Vedanta Limited
Q3 2017 Earnings Call Transcript

Published: 14 Feb 2017

[Operator:]

Ladies and gentlemen, good day and welcome to Vedanta Limited Q3 FY ‘17 Earrings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashwin Bajaj. Thank you and over to you, sir.

[Ashwin Bajaj:]

Thanks operator and good evening ladies and gentlemen. This is Ashwin Bajaj, Director of Investor Relations. Thanks for joining us today to discuss our results for the third quarter of FY 2017. On this call, we will be referring to the presentation that is available on our website. Some of the information on today’s call maybe forward-looking in nature and will be covered by the disclaimers on Page 2 of the presentation. From our management team, we have with us our CEO, Tom Albanese and our CFO, Arun Kumar. We also have several of our business leaders with us. We have Abhijit Pati from Aluminum; Sudhir Mathur from Cairn India; Sunil Duggal from Hindustan Zinc; Kishore Kumar from Iron Ore; Deshnee Naidoo from Zinc International and Ajay Dixit from the Power business. With that, let me hand over to Tom. Over to you, Tom.

[Tom Albanese:]

Thank you, Ashwin and good evening to some of you and good afternoon to others. I'm very pleased to welcome you to Vedanta Limited’s third quarter results call. Just to start off, I assume you'll see slides, I’ll start off with the introduction and we've seen further improvement in the commodity prices in the last quarter and we continue to see this strength. After five years, of year on year decline, 2016 was the first year where prices have ended up higher than they were at the start. And we are beginning to see the start of some latent supply coming across some of the commodities. However, this newly yielded capacity will be restricted as companies are not yet committing to large CapEx. The next year will probably see some more supply driven story in our sector barring any macroeconomic shocks. Until we begin to see large capital inflows back into the sector, we’ll probably continue to see tight markets and supportive market prices. We've also noted the Chinese recent efforts to restrict excess capacity of steel and aluminum which will help the sector. Vedanta benefits directly from these strong prices as zinc is now above 2,900 and oil has been over $50 a barrel for some time. We drive over 65% of our EBITDA from both of these commodities. A ramp up of aluminum, powered iron ore also progressed well during the quarter contributing significantly to EBITDA and EBITDA growth. So with that let me take you through our third quarter performance. And as always I’ll start with safety and sustainability. While we've had zero fatalities in third quarter, I’m deeply saddened to state that recently in one of our construction projects in Hindustan Zinc there were four fatalities in a contractor crane lifting operation at the SK mill project. And that unfortunately for Vedanta Limited has led to five fatalities on a year-to-date basis. We've been working very, very hard on fatality elimination and have to say this accident has been a setback to the collective hard work to deliver on zero harm. But we're still moving forward and it's a tragedy to work very hard to learn from and sure it won't happen again. We'll continue to make ourselves a safe and a better company. As we move onto the operations, we continue with our production ramp up across our portfolio. At Zinc India we delivered the highest ever ore and mine metal production. At aluminum, while progress has been slower than estimated due to some part outages which I'll talk about, the third line of Jharsuguda-II smelter has commenced ramp up in December 2016 and is progressing well. While on the power side of TSPL, we've had availability of 77% during the quarter. In our Cairn oil and gas business, the Mangala EOR continues excellent performance and additional production from polymer injection increased further from 50,000 barrels of oil per day to - 52,000 to 55,000 barrels of oil per day. For iron ore, we achieved our full-year production cap in both Goa and Karnataka in January and we've been granted an additional 3 million tonnes allocation in the Goa business which we expect to be complete during this current quarter. Talking about the financial highlights, our EBITDA and profit after tax has been the highest in the last eight quarters with a robust EBITDA margin of 39%. On cost savings, we continue our focus on reducing costs and a strong culture of cost control continues to be required to assist in further savings, especially when many of the easy wins have already been taken. I'm happy to say we delivered cost and marketing savings of over 545 million in the last seven quarters and are ahead of our plan to deliver 1.3 billion over the next - over that four-year period we've talked about. We've had strong free cash flows during the quarter and reduced our gross debt in the quarter by over INR1,800 crore. I'd also like to highlight at the parent company level, Vedanta Resources Plc, we completed a very successful bond issuance in January, raising $1 billion and this is part of the endeavor to extend maturities at the Plc level. This issue received strong demand and it was oversubscribed three times. The Vedanta Group continues to maintain strong access to the capital markets and diversified funding sources. And finally on group simplification, the merger with Cairn India was approved by all sets of shareholders in September 2016 and we expect the transaction to complete in the first quarter calendar year 2017 that is the current quarter we're in. Moving on to commodity mix. This slide is a good reminder the benefit of the world-class low cost diversified portfolio especially during the periods of market volatility we've seen now for more than ten years. We've seen strong EBITDA and EBITDA margins despite a slump in prices from this global supply glut which as I said earlier is increasingly being whittled away. And this is driven by favorable mix of our commodities particularly toward base metals and oil, with higher zinc and oil contribution where prices have been stronger compared to some of our other commodities particularly the bulks. Our basket of commodities has risen by 57% since the beginning of last calendar year. Looking at our assets, our assets are well invested and we continue to apply disciplined capital allocation and continuously optimize our spend. Most of the CapEx for aluminum and power are now behind us. We’ve also good progress on our zinc projects. Among the remaining projects, majority of it is for Zinc India is 1.2 million tonne per year expansion and the 250,000 thousand tonne per year Gamsberg project which are both well appreciated due to the strong fundamentals in zinc. These zinc projects along with the ramp up of aluminum and power will deliver the majority of the growth in the near term. The group will focus on delivering long-term value for all shareholders by continuing to allocate capital to the most compelling growth opportunities across the group. Because zinc has been such a good story, I'd like to spend a little bit more time doing a deep dive on zinc. I have been talking about strong fundamentals for zinc over the past year now and we continue to believe zinc still looks strong and the strongest among the metal pack. Along with zinc, silver is also had a strong run on the calendar year 2016. If you can see from this slide, if you see on the global cost curve, Hindustan Zinc operates at the lowest quartile of the cost curve. And note also that this is even before sliver byproduct credits. If we were to take the silver byproduct credits, these cash cost will further reduce to about $560 per ton. Concentrate markets have a deficit and TcRcs have reached a decade low as smelters are planning a difficult to source concentrate post closure of mines. So we would expect the refined zinc to also remain in deficit and this deficit combined with a gradual increase in demand and strong inventory from LME and Asian warehouses which are now at a six-year low. Talking a bit about India, I came here three and a half years ago because I felt the India story was compelling and I still think that's the case. And I do see the development agenda on the minds of the Indian Government complimented with steady reforms as announced in this year's budget. Together with the growing population in India and the trends of increasing urbanization this expected translate into increasing metals demand. So we believe India is a position similar to that of China in the early 1990s, although we would recognize that halfway going forward will certainly be different than China story over the past ten years. Looking at the chart in the right hand side of this page, which shows the trend of metal demand with increasing GDP per capita and extrapolating India's position, we believe there is a significant metal demand potential and again some good period to double digit growth in the coming years in a decade or two. If we combine the enormous economic growth potential of the country together with the vast untapped and under explored resources this provides Vedanta with the massive opportunity. We are ideally placed to take advantage of this opportunity and consolidate further on this position. With that I’ll now hand over to Arun Kumar who will take you through the financials. Arun, over to you.

