MOSL: VEDANTA (Buy)-Many segments were weak-cost pressure in AL-Zinc outlook remains bullish
​Vedanta: Many segments were weak; cost pressure in AL; Zinc outlook remains bullish; Maintain Buy
(VEDL IN, Mkt Cap USD14.0b, CMP INR274, TP INR316, 15% Upside, Buy)
- Cons. EBITDA increased 42% YoY to INR48.7b (est. of INR50.7b), driven by strong growth in zinc, O&G and aluminum (AL). The iron ore, copper (Cu) and power segments, however, reported weak operating performance.
- Adjusting for recovery of past costs (not quantified) in O&G revenue, the EBITDA miss stands at 7-10% due to (1) poor Cu by-product credits, (2) slower growth in commercial production of AL, (3) lower sales quantity of iron ore and pig iron and (4) less volumes at Skoprion Zinc due to shut down.
- Margins in Cu (lower TcRC and by-product), AL (cost pressure) and iron ore (widening grade discounts) shrunk significantly in the quarter. We have reduced our estimates for Cu, and maintained for iron ore and AL. Power EBITDA will recover as TSPL has fully recovered from fire-related damages.
- Management maintained guidance for 2mtpa AL production in FY19E, but the guidance for cost of production (CoP) is raised by USD100/t to USD1,600/t for 2HFY18E on expected lines.
Vedanta is diversified natural resources company. Co.'s business is principally located in India. Co. maintains operations in Australia, United Arab Emirates, South Africa, Namibia and Ireland. Co. is primarily engaged in zinc, oil and gas, iron ore, copper, aluminium and commercial power generation businesses and is also developing and operating port operation businesses and infrastructure assets. Co.'s operations are organized along four business divisions: Zinc (fully-integrated zinc business operated by HZL); Oil & Gas (domestic oil production through Cairn India); Iron Ore; Copper (custom smelting); Aluminum (Balco); and Power (multiple power plants across locations in India).
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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