Vedanta Limited (NYSE:VEDL) Q1 2023 Earnings Conference Call July 28, 2022 8:00 AM ET
Company Participants
Sandep Agrawal – Head of IR
Sunil Duggal – CEO
Ajay Goel – Acting CFO
Rahul Sharma – Deputy CEO, Aluminium Business
Prachur Sah – Deputy CEO, Cairn Oil & Gas
Conference Call Participants
Amit Dixit – Edelweiss Capital
Pinakin Parakh – JPMorgan
Ashish Kejriwal – IDFC Securities
Vishal Chandak – Motilal Oswal
Rahul Jain – Systematics
Ritesh Shah – Investec
Prashanth Kumar – Dolat Capital
Sumangal Nevatia – Kotak Securities
Operator
Ladies and gentlemen, good day, and welcome to Vedanta Limited Q1 FY ’23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sandep Agrawal, Head, Investor Relations Vedanta Limited. Thank you, and over to you, sir.
Sandep Agrawal
Thank you, Nirav, and hello, everyone. I am Sandep Agrawal. Once again, thanks for joining us today to discuss our financial results for first quarter of fiscal year 2023 that ended on June 30. We have with us today Mr. Sunil Duggal, our Group CEO; Mr. Ajay Goel, Group CFO. We are also joined by leaders from our key businesses, Mr. Arun Misra, CEO of Zinc business. Mr. Prachur Sah, Deputy CEO of Oil and Gas business; and Mr. Rahul Sharma, Deputy CEO, Aluminium.
We will start with update on key highlights of our operational and financial performance. And then, we will open the floor for questions-and-answers. Please note today’s entire discussion will be covered by the cautionary statements and disclaimers mentioned on Page 2 of the presentation.
Now without further ado, I would like to hand over to Mr. Duggal to take us through the presentation. Over to you, Mr. Duggal.
Sunil Duggal
Thank you, Sandeep. Good evening, everyone. Welcome to Vedanta Limited first quarter FY ‘23 earnings conference call. Currently, global economy is facing volatility among mixed high inflation, potential rate hikes by central banks slackening consumer confidence and China zero COVID policy net lockdowns. This has led to recent softening in commodity prices.
However, we also see that China has announced stimulus and has started to ease lockdown restrictions. Amidst ongoing energy crisis, especially in Europe, manufacturing costs are higher. This has potential to further suppress supplies and support commodity prices. Crude oil price is expected to remain supported on supply concern.
Indian economies relative resilience is reflected in strong industrial production, export competitiveness and non-food credit growth. Indian government’s increased capital expenditure continues to support demand, although inflation level is above the RBI’s tolerance band, RBI expects inflation to fall below 6% level by March ’23 quarter.
During the June ’22 quarter, we have again demonstrated our ability to execute well through all these challenges. We have started FY ’23 with best ever first quarter EBITDA, as key businesses continue to deliver strong operational and financial performance, underpinned by world class asset quality and strong business model.
We recorded first quarter EBITDA at INR10,741 crores, which translates into 7% Y-o-Y growth. We have started dynamic commodity hedging for proactive risk management, amidst unprecedented price volatility. In July ’22, we commenced operation and nickel cobalt Goa plant, and Liberia iron ore mine. Our capital allocation and dividend policies are well articulated and designed to create sustainable long-term value.
We have invested more than $14 billion across businesses over the last 10 years, without raising further capital from equity market, we are investing $3 billion over next two years and $2 billion in FY ’23 alone of growth volume, value-added products, backward integration, operational efficiency and digitization. These projects will make our businesses more sustainable and predictable.
We are one of the best dividend yield among peers. We have paid dividend of more than INR65,000 crores over the last 10 years. In quarter one, we declared first interim dividend of INR31.5 per share with another interim dividend of INR19.5 per share, in July ’22. This translates into a very attractive dividend yield of 15.4% on YTD basis. We have impeccable track record of meeting all capital market commitments in line with our commitment to deliver by $4 billion in the next three years, VRL has deleveraged by $1 billion in quarter one and is on path to further deliver $5.5 billion by this month end.
We believe in Atmanirbhar Bharat, Vedanta Group is one of the highest contributor to national exchequer. We are committed to contribute towards uplifting people’s life. This transition to a lower carbon world also offers a unique opportunity to grow and remain an attractive investment case for decades to come. Our ESG program has now moved from planning phase to execution phase. You will hear more on progress during the year.
In June ’22 quarter, we achieved our net zero commitment. We have completed climate risk assessment, both physical and transitional risk. We also completed inventorization of our supply chain emissions, that is Scope 3 emissions, two year earlier than our committed target. India’s first battery electric vehicle in underground mine introduced at HZL’s Zawar mine.
We are continuing industry-leading people practices on diversity and inclusion with 29% women in decision-making bodies, Vedanta is also among the few Indian companies that have actively recruited members from transgender community as part of our workforce. We are working to ensure a zero-harm workplace through learning from mishaps in FY ’22 and before.
In June ’22 quarter, despite our best effort, we are saddened with the loss of life of one business partner employees at Hindustan Zinc. We are taking various initiatives to drive save work culture, including focus on critical risk management to reduce hazardous activities at site. We have launched across businesses, audit to ensure best safety practices across the group.
