Vedanta Limited (VEDL) Q3 FY23 Earnings Concall Transcript

Vedanta Limited (NSE: VEDL) Q3 FY23 Earnings Concall dated Jan. 27, 2023

Corporate Participants:

Sandep Agrawal — Head of Investor Relations

Sunil Duggal — Chief Executive Officer

Ajay Goel — Chief Financial Officer

Rahul Sharma — Chief Executive Officer of Aluminium Business

Arun Mishra — Chief Executive Officer, Zinc Business

Analysts:

Pinakin Parekh — JPMorgan — Analyst

Prashanth KP Kota — Emkay Global — Analyst

Ritesh Shah — Investec — Analyst

Indrajit Agarwal — CLSA — Analyst

Rahul Jain — Systematix — Analyst

Alok Deora — Motilal Oswal — Analyst

Sumant Kumar — Antique Stock Broking Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to 3Q FY ’23 Vedanta Limited Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Sandeep Agrawal; Group Head, Investor Relations, Vedanta Limited. Thank you and over to you sir.

Sandep Agrawal — Head of Investor Relations

Thank you, Prasanth, and hello, everyone. I’m Sandeep Agrawal. On behalf of Vedanta Limited, I’m delighted to welcome you to our third quarter of the financial year earnings call. A transcript of this call will be made available on our website, as well as audio. The financial statements, press release and presentation are already available on the website.

Today from our leadership team, we have with us, Mr. Sunil Duggal, our Group CEO; Mr. Ajay Goel, Group CFO. We are also joined by leaders from couple of key businesses, Mr. Arun Mishra; CEO of Zinc business; and Rahul Sharma; Deputy CEO, Aluminium business. Please note today’s entire discussion will be covered by the cautionary statement on Slide 2 of the presentation. We will start with update on our operational and financial performance and then we’ll open the floor for questions and answers.

Now, without further ado, I would like to hand over the call to Mr. Duggal.

Sunil Duggal — Chief Executive Officer

Thank you, Sandeep. Good evening, everyone and welcome to quarter three conference call. During the third quarter, the Indian economy remains strong and resilient, on strong macroeconomic fundamentals and healthy domestic convention, despite rising interest rates, robust growth we have witnessed in macroeconomic sectors like housing, automobile, consumer durables. However, the global economy continued to grapple with multiple headwinds like monetary tightening, high inflation, geopolitical instability and volatility in financial markets. Commodity prices also witnessed sluggishness in this macroenvironment, our team has performed commendably. We stood several initiatives, achieved strong operational performance, we delivered good set of financial results, despite weaker commodity prices.

On third quarter EBITDA stood at INR7,100 crores, free cash — free capex for the quarter stood at INR6,500 crores, with focus on working capital and cost optimization. In line with our repurposed ESG strategy, we want to uplift the quality of life of communities through various initiatives around drinking water, sanitation, healthcare, community infrastructure, children well-being and education among others, we spent more than INR216 crores in the first nine months of the year and positively touched 3.14 plus million lives.

Our ESG focus and action have been recognized by several major ESG ratings agencies. Vedanta Limited is now ranked sixth globally among top 10 diversified metal and mining peers in DJSI. That has been inducted into Dow Jones Sustainability Emerging Markets Index. Our MSCI, ESG rating has improved from CCC in 2020 to BB now and Sustainalytics have also improved our ESG credit score by 4.5 points. Across the board, improvement in our ESG’s risk rating is a testimony of our team’s diligent effort to become an ESG leader in the industry.

Furthering on our goal to deploy 2.5 gigawatt of round the clock renewable energy for our operation by 2030, I’m delighted to share that, we have approved plans for another 941 megawatt RE power under group captive RE power development program for our operation across India, including Hindustan Zinc.

During the quarter, our aluminium business procured INR390 million units of RE power and are conducting Biofuel trials as green alternative from ladle preheating and heavy vehicles. We successfully conducted biomass trials at ESL to explore alternative sources of green energy. We have also HZL, Cairn India and Iron Ore businesses in Net Water Positive operation. Cairn signed MoU with Gujarat State Forest Department for development 60 hectares Mangroves Forest, 50,000 saplings in coastal area of Surat, in our effort to put biodiversity in reserve environment. We introduced that industry-leading EV policy for all our employees. The policy will lead to increased adoption of EVs amongst employees and drive the mindset change aiding India’s green mobility push for a sustainable future.

Now I’ll come to operations, and first on aluminium, our quarterly COP further renewed by 12% to $2,149 per ton on account of operations and buying efficiency. Our linkage coal materialization improved to 66%, we have commenced operation in Jamkhani mines. We continue to focus on volume growth and vertical integration projects to unlock its full potential. Zinc India achieved best ever mine and refined metal production in nine months. Its quarterly refined metal production improved 5% Q-o-Q, with better planned and mined metal availability, it continues to be in the first quartile of global cost curve.

Zinc International operations are now steady, at 280 plus KTPA MIC production run rate, it achieved best ever MIC production in nine months. Gamsberg cost of production excluding TcRc in this quarter decreased 12% Y-o-Y with operational efficiency and higher production volumes. Gamsberg Phase 2 expansion is progressing well. In oil and gas business, our average gross production increased 3% Q-o-Q to 145 kboepd as natural production decline was offset by infill wells in MB and RDG fields.

