Vedanta anticipates saving ₹1,000 crore each year in interest expenses following its strategic decision to use the proceeds from a recent ₹8,500 crore fund-raising effort to repay debt. The company’s financial performance for the June quarter reflects substantial improvement, with a profit surge of 54% and margins reaching a seven-quarter high. These gains are attributed to significant debt reduction efforts and a focused strategy on refinancing existing loans.
Financial Gains and Debt Reduction
Vedanta is set to save ₹1,000 crore annually in interest costs through the repayment of debt using the full amount from its recent fund-raising. Chief Financial Officer Ajay Goel highlighted that the company’s profit for the June quarter increased by over 50%, with margins achieving a seven-quarter high. This financial turnaround follows a period of substantial debt issues approximately two years ago.
The recent fundraising and subsequent debt reduction have significantly enhanced Vedanta’s credit profile and capital structure. Over the past two years, Vedanta has successfully reduced its debt by $3.7 billion. Building on this progress, the company has announced plans to cut an additional $3 billion in debt over the next three years. In the first quarter of FY25 alone, Vedanta achieved a $650 million reduction in debt, bringing its total borrowings to $5.5 billion as of the end of June.
Ajay Goel, the CFO of Vedanta Ltd, stated, “As of June 30th, our cost of funding was approximately 10.3%. We believe that all our recent borrowings are at rates below 10%, and we are targeting to lower this to around 9% soon.” The significant reduction in interest expenses will be a major financial benefit for the company.
Optimistic Outlook and Future Plans
With elevated profitability bolstering its confidence, Vedanta is optimistic about meeting its debt reduction targets. The company is also exploring the possibility of a dividend payout in the second half of the fiscal year or in the second quarter to further address its debt. For Vedanta Ltd, there is a requirement to repay $1.2 billion in debt over the next three quarters of FY25. The majority of Vedanta Ltd’s debt is secured, providing ample opportunities for refinancing.
The ₹8,500 crore raised through a Qualified Institutional Placement (QIP) by issuing 19.31 crore shares will be used primarily to reduce debt at Vedanta Ltd. This strategic move is expected to result in significant savings of about ₹1,000 crore in annual interest costs. The recent fundraising effort has also positively impacted the company’s working capital and credit ratios.
As of July 31, Vedanta’s net debt to EBITDA ratio stood at 1.2x, a notable improvement from the 1.56x reported in the June quarter. The company allocated $1.4 billion to growth capital expenditures (CapEx) in FY24 and plans to invest an additional $1.9 billion in CapEx for FY25, reflecting its commitment to both debt reduction and growth.
For the quarter ending June 2024, Vedanta delivered strong financial results, with net profit increasing by 37% year-on-year to ₹3,606 crore and revenue rising by 6% to ₹35,239 crore. Additionally, the company’s EBITDA margin expanded by 948 basis points to 34%, highlighting the effectiveness of its strategic financial measures.
In summary, Vedanta’s strategic focus on debt reduction and refinancing, coupled with its recent fund-raising success, positions the company to save ₹1,000 crore annually in interest costs. The company’s improved financial metrics and optimistic outlook underscore the positive impact of these efforts on its overall financial health.
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