Now, if I turn to our business verticals. At our Aluminum business, in line with Jassipura ramp up aluminum quarterly production grew by 3% Y-o-Y. Alumina production was also up. Quarterly COP was $2,653 per tonne impacted by input commodity headwinds, particularly power cost. Zinc India achieved highest ever quarterly refined metal production of 260kt with 10% Y-o-Y growth. Silver production grew by 10% Y-o-Y. EBITDA margin supported by higher volumes better recovery, commodity prices and hedging.
At Zinc International, Ghaamsberg recorded highest quarterly production at 53kt. It achieved a record annualized MIC production of around 225kt in June ’22. Cost of production also improved despite inflationary cost pressure. In oil and gas business, volume was lower by 4% quarter-over-quarter due to natural declines which was partially offset by additional volumes from infill wells and polymer injection in Bhagyam and Aishwariya fields.
OpEx increased by $0.6 per barrel Q-o-Q to $13 per barrel, primarily on increase in polymer prices. We are focusing on infill well drilling to maximize near-term volumes and rest natural decline. We expect commence production from Jaya and Hazarigaon field from September ’22. Our shale pilot is also on track for spud in September ’22 quarter. From July 1, ’22, the government of India has started levy (ph) the special additional excise duty on crude oil. We are engaging with the government on this within the framework of PSC and RSE and are quite hopeful on the favorable outcome.
In iron ore, our Karnatka business saleable ore production was lower as heavy rainfall impacted over handily. Pig iron business production was lower on Y-o-Y basis in line with planned shutdown at one of the black furnace. However, margin improved by 148% Q-o-Q to $159 per tonne. We have completed first step towards steel capacity expansion to 3 million tonne per annum during the quarter by debottlenecking one of our blast furnace. This shutdown impacted quarterly hot material production and consequently a 7% Y-o-Y decrease in saleable production. EBITDA margin was majorly impacted from export duty imposition, driven steel price decline and high coking coal prices.
FACOR achieved highest ever ore production since acquisition with 14% Y-o-Y growth. Quarterly ferrochrome production grew by 3% to 18kt. Vedanta is uniquely positioned to deliver sustainable value. In FY ’23, our key priority will be to deliver volume on committed lines, timely execution of projects and integration of our aluminum business. We’ll focus on production cost reduction and dynamic hedging to proactively manage commodity price volatility risk.
We remain committed to improve margins, increase free cash flow generation and deleverage. We have an outstanding foundation of world-class long-life and low cost asset producing vital commodities for global decarbonization transition. Our strategy, high-quality assets, strong balance sheet and capability position us well for future growth.
With this now, I would like to hand over to my colleague, CFO, Ajay Goel for financial performance.
Ajay Goel
Thank you, and good evening, everyone. So as Sunil said, we have an outstanding foundation of high-quality assets, along with a strong balance sheet, which positions us well for future growth. I’m pleased to share that despite inflationary macro environment and fiscal and monetary headwinds, we commenced the year with our best ever first quarter financial performance.
Before I walk you through the numbers, I wish to talk about QP accomplishments for the first quarter. We achieved highest ever first quarter EBITDA of INR10,741 crores. Increasing shareholder returns paid total dividend of INR11,684 crores, which is 31.55 share in Q1 and second interim dividend of INR7,000 to INR49 crores, which is 19.5 share in July. This translates to an attractive dividend yield of 15.4%.
Proactive risk management through strategic hedging in major commodities to protect margins. The realized hedging gain in Q1 was INR764 crores. We are continuously working towards dynamic liabilities management and has increased our maturities profile to around four years and lower the average borrowing cost to 7.6%.
And lastly, we are progressing well on the path of committed deleveraging. You may have noted the release by our holding companies Vedanta Resources Limited of $1.5 billion debt reduction in YTD July ’23. That is in the first four months. This is in line with our commitment of $4 billion deleveraging over the next three years.
Operationally, Gamsberg and FACOR delivered highest quarterly production, while zinc and aluminum volumes continues to be strong. We also successfully acquired Athena power plant having 2 units of 600 megawatt each, which gives long-term energy security and cost certainty.
Now turning to a few of the key financial highlights of the quarter. Our quarterly group revenue stands at INR38,251 crores, which is up 36% year-on-year, Y-o-Y, highest ever first quarter EBITDA of INR10,741 crores, up 7% Y-o-Y with a strong EBITDA margin of 32%, driven by operational performance, despite inflationary cost pressures and moderating commodities prices.
PAT, profit after tax stands at INR5,592 crores, higher by 6% Y-o-Y, and that demonstrates a strong financial performance. ROCE, return on capital employed at about 30%, it is higher by almost 780 basis points from last year’s 32%. We also continue to maintain healthy cash and cash equivalents of INR34,342 crores, which is up 7% quarter-on-quarter. And finally, our net debt at INR26,799 crores, with net debt to EBITDA, the leverage ratio at 0.6 times same as last year and 0.6 times, put in the perspective is amongst the lowest in Indian peers.
