Vedanta Q3 net down 99% at Rs 18 cr

Lowered expenses fail to rescue sharp fall in EBITDA margin which contracts to 26% on lower realisations

Vedanta, one of the world’s largest diversified natural resources companies, reported a 99 per cent year-on-year fall in net profit at Rs 18 crore because of significant weakness in metal and crude oil prices, which put pressure on realisations. The profits, however, were better-than-expected.

The Brent crude oil price averaged 43 per cent lower than what it was in the same quarter last year, while average aluminium, copper, zinc and lead prices on the LME were down 24 per cent, 26 per cent, 28 per cent and 16 per cent, respectively. Thus, net sales of the Anil Agarwal-led company at Rs 14,801 crore in the period under review, was down 23 per cent over the year-ago quarter, as income from almost all business segments, except iron ore and power, took a hit. According to Bloomberg estimates, net sales were seen at Rs 14,486 crore, while the company was expected to report a loss in the quarter.

Despite the company’s efforts to lower its cost, the Ebitda (earnings before interest, tax, depreciation and amortisation) margin contracted to 26 per cent in the quarter gone by, against 43 per cent in the corresponding period last year.

“Not all our efforts towards lowering cost structure have reflected in this quarter’s earnings and we are sure to see much better cost structures in the January-March period when compared sequentially,” Tom Albanese, chief executive officer, Vedanta Group, said at the earnings conference call.

Vedanta’s total expenses in the third quarter stood at Rs 13,541 crore, down 12 per cent from last year. Apart from lower expenses, other income and exchange gains also lent some support to the company’s bottomline. Among key segments, oil & gas and zinc metal business contributing 13 per cent and 25 per cent to gross revenues, which had been big contributors to Vedanta’s consolidated Ebitda in the past quarters, turned hostile as oil & gas business reported a loss of Rs 395 crore, while earnings from zinc business halved to Rs 1,096 crore in the quarter gone by. Aluminium contributing 18 per cent to gross revenues reported a loss though copper business (30 per cent of gross revenues) held the fort as it profitability depends on treatment and refining charges. Iron ore, which is just one per cent of gross revenues, too, reported loss while power contributing about eight per cent to revenues saw its profitability double.

“For copper, we see steady treatment-and-refining charges for 2016 compared with last year and with most of our contracts being annual in nature, the company will remain insulated from any fall in these charges in coming months,” said Albanese.

Of the total contracts, Vedanta has 80-85 per cent of its copper contracts locked in for a year and balance are in spot. As per the management, treatment and refining charges are likely to fall in the second half of 2016.

As on December 31, the company's gross debt was at Rs 80,952 crore, higher than Rs 79,433 crore at September quarter, primarily on account of project capex, unwinding of working capital as guided last quarter, and payments of dividends.

“Our financial position is robust and we will be having about $260 million of loan to be refinanced in coming months,” said D D Jalan, chief financial officer, Vedanta.

Regarding the Vedanta Limited and Cairn India merger, the company said applications for the merger scheme have been filed with the respective High Courts, and the shareholders and creditors meetings are expected to be convened in the current quarter. "We continue to work towards completion of the merger by Q2 CY16," said the management.