Ladies and gentlemen, good day, and welcome to Vedanta Limited Q3 FY 2022 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to hand over to Mr. Varun Kapoor from Vedanta Limited. Thank you, and over to you, sir.
Thank you. Thank you, operator, and good evening, everyone. This is Varun Kapoor, head of investor relations, and it's my pleasure to welcome you to our Q3 FY 2022 earnings call. We have with us today the management team headed by Mr. Sunil Duggal, Group CEO, Mr. Ajay Goel, Group Acting CFO, Mr. Prachur Sah, Deputy CEO, Oil & Gas, Mr. Arun Misra, CEO, Hindustan Zinc, Mr. Rahul Sharma, Deputy CEO, Aluminum, and Mr. Sauvick Mazumder, CEO, Iron & Steel. With that, I would like to hand over to Mr. Duggal to take us through the presentation.
Thank you, Varun. Good evening, ladies and gentlemen, and welcome to Vedanta Limited FY 2022 Q3 earnings conference call. This quarter, the commodity market witnessed heightened volatility, mainly driven by energy crisis, worsening supply situation, and concern over rising costs. The global economy has been losing momentum because of the new variant of the COVID, supply chain disruption, and elevated inflation level. Change in the expansionary stance of monetary policy by central banks and worse than expected impact of Omicron variant may pose pressure on commodity demand and prices going forward. Indian economy has been on a relatively stronger footing as most of high-frequency indicators surpass pre-pandemic level, though some showed sign of slowing momentum recently.
However, government push on infrastructure spending, reviving capital expenditure by corporate sector, credit availability, less stringent curb on movement of people and material, unlike previous two waves of pandemic, and mixed sentiments on the lethal impact of the third wave is likely to limit the impact. We expect the demand for minerals, metals, and energy in India to remain resilient in a seasonally upbeat Q4 . Vedanta continued its strong growth momentum this quarter, reporting its highest quarterly and nine-monthly revenue and EBITDA despite macroeconomic and input cost headwinds. We witnessed steady volume performance across all our businesses, with aluminum and zinc delivering record quarterly performance. We have become the sole producer of nickel in India post the acquisition of Nicomet, which complements our existing portfolio. All our initiatives on ESG front are progressing well.
We are making great strides to stand by the commitment made on renewable energy and decarbonization. We are proud to announce the establishment of our 3,000 Nand Ghar benefiting 120,000 children and 90,000+ women. We continued with the strong track record of rewarding shareholders with second interim dividend payout of INR 5,019 crore, taking the YTD dividend to record of INR 32 per share. With a robust balance sheet and liquidity position with net debt EBITDA of 0.7x, we are further committed to delivering consistent growth through capacity expansion, unlocking operational efficiencies through technology and digitization, and targeted acquisitions. As announced last quarter, our reformed ESG vision of transforming for good is supported by three pillars, transforming community, planet, and workforce.
These pillars are indicative of Vedanta's steadfast commitment to become a best-in-class company and at the same time ensure that we are future ready to tackle current and emerging risks. These pillars are supported by 9 aims that have specific quantifiable targets to track our progress. The aims were arrived at after a comprehensive teardown of material aspects that were evaluated by ESG rating agencies like MSCI, Sustainalytics, and CDP. Aims 1, 2, and 3 under transforming communities commit us to keep community welfare at the core of our business decisions, empowering 2.5 million families with enhanced skill set, uplifting over 100 million women and children through education, nutrition, healthcare, and welfare.
Aim 4, 5, and 6 under Transforming the Planet commit us to net carbon neutrality by 2050 or sooner, achieving net water positivity by 2030, innovating for a greener business model. Aim 7, 8, and 9 under Transforming the Workplace commit us to prioritizing safety and health of all employees. Promote gender parity and diversity and inclusivity. Adhere to global business standards of corporate governance. Some of our forward targets are reduce absolute GHG emission by 25% by 2030. Deploy 2.5 GW by FY 2030, 500 MW RTC by FY 2025. Convert 100% of LME fleet to electric by FY 2030, 75% of mining fleet by FY 2035. Increasing diversity at workplace, conserving biodiversity and working for our communities. For the last three months, more than 600 projects have been identified across all the BUs.
70% of the projects are around improvement of our environmental practices, 25% to improve social practices, and 5% to improve governance. We are making great strides to stand by the commitment made on renewable energy and decarbonization. We have taken some concrete action and are in the process to take some more further to realize these targets. On renewable power, our aluminum business is largest industrial consumer of renewable energy in India, who procures over 2 billion units of renewable energy from IPPs and TPREL, leading to 1.54 billion ton equivalent of CO2 reduction. We are in the final stages of approval to deploy more than 300 MW RTC RE. The RE adoption plans will help reduce absolute GHG emission by nearly 25% by 2030.
