Vedanta Limited analyst Q&A

Thank you very much. We will now begin the question-and-answer session. We'll take our first question from the line of Amit Dixit from ICICI Securities.

Congratulations for a great set of numbers. I have two questions. The first one is on aluminium division. I understand that there are quite a few milestones in Q2 FY '25, including commencement of mining in Radhikapur and Kurloi blocks plus the second train of alumina refinery being launched. So just wanted to understand your update on each of these, plus BALCO expansion aspect? Vice-chairman: Yes. Go ahead, Amit. What else?

The second question is on oil and gas, essentially. So while in the PPT, it was mentioned that we have initiated the ASP injection at Mangala, and we saw that the preparation was going on when we visited the site as well. So, I just wanted to understand whether in Q2, we will finally see that the production from oil and gas would increase because we have drilled infill wells. So, because as a combination this infill strategy plus your ASP, could we see production creeping up finally in Q2 of FY '25? These are my two questions. Vice-chairman: Thanks, Amit. I will, of course, ask first John or maybe Steve first to address the oil and gas, and John in aluminium. But a broader comment, Amit, that while your question around in which month or which period will the refineries start this month, which period will the coal mining start. While relevant, but the way we look at this is that structurally, we have addressed this, and now it's a matter of execution. It may take a month here or quarter here. But from our point of view, the refinery has been in its last stages of commissioning, both Train 1 and Train 2. It may happen 1 -month earlier, 1 - month later, but we don't stress over that. So that is going to happen in any case. As far as coal mining is concerned, similarly, we have started to work on the coal mine. It may happen 1 month early, 1 month delayed. But we know that all this integration of coal, alumina bauxite is in the execution space and will start commencing. But let me get Steve on, Steve are you on?

Yes, I'm here.

So you heard the question Amit had?

Yes, I got it. Yes, let me give the answer. Yes. Thank you, Amit, for the question. So yes, you're right, obviously, our production have been declining. We are obviously producing most of our oil and gas from very mature fields, 15 to 25 years old. We have a natural decline of about 20% per year with no infill drilling. We are infill drilling modestly at the moment in Rajasthan and maintaining the decline at about 15%. Obviously, that isn't acceptable. We want to bring the production up. We've got a huge reserve base and resource base to draw upon. And phenomenal exploration portfolio that's going to add to the reserve and resources. So ASP, you mentioned, is one of the key technologies. We've kicked off the first stage finally after many years delay in Mangala. ASP been injected into the ground. And we should see over the next few months because we're putting it into a pattern, which should respond quite quickly. The gradual increase. But remember, this is the first part of a very large project. The second stage will kick off early next year. My expectation for second quarter is we're going to be quite flat. So we did 112 in the first quarter. We're going to be sitting at 112, 113 in the second quarter. Third and fourth, we'll start to see the gains, not just from the ASP, but also from the additional infill drilling because we're mobilizing rigs to both the East and the West Coast. Our biggest infill opportunities are actually offshore rather than onshore, but that production should start to come in during the year. We've also got 5 more wells scheduled in the gas plant. It should start to coming towards the end of the year. So we're looking at an end rate leaving the financial year, 130,000 to 140,000 barrels a day. And that's all of that work coming in. Beyond that, obviously, we've got a lot of exploration ongoing. We've got the rigs that are coming on the East and West Coast, not just doing infill, but doing exploration, which will hopefully produce more satellite fields. We've got five satellite fields already discovered. Field development plan is sanctioned, both onshore and offshore. They will start to produce oil and gas . We've got the ongoing exploration in the North east, where we've got two rigs drilling. We've got a rig in Rajasthan drilling. We're bringing a second rig right into Rajasthan, heavy -duty rig to focus on our deeper prospectivity, particularly gas prospectivity around the RDG plant, which as you know, has a lot of spare capacity at the moment. Our aimed to fill that up, get it back to doing 35,000, 40,000 barrels a day oil equivalent as soon as possible. We've got an ambitious program on the unconventional in Rajasthan. And as Navin said, we're aggressively looking at our deepwater and we're negotiating to bring a rig in to drill some deepwater appraisal wells and doing development studies at the moment. So I think a modest target of 300,000 is quite modest. I think the portfolio we've got; it was in another company. We would be looking at a target of 500 to 600. But in the short -term, by the end of this year, we should leave the year 130,000 to 140,000. Vice-chairman: Amit, that answers your question on oil and gas?

Yes. Yes. That's very comprehensive and comforting. Vice-chairman: And John, if you are on, he wanted to know about the alumina refinery ramp -up and coal mining, but anything else you want to add?

