,554 6,562 (3,008) 3,480 6,280 (2,800) Zinc India 593 19,986 (19,393) - 19,183 (19,183) Zinc International - 705 (705) - 778 (778) BALCO 4,647 82 4,565 4,841 47 4,794 Talwandi Sabo 8,055 294 7,761 8,262 449 7,813 Twin Star Mauritius Holdings Limited and others 7 202 515 1,741 289 1,452 Vedanta Consolidated 55,798 40,206 15,592 55,218 38,923,295 Source: Company ICICI Securities Ltd Retail Equity Research Page 8
Apr-15 Aug-15 Dec-15 Apr- Aug- Dec- Apr- Aug- Dec- (In US$/tonne) (In tonne) Apr-15 Aug-15 Dec-15 Apr- Aug- Dec- Apr- Aug- Dec- (In US$/tonne) (In tonne) Apr-15 Aug-15 Dec-15 Apr- Aug- Dec- Apr- Aug- Dec- (In US$/tonne) (In tonne) Metal pricing trend LME prices of all four major base metals registered an up-tick sequentially. All four base metals witnessed increase in prices QoQ and YoY. Exhibit 6: LME zinc prices & inventory levels 4,000.0 700,000 3,500.0 600,000 3,000.0 2,500.0 2,000.0 1,500.0 500,000 400,000 300,000 200,000 100,000 1,000.0 - Inventory Prices Source: Bloomberg, ICICIdirect.com Research Exhibit 7: LME lead prices & inventory levels 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 250,000 200,000 150,000 100,000 50,000 Inventory Price Source: Bloomberg, ICICIdirect.com Research Exhibit 8: LME aluminium prices & inventory levels 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Inventory Price Source: Bloomberg, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 9
Outlook and valuation We believe Vedanta would be a key beneficiary of the up-tick in global commodity prices. For 9MFY18, the average prices of zinc, lead, aluminium and copper increased 32%, 22%, 23% and 28% on a YoY basis. We expect the company to report healthy performance over the next couple of years on the back of volume growth and strength in the base metal prices. Furthermore, Vedanta s healthy balance sheet and prudent capital allocation strategy augurs well over a longer term horizon. We value the company using SOTP valuation and arrive at a target price of 375. We maintain our BUY recommendation on the stock. Exhibit 9: Valuation matrix Sales YoY Growth EPS YoY Growth PE EV/EBITDA P/ BV RoNW RoCE ( Crore) (%) ( ) (%) (x) (x) (x) (%) (%) FY 64433.6-12.2 7.3-63.3 43.7 4.1 2.6 4.8 6.5 FYE 72225.0 12.1 15.1 108.1 21.0 5.9 2.0 9.3 12.1 FY18E 84057.4.4 25.3 66.8 12.6 5.2 1.7 13.9 13.9 FY19E 97626.6.1 35.9 42.3 8.8 4.1 1.5.9.5 FY20E 105211.6 7.8 41.0 14.2 7.8 3.6 1.3.6.9 ICICI Securities Ltd Retail Equity Research Page 10
(%) ( ) Recommendation History vs. Consensus 420 370 320 270 220 0 120 70 20 Feb- 15 Apr- 15 May- 15 Jul- 15 Aug- 15 Oct- 15 Nov- 15 Jan- Feb- Apr- Jun- Jul- Sep- Oct- Dec- Jan- Mar- May- Price Idirect target Consensus Target Mean % Consensus with Buy Jun- Aug- Sep- Nov- Dec- 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Feb- 18 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Feb- Mar- Mar- Event As per media sources, Vedanta