Financial Analysis on Vedanta Resources Plc

A Study on Financial Analysis of

Vedanta ResourcesBy DIVYA PRAKASH10092571MBA Student DBSModule: Financial Analysis

Guide & LecturerEnda Murphy

Index Introduction Organization Structure Performance Indicators of Vedanta Financials Of Vedanta ROCE Underlying EPS EBIDTA Price Earnings Ratio Past & Future Predictions on data Financial analysis of Vedanta data SWOT Analysis Of Vedanta Competitors of Vedanta Rio Tinto Analysis SWOT Analysis of Rio Tinto Competitor Conclusion Bibliography

Introduction

Vedanta Resources is a multinational company that is listed on the LondonStock Exchange, It is a global diversified natural resources Company with its major interests in Iron Ore, Zinc, Lead, Copper, Silver, Aluminum, Oil & Gas & Power. Its operations spans across Ireland, India, Namibia, Zambia, Sri Lanka, South Africa & Australia. Vedanta strong emphasis on partnering with all its stakeholders based on the core values of entrepreneurship, excellence, trust, inclusiveness and growth. Vedanta is the Worlds second largest integrated Zinc Producer

Vedanta Achievements Last Financial Year 2014[footnoteRef:1] [1: Financial highlights on home page http://www.vedantaresources.com/ ]

Revenues of US $12.9 billion EBIDTA of US $ 4.5 billion Underlying attributable profit US $ 93.4 million Net debt reduced by US $ 0.7 billion over the last 12 months and by US $ 2.1 b over 24 months. Total dividend of 61 US Cents per share up to 5%Vedanta is completing 10 years as a London Stock Exchange listed company. In this decade Vedanta has been transformed from a Company with revenues of $1289.5 million to revenues of $12.9 billion while its Group wide market valuation has grown from $ 500 million to $ 40 billion Year over year, Vedanta Resources plc has seen revenues fall from $14.6BUSD in2013 to $12.9BUSD in 2014. This along with an increase in income tax expense has led to a reduction in the bottom line from a gain of $162.0MUSD to a loss of $196.0M.[footnoteRef:2] [2: Accounts Report of Vedanta 2014]

International Management Systems Standard ISO 14001 has authorized Vedanta Resources and the proof is that many awards won by the company such as Recognition of Commitment Award from the Institute of Internal Auditors, USA in 2005, Vedanta Resources being the only manufacturing company out of a total of four Indian companies to have ever received this award, not to mention the numerous safety and environment awards.

ORGANISATION STRUCTURE

Vedanta group is a global multinational company that operates in diversified sectors. The governing body of Vedanta consist of its executive and its non-executive directors. The executive directors of the board consists of Mr. Anil Agarwal, followed by Mr. Navin Agarwal and Mr. Tom Albanese. Mr. Anil Agarwal laid the foundation of the company and is leading the company as the Chairman of Vedanta Group. Mr. Navin Agarwal is the deputy executive chairman of Vedanta and looks after the corporate business strategy and responsible for overall performance and growth and also heads the executive committee. Mr. Tom Albanese is the chief executive officer of Vedanta group.[footnoteRef:3] [3: http://profit.ndtv.com/news/corporates/article-ousted-rio-tinto-boss-tom-albanese-joins-vedanta-327253]

Performance Indicators of Vedanta

Building Relationships with the Stakeholders helped Vedanta Group to perform in the Global markets. The group has built a strong relationships with different Communities, Host Countries Government, Shareholders, Industries, Lenders, Civil Society & last but not the least their Employees are the backbone for their Achievement.

REVENUE OF VEDANTA SECTORWISE

Revenue[footnoteRef:4] is the Services and goods provided to the clients during the financial year. It was US $ 12.9 million in 2014 compared to UD$ 14.6 million in 2013.The reasons for the lower revenues last year was due to weak commodity and Oil prices along with closure of Iron ore & Copper operations in Tuticorin. Further lower volumes of Copper Zambia and Zinc international businesses reduced the revenue. [4: http://www.vedantaresources.com/media/164998/VedantaAR2014.pdf page 2]

LONG TERM VALUEROCEIt is calculated by the basis of operating profit divided by Capital invested in operations. ROCE without Capital work in 2014 was 14.9 in compared to 17.5 in 2013.

Underlying EPS ( US Cents )It is the net profit attributable to Equity Shareholders.

The Underlying EPS in 2014 was 34 US Cents per share compared to 135 US cents per share in 2013.The reason for the lower Underlying EPS in 2014 is due to reduced prices and interest cost of such as Jharsuguda plant 2 interest.