We also have a detailed income statement in the presentation. And I want to just share a couple of more updates. Depreciation charge for Q1 was at INR2,464 crores, 16% up Y-o-Y due to higher overall depletion charges at oil and gas, and higher over volumes at Zinc India. The finance cost for Q1 at INR1,206 crores, up 2% due to increase in average borrowings, which has been offset by reduced average rate of borrowings.
Income from investment in Q1 at INR583 crores, up 12% quarter-on-quarter, in line with the change in the mix of investment and down 20%, majorly on account of mark-to-market. You may have noted that the two recent reported hikes that lead to mark-to-mark accounting, but added to maturity will not change. So it is temporary. I want to underscore that. The average investment income stood at 4.7% pretax for the quarter.
The normalized ETR, the tax rate for Q1 at 23%, which is lower on account of a onetime impact of MAT, the minimum alternate tax asset recognition of INR505 crores on full yearly basis, which is the right way to look at it, on a full yearly basis, we foresee that ETR will be within the guidance range of 26% to 28%, which is more or less same as last year as well.
I now move to EBITDA bridge. EBITDA is up 7% Y-o-Y and INR709 crores. As evidenced from the bridge, strong demand for all our commodities, and improved prices have positively impacted our EBITDA, supported by strong operational performance of key businesses. We’ve also benefited by strategic hedging and higher CapEx and OpEx recoveries in our oil and gas portfolio. However, this has been partly offset by higher cost of production due to input commodities inflation.
Moving on, next page, on net debt. Net debt, as you can see, as of June 30 stands at INR26,799 crores, impacted by working capital investment, which is cyclical in nature, and CapEx requirements in the short term. Despite softening of the prices, we believe that this year as well, Vedanta will continue its growth journey, and free cash flow generation will be sufficient to meet the CapEx requirements and still deleverage as we have committed as a group.
A quick word on balance sheet. Our long-term focus remains in proactive grade management. During Q1, we have increased the average maturities to four years from 3.4 years in the last quarter, while we have been able to further lower the average cost of borrowings to 7.6% from 7.9% in fourth quarter. So quarter-on-quarter, 30 bps lower cost of funding. Our credit rating is maintained at AA with a stable outlook both by India Rating and CRISIL.
Now finally, each of our businesses are on growth journey. We want to grow across the value chain, focusing on vertical integration and cost efficiencies while targeting higher capacity. Our growth CapEx plan of around $3 billion over two years is aimed in the same direction and is in line with our capital allocation policy without compromising on the key priority of deleveraging at group level. Overall, with our resilient portfolio, we are well-positioned to increasingly able to deliver strong performance across cycles and create value for all the stakeholders.
Thank you. And I go back to operators for any Q&A.
Question-and-Answer Session
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Amit from Edelweiss. Please go ahead. Amit, we are unable to hear you. May I request you to unmute your line from your side and go through the questions, please.
Amit Dixit
It’s unmuted.
Operator
Amit, sorry, your voice is breaking.
Amit Dixit
Can you hear me now?
Operator
Yes. Now, we can hear you.
Amit Dixit
Yeah. So good evening, everyone. Thanks for the opportunity an d congratulations for a good set of numbers. I have a couple of questions. The first one is on the — has been positioned in oil and gas and aluminum division. How much of the OpEx was used in volume terms in Q1 and what is it outstanding right now? And did we do any further hedging in three months? That is the first question.
Ajay Goel
Yeah. Sure, Amit. So let me take it up for. So if I speak of aluminum, our large portfolio the hedging in the Q1 covers 20% of the volumes and the rate of hedging is about $3,500 per tonne. So net-net one-fifth of volume in aluminum is hedged for the Q1. If I ever speak of zinc which again is quite critical. So almost one-third, 34% volumes for the first quarter are hedged. Oil and gas, our working interest almost 16%. But effectively, if I leave aside the share of the government. Again, almost one-third of volumes are hedged. So net-net, 20% in aluminum and almost one-third across zinc and oil and gas.
As I mentioned, Amit, the realized gain in terms of our positions, which got matured, the gain is about INR764 crores. Let me also take a word it forward, the hedging of the forward quantities, which basically are for second quarter as in the current quarter, and a little bit for third quarter. Right now, the unrealized gain is about 3 times of what we already realized, but that will unwind only in second quarter in October and November, depending on the prices.
Amit Dixit
Okay. Great. Thanks for the comprehensive answer. The second question is essentially on the coal cost. What was the movement in Q-o-Q? And what — how much you will guide for this quarter and is it possible to separately get [indiscernible] EBITDA?
Sunil Duggal
In coal cost, you are asking for aluminum or which business you are asking.
Amit Dixit
Coal cost for aluminum, sorry, I should have specified this.
Sunil Duggal
Okay. Yes. So the coal cost, the average coal cost for aluminum business was INR1.91 per GCV and the overall power cost was $1,238 per tonne. This is softening now. And the linkage coal realization, which came through Tranche V is looking very healthy now in this month. And with this, I think a sizable portion of the usage will go back to the linkage. And apart from that, the auction coal prices also softening because of the international energy prices also getting soften and some of the imported coal flowing on, in some parts of the country, depending on the landed price leverage they have. This is about the coal cost. So anything, Rahul, you want to add on the coal cost for the current quarter and the quarter one?
