Vedanta earnings disappoint but optimism remains

Sharecast

LONDON (ShareCast) - Earnings were hit hard at Vedanta Resources (Other OTC: VDNRF - news) , where shrinking revenues led to bottom line losses, due to weaker commodity prices and underperformance at its zinc and copper assets.

Revenue were reduced 11.6% to $12.9bn year-on-year primarily driven by a weaker commodity and oil price, and temporary business closures due to regulatory issues which were only partly offset by improved volumes at Cairn India and Zinc India.

The lower revenues led to a earnings before interest, tax, depreciation and amortisation falling 8.5% year-on-year to $4.5bn, "despite lower commodity prices" noted Chairman Anil Agarwal.

Depreciation, mainly from oil and gas, and amortisation of $2.2bn hit the bottom line hard. Underlying profit slid a long way down to $93.4m from $367.9m, leading to a loss per share of 71.7 cents.

Agarwal chose to look to the positives: "We achieved record oil and gas production, driven by the ramp up in the Rajasthan block, as well as record production at Zinc India and with improved operating performance at our Aluminium business.

"Building on these results, as a major global diversified natural resources company, we continue to focus on delivering value for our shareholders through operational excellence, exploration upside and increasing cash flows from our well-invested assets."

He pointed to a diversified portfolio of assets "that have cost-efficient operations, are highly productive", and which generated strong free cash flows of $1.6bn after capital expenditure on sustaining and expansion projects.

Debt stood at $16.9bn with cash and liquid investments at $8.9bn.

Looking forward, Agarwal said Vedanta is well positioned to supply to India's need for commodities, with per capita consumption in the country expected to rise consistently and strongly over the next few decades.

"Full year 2013-14 has been a year of building momentum in the right direction, and I see it as a powerful springboard for the year ahead as we build on the significant headway achieved in production ramp-ups, cost controls, regulatory clearances and sustainability. We remain focused on our stated strategic priorities of ramping up production across our portfolio and to deleverage the balance sheet."

Broker Investec (LSE: INVP.L - news) said: "Despite strong EBITDA margins of 45%, we note the considerably lower EPS attributable to shareholders. A weak set of results."

Shares in Vedanta were down 1.3% to 971.75p at 11:05 on Thursday.

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