[Arun Kumar:]

Thanks Tom and good evening everyone. I'm glad to reiterate that our business performance is largely on track with the earlier guidance and market expectations. The quarter-on-quarter growth is driven by a continued ramp up of new capacities, client volume uplifters for mine plants and relentless focus on cost savings that Tom also alluded to with the resulting efficiencies. Commodity prices definitely helped. We continued to form up towards the latter half of Q3 and remain strong right through the new calendar year thus far reflecting some of the better global demand expectations and supply side constraints with our volume increase coming handy to global supplies. The current quarter EBITDA margin and attributable PAT, all the three profitability indicators are the highest in the last eight quarters. EBITDA stands at INR6,002 crore, 29% higher quarter-on-quarter reflecting the second consecutive almost 30% quarter-on-quarter sequential growth. Also reflects a 83% growth over the same period last year. The margins at 39.3% reflected a 60 basis points increase sequentially on the back of better performance from mine ore, Zinc India and iron ore. Attributable profit after tax was up significantly at INR1,866 crores, 49% up quarter-on-quarter and almost 4.5 times year-over-year. This reflects the operating leverage, higher EBITDA being generated from already invested capital expenditure. The current volume ramp ups will continue into the first half of FY ‘18 and some of the ongoing projects like Zinc-India

[Tom Albanese:]

Thanks Arun. So I’ll start with Zinc India, vastly I’m going to stay on Zinc. Mine metal for the quarter was at 276,000 tonnes, 44% higher sequentially, in line with our mine, plants and previous guidance. Refined metal production was higher by 38% sequentially. We've also built up some mine metal inventory during this quarter. Coming to our ongoing expansion projects, we recently received environmental clearance for expansion of two of our mines. In December, environmental clearance of 4.5 million tonnes per annum oil production and a 5 million tonne per annum mill was received for the SK mine. Environmental clearance was also received for 4 million tonnes per year oil production and the mill at Zawar in January. At the SK mine, we're on track to expand this mine from 3.75 million tonnes to 4.5 million tonnes, in line with head gear erection completions scheduled by the end of fourth quarter, casting of shaft collar and head gear foundation was completed during the quarter. Recently, we commissioned a new 1.5 million tonne per annum mill and that was commissioned in a record time of 14 months. As Zawar, the mill expansion is progressing well and planned to be completed by the first quarter of fiscal year 2018. The associated power and infrastructure projects are on track to be completed by the end of this financial year. Our production is ramping up as the year progress and mine, metal and sewer volumes for the year will be higher than the previous year. We are on track of reaching 1.2 million tonnes of annual capacity of mine metal by fiscal year 2019 with all of our expansion projects progressing satisfactorily. Going further afield to Zinc International, third quarter production was lower mainly to increased upstream material handling challenges to treat wetter than anticipated ore at our Scorpion mine in Namibia. Cost of production moved lower volumes at Scorpion and we continue to work toward the Scorpion pit extension and anticipated to commence in the first quarter of fiscal year 2018 and this is expected to extend the mine life by two years. In terms of outlook, our production guidance for the year is 160,000 tonnes but the cost of production for the fourth quarter of this year estimated at US$1,200 to US$1,250 per tonne. In line with our commitment to deliver growth through this global zinc deficit and we are excited about our Gamsberg project. I was just over at the project site last week and I’m pleased with the progress that I saw on the ground. Pre-stripping is well underway, major mining, plant and infrastructure contracts have been awarded and I'm glad to say that over 75% of the budgeted capital is already committed as we speak. First ore from Gamsberg is expected by mid-calendar year 2018 and ramp up to full capacity of 250,000 tonnes in 9 to 12 months thereafter. Gamsberg is expected to come on stream in a zinc deficit market and expect to generate strong returns from shareholders. In our Cairn business, our core fields continue to deliver a long expected lines with gross production across assets of 182,000 barrels of oil equivalent per day. Mangala EOR delivered 55,000 barrels of oil per day in the third quarter due to polymer injection as against the 52,000 barrels of oil per day in the second quarter. This performance seems to be viewed in the context of routine planned maintenance shutdown undertake at the Mangala processing terminal in November. Our blended operating costs for Rajasthan is $6.3 per barrel for the quarter, which was higher compared to $5.8 per barrel in the previous quarter on account of lower production volumes and some expenses related to the plant shutdown activities. Our Raageshwari gas project is progressing as per plan. As part of Phase 1, all the 15 wells are under hydro-frac program and they've been brought underline. On Phase 1 production will increase to about 40 to 45 million standard cubic feet per day by the end of the first half of fiscal 2018 which will further increase to 100 million standard cubic feet per day by the first half of calendar year 2019. Currently our spot sales have been temporarily suspended due to technical issues between the gas transporter and the buyers. We’re concurrently closely engaged with the stakeholders who address this issue and hope for resuming sales at the earliest. Based on excellent results of the Mangala EOR, we are confident of enhancing production for Aishwarya and Bhagyam also through the polymer injection program. Speaking about our exploration activities outside Rajasthan, we have resumed exploratory drilling with the commencement of the drilling campaign in contiguous basins at Palar-Pennar in February. We're excited as we target three different play types and these plays have proven to be successful in the continuous [indiscernible] basins. The drilling program is expected to be complete before the monsoons in April 2017. Speaking about aluminum, while our volumes are ramping up, progress has been slower than expected. We had a power outage in the second quarter which impacted the first line of the 1.25 million tonne per annum Jharsuguda-II smelter. Separately that line was affected by transformer failures in mid-January. These were new transformers and just being in the process of the being commissioned and assessment is ongoing to determine the cause of that failure. Fortunately, we had no injuries from those incidents, however, we are very disappointed in working towards stable running of those operations. Rectification work is in progress with 60 pots currently operation in the first line and full ramp up expected by the first quarter of fiscal year 2018. Regarding the other lines in Jharsuguda-II, the second line has been fully ramped up, while the third has commenced ramp up in December 2016, expect to be fully ramped up by the second quarter of fiscal year 2018. At BALCO-II, the rectification work is progressing well with 257 pots currently in operation and full ramp up expected by the first quarter of fiscal year 2018. We do expect to produce between 1 and 1.1 million tonnes excluding trial run production in fiscal year 2017 and exit with a run rate of about 1.4 million tonnes of stabilized production. On realizations, we benefited from higher aluminum prices during the quarter and we achieved premiums retained similar to second quarter levels at $75 per tonne. However we've noticed an increase to $98 per tonne during the month of January. We did deliver a strong EBITDA margin over $340 per tonne which is the highest we've seen in the last seven quarters. Our hot metal cost for the quarter was $1,429 per tonne and the sequential improvement was due to lower power costs partially offset by higher import prices for aluminum. The full impact of our higher import prices for aluminum will only be realized in the fourth quarter as we carry inventory which is partially softened the impact this quarter. We estimate hot metal cost of production in the fourth quarter to be between $1,450 and $1,475 per tonne, higher from the previously guided $1,400h per tonne primarily due to alumina costs. Moving to alumina production, we have now debottlenecked the capacity of 1.7 to 2 million tonnes per annum at the Lanjigarh refinery and we estimate the total production of fiscal year 2017 to be about 1.3 million tonnes. At BALCO, our bauxite mines are currently operational and we expect to exit the year at 2.2 million tonne run rate in fiscal - at the end of fiscal 2017. We continue to work with the Odisha State government on the allocation of bauxite and the commencement of laterite mining and we've been recently seen some encouraging developments in bauxite that we hope will drive expansion in Lanjigarh. Now let’s talk about power. At TSPL, the four plants are now commissioned and we've achieved availability of 77% and we target availability of 80% for the fourth quarter. At our BALCO 600MW plant, the PLF was 55% due to the weak spot power market. However, we have long-term PP&As for about 60% percent of the 600MW capacity which is being substantially met and serviced. With respect to coal sourcing, we've been reducing our dependence on imported coal at BALCO and Jharsuguda despite increasing coal requirements of smelter ramp ups. In fact, during this quarter we sourced all of our coal requirements at these locations domestically. And this trend is likely in the coming quarter as well despite smelter ramp ups at both locations. So further along with declining e-auction prices, our own weighted average coal cost have moved lower in the past few quarters and we certainly remain relatively unaffected by the volatile international coal prices. Our coal prices are going down while the international prices as you know have risen quite substantially over the past six months. Moving onto iron ore, which did achieve our production cap of 5.5 million tonnes at Goa and 2.3 million tonnes at Karnataka in January. As we said earlier, we’re engaged with the respective state governments for higher allocation and we got incremental allocation of 3 million tonnes for Goa for fiscal year 2017. We are currently viewing how optimally the incremental allocation can be used. We’re also engaged with the Karnataka government for further allocation. Discounts for low grade iron ore did go higher due to increasing the coke and coal prices and that seemed to remain relatively [indiscernible] and probably will remain so as long as the high cost coke and coal inventory is still being cleared at the steel mills. Our pig iron production was strong at 154,000 tonnes, 5% higher than the previous year. however, the margin was low due to low market prices. For our Copper India business at Tuticorin, Copper India production was stable in the third quarter with production of 102,000 tonnes. TcRc realizations for the calendar year 2017 is expected to be US $0.21 per pound which is about 5% lower in the previous year. Our net cost of version improved during the quarter due to stable acid prices. Tuticorin power plant PLF has been low due to lower overall POFs. However, we're compensated at the rate of 20% of the realization for any shortfall and uptake below 85%. We have been making progress on the various approvals for Tuticorin expansion and we are reviewing the expansion the smelter at Tuticorin by further 400,000 tonnes per annum and we should be able to provide an update of this in the coming months. So in conclusion I'd like to remind you remind you of the company’s strategic priorities which remain the same. We continue to focus up on the ramp up of our assets. We're generating increasing free cash flow and relentless focus on cost and managing working capital. And we are delivering balance sheet while we do that. Simplification of the group structure continues to be a priority. We expect to complete the merger with Cairn by the end of this quarter. On completion of this merger as Arun has said we will expect to announce dividend policy for the merged entity. We remain committed in our efforts to achieve our objective of zero harm and cremating sustainable value for all stakeholders. So to close, we have a diversified portfolio of businesses. We're ramping them up. They continue to remain fundamentally strong and structural cost benefiting in a rising market and we’ll continue to deliver superior value to our stakeholders throughout the cycle. Thank you. And with that operator we can now take questions.

