News Analysis

Weak volumes and higher cost of production hurt margins

BL Research Bureau | Updated on October 31, 2018 Published on October 31, 2018

Vedanta’s September quarter numbers made for disappointing reading, given that its reported financials fell short of market expectations. Tepid volumes in its zinc business, increased costs, the continuing closure of its copper plant in Tamil Nadu and lack of traction in its iron ore segment (in Goa) hurt margins.

Increased cost of production and pressure on Zinc LME prices resulted in revenue and operating profit of Vedanta’s Indian Zinc declining by 11 and 26 per cent, respectively y-o-y in the September period.

While the cost of production (without royalty) per tonne increased by 14 per cent y-o-y to ₹72,400, the LME prices decreased by 14 per cent to $2,537 per tonne. These factors resulted in margin pressures — operating margins fell to 48 per cent compared to 58 per cent a year ago.

Vedanta’s overseas Zinc operations, too, were impacted by the weaker volumes and lower grades of ores. Operating profit from the segment fell a whopping 96 per cent to ₹16 crore in this quarter compared to ₹389 crore a year ago.

Flat aluminium prices

The revenue from the aluminium segment improved by a healthy 51 per cent y-o-y on account of increased volumes. While the Aluminium LME prices remained flat at around $2,050 per tonne, higher alumina (a key input) and power costs caused the operating profits to decline by 8 per cent compared to the same period a year ago.

Disruptions in domestic coal availability for the company’s captive power plants during the quarter resulted in power being purchased externally for the aluminium segment.

The steel business, which was recently taken over from ElectroSteel, has begun to deliver well as the production for the quarter was 285,000 tonnes, 16 per cent higher y-o-y and 18 per cent higher q-o-q as a result of improved availability of raw material and higher utilisation. This segment is expected to add to the consolidated profits of the group.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get

This article is closed for comments.
Please Email the Editor