DIVIDEND PER SHARE (US Cents)The total dividends paid out over a year is known as Dividend per share

EBIDTA (US $ Bn) It is the Earnings before interest, taxation, depreciation,Amortization/impairment and special items EBITDA of US$4.5 billion; EBITDAMargin of 45%

NET DEBTNet debt was reduced by US$ 696.1 million to US$7,919.5 million as on 31 March 2014, The net Debt of Vedanta as on 31 March 2013 was UD $8616.6 Vedantas net debt has been consistently reduced since FY201112, when it reached US$10,064.4 million. The paying off the debt is the positive indicators for a companys performance.

Vedanta Resources Past & future forecasting[footnoteRef:5] predictions on their Financials [5: http://www.4-traders.com/VEDANTA-RESOURCES-PLC-9590206/financials/]

According to this information we are able to get some figures what is expected by the Company in Future forecasting in the next three years. Vedanta Group will outperform the charts as per the data by independent research done by different Analysts. In the next three years in 2017 annual year the sales and the Earnings will outperform and expected to get around US $16.5 billion in 2017.This is just an assumptions of future forecast done by agencies

Financial Analysis

Growth Profitability and Financial Ratios for Vedanta Resources PLC[footnoteRef:6] [6: http://financials.morningstar.com/income-statement/is.html?t=VED&region=gbr&culture=en-US]

Financials

201220132014

Revenue USD Mil14,00514,99012,945

Gross Margin %25.421.922.4

Operating Income USD Mil2,3882,5122,150

Operating Margin %1716.816.6

Net Income USD Mil60157-196

Earnings Per Share USD0.220.57-0.72

Dividends USD0.510.550.66

Payout Ratio %236.397.7

Shares Mil277278274

Book Value Per Share GBP10.9710.649.02

Operating Cash Flow USD Mil1,6403,2043,361

Cap Spending USD Mil-2,796-2,233-2,185

Free Cash Flow USD Mil-1,1579701,176

Free Cash Flow Per Share-2.622.312.58

Working Capital USD Mil2,4152,6403,542

Key Ratios -> Profitability

Margins % of Sales2012-032013-032014-03

Revenue100100100

COGS74.5678.0777.58

Gross Margin25.4421.9322.42

SG&A4.065.55.39

R&D0.01

Other1.430.281.07

Operating Margin17.0516.7616.61

Net Int Inc & Other-4.59-5.38-7.97

EBT Margin12.4611.388.64

Profitability2012-032013-032014-03

Tax Rate %29.62.3511.51

Net Margin %0.431.05-1.51

Asset Turnover (Average)0.370.330.28

Return on Assets %0.160.34-0.43

Financial Leverage (Average)9.8810.4511.31

Return on Equity %1.163.48-4.66

Return on Invested Capital %3.856.054.32

Interest Coverage2.882.471.9

Key Ratios -> Cash Flow

Cash Flow Ratios2012-032013-032014-03

Operating Cash Flow Growth % YOY-905491

Free Cash Flow Growth % YOY

Cap Ex as a % of Sales19.9714.916.88

Free Cash Flow/Sales %-8.266.479.08

Free Cash Flow/Net Income-19.346.17-6

Key Ratios -> Financial Health

Balance Sheet Items (in %)2012-032013-032014-03

Cash & Short-Term Investments15.2217.6120.19

Accounts Receivable1.931.71.56

Inventory3.714.283.84

Other Current Assets2.132.22.69

Total Current Assets22.9925.7928.28

Net PP&E75.3272.0868.42

Intangibles0.040.040.28

Other Long-Term Assets1.652.13.03

Total Assets100100100

Accounts Payable3.875.284.78

Short-Term Debt9.049.589.61

Taxes Payable0.060.270.06

Accrued Liabilities

Other Short-Term Liabilities4.774.926.02

Total Current Liabilities17.7420.0420.47

Long-Term Debt27.8726.5327.58

Other Long-Term Liabilities44.2643.8543.11

Total Liabilities89.8890.4391.16

Total Stockholders' Equity10.129.578.84

Total Liabilities & Equity100100100

Liquidity/Financial Health2012-032013-032014-03

Current Ratio1.31.291.38

Quick Ratio1.081.051.15

Financial Leverage9.8810.4511.31

Debt/Equity2.752.773.12

Key Ratios -> Efficiency Ratios

Efficiency2012-032013-032014-03

Days Sales Outstanding21.520.3320.97

Days Inventory63.4257.2467.39

Payables Period79.7365.5183.49

Cash Conversion Cycle5.1912.054.87

Receivables Turnover16.9817.9617.41

Inventory Turnover5.766.385.42

Fixed Assets Turnover0.540.440.4

Asset Turnover0.370.330.28

Mergers & AcquisitionsSince 2004, Vedanta Resources had acquired the Madras Aluminum Co Ltd. While taking stake into consideration the Vedanta resources taken over 5 companies till finalization of balance sheet for 2010. Konkola Copper Mines was acquired in 2004 & 2009.Many other Companies such as Finsider International Co Ltd, Cairn India, Later in the year 2009 the company acquired Sesa Goa Ltd,51 % of ownership to become India's largest producer-exporter of Iron-Ore. The Acquisition was successful of KCM, MALCO, Sterlite Gold Ltd and Sesa Goa which has added substantial growth to the Vedanta Group as a whole.

