MOSL: VEDANTA (Buy)-In-line-zinc & oil prices, TSPL’s PAF raise EBITDA by 13%

Vedanta: In-line; zinc & oil prices, TSPL’s PAF raise EBITDA by 13%; Aluminum costs and lower TcRc are drag; Maintain Buy

(VEDL IN, Mkt Cap USD19.9b, CMP INR340, TP INR416, 23% Upside, Buy)

Vedanta’s 3QFY18 EBITDA increased on expected lines by 13% QoQ to INR67.6b, driven by higher zinc and oil prices, volume ramp-up at aluminum smelters, and improved plant availability at TSPL. Finance cost declined 5% QoQ to INR13b. Other income was impacted by hardening of yields. Tax rates were on higher side. Adjusted PAT increased 16% QoQ to INR22b, lower than our estimate.

• Work on expansion of the new copper smelter at Tuticorin has stared, and the project is likely to be completed in FY20. Benchmark TcRc has declined 11% to USD21.3/lb for CY18.
• Aluminum smelters continue to ramp up to produce 2mt in FY19, but risk to margin remains due to continued inflation of input costs.
• Iron ore business has got one-time additional 3mt permit in Goa for 4QFY18, but it is unlikely to boost overall volumes due to poor demand for low grade.
• Zinc business remains strong, although there are some input cost pressures due to higher commodity prices. Zinc-India is on track for 1.2mt in FY20. Zinc-Int’s Gamsberg 250kt project too is on track for production start in mid-2018.