What I will say is we are progressing well on these growth projects. As Vice Chairman has mentioned this is a transformative year for us. We are significantly r amping up capacity in refining which is going to significantly reduce our cost position. Currently, we are well into the first quartile from a cost perspective and as we complete the structural changes that will take us well into the first decile. So we're on track to complete that. What I will say is the national election has had quite a significant impact on availability of labor for this very labour-intensive project. So our business partners really struggle to mobilize the resources that we have needed on the site which has led to sort of minor delays, but that is now behind us and we are progressively moving forward on those projects. For the coal mines, with the change in government and as the result which is quite a significant change after many years. There is a slowdown in the approval process there. But we we continue to be pursuing those approvals very successfully. We continue to move those through. And our overall timelines I would say remain sort of largely on track. So if I talk a little bit more about the Lanjigarh refinery, we have for the purposes of simplicity Train 1, Train 2 but there's actually quite a lot of shared infrastruct ure. So the red mud filtration the alumina handling, the bauxite facility. So progressively as we complete that we will be able to ramp up capacity to the 4 million to 5 million tons of capacity. So we expect to be running at an effectively a full 3.5 million ton capacity by third quarter of this financial year and a full 5 million ton capacity by early in the first quarter of '26. In terms of the coal mines both Kurloi Radhikapur we are targeting good first ore in the first quarter of FY '26 and the same with Sijimali. So not quite what we had hoped, but as I said with now a successful change in government those processes are tracking really well. We continue in our land acq uisition processes and so we're sort of pretty pleased with how things continue to progress. Vice-chairman: Thanks, John. Amit, I hope that covered this. But as I said a month here, a month there, but the way we see these are project which have been invested in they are on track and whether it happens by the third quarter or the fourth quarter the integration is getting executed, Amit.

Understood, sir. And appreciate that. Thanks a lot for the detailed answer and all the best. Vice-chairman: Thank you.

Thank you. W e'll take our next question from the line of Ashish Kejriwal from Nuvama Wealth Management. Please go ahead.

Hi, good evening everyone thanks for the opportunity and many congratulations on the superb result. Sir I have two, three questions. One over the last one quarter we have seen different measures taken by the company and at the Vedanta Limited level as well as Vedanta Resources level to improve the liquidity and which we have successfully done. Now my question is whether we are still looking to improve liquidity besides cash flows or any other major besides cash flows or we are done away with that? And with that, how much our... Vice-chairman: Ashish that’s your question number 1 what is your other question?

Yes. So with that obviously how much weighted average cost of debt we think should come down from the current l evel of something like 10 plus. That's one. Second was because we have already filed with NCLT regarding this demerger. So are we seeing any bottlenecks from the regulatory side or is there any possibility that we can go back from this now or it will be definitely be a done deal? That's my second thing. And third was, is it possible to share what would be the global aluminium cost curve for us so that we can get a sense on where we are in aluminium prices? Vice-chairman: Thanks, Ashish. So we'll answer your question first on the NCLT demerger. In our mind, having been filed with NCLT which is the last process in a way we think that this is for us a final step. But Ajay Agarwal if you're on, do you want to respond in any other way to Ashish?

Yes, Vice Chairman. And I think you have covered it. NCLT is the last process and we have successfully filed it and it's a matter of time that it will get done, Ashish. Vice-chairman: Okay. Ajay Goel he had a question around liquidity and cost of debt. We know that we are now borrowing at single digits in India and also a sharp reduction in our borrowing cost at our parent. He also talked about further liquidity. Over to you, Ajay.

Yes. Thank you, Vice Chairman. So Ashish you only have noted as on June 30, our net debt - to-EBITDA at about 1.5x. And all of us would agree 1.5 x is by far the industry best in the country. This position i s as on June end, post raising a billion in July. And July month also is good in terms of working capital. With that, our net debt to EBITDA as on July 31 is at about 1.2x. There's sufficient liquidity in the company, both for deleveraging at the same time funding for the growth . In Vedanta, our focus remains on the basics which is a cost reduction, volume augmentation and very important in terms of operating free cash flows. In the current fiscal with operating free cash flows w e’ll have sufficient liquidity. Any other option strategically is something that we keep internally evaluating. Nothing that, that we intend to share as of now. Our cost of funding as o n June 30 at about 10 .3% we believe all our recent borrowi ngs are at sub 10%, 9.7%, 9.8% and we intend to reach at about 9% very soon. Vice-chairman: Ashish, happy with that?

Yes. Thank you so much. This is more comforting in terms of interest cost. Vice-chairman: You also had a question on the global cost curve.