.Swot AnalysisThe SWOT analysis of Vedanta Resources will provide a clear and strategic analysis of companys strength and weaknesses with opportunities and threats, thus helping to understand the Business, Partners & competitors.

STRENGTHS: Global presence of Assets in size and scale Low production cost makes it competitive among its Groups Growth in Volume and and increased their cash flows Companys values their Employees which is competitive advantage Technology with Excellence increased their strength.

WEAKNESS: Company doesnt give importance to Marketing like Brand Management Unable to provide satisfactorily information Facing legal cases on Environmental issues.

OPPORTUNITIES: Efforts being made at Global level for acquiring businesses Entry to Iron ore market by acquiring Sesa Goa. Entry to Ireland by exploring Zinc in Lisheen mines Ireland.

THREATS: Human Rights Protestors on Companies building threat to its Image. Environmental problems in some areas like breach in human rights, the land encroachment in the areas of Nyamgiri Hills in Orissa, the rumors concerning the pollution of Lanjugarh, Rumors are Giving threat to its image and dent to Vedanta Group Image

For the Assignment question 2Being an Analyst of the company I would like to work on some financials of the competitor company as they are doing good and giving better returns in the share market.COMPETITORS:There are many competitors for Vedanta such as BHP Billiton plc, Rio Tinto, Fresnillo plc etcIn this assignment I will take Rio Tinto plc as Vedantas major competitors and give Rios data to compare with Vedanta group. Rio Tinto chief executive Sam Walsh [footnoteRef:7]announced on 12 February 2015 a share buyback programme. [7: http://www.riotinto.com/investors/share-buyback-14279.aspx]

He stated:Last year, we made a clear commitment to materially increase cash returns to our shareholders. We have delivered this today through a 12 per cent increase in our full year dividend and a proposed US$2 billion share buy-back. These represent a total cash return, in respect of 2014, of almost US$6 billion.

RIO TINTO VEDANTA

In this Comparison of Data of Last three financial years Rio Tinto[footnoteRef:8] is ahead of Vedanta Group in every manner and their sales are three times of Vedanta. Rio Tinto foundation was laid on 30 March, 1962 and its headquarter is located in London, United Kingdom .The presence of Rio Tinto is in more than 30 countries all over the globe and they also have diversified business in Aluminium, Copper, Diamonds & Minerals, Energy and Iron Ore. The Aluminium product group produces alumina, Bauxite and primary aluminum production. The Copper product group produces copper, with valuable by products of gold, molybdenum, silver and nickel. The Diamonds & Minerals product group is engaged in mining, refining and marketing operations across three sectors. The Energy product group includes thermal coal, coking coal and uranium. The Iron ore product group supplies the global seaborne iron ore trade. [8: http://www.riotinto.com/ar2014/]

Financial Analysis of Data of Rio Tinto For purchasing of 10 % stake

2015 2016Capitalization 77 928 M$Entreprise Value (EV) 92 615 M$ 90 353 M$PER (Price / EPS) 12,4x 9,86xCapitalization / Revenue 1,84x 1,68xOperating Margin (EBIT / Sales) 23,5% 26,3%ROA (Net Profit / Asset) 6,07% 7,15%ROE (Net Profit / Equities) 13,0% 15,1%

According to Reports from Thomson Reuters the sales figures for Rio Tinto is to increase in future to US $ 46 million in 2016 and as per the forecasting data

Finances - Leverage : Past and Forecast

According to investment findings there are certain reasons For Investment of 10 % stake in Rio Tinto are as follows

STRENGTHS: On the Stock Exchange the Margins returned by Rio tinto is the highest and gives high profits Rio Tinto group has an attractive earnings. The P/E Ratio is at 12.37 for the year 2015 and it has the qualification for the potential investment The company has high hopes for the investors to assume it a high Dividend earning stock in future years. The current area with a good opportunity for investors interested in buying this stock for buying in a midterm or long term perspective.

