Vedanta unveils mega road map to reach $10-billion Ebitda

Mumbai: The Vedanta Group has charted a strategic road map to achieve an operating profit of $10 billion, with timely execution of 50-plus projects across various business verticals, even as lenders have expressed concerns about the debt at India-listed Vedanta Ltd.

This road map was discussed during visits to Vedanta sites attended by more than 45 investors, fund managers, and analysts from leading brokerages and fund houses last week, according to two people who were present.

Lenders are worried that the ambitious plan would entail the group entering into new businesses such as semiconductors when they want it to reduce its debt pile of $12 billion, according to bankers.

The Vedanta Group has invested around $8 billion in its growth projects. The group will also commission the world’s largest alumina refinery at Lanjigarh. The $10 billion near-term target on earnings before interest, tax, depreciation and amortisation (Ebitda) includes $4.2 billion from aluminium, $2.7 billion from zinc and silver, and $0.9 billion from oil & gas, according to a presentation that the two people shared with ET.

The group expects to generate $5 billion in free cash flows with these new projects. In FY24, it posted an Ebitda of $4.7 billion.

Growth projects under execution include expanding capacity at the Lanjigarh alumina refinery from 3.5 million tonnes per annum (MTPA) to 5.0 MTPA and Balco smelter from 0.6 MTPA to 1.0 MTPA. It is also increasing power generation capacity from 2.9 GW to 5.0 GW, and doubling the Gamsberg Phase 2 capacity to 500 kilotonnes.Vedanta did not respond to ET’s queries.Vedanta’s shares have rallied nearly 75% in the last six months, with another listed group firm Hindustan Zinc gaining nearly 110%. The BSE Sensex gave a return of 9% during this period.

Lenders are uncomfortable about the plan due to the huge debt the group is already sitting on.

Additionally, Vedanta Ltd is obliged to dole out dividends to prevent the parent — UK-based Vedanta Resources — from defaulting.

“We have conveyed the group to deleverage, which could be by monetising its assets or holding company selling equity in the open market to repay debt or both,” said a banker with a large public sector lender. “Current lenders are not evaluating any term loans for new ventures until we see signs of deleveraging. This could reduce the pressure on Vedanta Ltd to give dividends,” he added.

Vedanta Ltd’s borrowing rose 36% to 72,771 crore in fiscal 2024 from 53,583 crore in FY22. During this period, it distributed over 65,000 crore in dividends.

Vedanta Resources and other promoter firms received nearly 44,000 crore of this, helping the parent to reduce net debt to $6 billion in FY24 from 9.7 billion in FY22. It aims to lower the debt to $3 billion in another three years.

The Vedanta Group’s consolidated net debt was $12.35 billion as of March 31, 2024. Of this, 49% was rupee-denominated and the balance was in foreign currency, the company informed its bondholders in a recent investor presentation.

The group is targeting consolidated Ebitda of $6.5 billion in the ongoing FY25. The management said almost 19% of this would come from lowering the cost of production and 14% from revenue growth. It aims to generate $7-8 billion in Ebitda by FY26 and FY27, with a free cash of $3-4 billion after capital expenditure.

“Site visit highlights that the company is operating with a technologically advanced asset base,” Motilal Oswal Financial Services analyst Alok Deora said. “Vedanta is continuously striving to reduce costs across its businesses through backward integration, operational efficiencies, and captive power usage.”

Vedanta has proposed a vertical split of the businesses and will list five entities on the stock exchanges, which is expected by the end of this year. The demerger will create independent pure-play companies in aluminium, power, base metals, oil & gas and steel and ferrous, while zinc and other existing businesses will remain under Vedanta.