chalks out plans to invest ~US$10 billion in the next three or four years to expanding business across verticals The National Company Law Tribunal, Mumbai Bench (Tribunal), approves the merger between Vedanta and Cairn India. The company awaits certified copy of the order from the Tribunal. The Board of Directors of Vedanta approves a second interim dividend for FY of.70 per equity. The record date for the purpose of payment of dividend is April 12, 20. Further, the board also approves a dividend of.70 per equity share to shareholders of Cairn India, who will become shareholders of the company pursuant to the scheme of arrangement between Vedanta and Cairn India. The dividend would be paid to Cairn India shareholders as on a record date to be fixed after the scheme becomes effective. The total amount of dividend payout including that to Cairn shareholders is 6,580 crore Apr- Vedanta completes the Cairn India merger effective April 11. It fixes April 27 as the record date for determining the list of Cairn India shareholders to whom equity and preference shares would be allotted under the arrangement. Shareholders of Cairn India will get one equity share of Vedanta with four redeemable preference shares, carrying a coupon of 7.5%. As part of the deal, Cairn India shareholders will receive an interim dividend of.7 per share. Though Cairn India as a legal entity ceases to exist, Vedanta said it will preserve the Cairn brand for the oil & gas production business Crisil upgrades long-term credit rating assigned to Vedanta's debt instruments and preference share issue to Crisil AA with a stable outlook from Crisil AA- May- /Positive earlier. The short-term credit rating of Crisil A1+ was reaffirmed. The rating upgrade reflects better-than-expected operational performance and Crisil's expectation of a meaningful deleveraging of balance sheet with access to Cairn India's cash Vedanta's arm Cairn India Holdings (CIHL) has acquired a controlling stake in Japan-based LCD glass substrate manufacturer AvanStrate Inc (ASI) for US$158 Dec- million. The contours of the deal comprise the acquisition of US$151 million existing debt from banks, acquisition of ~51% stake for a nominal consideration from the Carlyle Group and an extension of US$7 million loan to ASI Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Vedanta Resources PLC 30-Sep- 51.22 1,903.9 139.8 2 Life Insurance Corporation of India 30-Sep- 6.84 254.1-15.3 3 Cairn UK Holdings, Ltd. 30-Sep- 4.95 184.1 0.0 4 HDFC Asset Management Co., Ltd. 31-Dec- 1.60 59.5 9.9 5 The Vanguard Group, Inc. 31-Dec- 1.54 57.3-0.4 6 Aditya Birla Sun Life AMC Limited 30-Sep- 1.32 49.2 1.7 7 BlackRock Institutional Trust Company, N.A. 31-Dec- 1.21 44.9 0.0 8 PTC Cables Pvt. Ltd. 30-Sep- 1.15 42.7 0.0 9 Dimensional Fund Advisors, L.P. 31-Dec- 0.99 36.9-1.6 10 UTI Asset Management Co. Ltd. 31-Dec- 0.48.7 0.4 Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Dec- Mar- Jun- Sep- Dec- Promoter 62.9 62.9 50.1 50.2 50.1 FII.8.3.7.9.8 DII 7.0 7.1 13.5 13.1 13.3 Others 13.3 13.7 18.7 18.8 18.8 Recent Activity Buys Sells Investor Name Value (M) Shares(M) Investor Name Value (M) Shares(M) Vedanta Resources PLC 672.6 139.8 Franklin Templeton Asset Management (India) Pvt. Ltd. -243.0-50.5 HDFC Asset Management Co., Ltd. 51.0 9.9 Life Insurance Corporation of India -73.6-15.3 Causeway Capital Management LLC 34.7 7.2 Templeton Asset Management Ltd. -54.7-11.4 Northern Trust Investments, Inc. 29.7 5.8 Principal Global Investors (Equity) -36.2-7.1 Aditya Birla Sun Life AMC Limited 8.3 1.7 Dimensional Fund Advisors, L.P. -8.2-1.6 Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 11
Financial summary Profit and loss statement ( crore) (Year-end March) FY FY18E FY19E FY20E Net Sales 72225.0 84057.4 97626.6 105211.6 Other Operating Income 0.0 0.0 0.0 0.0 Total operating Income 72,225.0 84,057.4 97,626.6 105,211.6 Growth (%) 12.1.4.1 7.8 Total Operating Expenditure 50,893.1 59,894.3 68,473.4 73,494.7 EBITDA 21,331.9 24,3.0 29,153.2 31,7.0 Growth (%) 45.0 13.3 20.7 8.8 Depreciation & Amortization 6,291.5 6,439.6 6,676.0 6,819.6 Interest 5,855.0 5,902.7 4,633.6 4,137.1 Other Income 4,580.6 5,362.5 5,419.0 5,503.7 PBT 13,766.0,183.2 23,262.6 26,263.9 Exceptional Items -114.4 0.0 0.0 0.0 Total Tax 3,778.3 3,436.6 4,652.5 5,778.1 PAT before MI 9,873.3 13,746.6 18,610.1 20,485.8 Growth (%) -260.9 39.2 35.4 10.1 Minorities, Associates, etc -4361.1-4359.0-5251.3-5233.8 PAT after MI 5,512.2 9,387.5 13,358.7 15,252.0 Growth (%) LP 70.3 42.3 14.2 Adjusted PAT after MI 5,626.6 9,387.5 13,358.7 15,252.0 Growth (%) 0.9 66.8 42.3 14.2 Adj EPS ( ) 15.1 25.3 35.9 41.0 Cash flow statement ( crore) (Year-end March) FY FY18E FY19E FY20E Profit after Tax 5,512.2 9,387.5 13,358.7 15,252.0 Add: Depreciation 6,291.5 6,439.6 6,676.0 6,819.6 (Inc)/dec in Current Assets 11,633.1-10,718.7-4,272.0-7,366.2 Inc/(dec) in CL and Provisions 14,589.3 5,126.5 1,248.5-437.1 Others -22,949.6 0.0 0.0 0.0 CF from operating activities 15,076.6 10,235.0,011.2 14,268.3 (Inc)/dec in Investments -432.7-987.4-1,000.0 500.0 (Inc)/dec in Fixed Assets -6,123.0-8,000.0-8,000.0-8,500.0 Others 9,863.0 0.0 0.0 0.0 CF from investing activities 3,307.3-8,987.4-9,000.0-8,000.0 Issue/(Buy back) of Equity 75.3 0.0 0.0 0.0 Inc/(dec) in loan funds -6,383.0-4,250.0-2,250.0-3,000.0 Dividend paid & dividend tax -8,459.7-2,4.7-2,4.7-2,4.7 Inc/(dec) in Sec. premium 18,700.1 0.0 0.0 0.0 Others -11,869.0 0.0 0.0 0.0 CF from financing activities -7,936.4-6,424.7-4,424.7-5,4.7 Net Cash flow 10,447.5-5,7.2 3,586.5 1,093.6 Opening Cash 3,768.3 14,215.8 9,038.7 12,625.1 Closing Cash 14,215.8 9,038.7 12,625.1 13,718.7 Balance sheet ( crore) (Year-end March) FY FY18E FY19E FY20E Liabilities Equity Capital 371.8 371.8 371.8 371.8 Reserve and Surplus 60,128.4 