WEAKNESSES: According to Thompson Reuters forecast, the Revenues growth prospects of the Company are expected to be very low for the next fiscal years. Financial statements are not showing good hopes and have disappointed market stakeholders. Most often, they were below expectations of the Investors. For short-term investment plan, the company has poor fundamentals. So better go for long term perspective to get better returns. Past twelve months, sales expectations have been downgraded, which means that less important sales volumes are expected for the current fiscal year over the previous period.

But apart from the Analysis I still believe to Purchase the stock as a potential Investor on Behalf of My Organization but if we look into its Opportunities we will get to know its earnings potential in coming years. OPPURTUNITIES: Nowadays all countries in the world are increasing their infrastructure spending in order to increase the economy. Infrastructure Spending"will have a long-term positive impact on the entity and will get more business in different countries. Rio Tinto is expanding their International mining operation in countries as Coal has great demand all over the world. Demand from emerging markets is helping growth and margins. Markets emerging worldwide create new opportunities to expand products from the developed world.

We should always keep in mind that Rio Tinto, which is the worlds second-largest mining company after BHP Billiton and has a good investment projects coming up which could improve its position and investors could get good returns. With the given data above I would recommend to purchase the stake in this company for better returns in later years. Rio Tinto giant size and its vast operations around the world in compare to Vedanta Resources. The product portfolio of Rio tinto comprises of additional products like Diamond, Gold and other base metals. Even Rio deals with the products like Iron ore, Zinc, Coppers like Vedanta does worldwide. It also has more countries for exploration than Vedanta so the possibilities are for their shareholders to get better returns in coming years

CONCLUSION:

Even in a Volatile market Vedanta remained strong and produced a robust set of Results. Vedanta Resources is India's largest non-ferrous metal and mining company based onRevenue. This FTSE-100 company has a strong balance sheet and revenues over US $ 12.9 billion. Moreover, it's the only Indian manufacturing company listed at London Stock Exchange. The analysis shown above explains the path of success of Vedanta Resources in mining industry. This success can be hugely owed to its employees & corporate strategies. But there are some glitches in the strategy which is shown as evident by the SWOT analysis,Vedanta did not gave any due consideration to the threats by its competitors. If any of the competitors plans to start its business in India, for mining then Vedanta would not be able to survive. More over their corporate social responsibility has been lacking which has severely affected their Brand-name, and thats a very important factor in today's market. Vedanta should also try to explore new possibilities and expand its bases in countries like Zambia Australia & other parts of the world through mergers & acquisitions.

At Last the future of both the companies depends on the state of economy around the world and the way both Rio & Vedanta manages their debts. Vedanta Resources should come up with some radical competitive strategies so that it is in a better position than their huge competitors like BHP Billiton, Xastra, Rio Tinto, Arcelor Mittal etc. They also have to look after their shareholders as they should reward shareholders accordingly to minimize the conflict between the management of the company and their key shareholders which includes individuals, banks & other investors

BIBLIOGRAPHY

1. Annual report and accounts FY2014 available on Vedanta resources website www.vedantaresources.com2. http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/exchange-insight/news-analysis.html?fourWayKey=GB0033277061GBGBXSTMM3. http://www.vedantaresources.com/investor-relations.aspx4. http://www.vedantaresources.com/investor-relations/results-and-reports/financial-results.aspx5. http://financials.morningstar.com/income-statement/is.html?t=KAZ&region=gbr&culture=en-US6. http://markets.ft.com/research/Markets/Tearsheets/Summary?s=VED:LSE7. Marketscanner.com Thomson Reuters8. www.wikiwealth.com/swot-opportunity:infrastructure-spending9. http://www.4-traders.com/VEDANTA-RESOURCES-PLC-9590206/financials/10. http://www.riotinto.com/

Page 14

Sheet1Fiscal Period201220132014201520162017Sales140051499012945130511421716502EBIDTA402648884491393439824997Operatin Profit(EBIT)261825542288182815502218Pre Tax profit(EBT)1745170611189536201204NET INCOME59.8157-196-40.8-38.3131EPS $0.220.57-0.72-0.04-0.170.78DIVIDEND PER SHARE0.550.580.610.610.630.66YIELD7.26%7.65%8.05%8.09%8.32%8.70%

Sheet1CompanyVEDANTARIO TINTOFiscal Period201220132014201220132014Sales509675117147664140051499012945EBIDTA191251877319665402648884491Operatin Profit(EBIT)146841506714805261825542288Pre Tax profit(EBT)-256835059552174517061118NET INCOME-29903665652759.8157-196EPS $-1.621.973.510.220.57-0.72DIVIDEND PER SHARE1.671.922.150.550.580.61YIELD4.02%4.63%5.18%7.26%7.65%8.05%