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Vedanta Group, a mining conglomerate, expects $6 billion in pre-tax profits in the coming fiscal year, rising to $7-7.5 billion the following year due to operational improvements across its companies. "The building blocks for EBITDA enhancement are currently in place and under our control. The rise will be fueled by continuous cost reduction, price hikes, and volume ramp-up", Vedanta Limited CFO Ajay Goel stated at a recent analyst meeting.
The company is expected to generate over $5 billion in EBITDA in FY24 (April 2023 to March 2024); after accounting for one-time profits from the Cairn arbitration, operating EBITDA for FY24 would be $4.4 billion. The ambitious EBITDA target of $6 billion represents a jump of over 35%.
"Most of this growth, nearly 15%, will be driven by cost optimization measures. Price upticks, for example through increase in value added aluminium products, will account for another 8%. Ramp-ups in production volumes across the businesses will contribute another 12% growth in EBITDA," explained Goel at the analyst meet.
Over the past six quarters, the group has aggressively pursued cost optimization measures, slashing production costs in its key segments, aluminium and zinc by 35% and 15%, respectively.
The Group is also continuously investing in capacity expansion and integration, with overall aluminium capacity slated to increase from 2.2 million tonnes annually to 3.0 million tonnes in the next few quarters. Its international Zinc business is also expected to ramp up production. The dual levers of continued cost efficiency and production ramp-up are expected to power the move towards $ 6 billion EBITDA.
Billionaire Anil Agarwal-owned Vedanta Limited, on September 29, 2023, announced the creation of independent verticals through the demerger of underlying companies, mainly its metals, power, aluminium, and oil and gas businesses, to unlock potential value.
As part of the vertical split of Vedanta Ltd, shareholders will get 1 share of each of the 5 newly listed companies for every 1 share of Vedanta. After the demerger, the Hindustan Zinc businesses and the display and semiconductor manufacturing units will remain with Vedanta Limited.
"The demerger is expected to simplify the Group's corporate structure with sector-focused independent businesses. Each of our businesses is global; hence, the board decided to go for a demerger. We intend to build an asset ownership and entrepreneurship mindset where each company will chart its growth trajectory.
The demerger will give global investors, including sovereign wealth funds, retail investors, and strategic investors, direct investment opportunities in dedicated pure-play companies. With listed equity and self-driven management teams, the demerger would also provide individual units a platform to pursue strategic agendas more freely and better align with customers, investment cycles, and end markets," Vedanta had said in its demerger announcement.
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