Weak commodity prices made FY16 a tough year for leveraged names — Vedanta walked a tight rope in managing cash flows at its standalone entity and used a combination of working capital release and debt (buyer’s credit, NCD, CPs). The recovery in prices, especially of zinc and oil coupled with volume ramp-up in aluminum and power makes FY17-18E more promising and we expect liquidity concerns to ease gradually. Maintain buy with a revised TP of `140 (`130).
The tight liquidity at the standalone entity and maturing bonds at parent Vedanta Resources led to Vedanta repaying `80 billion in FY16 through a combination of (a) working capital release of `36 billion, and (b) increase in debt by `43 billion. Vedanta raised standalone debt mainly through buyer’s credit in copper operations (+`32 billion), issue of non-convertible debenture in aluminum business (`20 billion) and commercial papers. The Rs 80 billion repayment to subsidiaries (Twin Star Mauritius Holdings) was largely routed through investment via (a) direct purchase of `20 billion worth of shares of Cairn India from TSMHL, and (b) `60 billion routed through subsidiaries. Of the total $ 2.6 billion due to Vedanta Resources in March 2015, Vedanta now owes a more manageable $1 billion after payments made until April 2016 (through HZ’s special dividend).