Coming to EV adoption, our aluminum business has entered into a pact with GEAR India to deploy one of the largest fleets of lithium-ion battery-powered electric forklifts. Substituting diesel-fueled forklifts with the green fleet will reduce diesel consumption by more than 2.5 lakh liters annually, thereby ensuring 690 tons of prevented GHG emissions. Hindustan Zinc has partnered with Normet and Epiroc for supply of battery-powered underground mining fleet. The Electrosteel Steels Limited business has also tied up with Tata Motors for EV fleet, replacing LMEs, and with EeVe for e-bikes and e-scooters for plant-local travel. Similar efforts going on in all our businesses and depending on the manufacturing availability of such equipment in market.
Depending on how the market success is there could be opportunity for us to convert our industrial and passenger carrier vehicles to EV in the next few years. We are structurally moving towards cleaner fuels into our operation as the technological advancement are emerging. While Lanjigarh has signed a partnership with GEAR to supply natural gas, this fuel switch will reduce the emission intensity of alumina by around 10%. We are also looking for opportunities for partnering with the research institutes like TERI, Hatch, CSIR, NML, Worley, IIT Bombay, to research and evaluate implementation or opportunities for adopting clean fuels like natural gas, hydrogen into our operation, in steelmaking process, zinc concentrator, et cetera, and exploring innovative solutions for energy efficiency, better waste management, water management. TERI is working with us on multiple environment initiatives for water, climate, and habitat management.
Further, Vedanta Jharsuguda has planted 2.5 lakh trees so far with a record of 20,000 tree plantation in a single day. We at Vedanta have taken a target to plant 10 million trees by 2030, out of which our respective businesses have taken their own targets. We have taken a target to become water positive by 2030. We have onboarded an agency for water positivity roadmap and accounting across our businesses. 32% of water is recycled across our operations, which was up 2% from last year. 93% of our high volume, low toxicity waste is recycled. We have taken some action like ash pond water reuse at aluminium's, rainwater harvesting at zinc, STP water usage at Agucha, zero liquid discharge at our various locations to achieve water positivity.
Similarly, on waste management, specific projects are underway to utilize 100% water. BALCO has discharged its first fly ash to cement industry and has partnered with National Highways Authority of India for off-taking its 12%-15% of annual fly ash. Lanjigarh has also engaged with cement players to utilize red mud. I'm also happy to tell you that we have taken a target to get rid of fully dumped fly ash in the next 2-3 years' time by various means. One of those could be filling of the old dumped mines. We have established a diversity, equity, and inclusion council which will independently work towards to oversee and promote and bring more inclusivity, diversity and equity within the organization and bring more women in leadership roles. We have a target to increase diversity at Vedanta to 30% level.
Women in leadership position to 40% level, and to have 50% diversity at our corporate functions. With our ESG efforts, I am glad to share that Vedanta's ESG rating has seen an upward trend. Sustainalytics has lowered our risk score from 47.3 to 44.2. DJSI ranking has improved from 86 percentile to 89 percentile. MSCI has upgraded us to B in 2021, post CCC rating for more than five years. CDP climate change rating is at B in 2021 from D in 2020. We are deeply saddened by the loss of two lives in Q2 , Q3 , one at Agucha Zawar, and one at our Black Mountain Mining. The incident investigations have been completed by senior leadership team. The outcomes of the investigation are immediately shared with all sites of Vedanta.
For deploying the learnings across our sites, safety stand down was conducted across all our sites, with aim to communicate the learning to all employees and business partners. As an immediate response, an engagement session and workshops were conducted with all our CEOs and HSE heads for fatality prevention initiatives. To avoid such incidents in future, mechanization of activities such as face charging, secondary blasting, breaking is being implemented in a time-bound manner. Management has also decided on standardization of firing points across all underground mines at Vedanta. To ensure that all employees go back home safe, like critical, the programs like Critical Risk Management, Cross Business Audit Program, ICAM Quality Safety Investigation, and Safety Community of Practices have been initiated. Now turning to our business verticals.
Aluminium yet again witnessed an exceptional quarter with highest ever metal production of 578 KT, which was up 16% YOY. The alumina production at our Lanjigarh refinery was down 8% QOQ due to planned annual maintenance shutdown, but was up 16% YOY. Aluminium COP was at $2,055 per ton, owing to input commodity headwinds, especially power cost. This quarter saw an EBITDA margin of 29%. In our effort to be among the top global leaders in aluminium with sustainable tier one cost structure, we are very focused bringing an end-to-end structural changes and reducing market induced volatility. The ramping up of alumina refinery from 2 to 5 million tons per annum is on track, which will move us towards vision to be vertically integrated across entire value chain.
We are confident of significant cost saving post completion of smelter expansion and other growth project. We are also taking all initiatives to operationalize our coal mines, two of which could become operational in the next year. Turning to Zinc India, this quarter saw the highest refined metal production of 261 KT, up 11% YOY and highest nine-month mined metal production of 722 KT post the maintenance shutdown taken in quarter two. Integrated silver production was marginally down 5% YOY in line with the lower lead production and up 14% QOQ due to depletion of silver WIP. The cost of production stood at $1,148 per ton, up 2% QOQ due to higher coal prices and input commodity inflation, partially offset with higher volume and operational efficiencies. Zinc International business is well positioned for a long-term value creation.