[Operator:]

[Operator Instructions] The first question is from the line of Sumangal Nevatia from Macquarie, Please proceed.

[Sumangal Nevatia:]

First question coming straight to the crucial event of Cairn merger, we've maintained March 17 deadline which is now just 45 days away and pending court and ministry approval, are we a bit ambitious here, I understand not much will change with one or two months delay. But if you can elaborate on the expected timelines for the individual approval, court and ministry of petroleum?

[Tom Albanese:]

Yeah, thank you Sumangal. I’ll take that one. We have applied for approvals through the Reserve Bank of India and the Ministry of Petroleum. As per the recent change in the regulation this scheme now requires an approval from the National Company Law Tribunal, the application for which had been filed. As you may recall that was originally a High Court approval requirement and balances with probably administratively probably a little bit less complex. The NCLT does specialize in quick resolution of company law matters. So we do remain on track to get all the pending approvals and close the transaction by the end of this calendar quarter.

[Sumangal Nevatia:]

So these three approvals, are they been approached parallelly or it happens one after the other?

[Tom Albanese:]

All three are basically parallel approaches.

[Sumangal Nevatia:]

Understood. Okay. Next on iron ore division, I read a slight change in the volume guidance for the incremental volume in Goa. I guess it’s changed from a range of 2 to 3 million tonne mentioned in the production release to now 3 million tonnes here. So can you elaborate on the nature of this allocation for FY ‘17 and can we expect similar allocation or some permanent increase in production quota for FY ‘18, ‘19 in Goa?

[Tom Albanese:]

I guess I'll start off with that and then we’ll ask Kishore to follow up, but I think we should recognize that the allocation is a dynamic process. It's driven around the you know everyone's expectation including the Government of India and the Government of Goa to meet the total cap, the court imposed cap and so that's a matter of watching how each of the producers are doing and then the allocations are granted accordingly. But the original 5.5 being based upon the pro rata we would have had before the closure of the mines in 2012 and a recognition that not all the mines that were closed in 2012 were reopened in 2016. But Kishore if you want to say further go ahead please.

[Kishore Kumar:]

Thanks Tom and Mr. Sumangal, the allocation of this 3 million tonnes was done by the government in order to achieve the 20 million tonnes overall cap for the state. So some mining companies who came into production they were given this additional quota. Now going forward next year, what we can expect is that our case is pending before the Supreme Court for the monitoring committees - expert committees report has been already submitted and it is pending hearing from the Supreme Court bench. Where the cap itself is being asked for enhancement from 20 to 30 million tonnes. So we are very hopeful that should come true in the new year, new financial year. And we’ll always work dynamically with the government to support whatever best possible in terms of ramping up the capacity of the next year plan as well.