Yes. Vice-chairman: Ashish, my understanding is that at about USD 1,600-1,700 cost we are in the lowest decile of the global cost curve. The world as you know produc es about 70 million ton nes of aluminium and we think that our 3 million ton nes is in the lowest decide at the cost of about USD1,600 USD1,700.

Yes. Sir, I was looking at, in fact, 9 0th percentile and not our cost because that can give some sense on what could be the bottom for aluminium prices at least from the cost angle side? Vice-chairman: Yes, John?

I was going to add some further details to your question about where we sit on the cost curve. And I'll start with that and then you ca n cover what happens on right hand side. The cost curve that we shared in the recent investor discussions showed that we're in the middle of the first quartile, so the 13 percentile. We have laid out a pathw ay to getting well to the left, b ut what's happened since then is the price of alumina, the global price of alumina has increased significantly. It was trading for much in the last quarter well into the USD400, almost USD500 a ton which has meant that the cost of production for pretty much everybody in the industry has gone up by about USD100 a ton. And what you would have seen in our total cost between quarter 4 and this quarter was essentially flat. So everybody else has gone up by USD 100 a ton we have shot well further to the left. So I would say if we redid the evaluation today you would see us comfortably in the first decile from that perspective. And that logic extends to what happens on the right -hand side of the cost curve and everybody that at the right-hand side of the cost curve is buying alumina at API at the moment and that's USD470, USD480, USD 500 a ton. So that's the st eepness of that cost curve has ramped up significantly on the right-hand side. Now what we've seen is a bit of a demand shock. So we've seen a bit more capacity coming into the market slightly softer demand. So we'r e seeing slightly lower prices, but that will reverse in time and I would expect to see a much firmer aluminium price in the quarters ahead. Vice-chairman: Ashish, thank you.

Thank you. We'll take our next question f rom the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Good evening everyone and thank you for this chance. F irst question is given the volatility in commodity prices have we like done in Hindustan Zinc for aluminium also, have you done any strategic hedging for this quarter or for future quarters in the near term? Vice-chairman: Any other questions, Sumangal?

Yes, a couple of them. One is we have an outstandi ng intercompany loan of around USD 400 million. When is it due? And I mean if you remember correctly this December we are supposed to reverse the entry. Are we on track for that. A nd the last one is I just want to know what's the latest on to significant mines w hich are coming up Ghogharpalli and Sijimali one in the coal and the second for bauxite which is a very significant contributor to our entire journey of cost reduction. So what's the latest timeline as far as commissioning is concerned for these 2 mines in particular? These are my questions. Vice-chairman: Thanks, Sumangal. So Ajay, quick one on the outstanding loan, $400 million.

Yes, sir. So the USD417 million, Sumangal, is due in December and we intend to pay it. So it will get squared off as scheduled. Vice-chairman: Perfect. On the hedging, Sumangal, as you know, typically, hedging would be done by company who are in the higher decile of the global cost curve. We look at hedging from an opportunity point of view. My recollection is that we have done about 10% hedging for both zinc and aluminium for the year. And at this point of time, we think that at these prices, we would wait and watch and at the right opportunity whether we want to do more hedging, we will take a call but not at these prices. And your third question was on Ghogharpalli and Sijimali. I think John addressed that quite comprehensively unless you want him to repeat what he said.

Just the timeline, if you could repeat? I think I missed that for these 2 mines. Vice-chairman: Yes. As we said to you earlier in the call that we'll give you a timeline. But in our min ds, these are strategic long -term projects with investment committed and capital allocation done. So therefore for us, whether a month here or a month there is a separate subject but it is under execution. But John, some specifics.

Just repeating what I had said previously. So for Kurloi , Radhikapur, we're looking at first quarter of FY '26. For Ghogharpalli, second quarter of FY '26, Sijimali first quarter of FY '26. And as I mentioned earlier, those processes have continued to track very much as we had expected. There has been an interruption to the government approval processes with the change in government in Orissa and that sort of slowed things down slightly but we are continuing to track. We have absolute confidence that these timelines will be achieved. Vice-chairman: And Sumangal, just as an aside, we will maybe get him next time but we have a very senior global leader named David Stone, who is our new CEO for coal. And so he is looking at this how to expedite, how to open this quikcer, how to use latest technology, newer technology, so a lot happening there, Sumangal.

Great, sir. And great to have you on the call as well. So all the best to the team, sir. Yes.

Thank you. We'll take our next question from the line of Vikash Singh from PhillipCapital. Please go ahead.

