Aluminium and zinc expected to turn the table for Vedanta in 2017

2017 seems to be a positive beginning for Vedanta driven by the upturn in commodity market that started towards 2016 –end and is still continuing with bullish trends.

The company reported a total group revenue of USD 3,067.4 million and the revenue for the aluminium segment stood at USD 532 million, a 26% and 27% increase YOY respectively. Group EBITDA stood at USD 882.3 million, up 79% YOY. Operating profits in December quarter was the highest in last seven quarters. Share prices for Vedanta have grown more than three-folds from lows of INR 60 last February to highs of INR 275.40 in March 2017. There are a number of growth triggers that have indicated a strong growth outlook for Vedanta in 2017.

Base metals have seen a strong run with zinc being the best performer since December and aluminium following the suit. Considering the growth in Zinc market and increasing production at Hindustan Zinc, more gains are expected for Vedanta.

Aluminium has seen 27% per cent price increase during the December quarter, and March quarter performance is expected to remain buoyant. Iron ore and Oil and gas segment are doing well leading to an improvement in Cairn India’s profitability and project expansion. According to the Analysts at Edelweiss and Elara Capital, Vedanta will benefit from favourable zinc and aluminium price outlook and capacity ramp up.

Vedanta is targeting aluminium output of 1.9-2 million tonne (MT) in FY18 against the current run-rate of 1.3 MT. During Q3 2016-17, Vedanta’s aluminium production increased 37% YOY and the growth is expected to continue in the fourth quarter. The company expects to produce between 1.0 to 1.1 mtpa of Aluminium (excluding trial run production) in FY2017. The ramping up of its smelter at Jharsuguda is taking place in full swing and is expected to be complete by Q2 FY2018. Analysts remain positive on volumes growth for Vedanta in aluminium, zinc and iron ore segments.

Meanwhile, another catalyst for growth for Vedanta will be the merger of Vedanta Limited and Cairn India as the National Company Law Tribunal (NCLT) approved the merger of Cairn India with Vedanta Ltd on March 23. The merger will give Vedanta the benefit of Cairn’s strong cash balance as well as operational cash flows, to cut down its debt and expand its operations. Analysts at CLSA expect the company to register an EPS CAGR of 25 per cent for FY17-19 considering these positive factors.

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