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June 17, 2024

Vedanta’s Strategic Path to Achieving $10 Billion EBITDA

Vedanta Group, a leading mining conglomerate, is on a strategic path to achieving a near-term EBITDA of $10 billion. This ambitious goal will be driven by the timely execution of over 50 high-impact growth projects spanning various sectors, including zinc, aluminum, oil and gas, and power businesses. These projects, currently in advanced stages of completion, were detailed in a recent presentation to over 45 fund managers and analysts during a site visit organized by the Vedanta Group.

Aluminum Business Expansion

Vedanta’s aluminum business is undertaking significant projects aimed at achieving a production capacity of 3.1 million tonnes per annum. Positioned in the first quartile of the global cost curve, the aluminum production cost has hit multi-year lows at $1,711 per tonne. The business boasts a 100% vertically integrated supply chain and a strong demand outlook, with India’s domestic market projected to double every five years.

Zinc and Silver Production

In the zinc sector, Vedanta produces 1.2 million tonnes of zinc metal annually at a cost of $1,000 per tonne, with silver volumes reaching 800 million tonnes per year. Holding over 75% of the primary zinc market share in India, Vedanta is planning further growth to 2 million tonnes. This robust production and market share position Vedanta as a dominant player in the zinc industry.

Oil and Gas Sector Growth

The oil and gas division of Vedanta Group is focused on expanding its resource base to 2 billion barrels of oil equivalent within the next three years. The production target is set at 300,000 barrels of oil equivalent per day, which is more than double the current levels. This ambitious expansion is part of Vedanta’s strategic efforts to boost its oil and gas output significantly.

Power Generation and Refinery Projects

Major projects in execution include expanding the capacity of the Lanjigarh alumina refinery from 3.5 million tonnes to 5 million tonnes and increasing the BALCO smelter capacity from 0.6 million tonnes to 1 million tonnes. Additionally, Vedanta plans to raise its overall power generation capacity from 2.9 GW to 5 GW. These expansions are integral to Vedanta’s growth strategy, contributing to the company’s overall production and efficiency.

Investment and Financial Outlook

Vedanta Group is investing approximately $8 billion in these ongoing growth projects. This substantial investment has attracted attention from leading brokerage houses, resulting in upgraded target prices for Vedanta’s stock. Nuvama has increased the target price to Rs 644, citing operational efficiency, lower aluminum production costs, and higher premiums for aluminum and zinc as key factors. Similarly, Investec has raised its target price to Rs 473, while CLSA has highlighted the profitability improvement initiatives like major cost reductions through alumina refinery capacity expansion, higher power generation efficiency, and the commissioning of coal blocks and bauxite mines.

Financial Projections and Economic Contribution

Vedanta’s existing assets, combined with these growth projects, are expected to generate $5 billion in free cash flows, significantly contributing to nation-building through sustainable returns to stakeholders. The $10 billion near-term EBITDA projection includes $4.2 billion from aluminum, $2.7 billion from Zinc India (zinc and silver), and $0.9 billion from oil and gas. These figures underscore Vedanta’s strategic position to capitalize on India’s economic growth, with the country’s GDP expected to reach $7 trillion by 2030.

Strategic Demerger and Future Outlook

In line with its strategic roadmap, Vedanta has proposed a vertical split of its businesses, intending to list five additional entities on the stock exchanges by the end of the year, pending regulatory approvals. Existing shareholders of Vedanta Ltd will receive one share of each of the five newly listed companies for every share they hold. This demerger will create independent, pure-play companies in aluminum, power, base metals, oil and gas, and steel and ferrous sectors, while zinc and other existing businesses will remain under Vedanta Ltd.

Vedanta’s strategic initiatives and growth projects position the company to achieve its ambitious $10 billion EBITDA target, driving substantial value for stakeholders and contributing significantly to India’s economic growth trajectory.

Read more Business related news on R9 News
Jhumpa Lahiri

Jhumpa Lahiri

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