[Sumangal Nevatia:]

So the 3 million tonne is to all mining companies or it’s only for Vedanta?

[Kishore Kumar:]

No, as I mentioned, 20 million tonnes is what was required and the other companies also have got additional allocations.

[Tom Albanese:]

So to be clear though the 3 million tonnes is specifically for Goa’s operations. So our 5.5 is now 8.5.

[Sumangal Nevatia:]

Just if can ask just one more question. On the aluminum division, now all three lines looks like will be fully commissioned or ramped up by second quarter next year. So we could see a significant jump in aluminum volumes in FY ‘18. Is it possible to quantifiable a ballpark range for aluminum volumes in FY ‘18?

[Tom Albanese:]

I will start off and maybe ask Abhijit to explain. I think you know if you look at the math of what we talked about, we'd be starting off with a run rate about 1.4 million tonnes and moving up to the lines that we're currently underway which there is one line left at Jharsuguda that would be ramping up toward the end of the year to about 2 million tonnes. So we’ll hit 2 million tonnes somewhere in the course of fiscal year 2018, the sooner the better of course and that we would then expect that in the absence of completing that lead that final line that would be the run rate in the back half of 2018. Abhijit?

[Abhijit Pati:]

Good evening everybody, because that’s the number because I think run rate should be in the next financial year should be at around 1.9 to 2 million tonne. That’s the number.

[Sumangal Nevatia:]

And the fourth line in Jharsuguda what CapEx would be required and if you can elaborate what all parameters are been evaluated to start the fourth line?

[Tom Albanese:]

[indiscernible] because again what we have there as we said in the last call on this is that we have some primary power requirements and some backup power requirements. We hope that some of the power requirements can be tied to conversions of existing IPP to CPPs and then we’ll to look at where we can get the backup power requirements. We will also be looking at our ancillary facilities and logistics for alumina, logistics for coke and of course you know whether we have sufficient coke producing and have coke plant capacity in the overall plant. So we're currently going through the estimates of that right now and that will to extend that the last line that will drive whether we hit that 1.9 to 2 or something lower again will be based upon capital efficiency.

[Operator:]

[Operator Instructions] Thank you. Before we take the next question we’d like to inform the participants to restrict their questions to two per participant, time permitting you may return to the queue for your follow-up questions so that the management can address queries from all the participants. The next question is from the line of Jigar Mistry from HSBC, please proceed.

[Jigar Mistry:]

Just to expand on the previous question, did 2 million tonne exit rate, Tom, the alumina bauxite generation capacity and coal, how does the current logistics look like, do they look like it can support 2 million tonne as we stand today or new incremental CapEx is required to even reach there?

[Tom Albanese:]

Well, I guess I'll start off with that but I like Abhijit to follow up too of course, but to say that you know let’s just say that we are at 2 million tonne per year run rate for aluminum. That means that we need to produce 4 million or purchase 4 million tons of alumina ideally will be in a completely balanced state. But if we don't have enough alumina we produce we can only buy it off the market. So that's not a constraint to the ramp up of smelters. Now as we look at alumina, the objective is to essentially source more bauxite ourselves with our existing mines in Jharsuguda hopefully an arrangement with Orissa Mining Company in Odisha which we've been happy with the progress just over the past few months and that would give us justification to ramp up the Lanjigarh refinery which is currently at 2 million tonnes per year run rate and we could take that up to 4 to 5 million tonnes even 6 million tonnes with the existing environmental approvals. So that means that if we have the bauxite, we can bring Lanjigarh up to meet that necessary requirement. Of course on the power side, for 2 million tonnes of aluminum absent the last pot line, we do have relatively nominal level for capital for some transmission. But that's as much for backup power as it is for primary power. Again, we have to have as much back up capacity as we have primary capacity. [indiscernible] will assume that one generator will be down at any point in time for regular maintenance and we just have to be ready to take down a second generator in the event of an emergency. So that we covered a high level but [Technical Difficult] want to say.

[Abhijit Pati:]

No, I think Tom that's exactly the line, if you really even the today’s production rate of 1.4 million tonne, we still need around 2.8 million tonne of the alumina. And presently [indiscernible] whatever has been presented at 1.3 million tonne of Lanjigarh production, still today there is purchase capacity of about 1.5 million tonne as an export. So obviously we don’t foresee any of them create challenge. So the 2 million guideline there for the next year. so we will definitely - it will move as a combination of improved you know the ramp up capacity both in Lanjigarh as well as we will have the capability to handle the additional alumina from the [Technical Difficulty]. So that’s so far as alumina is concerned, but bauxite is particularly right, because coating has been a good story for us. It has significantly moved in this month of January, so we hope to really start looking into first bauxite sometime in the next financial year. So that’s a good story and positive story to really come in. So it will be back significantly on to the bauxite part and parallelly the alumina. Coal is not a big fit, because as of today itself, the power is running to equivalent capacity of that. So, obviously, we don’t foresee much of a trade so far as logistic of the coal is concerned and the agility. And moreover, I think the point to be noted that the Coal India will also improve their production capability in the next year. So we don’t foresee much of these three imports coming into challenge and to really stay in to the guideline of 2 million tonne run rate.

[Jigar Mistry:]

Wonderful. That’s elaborate. Thank you. The second question is on power. So this quarter, we saw almost 0% imported coal being used. Now, are the boilers designed to work on 100% indigenous coal or we were just using the imported coal inventory and should the global thermal coal prices stay high as they are now, we will likely that percent increase to 5% or 7%.

[Tom Albanese:]

I guess high level, I would say the boilers at Jharsuguda and BALCO were configured for local coal, but - local domestic coal, but - and we actually had to blend it down when we have imported coal, but maybe Ajay you can be more explicit about that.

[Ajay Dixit:]

Yeah. So our boilers are designed for a certain GCV which is fully available in India, but at times, since there is a regulation that behaves 80% of the linkage, we do need to buy also domestic coal by the auctions. Seasonally, the mines are sometimes not performing well and therefore, they're delivering lower GCV or a high ash content, so the imported coal is used only for blending it to improve the overall mix quality.

[Operator:]

Thank you. Next question is from Pinakin Parekh from JPMorgan.

[Pinakin Parekh:]

Thank you very much. My first question is on aluminum. If I look at the ex-alumina cost of production, it has fallen from $967 to $937 per tonne. Now as we move from a run rate of 1 million tonnes to 1.4 million to 2 million tonnes of aluminum production, how much should this non-alumina cost of production decline simply because of the smelters hitting stable utilization levels? This assumes obviously that the input commodity coal prices and oil prices remain where they are. Can we expect a material reduction in this cost of production?

