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Vedanta Q2 net rises 44% on one-time deferred tax cost

Vedanta said it will spend the money across oil and gas, aluminium, zinc, lead, silver and copper businesses.

, ET Bureau|
Nov 15, 2019, 07.40 AM IST
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Given its low valuations and healthier balance sheet, the stock may find some support at current levels, especially as its dividend yield exceeds the rate of return on bank FDs.
Kolkata | Mumbai: Vedanta Thursday maintained its Rs 8,500-crore annual capex guidance for the commodity businesses even as it lowered output forecast in a difficult year for global trade. Second-quarter profit at India’s leading pure-play resources and extraction conglomerate surged 44 per cent as the company benefited from corporate tax cuts.

Vedanta said it will spend the money across oil and gas, aluminium, zinc, lead, silver and copper businesses. While it has already spent Rs 3,000 crore in the first half of FY20, it has planned project investments worth Rs 5,500 crore for the second half.

“We are on track with our plans to invest Rs 60,000 crore over the next 2-3 years based on the enormous potential of the Indian economy, despite the noise around a slowdown,” CEO Srinivasan Venkatakrishnan told ET. “We hope to have a stronger finish in the second half and deliver topline profitability in key verticals, having already seen a recovery in the commodity cycle, with prices rising across the commodity basket in the past 20 days.”

A significant part of the capex will come from internal accruals as Vedanta managed to generate cash flows of nearly Rs 8,300 crore.

Separately, Vedanta cut production guidance across products in Zinc India and Zinc International and in its oil and gas business. These two divisions remain the highest earnings contributors for Vedanta.

Although the two divisions contributed only 40 per cent to the revenues in the quarter, they more than compensated for the losses in the aluminium and copper divisions.

It also revised upward the cost of production. As a result of the production cuts and likely increase in output costs, Vedanta’s stock fell 3 per cent on Thursday and is down 30 per cent in 2019. However, at the current price of Rs 144, the stock trades at a valuation of 4.2 times EV/EBIDTA and less than one-time book.

Vedanta reported a 44 per cent rise in consolidated net profit in the second quarter at Rs 2,730 crore as it benefited from one-time deferred taxes of Rs 1,891 crore. However, sales fell marginally by 3 per cent to Rs 21,739 crore.

“Vedanta reduced its working capital needs significantly by Rs 4,000 crore in Q2,” CFO G Arun Kumar said. Gross debt has come down by Rs 11,000 crore, while net debt came down by Rs 7,000 crore and net debt to EBITDA ratio was at 0.9, Kumar added.

Given its low valuations and healthier balance sheet, the stock may find some support at current levels, especially as its dividend yield exceeds the rate of return on bank FDs.
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