This quarter, Agucha produced 41 KT of MIC, up 6% QOQ, but down 5% YOY due to lower zinc recovery. We finished successful commissioning of some of the debottlenecking project in Q3, which will give us a headway for increasing our production in Q4. This is key to 575 ton per hour enabler, which will enhance processing capability by 1.5 KT MIC. We also saw highest nine-month MIC production of 126 KT, which was up 22% from Agucha. The Q3 COP was up 8% YOY due to input commodity inflation and down 2% QOQ in line with higher MIC production. At oil and gas business, Q3 gross production was 159 KBOPD, taking the YTD average volume to 163 KBOPD.
The natural decline in the MBA field has been offset by the continued gain realized from polymer injection in Bhagyam Aishwarya field. New infill wells brought online in Mangala field. In Q4 FY 2022, we shall continue to focus on infill well drilling in Rajasthan across MBA fields, tight oil, tight gas, and Cambay to focus on maximizing near-term volume and arrest the natural decline. In OALP and BSL blocks, early monetization is underway for Cambay and Assam, with large target production start in Q4 FY 2023. OpEx cost in the current quarter was at $10.3 per barrel compared to $9.1 per barrel in previous quarter. This increase is primarily due to increase in polymer prices owing to oil price rally. We are looking forward to continue the exploration work program in OALP and PSE blocks.
In addition, we expect to commence shale drilling in Rajasthan on pilot basis, for which we have partnered with two business partner, Schlumberger and Halliburton. In iron ore, Karnataka sales went up by 24% YOY and 22% QOQ. VAB production was up 39% YOY, supported by productivity improvement initiative. Our VAB margin was down 49% QOQ due to lower pig iron prices and high coking coal prices. We have begun commercial operation at recently acquired cement plant. We are also proud to announce that with the successful acquisition of nickel and cobalt plant at Goa, Vedanta has become the sole producer of nickel in India. In steel, the hot metal production was up 2% YOY and 20% QOQ, owing to stabilized center plant and blast furnace. The sellable production is up 19% QOQ due to improved furnace performance.
The margin was down 35% YOY and up 125% QOQ due to plant shutdown expenses and higher commodity prices, partly offset by increased VAB mix to 74%. We have rolled out e-commerce sales for online ordering. We are further upgrading our facility through automation, digitization, and various other productivity improvement initiatives. Coming to FACOR. FACOR is continuing its turnaround journey, achieved highest quarterly ferrochrome production of 20 KT with plant productivity enhancement by 5%. The ore production was up 37% YOY through operational enhancement of both the mines. Our EBITDA margin was 5x YOY, majorly impacted in the last quarter because of high coke prices. At the end, I would like to reiterate Vedanta's unique position to deliver long-term sustainable value, to continuous focus on our strategic priorities, and diversified asset base.
I'm confident that with our renewed ESG vision, we'll be able to usher in a new era of sustainability leadership and be among the world's most responsible, respected, and renowned resource companies. With this now, I would like to hand over to our CFO, Mr. Ajay Goel, for the financial performance commentary. Over to you, Ajay.
Thank you, Sunil, and good evening, everyone. We continue the momentum of superlative financial performance and have surpassed the outstanding results of previous three quarters. This quarter witnessed our record revenue and highest ever EBITDA performance and a very low leverage ratio being net debt to EBITDA. Q3 was benefited by favorable sales realizations on account of lofty prices, zinc and aluminum being at historical high and also high Brent. Operationally, Hindustan Zinc and aluminum delivered a record quarterly metal production with 11% and 16% growth YOY. We delivered highest ever ore and ferrochrome production at FACOR. This quarter, we continued with our consistent track record of rewarding shareholders with dividend payout and at the same time de-leveraging our balance sheet.
Some of the key highlights of the quarter are highest ever quarterly EBITDA of INR 10,938 crore, up 42% YOY, with an underlying margin of 37% being an industry-leading margin. Attributable PAT before any exceptional items at INR 4,189 crore, higher by 27%, which depicts a very strong financial performance. ROCE, return on capital employed, at 25%, which is double versus last year's number of 12.5%. Gross debt at INR 50,738 crore with cash and cash equivalents of INR 25,207 crore shows a very strong underlying financial liquidity position.
Net debt at INR 27,577 crore, down 22% YOY, which is almost INR 7,781 crore, more than $1 billion deleveraging with annualized net debt to EBITDA ratio of 0.7, which is maintained at a very low level among Indian peers. We have a detailed income statement in the appendix. I want to highlight a couple of areas from that income statement. Depreciation charge for Q3 was INR 2,274 crore, higher 19% YOY, primarily due to higher overall working interest production and depreciation charge at Rajasthan Oil and Gas, higher ore volumes and capitalization of zinc and aluminum businesses. Quarter-on-quarter, depreciation increased by 7%, which is in line with the business magnitude change sequentially.