[Ajay Dixit:]

Maybe I'll start, but maybe ask Arun for more detail, but again, as we ramp up, if we ramp up in the absence of ramping up Lanjigarh, we'd see probably the cost of alumina rising because we rely more on the imported material, which is about $60 per tonne higher than if we produce it ourselves. So per tonne of alumina higher than we produce it ourselves. And then also as we ramp up, we have to buy marginal coal, which is probably about the same as what we're buying now. But our coal conversion costs get lower, because we have a higher PLF. So we have higher efficiencies within the power plants. So there's some offsetting factor on coal PLFs and coal efficiency. In the aluminum side, I would say that we would have a lower cost of conversion and certainly lower carbon as we run everything to higher efficiencies and we get a higher efficiency ratio. And by the way, if you look at our conversion costs, they benchmark very well with some of the best around the world in that particular space. And I think the final part that we have to recognize is that, as we ramp up, in the absence of growing domestic markets, that material has to go into the overseas markets. So you'll lose some of the premium that you would get if you're selling it in India as you move it overseas, but Arun if you can give us a bit more detail.

[Arun Kumar:]

Broadly, I would say that we have about - fixed costs of about $150 per tonne. So you can imagine if 1 million tonne rate goes up to 2 million, then you should get 50% of that has benefit. That’s at a very high level. But what it doesn't include, which one has to really work out is, it will have the benefits of economies of scale, example something like an auxiliary power consumption in the power plant, right, if it is 9.5% today, can it come down to 9.25% for example. So there will be other spin-off benefits, because of economies of scale, it could be logistics also. So, they will come up beyond the math that I just laid out.

[Tom Albanese:]

I guess finally, I would say that certainly as we ramp up, we will get also the benefits of cost of financing and everything else. So when you look at our slide, you will see that there's a negative path, even at high LME prices right now. So the business, while it generated positive EBITDA, from a purely financial perspective, it's not actually generating shareholder value, because of the negative profit after tax. And this is again I think one of the reasons why the entire aluminum industry in India remains vulnerable to continued imports of Chinese and other aluminum into the Indian market. And that's why I think we continue to discuss with the government, what can we do in terms of protecting the Indian producers across the board frankly at all running risks with negative profit after tax and stand-alone pipeline basis.

[Pinakin Parekh:]

Helpful. My second question is going back to your comments you made in the beginning of the call, which is that 2017, commodity prices are more higher. There could be some latent supply coming from some of the mining operations. Now given the volume growth that Vedanta expects in zinc and aluminum and given that both these commodities are near multi-year high price, the company has historically not looked to hedge any kind of production, but given where the dynamics, is the company open to hedging some of its production or locking in at the current prices, or would it maintain no hedging policy going forward?

[Tom Albanese:]

Interesting. We had that subject come up at lunch today. And I just want to say, it's good for a healthy debate when you're in a rising LME market, but my own position is the same as it's been for ten years now and actually back in the 1980s, I was a hedger, so in the marketing side, so I had some personal experience with the pros and the cons of hedging. But as long as the shareholders are investing in Vedanta for the purpose of riding the commodity cycle, my own view is that we are not in the business to be locking in long term prices for LME, unless the business has quite exceptional reasons to do so.

[Operator:]

Thank you. Next question is from the line of Ravi Shankar from Credit Suisse.

[Ravi Shankar:]

Yes. Good evening, sir. Two questions. One was on post the Cairn merger, Vedanta would have access to around $3.8 billion of cash. Now, would it be used to deliver it at the stand-alone level or maybe set aside for a dividend/buyback? I'm asking this because the overall leverage levels are now getting in the comfortable zone, credit parameters are improving. So just wanted to understand how the management foresees this?

[Tom Albanese:]

Well, I think first of all I would say, we're never comfortable with the leverage. We want to continue to improve the quality of the balance sheet and we also recognize that as we went to the shareholders of both companies, it was on the basis that the combined balance sheet would be a more efficient one. And I use the words more flexibility to basically allocate to the best purposes and that would be essentially a rating event, which is effectively seen at the positive vote that we had received in September. So I would expect the boards would look at that on what makes the most efficient sense. We also had said at the time of the merger vote that we saw that the combined company would be better positioned to pay dividends at diversified company than each of the individual companies and that's why we're looking at putting a dividend policy in place, post that, because we do recognize that the shareholders as they should [Technical Difficulty] dividend or again equivalent being a buyback as you just said.

[Ravi Shankar:]

Okay. So it’s de-leveraging followed by dividends, is that how should I read that?

[Tom Albanese:]

Look, I think it's going to be up to the boards to determine what’s the most efficient at that time. And again, I think that will - we will take in account market considerations when we do that. Arun, if you want to just add to that?

[Arun Kumar:]

No. It’s just, I think balanced capital allocation. That's really what the bottom line is.

[Ravi Shankar:]

Okay. Moving on to the CapEx side of business, so we have around $0.8 billion of CapEx for the next year. Now, does that include the copper CapEx on Tuticorin and do you see upside risks to that, now that we’re in a different environment?

[Tom Albanese:]

Yeah. So let me just maybe talk a bit about capital, because what we said about capital so far is that we would expect capital to be about the same next year as it was this year with some of the operations on sort of running the same as they were this year. And that's primarily continuing the Hindustan Zinc underground and building the enhancement project which we already guided to. And some of the aluminum things that we've just been talking about. In addition, we said that that the 800 million had about $100 million of CapEx for the Cairn business, which we would anticipate rising to about 250 million with some of the projects that we're currently discussing with our joint venture partner, ONGC. So actually that 800 million is closer to $1 billion, taking in the additional expected spending for Cairn into account. Now in our guidance previously, with that number, we excluded Tuticorin refinery expansion. We said that that is something that we're still working on and if we get the requisite approvals and we hope for the board, we would expect that could be coming in during the fiscal year 2018 and some money would be probably adding into the budget for there, but to recognize that’s a multi-year project. In addition I think we also have flagged the fact that this would not include any expansion at Lanjigarh. And obviously the sooner we get access to the bauxite, the sooner it's in our best interest to reduce our exposure to the seaborne alumina and start expanding that facility, which of course also would be a multi-year expenditure.

[Ravi Shankar:]

So, Tom, just to clarify, the CapEx on the refinery expansion is already included in the 0.8 billion number, right or the 1 billion number that we now see more or less?

[Tom Albanese:]

No. To be clear, it is not included. But you will see in our package, we provided some estimates of the expected cost to complete, which is not included in the 800 million number.

[Operator:]

Thank you. Next question is from Dhawal Doshi from PhillipCapital.

[Dhawal Doshi:]

Hello, sir. Sir, one specific question with regards to DPP that we have with Orissa SCB, in one of the earlier calls, it was mentioned that we’re discussing with them to discontinue the CPP and convert this into the CPP for the fourth line of our smelter at Jharsuguda, so can we have an update specifically on this?

[Tom Albanese:]

Yes. So Abhijit would you like to talk about that or Ajay, which one would prefer to talk about that one.