Rahul Sharma
No. I think we have a touch Q1 was — basically total coal requirement was $4.2 million and the cost was INR1.9 per GCV. But as Mr. Duggal said, that I think things will start moving and growing at because we have the — in terms of security, we have 100% always the challenge in the metalization. And I see that in Q2, things are coming by quarter (ph). Last quarter, we had almost 32% of a limit to personalization (ph). And this quarter, we are looking close to 36% plus kind of things, so which is a great improvement going forward.
Sunil Duggal
There’s one point I want to…
Rahul Sharma
Also because of its round (ph), another point which I forget to mention, I think last quarter also we mentioned we have got Jamkhani as a coal mine, wherein we have got all the coal, including opening of the mine, and we’ll be starting the Jamkhani mine early next month. And we see that it will be also some — bring for us or a great vision for us.
Amit Dixit
Okay. Just you said 22% sinkage materialization in Q1, right, or 32%?
Rahul Sharma
22% was Q1 and 36% we are looking for this quarter as an overall bucket of my total consumption.
Amit Dixit
Okay. So is it possible to quantify the benefit that we might get in Q2? I mean total — as a result of all these measures.
Sunil Duggal
We cannot give any guidance as such on this. But at least — broadly, what it looks like that it should fall to the level of quarter four at least.
Amit Dixit
Okay. Wonderful. That’s helpful. Thank you and all the best.
Sunil Duggal
Thank you.
Rahul Sharma
Thank you.
Operator
Thank you. Next question is from the line of Pinakin Parekh from JPMorgan. Please go ahead.
Pinakin Parekh
Yeah. Thank you, sir. Sir, my first question is on aluminum, given that the cost of production was over $2,600 in the first quarter and LME is roughly at around $2,400, at what point of time do you think that the company would look to cut production?
Sunil Duggal
So there is no plan to cut the production. In fact, the last March, we are powering up. The average LME for the month is lying somewhere between INR 2,450 to INR2,550 and with the premium. And as we have said that the cost is out in the current quarter, not only because of the power cost, but also because of the processing cost and the alumina cost. Alumina cost because of the related LME going down could soften say about by around $150, $200, another $300, $400 could soften in power cost and balance in processing costs. So even at the current LME prices, you will make a good EBITDA margin, and it makes a good business for us. And that is why, given the remaining part from the Line 6, we are ramping up.
Pinakin Parekh
So just to clarify, sir, what you are saying is that even at current LME aluminum prices, Vedanta’s aluminum business would be profitable. Is that correct?
Sunil Duggal
Absolutely. This is what I’m saying, it will make a good EBITDA margin even at the current prices.
Pinakin Parekh
Sure. Thank you, sir. Sir, my second question is on the oil business. Now this is a segment which has consistently disappointed in terms of production, in terms of OpEx. The government of India’s latest tax essentially create another burden for this business? And even the earlier 16.67% stress was never removed when the oil prices went lower. Given the policy headwind and given the increasing OpEx. Is the company looking to stop investments in oil because clearly, this is not a business, which has — can generate good strong returns, given what the policy headwind in terms of taxes are and given the increasing OpEx. So given the original CapEx plan, which was announced for F ’23, if the oil sales stress as it is, would the company look to cut the oil CapEx?
Sunil Duggal
No, the energy security for the country, one of the important thing for us and we want to partner with the government. So in that direction, we have no intention to think given an IOTA on the line of what you are talking. All our projects are moving ahead with the same energy what we were processing earlier, infill projects, drilling in our gas assets, exploration in our [indiscernible] everywhere ASP project, shale oil project, pilot project on the shale oil, ASP project. So everywhere, the efforts are on, and we want to triple or quadruple our results from the current level. And ultimately, we want to partner with the energy security of our country.
As far as the original special excise duty is concerned. In the background, whenever we have talked to the government has always been supportive of looking at how they can partner with us on the new projects and where it can help the country and help us to make the projects viable. As far as specific to the special excise duty is concerned, we believe that the windfall tax for the government is already built in the PSC, and we have represented this to the government at the various levels. Government is quite favorably placed on this, and we are quite hopeful that it could get retracted.
Pinakin Parekh
So just to clarify because we keep on getting this question, the $30 test (ph) would translate into what kind of realization impact for Vedanta or just to make it more simpler, if the tax was there in quarter one when the Brent was 114 and Vedanta’s average realization was 110. What would have been the new realization or the new EBITDA if this $30 test? Is it a straight $30 negative impact? Are there trade-offs available?
Sunil Duggal
No. You see you have to understand what they are talking. They are talking that depending on the average crude prices of the last fortnight they will keep revising on that number. So this number will remain very dynamic. All our projects are conceived and evaluated at a much lesser price like we evaluate our all our projects at $60. So $60, we make a healthy IRR. And in any case, the government thinks of putting up this special excise duty at $80, it does not impact our operation much and impact our margins beyond that.