The finance cost for Q3 was INR 1,216 crore, down 8% YOY, majorly due to lower average borrowings and up 14% quarter-on-quarter, majorly on account of one-time gain we booked on ASI bonds buyback in the previous quarter. The year-to-date cost stands at 8.1%. Income from investment for Q3 was INR 516 crore, down 33% YOY, majorly on account of MPA movement and due to one-time income in the previous year. Income is also down by 11% quarter-on-quarter, again, due to MPA movement and utilization of funds for payment of dividend in Q3. The YTD income from investment stood at about 4.7% pre-tax. The normalized EPR is YTD at 27%, which is in the yearly guidance range of 26%-28%.
Normalized EPR, as we know, excludes any tax on exceptional items and tax on intra-group dividends. I'll move to EBITDA bridge. Starting with EBITDA bridge YOY. EBITDA for the quarter, as you may have seen, is higher by 42% YOY. As we can see on the chart, in summary, the significant portion of EBITDA increase of INR 10,240 crore from INR 7,700 crore last year to almost INR 11,000 crore in this current year, has been market or pricing driven, along with higher volumes at zinc business and higher PLF at TSPL from 60% last year to more than 90% in the current year, Q3. However, this has been partly offset by higher costs at aluminum and zinc businesses. Overall, the absolute EBITDA value is 1.4x of last year, same quarter. Moving on to EBITDA bridge sequentially.
EBITDA for the quarter is higher by 3% quarter-on-quarter. As is evident from the bridge, the market and regulatory forces have negatively impacted our margin by INR 337 crores, with commodity prices alone showing gain of INR 1,001.2 crores. This is offset by input inflation of INR 1,655 crores, majorly of alumina and coal at aluminum and also at ESL and IOB sector. On the operational front, the higher volumes at zinc, iron and TSPL businesses was partly offset by higher cost in aluminum, zinc and oil businesses. Overall, the higher metal prices and inflation on input side remains overarching themes for the quarter, both QOQ and year-on-year, though with different magnitudes. Moving on to next page on net debt bridge.
Net debt as of December 31 stands at INR 27,572 crore rupees, showing an increase on quarter-on-quarter basis, partly due to investment in the working capital, which is in line with the revenue growth this quarter and also on payment of dividends in the current quarter. Net debt on YOY basis has reduced by INR 7,781 crore, more than $1 billion, which is deleveraging. I want to underscore this point that in Q3, as a group, we paid almost $1 billion dividend. At the same time, we deleveraged balance sheet by $1 billion. That I think is quite significant, I think, feat. Moving on to the balance sheet. Long-term focus on balance sheet management is a key enterprise priority for Vedanta.
The average maturity of term debt is about 3.5 years and YTD borrowing cost at 8.1%. The credit rating has shown upward momentum with positive outlook by India Ratings and Research. Crisil did the same in the previous quarter, Q2. With net debt to EBITDA of 0.7x, we maintain it at a very low level among Indian peers. In summary, overall, with an excellent Q3 performance, we delivered both profitability and deleveraging. At the same time, staying the course on rewarding shareholders with handsome dividend and leaving a stronger balance sheet. With this, we are very well positioned to close the year strong. Thank you, and back to the operator for any Q&A.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Yeah. Good evening. Thanks for the opportunity, and congratulations for a good set of numbers. I have two questions. The first one is on your ESG initiatives, and thanks for articulating them in so much detail. You know, what I have observed is that a lot of your peers, particularly, you know, the global peers, they are building some kind of a portfolio of low carbon aluminum. Are you also thinking along the same lines? And if so, what is the roadmap for the same? That is my first question. The second question is on the rationale of acquiring Nicomet. I mean, what is your ultimate strategy for that? Do you plan to increase the capacity at that plant?
Since there are no nickel mines, of course, you know, associated with the acquisition, how do you plan to derive value from that?
Thank you. I'll go one by one. On ESG and aluminum, basically you must have heard in my commentary that there are certain initiatives like converting the forklifts to the EV-driven forklifts, tying up with GAIL. We also said that last quarter we purchased the maximum RE and amongst all the industrial complexes in the country, we were the maximum user of RE. To give you a comfort of what else we are trying to do, we said that we are tying up and collaborating with the world major like Hatch, Worley, CSIRO, TERI. We are partnering with them to work on the technology where the carbon footprints could be reduced, which could be, you know, the example is the green anode. Some people, global player, the aluminum players are working on that.
Something similar we are trying to do, partnering with them. We also said that we are in discussion and we are in an advanced stage of signing the PPA for 500 MW of round the clock renewable power. It is across all our businesses. A major part of it is also there in aluminum. The net-net, what we are trying to do is that we are trying to make a strategy which is a long term and a rolling strategy for three years, five years, 10 years, 15 years, as to on the complete value chain, how do we want to go about making our operation carbon net zero, on our promise of 2050 and/or before. That was, I think, your first question. The second question is on Nicomet, why we have acquired.
