Vedanta profits plunge but cash and production keeps flowing

Interim revenues and profits at Vedanta Resources were hit by falling commodity prices as the India-focused miner provided more bad news for global oversupply of zinc and iron ore, saying it planned to take up any shortfall in zinc production being proposed by rivals and was also restarting iron ore operations in Goa.

Revenue of $5.7bn (£3.7bn) was down 12% on the same period last year, despite an increase in volumes with Zinc India up 29%, aluminium up 9% and Copper India up 16%, while iron ore restarted from Goa.

Despite cost cutting, earnings before interest, tax, depreciation and amortisation (EBITDA) of $1.3bn were 39% lower. Operating profit before extraordinary items was down 44% to $577m.

Low commodity prices squeezed EBITDA margin to 30% and levelled a 49% impact on total EBITDA.

Cost cutting of $152.8m, together with currency depreciation helped to offset a fall in profits, with the rupee depreciation contributing $99.7m, the rand and Namibian dollar by US$21.9m and Zambian kwacha by $18m.

Capital expenditure guidance was further trimmed to $0.7bn, from the $1bn and $2bn previously this year.

Free cash flow after growth capex was $1.3bn and net debt fell by US$0.9m. No interim dividend was proposed, in light of the current market volatility, but the board said it would review payments at the year-end.

Chairman Anil Agarwal said the cost cutting had been worth the effort: "We have delivered a sound financial performance over the past six months and maximised free cash flow, while facing challenging commodity markets.”

He added: “As India's only diversified natural resources company, Vedanta's exposure to meeting the country's future resources demands enhances our growth opportunities, in addition to our global prospects.”

Analysts at broker SP Angel said improved volumes helped to offset some of the impact of price falls across the board.

“There is no talk of cut back in supply with the company planning to take up any shortfall in zinc being proposed by Glencore. The company has also restarted iron ore operations in Goa with an interim capacity of 5.5 mtpa which they plan to export – adding to hugely oversupplied market.”

It was also reported on Tuesday that copper producers in India, including Vedanta, have demanding the government should increase import duties to 7.5% from current 5% on refined copper products and to eliminate the 2.5% import duty on raw copper concentrate or face some 10,000 job losses if domestic production continues to decline further. The companies blamed the free-trade agreements between India, Japan and other ASEAN countries for the cheaper copper imports.