Bottom line shocker for Vedanta

published 10 November 2011

Half-year earnings per share at mining giant Vedanta took a dive due to lower attributable profit from our subsidiaries.

The shares took a bashing, falling 70p to 1,180p in early trading in an admittedly weak mining sector, despite the company unveiling year-on-year increases in both revenue and profit for the half year ended 30 September on the back of production growth in zinc, silver, copper, aluminium and power.

On a like-for-like basis, revenue rose 43% from $4.58bn at the interim stage last year to $6.55bn, while operating profit grew 19% to $1.17m from $0.958m.

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Earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 26.9% to $1.71bn from $1.35bn the year before. The EBITDA margin eased to 26.1% from 29.4% last year, or, with the custom smelting operations stripped out, to 36.9% from 39.9%.

Attributable profit, which is the bottom line figure from which the company can distribute dividends without dipping into reserves, slumped to $28m, from $337m at the half-way stage last year. The group said the decline was primarily on account of losses at Vedanta Aluminium Limited (VAL), losses at Sterlite Energy Limited (SEL), as well as special items and other gains and losses, such as mark-to market losses on the foreign currency borrowings at its Indian entities.

Basic earnings per share (EPS) fell more than 91% to 10.2 cents from 123.8 cents, while underlying EPS tumbled more than a third to 68.3 cents from 104.3 cents the year before.

Return on capital employed was also heading in the wrong direction, sliding to 16.5% from 20.1% last year.

Chairman Anil Agarwal said: "Vedanta, with its significant exposure to fast growing economies and its strong organic investment programme, supplemented by select acquisitions, is well placed and remains confident about the future."

"Despite the global economic uncertainty, we believe the long-run outlook for commodities remains favourable."

During the period the firm completed the acquisition of a 28.75% stake in Cairn India, while a remaining 30% is nearing completion.

The firm has maintained a dividend payment of 20 cents.