This is one area which actually matches with our strategy and our portfolio and, you know, in our journey of ESG also. Nicomet, the nickel is one of the key metal apart from its usage in the steel or the coatings or the alloys. One of the application which is emerging is the batteries. Here we wanted to put a foot on the ground, and in that direction we have acquired this asset, and we'll be commissioning this asset in the next one and a half months' time. As of now, we are trying to tie up for the raw material, but ultimately our objective is to become integrated, and we are looking at the opportunities globally, which, for which I cannot divulge any information to you at this point of time.
That is what the intention is. Let me also tell you that we have a domestic consumption of around 36-37 KT of nickel per annum, of which this operation has a capacity of 7-8 KT. 100% of nickel today is being imported. With this operation starting up, we will be meeting a requirement of 7-8 KT out of a total requirement of 36 KT. There still is a huge scope and requirement for India to build its own capacity of the nickel production.
Thanks for the elaborate answer, sir. Just on Nicomet, what is the ultimate capacity you're looking at and what are the returns that we can expect, let us say in next three years?
It is a strategic decision which we have taken to commission the smelter and build the technology and understand the technology. Ultimately, if we will be able to, you know, acquire some mining asset globally, we should look at sufficiently good margin, which are, you know, equivalent to our other businesses of at least 20%-30% of the EBITDA margin. As of now, we are just focusing on how we get our hold on the ground and start the operations.
Okay, great. Wonderful. Thanks and all the best.
Thank you. The next question is from the line of Ritesh from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. I have a couple of questions. First, congratulations for good set of numbers. Sir, first question pertains to VRL. If you could highlight what is the current net debt position. I think we had indicated that we were planning for certain repayments in the second half of the year. Corresponding to this, how much will be the maturity on bonds, term loans? And how should one look at the interest outflow, say from now till March? That's on the VRL. That's the first question, sir.
Ajay?
Yeah, sure. If you look at the VRL, the net debt position as on December is about $9.3 billion. Additionally, we also have that intercorporate loan almost $0.7. Say $9.5 billion-$10 billion is the net debt for the VRL. As you may have seen in the past, after paying the first dividend, the VRL's press statement, which spoke about de-leveraging of $0.3 billion in the first half and additional $0.5 billion in the second half. Net $0.8 billion is a de-leveraging on a comparable base in the current fiscal year. Now, so far as maturities are concerned, if I speak of next rolling 12 months, almost $2.8 billion worth of term debts are falling for maturity.
As I normally speak about, it'll be a mix of both, repayment and refinancing. Now, so far as interest cost is concerned, I mean, you may have seen the market impact is tapering down and you have to wait and watch. Typically, on most refinancing, we look at a lower rate. Net net, given our current year financials, you may have seen the Q3, and typically in our industry, our company, sequentially, the Q4 is the biggest quarter, both in terms of EBITDA and free cash flow. Refinancing VRL or VDL should not be a challenge.
Right. Sir, last quarter you had indicated $600 million of debt maturity for second half at VRL level. Would it be possible for you to indicate how much would it be for Jan to March quarter?
Maybe that one we can send information to you by quarter. Normally, we look at rolling, as I mentioned, next to one year, and $2.8 billion is the number. March quarter will be a much smaller number.
Okay, fine. My second question is for Duggal ji. Sir, what is the status on Vedanta BPCL? Third is basically restructuring timelines, and fourth is basically Hindustan Zinc and Zinc International. How should one look at it? Would you go for Hindustan Zinc International first, or basically would we prefer to go for Hindustan Zinc divestment? I think I'll put four into one, basically incremental capital allocation and from a structuring standpoint. Thank you.
Very nice. You have in one voice asked a number of questions. I get it. I'll try to answer one by one. Maybe BPCL and Shipping Corporation. The government still has not invited the financial bids. They had invited the EOIs. We participated in both the EOIs. As of now, we are doing the due diligence. I feel that the government now should ask for the financial bids anytime in Q4. As it goes, we would, as we have you know participated in the EoI, we'll definitely be interested in both the assets. Second, you said on the HZL disinvestment.
Everybody knows that the court gave a favorable decision and allowed the government to disinvest 29.5% share through the OFS route. The government is taking its own approvals. I think the OFS should happen any time after they complete their own approval. We have no role to play in that. As far as ZIE and AZL is concerned, I think it's a board matter. I'll not be able to divulge much information on that. Just to let you know that the internal thinking is on and the regulatory approvals are being sought. As the regulatory approvals will come through, the board will take its own decision based on its own merit. What else you asked?
Restructuring.
Restructuring timelines, sir.
Yeah. Ajay, you can.
Maybe just this the whole area of restructuring we covered in detail in the last quarter, as you might remember. One more time, if I call out the rationale that the whole concept of say conglomeration or de-conglomeration for value unlock is subject of corporate finance for sure. The whole idea of any potential demerger say for example, aluminum, oil and gas and iron sector in different listed companies should lead to value unlock which already exist. Some of the parts should be more than the current whole. The whole exercise is quite comprehensive, and the board's guidance last time was look at many, many options. We believe that the current study will get finished by this March end.
By the end of the fourth quarter, we'll have more update for you tangibly, and we'll go back to the board, and you will be amongst the first one to know about this.
Sure, sir. That's very useful. I have more questions. I'll join back with you. Thank you so much, and good luck.