But the question is the broader question, which I’m saying and — which broadly we have been able to sell to the government is that this windfall even beyond $80 is built into the contract. If it is built into the contract, let us suppose from $80 to $120, the $40 directly does not flow back to the government. But in any case, the 70% of this goes back to the government. And that is why the government is quite favorably placed to look at this and look at how they can differentiate between the nomination blocks and the auction blocks.
Pinakin Parekh
So, just to clarify, so far, there is no official directive from the government on the nomination blocks in the auction block. So while you have represented to the government, there is no official confirmation. So if the government does not agree, should we expect legal challenge to this, sir, because $30 is a very meaningful number given the context of the oil segment EBITDA.
Sunil Duggal
See, I don’t want to jump [Technical Difficulty], and we are very hopeful that is it, and that does not think something which is not in the best interest of any of the stakeholders.
Pinakin Parekh
Understood. Thank you very much.
Operator
Thank you. The next question is from the line of Ashish Kejriwal. Please go ahead.
Ashish Kejriwal
Sir, my question is again on aluminum cost. Cost on both alumina as well as coal. One thing is currently how much difference is there between our cost of production of alumina and the purchase limit? And second is in terms of coal costs, have we purchased any electricity in quarter one or the entire increase in power cost is due to the expensive coal which we have got? That’s my question.
Sunil Duggal
It’s a combination. It’s a combination of a bit of the purchase power and the coal cost. While I will request Rahul to give the answer on this. As far as alumina and our — even our imported alumina is concerned, there is a differential of say, around $100 to $150 a tonne depending on the prices, LME and the prices. So Rahul, any more detail or the more color you want to add to this?
Rahul Sharma
No, I think when we go to generally, it remains in the revenue of $100. But in Q1, for sure, it was EBITDA maybe $60 around — $60 to $65 that was the data between [indiscernible] versus imported alumina point of view.
Ashish Kejriwal
So sir, your alumina cost of production is something like $371 in first quarter. And when we spoke about, I don’t know, $150 decrease in alumina price. So even after the decrease you are seeing that it’s a difference of between $50 to $70?
Rahul Sharma
Sorry, come again. That’s what I’m saying, the arbitrage between imported versus your domestic.
Ashish Kejriwal
Okay. So $60, $70 is still there.
Rahul Sharma
Yes.
Ashish Kejriwal
Okay. Second question is, sir, aluminum hedging only. You’ve mentioned about 20% of first quarter volume was hedged. And if I remember correctly, in first — fourth quarter, we said that for the full year around 15%, 16% of the volume was hedged. So the entire difference in volumes now, will it be front-ended or it will be across the quarters? And if that is the case, what would be the second quarter volume, which is hedged at around $3,500?
Ajay Goel
Right. So sir, I mean, you cannot calibrate the volume in line with the hedging, right? I mean in terms of front ending the volume in second or third quarter won’t work. If I give you a bit of context, as you know, Vedanta historically, our policy has been that we want to realize the average LME of the month of production. But given the current environment, it is quite toward to us (ph) very volatile, this cost correction was warranted. And also in the hindsight, we feel it was a good step.
So if I speak off the second quarter for aluminum, against our planned volume for second quarter, almost 28% volumes are hedged and the hedging price is about $3,630 per tonne. So net-net more than one-fourth volumes for second quarter are hedged. Same way, if I speak off, zinc almost 40% volumes, planned volumes for the second quarter are also hedged and same number, almost 30% for oil and gas. Net-net, I think we are decently covered in terms of second quarter hedging.
Ashish Kejriwal
That’s great. And sir, lastly, we are going to operate our Jamkhani mine next month. So is it possible to share some cost benefit which we can avail not next month, maybe six months down the line from this mine?
Sunil Duggal
I’ll give you some idea that we have three mines. The projected cost from these three mines is ranging somewhere between INR0.45 to INR0.85. So Jamkhani the cost will be somewhere between INR0.80 to INR0.85 And Radhikapur is somewhere between INR0.50 to INR0.55. And [indiscernible] could be around INR0.45 to INR0.50. So this is the range. And the weighted average you can work out, could be around INR0.60 to INR0.65 versus INR1.90, which we incurred in first quarter.
Ajay Goel
Correct.
Ashish Kejriwal
Thank you, sir. Thank you and all the best.
Sunil Duggal
Thank you.
Operator
Next question is from the line of Vishal Chandak from Motilal Oswal. Please go ahead. Vishal, may I request you to unmute your line from your side and go ahead with the question, please?
Vishal Chandak
Yes. Am I audible now?
Operator
Yes, sir, you are.
Vishal Chandak
Sir, my question was with regard to the oil and gas business again. From time and again, we have been trying to improve the production run rates. I mean we have been talking about improving production run rates, but it has been a disappointment even today also. What kind of IRR do we target for oil and gas business? And what kind of — how does that compare to our IRR targets for zinc business to understand, how do we evaluate project or do a capital allocation across various businesses?
Sunil Duggal
So Prachur, if you can take the question about oil and gas and then I will try to add on zinc. Prachur?
Prachur Sah
Sure, yeah. Can you hear me, sir? So on the projects for oil and gas, typically at a $50 oil price, we are targeting an IRR of 20%, and that’s been the case so far that all the projects that we have targeted at $50 oil price and looking at a 20% IRR as a threshold to take up the projects.