[Abhijit Pati:]

I think regarding the fourth new date, which is basically in discussion more conversion into the CPP, yes, so we have already appealed to the government of the Orissa, but as of today, they are in the very, very initial state of that now. So, as you appreciate one point, because this is an IPP which has been starting for the state for a couple of years in last 10 years. So obviously, there is some grade of premier which needs to be opted. So we are actively engaging with the Government of Orissa. As of today, it’s very initial stage, that much, at least you can comment.

[Dhawal Doshi:]

So can we safely assume not, at least not for a year or so, any timelines on that or it’s too early?

[Abhijit Pati:]

So timelines are already there in our mind, because we are working on at least to realize this event in to the next financial year. That’s the broad timeline in our mind, but nevertheless we have to push it and there are a couple of activities that need to be performed.

[Tom Albanese:]

You can assume that management is approaching that with the proper element of urgency.

[Dhawal Doshi:]

Okay. So secondly, with regards to the alumina and the bauxite sourcing, for FY18 is concerned, so first with regards to bauxite, what percentage of bauxite are we assuming which will come from the mines at BALCO and how much could come in from the [indiscernible] in FY18 if any?

[Tom Albanese:]

I’ll start by just saying that I think in my comments earlier, I said that we'd be finishing the year hopefully at about 2 million tonne per year run rate. And that would be meeting approximately 50% of the needs if we were running around here at 2 million tonnes per year. Or sorry about 30% of it using the 3

[Dhawal Doshi:]

Okay. And the bauxite supplies from OMCs are how much could that be in FY18?

[Tom Albanese:]

I think it would be premature for us to give a number or a date on that because we're still in active discussions.

[Dhawal Doshi:]

Okay. And sir, secondly on the alumina sourcing, so any update on the discussions with Nalco. Media reports were stating that we are in active discussion and we could start getting some amount of Nalco off alumina from Nalco in the next financial year?

[Tom Albanese:]

I think Abhijit, I'd like you to comment on that, but I just would start by saying that from a logic standpoint, Nalco, selling it in the overseas market and then having transportation costs and everything else, and that's buying it in the overseas market, bearing transportation costs, everything else is wholly inefficient. And it's like producing tomatoes, sending them halfway around the world and buying tomatoes from the same place and sending them back. So I think the Minister of Mines has said the exact same thing. So I think it would be good for certainly Vedanta, good for Nalco and good for India for us to eliminate that kind of wasteful effort. But with that, Abhijit, you might want to talk about how it's proceeding.

[Abhijit Pati:]

No. I think we are actively getting ingots at BALCO and this is one progress I think all of you must appreciate that last couple of years, we have been tapping on Nalco alumina, but I think this year, government is very positively responding that including at municipal level. So we are hopeful in that case, but as you know, there are a lot of approvals required from the Nalco side that’s need to be cleared at their board level. So there are a couple of events which need to be performed over there. As on today, in a nutshell, we are active in the discussion and we look forward to get a positive outlook in this.

[Tom Albanese:]

So from what we understand, the finalization of the annual contracts tenders for Nalco, a couple of tenders have been delayed and there are news that Vedanta will be allowed to participate in that, subject to ICs or is this true or?

[Abhijit Pati:]

No. I must say these are all very perceptional based, because yes, there are a couple of tenders where they’re not yet really taken a date of, but that presently doesn’t have a direct linkage in the relation so far as the alumina getting by the Vedanta from Nalco. So that’s really on the perception based.

[Operator:]

Next question is from Amit Dixit from Edelweiss.

[Amit Dixit:]

Thank you for the opportunity, sir. My question is that what would be our weighted average cost of debt at the moment?

[Arun Kumar:]

Yeah. Amit, thanks. I just covered it in my talk track. It’s about 8.3%.

[Amit Dixit:]

Okay. Thanks, sir. And second question is on the coal sourcing mix, have we started sourcing from the linkages and if so, how is the sourcing mix between e-auctions and linkages at the moment and how is it going to pan out in FY18?

[Ajay Dixit:]

So we just started assigning our SSA contracts. So the linkages which we achieved about 3.2 million tonnes in BALCO and about 2.8 million tonnes in Jharsuguda. So we just started sourcing it. But as you know, the total requirement of coal in Jharsuguda is close to about 25 million to 30 million tonne and in case of BALCO, it would be around 14. So the percentage from different plant location obviously varies little differently. But I would say it’s a significant step which we have achieved in achieving our good cost position when this linkage which we acquired close to 6.2 million tonne in the last long term linkage.

[Amit Dixit:]

Okay. So we have started sourcing from the linkages? That’s what you are saying, right?

[Ajay Dixit:]

Yeah.

[Arun Kumar:]

But it’s about, in the third quarter, it was about a quarter of our total coal which are linkage, right?

[Amit Dixit:]

Yeah. That’s right.

[Arun Kumar:]

Close to about 20%.

[Amit Dixit:]

For 20% of coal was sourced from the, I mean 20% of the 6.2 was sourced, right?

[Arun Kumar:]

No. 6.2 means million tonnes per annum. So it just started sometime in November-December. So obviously then month by month, the cumulative numbers would go up.

[Amit Dixit:]

So by what time, we will see the entire, I mean the entire 6.2 million sourcing, when it will hit the exit rate of 6.2 million tonnes?

[Arun Kumar:]

No. It’s accumulative for a year. So you can say on an average per month basis, that is how the coal deliveries would happen, subject to the seasonal variation of the mines. It’s a five year contract and per year, we are going to get 6.2 million tonnes.

[Operator:]

Thank you. Next question is from Anshuman Atri from Haitong Securities.

[Anshuman Atri:]

Yeah. Thank you for the opportunity and congratulations on the results. So my question is regarding the iron ore business, so how do you see it in the next three years as to whether Vedanta will restrict itself to go in Karnataka or if the new auctions come in, how do you see the volumes going up in this particular segment? And if the Karnataka government is going to auction new mines. So will Vedanta be also open to a steel plant, which it was earlier planning by taking certain approvals. How do you see this iron and steel?

[Tom Albanese:]

Yeah. I guess I’ll start with my perspective and then Kishore will talk about it. But we were participating in the Karnataka auctions, we were outdid by very high bids as traded to NSRs, so we could not compete competitively against captive and against steel mills who were looking for captive services. So that will cause us to evaluate how we are persuading auctions on a going forward basis. Certainly both Kishore and I are on the way to Jharkhand tomorrow for the purpose of their investment fair. And we've got a project that we would like to consider for iron ore and also a value add component which both Kishore and I will be speaking with the Chief Minister in Jharkhand about over the next few days. So that is something we would keep our eyes on. With respect to steel, from my perspective, we definitely look at that on the merits of it as a financial proposition. Kishore, anything else you'd like to add?

[Kishore Kumar:]

Tom, thank you very much. I think most of it is covered. But just I may add is that the auctions this year are going to be significantly larger in terms of its quality of the assets coming up. So let’s remain committed that expansion of iron ore business will carry on, assuming that the auctions come up in Eastern sector as much the C category mines came up in Karnataka. So we will remain focused on the opportunity that will arise.

