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Falling volumes, low commodity prices crimp Vedanta earnings

LiveMint logoLiveMint 15-05-2014 Promit Mukherjee

Mumbai: India-focused minerals conglomerate Vedanta Resources Plc. (Vedanta) reported a loss for the year ended 31 March as falling volumes from its mines and low commodity prices crimped earnings.

The company, which holds majority stakes in India-listed oil and gas explorer Cairn India Ltd, Hindustan Zinc Ltd and miner Sesa Sterlite Ltd, posted a loss of $196 million for the fiscal 2014 compared to a profit of $162 million in the year earlier, the company said in its preliminary results statement released on Thursday.

A Bloomberg poll of five analysts had expected an average loss of $148.8 million for fiscal 2014, according to a Bloomberg report.

A 28.2% increase in net interest expense and a 27.2% increase in foreign currency borrowings on account of the depreciation in the rupee also hurt earnings. For fiscal 2014, Vedanta’s net interest expense rose to $668 million from $520.9 million in fiscal 2013 and borrowings increased to $364 million from $285.2 million.

For the full-year FY2014, the mining and minerals company reported a 11.6% drop in revenue to $12.9 billion while earnings before interest, tax, depreciation and amortization (Ebitda or operating profit) fell by 8.5% to $4.49 billion. “Ebitda was down by 8.5% compared with FY2012-13, driven by lower commodity prices, reduced volumes at Copper Zambia and Zinc International, lack of sales from our iron ore business and temporary closure of the Sterlite copper smelter in Q1 FY2013-14,” the statement said.

Goutam Charaborty, an analyst with Emkay Global Financial Services Ltd, said the company performed well in India with Sesa Sterlite posting a good profit and Hindustan Zinc doing reasonably well.

However, Vedanta said in its statement that despite the good performance by Indian units, the results were partially offset by lower volumes at Konkola Copper Mines in Zambia and Zinc International, resulting in a $117.8 million reduction in operating profit. Also, the company’s temporary closure of a smelter in Tuticorin and closure of its Australian mine in the fourth quarter led to an adverse impact on operating profit to the extent of $187.5 million.

This slide in operating profit was aided by a down-cycle in the commodity space with aluminium, zinc, lead, silver, copper, iron ore and crude oil falling between 2% and 29%.

Tom Albanese, chief executive officer (CEO) of Vedanta Resources, said in the statement that his main priorities are to ramp up aluminium production and obtain access to bauxite reserves in India, to resume iron ore mining operations at Goa and to improve the business at the Zambia copper mines.

In the last two months, Vedanta had suffered two major jolts when its executive director for iron ore mining P.K. Mukherjee resigned on health grounds and its acting CEO P. Elango of Cairn India put in his papers in a surprise move.

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