Sunil Duggal
If I may supplement again, Vishal, I would again go back to our group policy on allocation of capital and [indiscernible] we committed that any CapEx project for the group, our minimum IRR will be at least 18%. In case of oil and gas, our internal numbers, you heard from Prachur, we assume $50 per barrel as of pricing. Even with that kind of pricing, our IRR in oil and gas business is higher than the group average.
Vishal Chandak
So we are saying that the oil and gas business probably generates a IRR higher than what origin business in its because zinc still gives you the highest proportion or share of the EBITDA, and the IRR over there is lower that means the overall IRR should be somewhere far steeper down? Would that be a correct and share [indiscernible]?
Sunil Duggal
No. You cannot calculate like that because the structure of oil and gas is much different than the zinc. Zinc any price goes up the entire contribution of the increased LME goes to the bottom line. But in oil and gas business, the structure is such that it attracts duty, sets and then profit petroleum. And not more than 30% flows back to the business.
Vishal Chandak
I think that was the important question that I was trying to try write-down, the IRR and other businesses are fairly higher compared to this oil and gas business, where investment is continuously required. Sales are declining. There is a windfall gains tax from the government. Why do we still want to continue with this kind of an investment? Why not propel the investment further in other spaces like aluminum and zinc where the possibility on returns, especially with our own coal mines on opening up, there is a higher probability for better return loans.
Ajay Goel
That is an internal call that we keep our portfolio very diversified number one. And we don’t want to put all our eggs into one basket. The other is that we want to partner with a country where the energy security for the country is very important, and we want to play a very important role in that. And we are the only private player in the country who actually contribute 25% of the India’s domestic production. And we remain excited about it that we want to evaluate the new resources, OLAP, discovered small fields, methane, coal by methane. So we will keep participating there.
And the government of India is also quite favorably placed to partner with us in that to look at across the table with a more mindset of the open book to see that how the new projects can be made viable. And that is why you see even for putting up the ASP project, they have come up with the policy of reducing the cash to have to make the project viable. But apart from that, our other projects and even on this project, they remain open as to what needs to be done to make these projects viable because the country suffers the most because of the oil and gas import.
Sunil Duggal
I just want to also add two more points here. See, allocation of capital and the move to CapEx and resulting IRR is also a function of opportunities. So it is not necessarily either or, say, between one portfolio to other. If you look at our current year’s guidance on CapEx, almost $2 billion. So in fact, we are investing half of that, almost a $1 billion in aluminum example, Balco, almost $380 million in terms of rolled production expansion 250kt. And also for smelter capacity to 420kt pm. Same as [indiscernible] example, so net-net, one should look at CapEx production in terms of forward-looking outlook.
And finally, it is the nature of the business as well. I mean, as you would appreciate, maybe the one discovery in oil and gas perhaps will pay back 450 in the past. So net-net, it is all the businesses. And in our businesses, we got to invest in a market where there might be a bit of a downturn. In that case, the portfolio becomes resilient and we can deliver across the cycles.
Vishal Chandak
That’s helpful, sir. Thank you very much.
Sunil Duggal
Thank you.
Operator
Thank you. Next question is from the line of Rahul Jain from Systematics. Please go ahead.
Rahul Jain
Yeah. Hi. Thanks for taking my question. Sir, one — firstly on — we keep hearing in the press a lot about your semiconductor business. What plans do we actually have? And is there any capital commitment that we are doing in the next six months to one year? That’s my first question.
Sunil Duggal
So as far as the semiconductor business is concerned, the moment of India has made policy that how they can support the sector where this is also a very strategic sector for the country where the government is quite inclined to make this work in the country, and that is why they have deployed the new policy. And given the state government, each of the state government is quite excited about it. So currently, we are in engagement with the various state governments. And they are ready to make all shops available to us to make the project exciting and viable. So we are evaluating the final location, and you will hear from us as we will progress.
Rahul Jain
Yeah. Thanks for that. And sir, also on Hindustan Zinc, so the government will likely exit. So are we going to participate in the government exit and increase our stake or what is our stance on this?
Sunil Duggal
So government is doing its process. We are appointing the banker now. And in any case, we cannot acquire more than 5% in any given year or 25% of the stake sale at any point of time. Depending on whether the government would request us to participate in acquisition beyond the legal limit, we will evaluate. But if they will offer, we will definitely consider.
Rahul Jain
And any color on Balco, if you have an on similar lines?
Sunil Duggal
No, we have no way forward for Balco as of now, neither the government has made any plan as far as our of information grows.
Rahul Jain
Okay. Thanks so much.
Operator
Thank you. Next question is from the line of Ritesh Shah from Investec Capital. Please go ahead.
Ritesh Shah
Hi, sir. Thank you for the opportunity. Sir, my first question pertaining to the [indiscernible] profile of the parent, would you be able to provide some more color on that? To my understanding, it was around $3.7 billion for the fiscal, which included around $300 million for ICL and interest cost of around $700 million. If you could help on a quarterly road map over here, that will be quite useful. The reason, I ask this is I’m also trying to understand the payout for the full fiscal. Thank you so much.