Thank you.
Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal Financial Services. Please go ahead.
Thank you for taking my question, sir. My first question was with regard to the aluminum cost of production. If you look at FY 2019, the cost of production was close to about $1,950, which fell to about $1,650 in FY 2020, and we were talking about a structural reduction in aluminum cost. But the moment we saw coal prices spiking up over the last three or four quarters, the costs have jumped beyond $2,000. How should we look at the costs going forward? Would it be more related to coal driven, or it could be or we can see some structural reduction going forward?
Thanks for that. I agree that the last quarter the cost has gone up majorly because of the coal. Combination of the linkage realization, e-auction prices going up, and to mitigate the stock position, we had also to import some coal or purchase some coal from the aggregators. Even some power was also purchased to keep our operations on. As a combination of that, you know, the global energy crisis which has happened and that's in one way thanks to the global energy crisis because of which the LME also went up and our margins were protected. The stocks in IPPs have built up, not to the level where they should be. This is more like a dynamic situation. I would say the.
As far as the power cost is concerned, the worst is over. In this quarter, we should be much better off. The reflection of that is already visible in Q4 now, in terms of the rate realization, in terms of the premiums on the auctions, and in terms of the global prices, and in terms of the IPP stocks. As a combination of that, I think we should be much better off in the current quarter. As far as the alumina cost is concerned, which is a factor of the API. API means that as the LME will rise, the API will also rise. This is a factor of that.
You know what we are trying to do, we are trying to, you know, structurally reduce the cost. As the alumina refinery is building up its capacity from 2 million tons to 5 million tons, and I think in the next year the mechanical completion of phase one will take place. In H1, the mechanical completion of phase two will take place in H2. Steadily the plant will get commissioned and we'll be totally insulated as far as the alumina purchase is concerned. The next question is, how shall we source the bauxite? The efforts are on to get the bauxite mine as soon as possible. Also to get the EC enhancement of the Kodingamali mine. With these two factors, I think some insulation will come.
As far as coal is concerned, we are trying to operationalize our mines as soon as possible. We have three mines which we won through auction. Jamkhani, Kuraloi, and third is Radhikapur. We are trying to operationalize at least two of these mines in the next year. What we want to insulate ourselves from the volatilities of the market. As far as the third and fourth factor as the CPC and coal tar pitch is concerned, which is also a factor of the market fundamentals.
On which we may not have much of a control, but there are certain regulatory issues which we can get resolved by not putting the import restriction by the Government of India, and we are trying to work on the advocacy, and we will see that how these issues will get resolved. But this is what the story is there in detail. Rahul, you are also there on the call. Anything you would like to add on?
No, I think you have fairly covered. Only one positive development from the last quarter to this quarter is that, you know, because we were talking the last couple of quarters for the Tranche 5. I think the positive development which has happened is 15.6 million tons of the coal through Tranche 5, which is almost 60% of our requirement, and that is for five years. That is a positive development which has happened and which gives us 100% security for Q4. And going forward also in terms of, you know, linkage as Mr. Bhupal said that the new mine, which we have a focus to start, at least Jamkhani, you know, in the next year. That, coal side we are pretty sure and we are pretty secure in terms of structural changes.
Apart from that, I think Mr. Bhupal has already covered in terms of our alumina, you know, expansion, then the mine site, bauxite and coal both. That's what we are looking at and surely from Q3 to Q4 we have a you know reduction plan for 8%-10% in terms of the cost point of view through structural changes.
Right. My second question was with regard to the provisioning which has been done for the KCM mines, and which says that the outstanding as on 31 December is still INR 214 crore. Also simultaneously, you know, we have launched a new code of conduct. In light of the new code of conduct, is it possible to take a complete write-off? Because we all understand that this particular company, KCM, has been under liquidation for quite some time. Should we just write it off or should we continue to evaluate that 50% is still really receivable?
Excuse me, sir. Just give me a minute. I believe the management is not able to hear us. I'll just reconnect them. Allow me a minute please. Requesting the participants to please stay connected while we have the management reconnected. Requesting all the participants to please stay online while we have the management reconnected to the call. We have the management reconnected, so you may please go ahead with the question. Sir, I would request you to please repeat your question.
Yeah, sure. Thanks. Sir, in the press release we have mentioned that we have taken a provision of about INR 213 crore for the KCM mines, while still INR 214 crore remains on the books. Now, given the fact that this company has been under liquidation for quite some time, and the government of Zambia is obviously not interested in giving the company or the mines to Vedanta, how should we look at this provision going forward? Is it just a technical point of writing it off or we still really expect this to be recovered? Because this has been going on for several quarters. Just a linked question to that, we have released a new code of conduct.
You've always mentioned that we have the highest standards of the code of conduct for business at Vedanta. What additional are we looking at when we are releasing this new code of conduct? That would be also my sense. Thanks.
