Summary

Vedanta Ltd., a diversified resources company, reported robust Q2 FY25 results, driven by operational efficiencies and strategic investments. The company has showcased strong financial growth while maintaining a focus on sustainability through renewable energy adoption and ESG initiatives.

Key Metrics

Future Growth Drivers

1. Renewable Energy Adoption

• Committed to 1,900 MW renewable energy capacity.
• Partnering with Serentica Renewables for a long-term renewable energy supply, aligning with its net-zero carbon emissions goal.

2. Operational Expansions

• Aluminum: Lanjigarh refinery ramp-up (3.5 MTPA by FY26) and BALCO smelter expansion to 3.1 MTPA with a 90% focus on value-added products.
• Zinc: Debari roaster (160 KTPA) and a new 0.5 MTPA fertilizer plant operational by FY26.
• Oil & Gas: ASP injection projects to boost recovery by 10%, equating to ~250 million barrels over time.

3. Production Ramp-Up

• Record production in aluminum (609 KT in Q2) and zinc operations.
• Iron ore production to achieve 11 MTPA target post-regulatory clearances.

4. Demerger Process

• Set for March 2025 completion, expected to unlock value in critical mineral segments.

Capital Expenditure and Strategic Rationale

• FY25 CAPEX: ₹5,209 Cr for power projects like the Athena 1,200 MW plant.
• Strategic investments in refining capacity, value-added production, and energy efficiency aim to enhance profitability and market competitiveness.

Financial Projections

• FY25 EBITDA expected to reach record highs, supported by a robust H2 pipeline.
• Net debt to EBITDA ratio improved to 1.49x, targeting <1x by FY26.
• Strong free cash flow (₹8,525 Cr in Q2) ensures liquidity for growth projects.

Competitive Landscape and Risks

Strengths

• Diversified commodity portfolio.
• Industry-leading cost efficiencies in aluminum and zinc.
• Strong ESG credentials with consistent recognition by S&P Global.

Risks

• High debt levels (₹79,808 Cr).
• Global commodity price volatility.
• Regulatory and environmental clearance delays for key projects.
• Decline in promoter holding (-8.8% over 3 years).

Valuation Estimate

Using a blended valuation approach (DCF and EV/EBITDA multiples), Vedanta Ltd.’s intrinsic value ranges between ₹480-₹520 per share, reflecting a modest upside from current levels.

Investment Thesis

Vedanta is positioned as a strong dividend-yielding stock with growth potential driven by expansions in aluminum, zinc, and oil & gas. The demerger is a catalyst for unlocking value. However, investors should weigh the high debt burden and regulatory risks before committing.