Ajay Goel
Yeah. Sure. I’ll be kind of a brief on this one. Just being the Vedanta Limited call, but you’re right, in terms of — for the current fiscal for Vedanta Resources, total maturities is $3.7 billion, including $1 billion, which is a combination of interest cost and ICL that leaves almost $2.7 billion for the full fiscal in terms of external debt. Out of which, out of $2.7 billion, roughly $2 billion are falling due in H1. VRL, as we all know, is — looks at the number one yearly basis. So out of $2.8 billion, $2 billion in H1 and the balance of $0.8 billion in the second half.
You may have seen, given the recent two interim dividends by Vedanta Limited, the receipt at Vedanta Resources is about $1.5 billion. So $1 billion out of the first dividend and roughly $0.5 billion from the second interim dividend. So $1.5 billion is dividend. Roughly $200 million is brand fee. It makes it $1.7 billion. And finally, also, we got recently a couple of Indian PUC bankers lending to Vedanta Resources, including SBI. So all of the — with all of that, roughly $2.1 billion and $2.2 billion is already secured. So with that, until November, early December, we are fully taken care of at Vedanta Resources. And the reminder amount, 0.6%, 0.7%, we feel quite comfortable in terms of meeting those maturities. So either we refinance them or we repay them?
Ritesh Shah
This is super useful. Extremely useful. Thank you for this. Just another question, I wanted to understand the extent of pledges and encumbrances, which are there at Vedanta India level, if it’s possible.
Ajay Goel
See, for Vedanta Limited, you might have seen one of our recent statutory filings that none of Vedanta Limited shares are pledged. Of course, while borrowing, there is one non-disposal undertaking which means the promoters cannot go under minority. Now as per CB requirements that 54% is not pledged, but it is also reported legal as encumbered. Net-net, there is no pledged for Vedanta shares. If I come to the second part of it, in terms of loans by Vedanta Limited and have we pledged Hindustan Zinc shares. So 5.77% of zinc stake is pledged for one loan, that number, you will remember, was roughly 14.9% with SBI. So 14.9% has come down to 5.77%.
Ritesh Shah
[Indiscernible] Thank you so much. And one question for Duggal ji. Sir, we had in our earlier calls indicated that we had submitted [indiscernible] for Videocon and BPCL, any specific updates over here that would be useful, sir? Thank you so much.
Sunil Duggal
No. BPCL to government has been doing the process. And when the process will come, we will think at that point of time. And as far as Videocon is concerned, this is — the legal process is going on.
Ritesh Shah
Sure, sir. This is helpful. Thank you so much.
Ajay Goel
Thank you.
Operator
Thank you. Next question is from the line of Prashanth Kumar from Dolat Capital. Please go ahead.
Prashanth Kumar
Sir, good evening and thanks for the opportunity. So just wanted to understand the latest of the royalties that we pay to our parent. Sir, where is that — where are we at and FY ’22, what was the amount? And what is that expected for FY ’23, sir?
Ajay Goel
Right, Prashanth. I mean the agreement, as you know, remains same, so in terms of the coverage, in terms of entities and the rate of royalty remains same as the last couple of years, that has not got changed. The broad number for last fiscal FY ’22, the royalty was almost $200 million. In the current year, as you know, it is largely pegged (ph) the revenue. We think this number will be almost $250 million or $275 million in the current year.
Prashanth Kumar
Super, Sir, just two questions on this. Sir, generally, in industries and sectors where there is an IP and patented knowledge or brand that is being given to the Indian entity, for example, auto pharma, FMCG, et cetera. Royalties is a very well-established practice. But then, sir, in our industry and combining metals kind of setup, this is not a very widely prevalent. That is one aspect.
Second, let us assume you’d add back instead of giving it a royalty, you add this back to the dividend pool. Anywhere 70% goes to the parent. The rest 30% comes to minority. But then what that immediately does is, let’s say, $200 million, you added back to the dividend pool immediately, it raises your valuation by $2 billion. Out of that $70 billion anyways is owned by the parent. So get a $1.4 billion net benefit in market value what they lose is $60 million. That’s it.
On the cash, that would have otherwise come as — that would have otherwise gone directly to them. So it wouldn’t it be — and that is one. Two, there also be a very good rerating in the overall multiple in the yields that the company would be getting because some investors may see this as an overhang. This is our feedback. Just your thoughts are also please clearly kindly welcome and please share your insight on this, sir?
Sunil Duggal
Thank you. Thanks for the input and your viewpoint. It could be the personal viewpoint that you are expressing. But this has gone through the required legal process and the Board approval and all the approvals have gone through. And after all the stakeholders and the Board members are convinced that there is a substantial value addition, which is done by the parent, and that is the royalty fee. So that is what my broader point.
Prashanth Kumar
Okay, sir. Understood, sir. Sir, my second question is, generally, Vedanta has never hedged their volumes forward. This is one extend that we did it, I think, in March or April. It has turned in hindsight turned out to be a fantastic move, saving about a couple of thousand crores for the company. This is to the CFO, sir, what was your thought process when you decided that back then based on the market, based on the pricing, et cetera, et cetera. If you could kindly share your thought process as to what made you to take this call you and your team together.