[Anshuman Atri:]

Okay. And just related to this, on the auctions which are coming up next year, so what kind of minerals will Vedanta be interested in, is it open to gold mines or any other mines which makes, which is valuable or will it stick to whatever is the current business in which Vedanta is operating?

[Tom Albanese:]

We have formed a new unit called VedEx or Vedanta Exploration which operates independent of the business units, really looking for the broad range of Greenfield exploration opportunities through India, including auctions as India continues to progressively open up its huge mineral potential to non-state owned companies. We've already participated in a couple of auctions, some like the gold auction in Chhattisgarh, we were successful on. There are businesses that we were not successful on. So I would say that we will keep our eyes on any of them that come up and put our technical resources in assessing the geologic potential and then bringing the commercial teams to basically oversee the auctioning process. In terms of our engagement with the government, we're continuing to engage with the government to expand their auctioning process, in particular commenting that many of the auctions we've seen so far have done very small tracts of land that would not be large enough to actually create enough critical mass, to create this meaningful size operation. So when the tracts have been too small, we've tended to stay away from those and we find many of those auctions have actually failed. So hopefully when they come back the second time around, they will expand the size on the tract.

[Anshuman Atri:]

Okay. Thank you. The other question is regarding the duties. So we have seen government acting very swiftly in terms of steel duties, but the base metal duties have been there for long, under discussion. So what do you expect this [indiscernible] aluminum, copper or other base metal to be implemented?

[Tom Albanese:]

Well, certainly from my perspective, I've been involved myself personally as has Abhijit in quite a number of engagements with both the mine ministry and also the revenue secretary and the revenue ministry with respect to protecting the interests of the aluminum producers with the same energy that the steel produces have been protected. And we have seen an enormous increase in imports for scrap and other aluminum into India, so that the market penetration in the aluminum sector is close to 50-50 of imports versus domestic product, where in steel is a much lower market penetration, I think it’s like 15% to 20%. So actually, the aluminum industry is in greater need of import protection than even the steel industry. And as I said earlier, we are currently running with negative after-tax, profit after-tax margins in this business. So if I were owning the shop around the corner, I will barely keep my head above water and that's how the government should look at the entire aluminum sector.

[Anshuman Atri:]

Okay. Is there any timeline do you expect to be done in the next six months?

[Tom Albanese:]

Well, I think we would have liked to have seen it happen in the budget, but we didn't see it.

[Operator:]

Thank you. We will take the next question from Ruchit Mehta from SBI Mutual Fund.

[Ruchit Mehta:]

Yeah. Hi, good evening. Can you just let me know that for fiscal 18, what do you estimate would be your requirement of your payment of dividends to meet Vedanta PLC’s cash flow needs?

[Tom Albanese:]

Well, I guess this is Vedanta Limited call, not a Vedanta PLC call. Now, we will have our event, the PLC call in about two weeks, which would probably be more appropriate for that call than this. But I think you can assume that to the extent that Vedanta PLC is looking for funds that are primarily coming through the dividend, equivalent, the Indian buyback mechanism, which would benefit all the shareholders of Vedanta Limited and certainly that would be a consideration as the board would be looking at what the dividend policy for Vedanta Limited should be.

[Operator:]

Thank you. Next question is from Sanjay Jain from Motilal Oswal Securities.

[Sanjay Jain:]

Hi. I have two questions. First is on BALCO. On slide number 35, you mentioned that from Korba-II smelter, the total production is 38 KT, which was actually 52 KT. That includes the trial production. So I was wondering why this production has come down? I am actually looking forward to an increase from this side?

[Tom Albanese:]

Well, as you know, we had a production failure in BALCO, which we've guided, we had said back in September of last year ‘16 and that took part of the expanded line out of production leading to a quarter-on-quarter drop and we're actively working to rectify that. We would hope to have that complete in the first calendar quarter of 2018. So we would see that be in full production from the first quarter, first fiscal quarter of 2018, we expect that in full 100% capacity.

[Sanjay Jain:]

Okay. Second question is on capital allocation. Actually, if you look at Hindustan Zinc, like we’ve been continuously accumulating huge amount of cash. I mean of course we did it a special dividend recently. So that is quite welcome to see that. But still we are generating tremendous amount of cash and it's actually getting accumulated. And if we see returns on that, because in the fixed deposit, it's going down in India. The interest rates have been down because of that and if you see that [indiscernible] and if you compare with the cost of equity of Hindustan Zinc, we had actually destroying value for the shareholder at Vedanta Limited. And that's one part. And at the same time, apparently, well, you might say that this question doesn't pertain to Vedanta Limited, you should ask that in the PLC, but the point is that you just mentioned, right, in the beginning that we have raised about $1 billion at 6.375. And that's a dollar interest rate. So if you - within the group, like, we’re not making optimal decision in capital allocation, this is what I see.

[Tom Albanese:]

Yeah. I think first of all, I would say that Hindustan Zinc has a quality problem in terms of that cash balance as you’ve said. And certainly the board of Hindustan Zinc is always considering what is the proper balance sheet. As you know, we’re in the middle of an expansion, but at these high zinc prices, we have been generating increasing cash balances, even with the largest non-state owned special dividend in the history of Indian corporates. So you can assume that that's something being considered.

[Sanjay Jain:]

Okay. I mean when I had asked this question in the PLC call about how the debt at PLC level would be prepaid, I was told that it will be prepaid by the dividends, but we just raised $1 billion of long dated debt and that's contrary to what was mentioned to me in the previous call in the PLC?

[Tom Albanese:]

So again, I will say that that's probably better for the PLC call, but to be clear of what I said in my comments earlier today and what we said at the time of the bond issuance that was specifically for the purpose of terming out the debt and we had a dual objective that our CFO at the time [indiscernible] had said a year ago, which was that we will de-lever and term out the debt and that we intend to do both at the PLC level this year.

[Operator:]

Thank you. Next question is from Raj Gandhi from Sundaram Mutual Funds. It seems we have lost the connection from Mr. Raj Gandhi. We’ll take the next question from Ritesh Shah from Investec Capital.

[Ritesh Shah:]

Hi, sir. Thanks for the opportunity. Sir, my first question is on Hindustan Zinc. Sir, there have been market news flow regarding potential stake here. So what's your thought on this and is the company ready to offer its stakes to pay a premium to the last number that we had quoted to the Government of India.

