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Vedanta Resources: ZINCronized Deleveraging

Vedanta Resources PLC (VED LN) (Vedanta) FY18 results, ended 31 March 2018, were within our expectation. EBITDA contribution from all key commodity businesses improved over the last 2 years. Notable EBITDA growth of 30%+ YoY were observed in zinc, oil and aluminum businesses, which accounted for 85% of FY18 EBITDA. We expect a rising EBITDA trend in 2018 and 2019 on favorable commodity prices (EXHIBIT 1).

Vedanta’s operating subsidiaries continue to raise dividend payouts. Vedanta received USD600m dividend from Vedanta Limited (VL) during FY18, which was utilized to reduce debt. With rising EBITDA and reducing debt, the company’s debt-to-EBITDA multiple improved notably to 3.8x as at 31 March 2018, from 5.8x a year ago. We note that the debt-to-EBITDA multiple was much better than Moody’s median “B” rating debt-to-EBITDA multiple of “5.0x”. Vedanta's senior unsecured debt ratings, assigned by Moody’s is B2 with a stable outlook.

The VEDLN complex’s attractive spread over the Indian quasi-sovereign curve and robust FY18 results led us to reiterate our OVERWEIGHT recommendation on all VEDLN complex (see our previous report "Vedanta Resources: Getting ZINCronized" dated 30 November 2017.

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