Congratulations on good set of numbers. Sir, my first question pertains to the aluminium division. The LME has fallen sharply while the cost hit of the alumina is there probably would come in 2Q. So in light of the current situation, do we still feel that we would be able to hold our COP guidance annual basis? And how does the 2Q looks like in terms of cost of production in aluminium division, specifically? Vice-chairman: Any other question?

Yes, sir. And second question pertains to just r econcile. One more question. Second question pertains to our $10 billion EBITDA projections. Basically, just to reconciling, we are expecting roughly about 4 billion from aluminium and roughly about 3.5 billion from Zinc India. Is that the number reconciled? Or we have different projections? So these two only. Vice-chairman: Yes. So Vikash, the very broad breakup of 10 billion is as follows. On the aluminium, think of 3.1 million ton, think of a cost of $1,600, think of LME of $2,600, think of a premium of about $350. And on that basis, think of an EBITDA margin of $1,300 into 3.1 is how you get to $4 billion. Clear, Vikash?

Understood, sir. Yes. Vice-chairman: Similarly for zinc, think of 1.2 million ton, think of 800 ton silver, think of a cost of $1,000, think of LME of $2,800, think of premium of $300 and you will get to that number of $2.7 billion there. Besides that, we talked about at a 150,000 barrels with $1 billion from oil and gas and the remaining will come from our businesses of iron ore, steel, value -added products at Sesa Goa, FACOR and Power. So that's the broad breakup.

Understood, sir. Sir, just one further clarification. Any reason why we are taking premium much higher? Vice-chairman: The higher premiums Vikash comes from the higher premium comes from the fact that everywhere, we are investing in value -added products. Be it in zinc, be it in aluminium. For example, in aluminium in a year ’s time entire portfolio of 3 million tons will be only value - added products. So the higher premium comes from that.

Understood, sir. Vice-chairman: As far as your question around LME and cost in aluminium is concerned , of course, we have seen some reduction in LME. We have seen some increase in alumina costs but we continue to focus on our cost. Our current costs are around $1,800, as you know in quarter 1. We think we have an opportunity to reduce that by about $100 sometime at the end of quarter 2. And considering LME of about 2,400 plus a premium of about 250, so we will yet have a margin of about $800, $900 even in quarter 2.

Point taken, sir. Sir, just one last thing regarding alumina. Since we are , yes, please, sorry, sir, continue. Vice-chairman: Go ahead.

Yes. Sir, last thing on the alumina side. So considering we are the large importer, how do we see this higher alumina prices in the context of current LME aluminium? So if you could give us your thought process on that, it would be very helpful. Vice-chairman: Yes. Vikash, we don't look at it like a short -term, too short -term because we know that in a couple of quarters, we will not be buying any alumina externally. So maybe in the short term for a quarter or 2 there will be some higher costs on account of buying of alumina but that ’s just a matter of one or two quarters for us.

I'll just add to that.

Got it. Point taken, sir.

The alumina price is going to impact all of the other producers out there where we are going to be fully vertically integrated and effectively insulated from a high API price. So as we complete the Lanjigarh expansion, we actually want a high traded alumina price because it hurts everybody else and we get the benefit of a fully integrated value chain.

Understood, sir. And sir, repayment pending for the rest of the year? Vice-chairman: Sorry, what is that?

Sir, debt repayment in FY '25, how much we have paid and what is the pending that is the specific question on both the parent as well as the listed Vedanta Limited level? Vice-chairman: Yes. I think Ajay Goel answered that by giving you the ratios of our debt -to-EBITDA ratio. But Ajay any further color you want to give him?

Yes, sir. Vikash, so very specifically starting first with the parent Vedanta Resources. In the remainder of the year, second quarter until the fourth quarter, the remainder 8 months, the total debt at the parent company is about $ 580 million. And additionally, the interest of almost 420 million, 430 million. So give and take 1 million is total fund requirement at parent company. Obviously, with the rating of B family, refinancing at VRL is an option. Payment of dividend in the second half or in the second quarter is an option. And of course, strategic partnership is an option. So give and take, $ 1 billion is the requirement at VRL between now and 31st March. Coming to Vedanta Limited. In the second half now and 31st March, almost $ 1.2 billion is the requirement. And I like to underscore almost every debt at VDL is secured. Hence, refinancing is an option. And given the current year's elevated profitability and the free cash flow to managing the VDL debt either by refinancing or repaying through operating free cash flow. So overall, we as a group are quite comfortable for debt, both for VRL and VDL.

Thank you for the elaborate answer, sir, and all the best for future.