Sure. Let me just address them, both of them. Starting with the KCM point first, you're right. First of all, there's no write off on KCM amount on the Vedanta books. It's only an accounting provision. Total amount outstanding on the books is about 650 odd crore, and we provided 1/3 in FY 2020 and another 1/3 last fiscal in the March. There is no provision, I guess, in the previous quarter. That lead to the remainder one-third, about 230 odd crore balance on balance sheet as on December end. We think the entire amount is fully recoverable. The valuation for this remainder balance one-third is backed up by a valuation by one of the Big Four. Let me add that Vedanta Limited is one operational creditor ahead of, in fact, the, from the VRL side.
This amount, we believe, is very much backed up by third-party opinion, fully recoverable.
Yeah. Otherwise also, we are in active talk with the government there and all stakeholders. It is I mean, we still believe and have a confidence that we should be able to you know get the legal support, number one. Number two, the advocacy effort also going on. A combination of this would lead us to restoration of our management there, and we are really excited and committed to this mine. This mine still has a great future because this is one of the richest copper source in the world.
The arbitration is going on in which place for this particular mine right now?
Arbitration is going on in London.
Okay. We are expecting a decision soon on this?
The witnesses are going on as we speak.
Sure. Just on the code of conduct.
at the same time, we are in active engagement with the government there.
Sure.
Sure. I'll move to the second part, what you asked about the code of conduct. As you would appreciate, the documents like a code of conduct, they are living documents. They need to be revised at some intervals. What may have changed? First of all, we engaged again one of the consulting firms in terms of benchmarking with the best in the country on this field being governance. 3-4 areas. Some areas has been embellished. Take an example, the law around the anti-bribery, be it UKBA or FCPA or the Indian laws. That section has been embellished, made more clearer to the employees. Few areas, for example, the new age laws around data privacy and GDPR has been added. Some guidelines around how to conduct ourselves in social media has also been added.
Last one, perhaps one of the more important areas, is addition in terms of diversity and inclusion from employees' viewpoint, and Vedanta's commitment on renewing that we are equal opportunity employer has been added. With this, I think, our current CoC is at par with the best in the country. This CoC will be published on the website late in the week or tomorrow morning.
That's very helpful, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Pinakin from JP Morgan. Please go ahead.
Thank you very much. I have two questions. My first question pertains to the aluminum cost of production target. Now, over the years, Vedanta has consistently missed the aluminum cost of production target. Again, this time it is based on higher alumina content and 100% coal. Sir, can you give us a more granular clarity on the coal production breakup over the next three years? What is the total requirement and how does the company plan to achieve that over FY 2023, 2024, and 2025?
Ultimately, we want to source the complete coal through our own mines. As we said that, we want to operationalize at least couple of mines in the next year and ramp up as we go forward. I mean, 1 ton of aluminum requires around 10-11 tons of coal.
Say 2.2 million tons requires around 25-26 million tons of coal. A major part of it will be met through the operationalization of these mines. Rahul, if you have some more granular details.
Yeah.
Would you like to tell that?
Yeah. Yeah. I think from the coal point of view, basically our requirement would be around, you know, 25 million tons. What we are looking, as I said, you know, one is that the Tranche 5, which gives almost 60% of our volume, which is for five years. Apart from that, we have three coal mines, which is, you know, Jamkhani, Radhikapur West, Kunuri. I see that these three mines has a potential to go up and give us almost, you know, 100% requirement for almost 21 million, which can be supplied from my Jharsuguda.
That's how we are building up in terms of initially it will be a mix of, you know, our Tranche 5, which is, you know, linkage with five-year, and also the mine which is going to start in next year, which will be Jamkhani, and then Radhikapur West. Gradually we want to move to 100% with our captive coal mine. That's our plan. That's why, you know, we have clear roadmap and in terms of, you know, when these kind of events will take place.
Is it fair to say that the 26 million tons of captive coal would be over a much longer period, and the next three years would be just about ramping up some of these coal mines and hence the actual captive coal production would be much lower than the 26 million tons?
No. Basically, if you see that each mine has like 8-10 million kind of capacity, apart from Jamkhani, which is 2.6, but has a potential to also double, you know. These three mines, which is the EC level they are top, which is a government, will almost 17-18 million. I'm talking with maybe the 30% increase, which is really possible is 21 million. Total requirement is 25. That's how we are going to manage, you know, in the overall portfolio.
Understood.
The best suited mine in Kuraloi, which is closest to our plant also.
Sure. My second question relates to the CapEx program in the various divisions. With the chairman also having commented about the potential demerger into separate entities, at this point of time, basically aluminum and zinc account for more than 85% of the consolidated EBITDA. Given the fact that some of the smaller businesses may not be able to fund growth CapEx on its own, would it be prudent to stop CapEx programs in non-aluminum and non-zinc till the organization structure is clear? Because if there is a demerger, then will the programs be funded via borrowing on those entities?
We cannot give you the general detail, but let me tell you that what is the opportunity. I would give you a couple of examples which are, you know, not aluminum and zinc. One is that unfinished project of Electrosteel. There is hardly any jobs which have to be done. Around 30% of jobs have to be done, and this will give us a complete capacity of 3 million tons. So there is a question of funding, and this is a very low hanging fruit. Another example is the Nicomet furnace. We have a capacity to produce 80 KT of ferrochrome today, and there is another furnace, 60 KT, which is unfinished furnace. As we speak, we have started doing the engineering and the balance job completion discussion for this furnace.