Sunil Duggal
No, this was done based on the valuation, which was done internally and based on the expert advice. And we have also set up the hedging desk set up the internal headed by a global hedging expert who has come on board. So depending on that and benchmarking and the valuation we took a call at that point of time. It was a very strategic call which was taken.
Prashanth Kumar
Great.
Ajay Goel
You must appreciate — that risk management has to be a dynamic process. It must take into account the current environment, which, as I mentioned earlier, is quite tumultuous very volatile. Typically, Vedanta, you are right, has never hedged. We are fine to capture the average LME for the month of production. But given the significant [indiscernible] in terms of the pricing going up and down, that to within a very short time frame with Vedanta decided to make this course correction. And you’re right, again, that in the hindsight, it was a good step.
But let me also add that hedging is not a tool to make money. Vedanta’s expertise lies in metals and the mining. Hedging is to protect the margins. But again, I don’t think is the right way to look at the hedging. Imagine, if we had hedging losses, which means on the remainder, 80% uncovered portfolio, the pricing would have been far, far higher than where it was. But you’re right, we are glad that we covered our one-fifth volumes and to that extent, we could protect the margins.
Prashanth Kumar
Perfect. And one all follow-up from previous participant. Sir, on the $30 new sets on accrual, how much of the, it will be on EBITDA sir, after taking away all the government contributions, et cetera? Is it the 15-18 or less or more, sir. At the EBITDA level, what is the per barrel?
Sunil Duggal
You have that calculation, Prachur?
Prachur Sah
Yes. I mean, I can explain that a little bit. So at EBITDA level, because at $30 a barrel in our PC share, government the $30 barrel doesn’t hit us directly on our EBITDA because government actually pays out of the $30, almost $70 as part of profit trillion. So the net effect on EBITDA post cost and everything could be around $5 to $6 a barrel. At that price, so you have to realize this is a price thing at $120, it was $40 and is scheduled $30. So at that price, it’s about $5 [indiscernible].
Prashanth Kumar
Okay, sir. Understood, sir. Great, sir. Thanks, sir and wish you all the best.
Operator
Thank you. Ladies and gentlemen, we’ll take the last question from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Sumangal Nevatia
Yeah. Thank you for the chance. My first question is on the Power division. The margin this time is almost a record load INR0.20 per unit of power, is it possible to share the breakout between PSPL and other Batubara business? And if you can just explain how should we look at earnings here because at least my understanding for the PSPL business was that it is a take or pay kind of an agreement, and our availability has been about 77% to 80%. So we were kind of modeling around INR1,000 crores of EBITDA run rate on an annual basis, but [indiscernible] which is basically underscore our expectations. So just some expansion on that is requested?
Sunil Duggal
In a while we will give you the exact calculation, but let me tell you that this construct of this contract. The construct of this contract is that the goal is passed through. And we are paid based on the certain availability. The availability is on an annual basis. The quarter-to-quarter availability could vary depending on whether the annual shutdown is due in that quarter or not. In the first quarter, one of the unit need the shutdown, major shutdown that we have taken. But over the year, our belief is that our availability will be more than the contractual availability.
Ajay Goel
There are more breakups if you’re interested in our IR presentation, it’s Page number 36, which covers the entire power P&L across Jharsuguda, Balco, PSPL and also zinc wind power. If you want more information, please do write to Mr. Sandep Agrawal, our Head of IR or refer this paper. Thank you.
Sumangal Nevatia
Okay. All right. And just one follow-up on our coal mix and as the mutual commentary. So if you can just explain this repeat what is the mix and how is the mix changing? I mean our linkage supply is increasing? And are we replacing some whole of imports or reaction with linkage in the coming quarters? If you could just share some chain?
Sunil Duggal
No, the last quarter was a mix of linkage, e-auction coal, import and the local purchase, spot purchase. This quarter, we believe it will be a combination of linkage and e-auction. As my friend, Rahul said that the linkage could vary somewhere between 35% to 40% and the auction could be somewhere between around 60%.
Sumangal Nevatia
Okay. And at the peak, what can be our linkage mix and the peak and what sort of inventory, how many days of inventory do we carry?
Sunil Duggal
Rahul?
Rahul Sharma
So let me just answer the last question, we have five to six days inventory, which is better than the previous quarter from the inventory side. And another question would be there what we are talking about what Sunil has already answered. In terms of linkages, we will be almost 36%. But ideally, I have 55% of my contribution, but it depends on [indiscernible]. So there is a growth from one is that moving from 32% of 36% a bit and 18% to 55% (ph) and captive will also play a role as we said that some [indiscernible] is getting started now. I hope I have answered both your questions.
Sumangal Nevatia
Yeah. Thank you and all the best, sir.
Sunil Duggal
Thank you very much.
Operator
Thank you very much. I now hand the conference over to Mr. Sandep Agrawal for closing comments.
Sandep Agrawal
Thank you, Nirav. Thank you all for taking time out to join us. I hope, we were able to answer most of your questions. In case you have further questions, please feel to reach out us. This concludes today’s call. We look forward to reconnecting you for next quarter earnings call. Thank you.
Operator
Thank you very much. On behalf of Vedanta Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
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