[Tom Albanese:]

I guess I'll make a comment. Maybe Sunil Duggal, I think, the CEO of Hindustan Zinc is on the call. He could also say something, but from my perspective, what we see with respect to the Governor of India's intentions is what we see in the newspaper. And so I think that there have been some recent communications through the media of what they're thinking at doing. I can't comment on that until we get more clarity ourselves. I will say that from my own perspective, I’ll let Sunil to add his comment that, they have been - the Government of India has been a very welcome partner to Hindustan Zinc and very supportive member of the board - of the members of the Board of Hindustan Zinc and supportive of the success and participating in the success of Hindustan Zinc over the past several years. So we welcome their continued participation. But if they do choose to disinvest their interests in whole or part, certainly we would look forward to working with them in a way, which meets the needs of Hindustan Zinc, but also of course the Government of India's requirements. Anything you would want to add to that, Sunil.

[Sunil Duggal:]

Nothing more to add on that. Broadly, you have covered that the partners who work with us shoulder to shoulder and they have been supportive of all the initiatives and all the board matters. But I think there is no official discussion as such with them. So I think some statement you might have seen in the press is that government maybe evaluating at their own level.

[Ritesh Shah:]

Sir, can you please elaborate what are the legal hurdles whatsoever, does it need AG approval. So where exactly is it stacked with us. Cairn is now, I think it’s something that you'll go through and this is the only thing which I can think of from a simplification point of view.

[Sunil Duggal:]

Well, actually there's no discussion as such which has happened in the board or officially. So I think we will vet these proposals and the legal requirement as it goes on. But there is some Supreme Court holding is there on the disinvestment as of now, but as the statement which has come from the ministry is such that, they are taking a legal view on that.

[Ritesh Shah:]

Okay. No problem. Sir, my second question is, in the earlier questions, you hinted towards value addition on the ferrous side, so are you also looking at the steel mills available on the block basically under different RBI schemes at this juncture. I don't want to give out the names, but is it something that’s also on our data?

[Tom Albanese:]

Look, I guess from my perspective, we've been primarily focusing on ramping up our existing business, as we see that’s the best use of capital because that’s very capital intensive. But as you can imagine that we have always been inquisitive about what's out there, but it's got to create value.

[Ritesh Shah:]

Okay. Sir, should I read it as if like we are open to this asset effect on that value to us?

[Tom Albanese:]

We’re always looking for value and our first priority right now is ramping up our existing fleet of smelters, power plants, mines and businesses around the group as we’ve articulated over the past three years.

[Ritesh Shah:]

Okay. Great. Thank you. Just last question, I was just looking at Vale and BALCO EBITDA per tonne on a sequential basis. BALCO’s EBITDA per tonne seems to have moved up sharply as against Vale, any particular reason for that? Is it a function of exports versus domestic sales or is it something that I'm missing?

[Tom Albanese:]

I’ll just ask Arun to comment a bit. So I’d first say that it’s always good to have a bit of healthy competition and I would say that two years ago, BALCO was really struggling at what the management team at BALCO have done as they've been working very hard, they've been doing some restructuring, some tough decisions on the ground. They've got the benefit of probably an approved coal position which has helped them probably more proportionally there than at Jharsuguda and they've had some benefit of the BALCO bauxite. But I think it's good for Abhijit and the team at Jharsuguda to be kept on their toes and see that healthy competition, but Arun over to you.

[Arun Kumar:]

Nothing much to add, Tom. Yes, a bit of competition is always healthy. And BALCO, we must remember, has set up its own captive power plant for the new line and that gives you efficiency in consumption as well in addition to what Tom laid out on linkage and some of the own bauxite.

[Tom Albanese:]

Sorry, Abhijit, would you like to comment being on the receiving end of that competition?

[Abhijit Pati:]

No, no. I think it’s a very healthy competition and we have been closely working, both of us have been closely working on to that. There are some significant strategic, the benefit is there in BALCO as you explained, but nevertheless, it also is catching up so fast. So this whatever marginal differences you are able to absorb now, for us, may not be a very long lasting. So both the units will come up in a very fast manner to deliver the right kind of EBITDA.

[Ritesh Shah:]

Okay. Sir last question on capital allocation, are we looking to put on incremental capacities on downstream assets on the aluminum side?

[Tom Albanese:]

I guess I'll start by saying that over the past year, we recognized that the rolling mills at BALCO were inefficient. And we actually took a difficult decision to suspend that production and make sure that we could restart it in a better market, but with a more efficient business and we did just that. So from our perspective, we want to be selling more [indiscernible] I'm not sure we want to get into the manufacturing sector, but we have also actively encouraged the promotion of adjacent aluminum parks, both at BALCO and Jharsuguda where we would like to see new industrial customers for plants next to ours, so we could be selling them basically hot metal rather than selling them ingot, which would be more efficient for us and for the consumer. And I think that Abhijit and the team are looking at what else we can do to put our existing casting capacity and our existing value add business into actually better utilization, including moving some of the product in some of the international markets as we ramp things up and maybe Abhijit, you can talk about that.

[Abhijit Pati:]

Yeah. I think our focus is on our present and existing product profiles. I think we have a, we will efficiently have a very large [indiscernible]. So first focus is there to really get a large value addition. Apart from that, last one and a half years has been a good journey so far as the new product developments are concerned. There are three results which have been produced and how do we do it, which is very successful in BALCO as well as some categorization has been well tested and established. And apart from that, into the European and the US market, we have been penetrating significantly. A good part is that there are good acceptance in those markets as far as the lead is concerned. So our focus will remain there, but on the downstream part is purely focused on to the aluminum part, where hard metal conversion route to the multi-cluster, the producing unit across BALCO as well as Jharsuguda, that is the second and third based on that both the state government, we are very actively getting engaged and working together.

[Operator:]

Thank you. Ladies and gentlemen, that was the last question due to time constraints. I now hand the conference over to Mr. Ashwin Bajaj for closing comments. Over to you, sir.

[Ashwin Bajaj:]

Yes. Thanks, operator. Tom, any closing comments from you?

[Tom Albanese:]

Yeah. Thank you. I think this was a good set of questions. Deshnee, she's making all the money with the zinc down in South Africa didn’t want to answer a question. But I do think that across the board, we have rising levels of production. We're being very disciplined on our capital spending. We're continuing to focus on cost reductions and we see even more cost reductions on the way. We put this strategy in place during periods of difficulty market conditions and since then, we've enjoyed a rebound in market prices, equating to 57% of our total commodity basket year-on-year. So that has significantly improved the business leading us to quite attractive levels of overall EBITDA and profit after tax and certainly an improved trajectory that we intend to continue in the coming quarters. So again, I personally think the markets are going to have some supply constraints as we go forward, it’s probably not going to be exuberance like we would have seen ten years ago and our prices are still well below where they would have been five years ago. But at the same time, these are markets that will allow the business to generate good returns, continue to de-lever and certainly reward the shareholders. And for those on the call, our shareholders, thank you very much for your active participation.

[Operator:]

Thank you very much members of management. Ladies and gentlemen, on behalf of Vedanta Limited, that concludes today’s conference call. Thank you all for joining us and you may now disconnect your lines.