This will take our capacity of this from 80 KT to 160 KT. This otherwise also is one acquisition which has given us rich dividends. The opportunity in the mines and the way the R&R we have raised by doing the drilling at such a faster speed gives us the opportunity even to go beyond 140 KT. But 140 KT we should be able to go in the next year itself, with raising the mining capacity for which also we are going ahead with the Environment Clearance and then, you know, commissioning this furnace. These are couple of examples.
Similarly there are a lot of opportunities in all our businesses where we'll keep evaluating that in the near term, what could be the low hanging fruits through which the it will add to the EBITDA of the individual entities. Otherwise also we have not split the company. This was the proposal which was given. We formed the subcommittee of the board, of which I am also a member. We are working on various options. Based on various options and the merits, we will put up the various options to the board in the next two to three months' time. Depending on what we decide at that point of time, we will come back to the market that which way we are going.
Understood. Thank you very much, sir.
Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Yeah, thank you for the opportunity. A couple of questions. First, if you could just confirm what is the royalty which Vedanta India pays to Vedanta Resources, and how has this changed in the last couple of years, and is there any consideration of any revision in this royalty rate?
Yeah, sure, Sumangal. Royalty, this agreement, in fact, was first documented in 2017 and got revised in 2020. The current agreement will expire next year, sometime in March. As you know, the entire agreement has been externally benchmarked by the Big Four. Our rate of royalty for couple of large businesses is around 1.5%-2%. If I give you the overall quantum of royalty for the current fiscal, it is about $200 million on a yearly basis. This amount has been mostly paid, in fact, as an advance for the current fiscal. Basis how the numbers stack up by the fourth quarter will be actualized. In the current year, there is no upward revision per se, and this revision is falling due next year.
As and when any revision takes place, any terms and conditions, it will be externally benchmarked, will be arm's length, and obviously will get approved by Audit Committee and Board of Directors.
Understood. This $200 million is the payment for FY 2021. Is that right?
It is for the current fiscal year 2022.
Two.
It is paid in advance, and it is actualized in March, the Q4 , basis the actual results for the fourth quarter. The actual number will not vary by a significant number.
Understood. Second question is with respect to our vision in growing the steel business. There are a couple of inorganic or acquisition opportunities in the market which are under various stages. What all opportunities excite us, and what are our plans with respect to organic and inorganic growth in the steel business?
We have been evaluating whatever options come in the market. Vedanta, we keep evaluating. As far as ESL is concerned, we are going to commission 3 million tons in the next year. Beyond that, whatever opportunity is there in the market, we will evaluate and see what best is possible for us.
Excuse me, sir. Does that answer your question?
Sorry, I was on mute. I just have one small clarification left. This entire restructuring exercise which is under evaluation, I mean, is there also a consideration of merging any entity which is outside of Vedanta India and still is Vedanta Group into Vedanta India or something of that also being considered or it's just a split of existing Vedanta India?
We are exploring various options.
Yeah. If I just maybe go back, Sumangal, to what we spoke in the previous quarter, in our 17th November press release. The intent was to look at restructuring. I spoke to you also, I guess, when I was in Mumbai, last, sometime in November. Right now, the thinking was around Vedanta Limited and potentially looking at three large entities, aluminum, oil and gas, and iron ore business. Having said that, the board's mandate to the management is to go for a comprehensive review. All options are on the table and will need maybe couple of more months' time. By sometime March end, the current quarter end, we'll have more clarity.
Understood. Is it possible to educate us what are the other big businesses, which have strategic connections with Vedanta India and the Vedanta Group? Hello?
Uh, ladies and gentlemen, requesting you to please stay connected. We are just trying to reconnect the line back to the conference. Requesting you all to please stay online. Thank you. This is a reminder to all participants present in this conference. We are just trying to reconnect the line for the management. Requesting you all to please stay connected.
Hello?
We have the line connected, sir. Please go ahead.
Yeah. I just was asking a follow-up, that what are the other businesses in Vedanta Group which could be strategic or related to Vedanta India? Is it possible to share the details?
Sumangal, I mean, sorry we dropped off. Yes, I think right now what we spoke last time again was aluminum, oil and gas, and iron and steel. Barring which, as you'd appreciate, unless we have an internal alignment and go to board, sharing more information at this point will not be appropriate. Allow us a couple of months' time, and we will be sharing it as soon as possible.
Understood. Thank you so much, and all the best.
Thank you, Sumangal.
Thank you very much. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Varun Kapoor for closing comments. Over to you, sir.
Thank you very much, operator. To conclude, thank you all for taking this time to join us this evening. If you have any further questions, please feel free to reach either me or the rest of the investor relations team. I would like to wish everybody a happy weekend. With that, I'll pass it back to the operator.
Thank you very much. On behalf of Vedanta Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.