We'll take the next question from the line of Raashi Chopra from Citigroup. Please go ahead.

On this 10 billion EBITDA for aluminium, what is the cost that you are building and what is the premium that you are building in? And outside of $ 4.1 Bn for aluminium and 2.7 for zinc, what is the remaining? Thank you. Vice-chairman: Raashi, in case of aluminium, we are building a cost of between $1,600 to $1,700 and a premium of $300, and LME of $2,500, $2,600. That will take you to $4 billion. Zinc you know, the rest, as I mentioned, oil and gas about $1 billion, and the remaining $2 billion or $2.5 billion will come from a combination of iron ore, pig iron, Zinc International, Electrosteel, FACOR and Power.

Understood. And I also missed on what status of the BALCO expansion? Vice-chairman: Okay. John, again, a very specific one. Go ahead.

Yes. So we are continuing to progress that construction. We are expecting first metal in the fourth quarter of FY '25 and a ramp-up in the sort of middle of FY '26. Vice-chairman: Operator, I know there is no question yet, but I would like to invite Chris Griffith, our CEO of Base Metals. Chris, are you on?

I am, Vice Chairman. Vice-chairman: And Chris, maybe you want to tell this audience one more time of our 1 million ton plan at Zinc International and similar on the world-class KCM opportunity.

I'll do that. Thanks for the opportunity, Vice Chair. So for Zinc International, we are currently running at a run rate of about 250 kilo tons of zinc. Within 2 years, we will be at 500 kilo ton. And as Vice Chairman said in the introduction, we ha ve the same volume of resource and reserve as Hindustan Zinc has that is already producing over 1 million tons of zinc. We have 4 underground ore bodies that are sitting with our open pit operation at Gamsberg, and we easily could put another 500-kilo ton of production over the next number of years once we finish Phase 2 expansion to get to 1 million tons. In addition to that, we've got both a life extension and an expansion opportunity and still at the same complex, and then also a potential of some expansion in Namibia. So we have a number of opportunities to get on a high -grade ore body to be able to get to 1 million tons on the same sort of resource base that we have at Hindustan Zinc, which is another way of looking at it that we have easily the capacity to get to 1 million ton. And we can do this in the next 5 years, 6 years, 7 years. So a really fantastic opportunity for u s on a really awesome ore body. That's one of the largest zinc deposits anywhere in the world. Likewise, at KCM, so most folks have been following Vedanta for a number of years, they known the Vedanta has been in dispute with the Zambian government over the Konkola C opper mines ore body in Zambia. We announced at the end of last year that we've reached agreement with government on the return of that asset to Vedanta. We have processed over the first quarter of this year and have recently as last week, concluded all of the matters outstanding. And the keys finally got handed , the figurative keys got handed back to Vedanta for KCM at the end of July, so the end of last month. So now we have back the keys to the operation of one of the largest and highest -grade copper deposits anywhere in the world at the moment, with the potential for very fast ramp -up from about 100 kilo tons of copper production that we'll get to by the end of the financial year. So 9 months from now, we will be at a run rate of about 100 kilo tons of copper, and then a very fast ramp-up over the next number of years to be able to get to 300 kilo tons of copper on one of the highest grade ore bodies in the world and over 2.5% copper, where many of the world's ore bodies are running at less than 1% copper with more than a 50-year life of mine. So a really fantastic ore body, but we have committed to spend about $1 billion over the next 5 years to achieve that ramp-up. I'll leave it there, Vice Chair. Vice-chairman: If do you want to also explain the Cobalt opportunity there.

Yes, that's a great thing. I should have mentioned that as well, Vice Chair. We currently produce in that 100 kilo tons of operation about 1 kilo ton of Cobalt. We are in the design phases of increasing that or putting in a plant that will extract, Cobalt. And over the next few years, we can extract over 6 kilo tons of Cobalt per annum, with the plan further once we've done that and we ramp up to 300 kilo tons, a potential to get to 10 kilo tons of Cobalt. Again, one of the leading Cobalt producers in the world once we have, so relatively limited capital investment, be able to produce Cobalt on top of the copper that we produce. So with a focus on the value-added opportunities. Vice-chairman: Thanks, Chris. Back to you, operator.

I now hand the call over to Ms. Prerna Halwasiya for closing comments. Over to you.

Thank you all for taking time to join us. I hope we are able to answer most of your questions. In case you have any further questions, please feel free to reach me or my colleagues at the IR team. This concludes today's call. We look forward to reconnecting you for the next earnings quarter. Thank you everyone and have a good day. Vice-chairman: Thank you.

On behalf of Vedanta Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.