67,341.2 78,525.2 91,602.5 Total Shareholders funds 60,500.1 67,712.9 78,896.9 91,974.2 Total Debt 71,569.0 67,319.0 65,069.0 62,069.0 Deferred Tax Liability 2,083.7 2,083.7 2,083.7 2,333.7 Non-control. Interest, MI & oth 21,191.0 21,191.0 21,191.0 21,191.0 Total Liabilities 155,343.8 158,306.6 7,240.6 7,567.9 Assets Gross Block 131,570.6 139,570.6 147,570.6 156,270.6 Less: Acc Depreciation 44,929.9 51,369.5 58,045.5 64,865.1 Net Block 86,640.7 88,201.1 89,525.1 91,405.5 Capital WIP,670.9,670.9,670.9,470.9 Total Fixed Assets 104,311.6 105,872.0 107,196.0 108,876.4 Investments 46,962.1 47,949.5 48,949.5 49,449.5 Inventory 9,627.9 12,666.2 14,710.9,295.1 Debtors 3,409.3 4,605.9 5,349.4 8,647.5 Loans, Adv. & Oth. Cu. assets 13,104.0 19,587.8 21,071.6 22,555.5 Cash 14,215.8 9,038.7 12,625.1 13,718.7 Total Current Assets 40,357.0 45,898.5 53,757.0 62,2.8 Creditors 41,432.3 46,058.8 46,807.3 46,120.2 Provisions 2,346.6 2,846.6 3,346.6 3,596.6 Total Current Liabilities 43,778.9 48,905.4 50,153.9 49,7.8 Net Current Assets -3,421.9-3,006.9 3,603.1 12,500.0 Others Assets 7,492.0 7,492.0 7,492.0 6,742.0 Application of Funds 155,343.8 158,306.6 7,240.6 7,567.9 Key ratios (Year-end March) FY FY18E FY19E FY20E Per share data ( ) Adj EPS 15.1 25.3 35.9 41.0 Cash EPS 32.1 42.6 53.9 59.4 BV 2.7 182.1 212.2 247.4 DPS 19.5 5.0 5.0 5.0 Cash Per Share 38.2 24.3 34.0 36.9 Operating Ratios (%) EBITDA Margin 29.5 28.7 29.9 30.1 PBT / Total Operating income 19.1 20.4 23.8 25.0 PAT Margin 7.8 11.2 13.7 14.5 Inventory days 53.5 55.0 55.0 60.0 Debtor days 18.9 20.0 20.0 30.0 Creditor days 230.1 200.0 5.0 0.0 Return Ratios (%) RoE 9.3 13.9.9.6 RoCE 12.1 13.9.5.9 RoIC 12.8 14.1.1.7 Valuation Ratios (x) P/E 21.0 12.6 8.8 7.8 EV / EBITDA 5.9 5.2 4.1 3.6 EV / Net Sales 1.7 1.5 1.2 1.1 Market Cap / Sales 1.3 1.1 1.0 0.9 Price to Book Value 2.0 1.7 1.5 1.3 Solvency Ratios Net Debt/EBITDA 0.5 0.4 0.1 0.0 Net Debt / Equity 0.2 0.2 0.0 0.0 Current Ratio 0.9 0.9 1.1 1.3 ICICI Securities Ltd Retail Equity Research Page 12
ICICIdirect.com coverage universe (Metals & Mining) Company CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) ROCE(%) ROE(%) ( ) TP ( ) Rating ( Cr) FY FY18E FY19E FY FY18E FY19E FY FY18E FY19E FY FY18E FY19E FY FY18E FY19E Coal India 291 330 Hold 180325 14.9 14.2 24.4 19.5 20.4 11.9 10.9 10.9 6.9 33.5 41.4 72.0 37.8 41.3 64.1 Hindalco 244 295 Buy 54272 8.4 21.6 29.1 28.8 11.3 8.4 12.3 8.4 6.9 4.3 6.9 9.3 1.1 4.1 9.9 Hindustan Zinc 281 350 Buy 118744 19.7 21.3 24.6 14.3 13.2 11.4 10.5 8.7 6.4 26.9 33.0 31.6 27.0 24.6 23.9 JSW Steel 283 335 Buy 68479 14.3 19.9 24.7 20.9 15.1 12.1 9.3 8.4 7.4 13.4 14.5 15.5 15.3 18.2 18.8 Vedanta 322 375 Buy 95473 15.1 25.3 35.9 21.0 12.6 8.8 5.9 5.2 4.1 12.1 13.9.5 9.3 13.9.9 ICICI Securities Ltd Retail Equity Research Page 13
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 14
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