We have successfully drilled one exploration well in Ravva and have put that to production, adding close to 5 kboepd. We commenced first gas and condensate facility in Jaya field, which is OALP. As you know that the government has extended the PSC for 10 years and we have signed the addendum to expansion with effect from May 2020.

In iron ore business, our production of saleable ore in Karnataka increased by 32% Q-o-Q. Shale was sluggish due to government imposed duty and exports, but now it has picked up. Pig iron production was up by 66% Q-o-Q to 200kt, as all our furnaces were online for post-maintenance shut down in the previous quarter. However, we saw a quarterly decline in pig iron margin owing to price correction. Our Liberia operation achieved first ever export shipment in this month.

In steel, one of our blast furnace was put on maintenance shut down, resulting in a 6% quarterly production decline. Our quarterly COP including — excluding the impact of iron ore mine cost improved on account of lower coking coal cost. However, ESL’s margin was impacted by decline in steel prices and high cost of production. The newly acquired iron ore mine owing into regulatory charges to be paid on iron ore production.

In Facor, nine month ore production grew [Indecipherable] due to operational efficiency. Our 60ktpa furnace is undergoing test run and we are on track to get first production in the month of February, current quarter. Overall, we have made significant progress across our strategic priority, creating value for our stakeholders. Our world-class assets have delivered outstanding financial results, driven by operational efficiency. I would also like to share that Vedanta Board has approved the sale of its ZI assets to HZL at valuation of $2.98 billion. Consolidation of ZI under HZL will fast track ZI’s growth by using HZL best-in-class expertise in underground mining, smelting and metal marketing.

HZL’s combined R&R would be 1 billion ton plus and it would have benefit of improved access to developed markets and strong foothold in African subcontinent for expansion. This monetization would provide greater flexibility to Vedanta for future growth, projects and manage leverage at group level. This transaction is win-win transaction and we unlock significant value for both HZL and Vedanta shareholders. Moving forward, we are optimistic on the commodity market and macro data that we see now is improving. China’s reopening post zero-COVID policy property market stimulus and frontloading of infrastructure investment to expand yet another positive for metals global demand. At the same time, India’s economic situation is expected to be better than the rest of the world, with the strong domestic consumption, moreover, this is seasonally good quarter for commodity demand in India.

India being our largest market, its continued strength augurs well for our business performance. With our outstanding portfolio of low-cost effects, multi-commodity project with strong balance sheet and a commitment to ESG leadership we are well-positioned to deliver value to our shareholders and our communities.

With this now, I would like to hand over to our CFO, Mr. Ajay Goel for financial performance. Over to you, Ajay.

Ajay Goel — Chief Financial Officer

Yeah. Thank you. Thank you, Sunil, and good evening, everyone. Third quarter witnessed a volume inflation and improving sentiments [Phonetic] which has driven recent metal outperformance. Indian economy remained buoyant and saw strong growth in metal consuming sectors and India’s manufacturing sectors ended 2022 on a strong note, with the manufacturing PMI rising to two-year high of almost 57.8. India’s inflation eased below RBI upper tolerance level for the first time in December to 5.7%. We believe that the commodity prices are now under the influence of demand recovering and will stay elevated in calendar 2023 and beyond.

This quarter performance witnessed steady production, easing of inflation that helps in a lower operating cost, at the same time, the profit was impacted by further softening of commodity prices. Number for the Q3 are a reflection of continuing our various improvement initiatives in terms of enhancing production, lowering operating costs and focus on free cash flow.

I want to share some of the highlights for the current quarter, wherein the consol quarterly revenue stands at about INR33,691 crores, down 7% quarter-on-quarter, impacted by lower LME and Brent. The quarterly EBITDA at INR7,100 crores with a margin of 24%, supported by easing of input inflation and also strategic hedging. The highlight — main highlights for the current quarter remains our profit after tax, PAT, which is at about INR3,092 rupees, which increased by 15% quarter-on-quarter. Healthy free cash flow, pre-capex INR6,504 crores and also, we continue to maintain strong double-digit ROCE of almost 23%. You heard that we also declared INR12.5 per share, fourth interim dividend that makes progress for the full fiscal at about INR81 per share YTD. And that also makes Vedanta, the highest dividend-paying company amongst its peers in India.

Before I move ahead further in Q3 performance, I would like to also highlight that our key metal businesses, that is Zinc India, Zinc International and Aluminum recorded highest-ever MIC and metal production in the last nine months. This demonstrates that our long-term fundamentals remains strong and we will deliver a robust year in terms of operational base. We have an income statement in appendix, where you will find details against each head [Phonetic] of profit and loss account.

I now move to EBITDA bridge. When compared the third quarter EBITDA to the second quarter, the largest driver was the lower input inflation. And first gain, which was partly offset by lower metal and Brent prices. Further, if you look at items that were under our control during the quarter, we did well in terms of operational performance on cost front, which was the outcome of various improvement initiatives earning across the businesses and to some extent, strategic hedging in Q3 as well. But if you compare last quarter, the benefit of hedging was lower comparatively and therefore it also impacted the EBITDA for the quarter.

Moving on to next page on net debt bridge. Net debt as on December 31st stand at about INR38,000 crores, with net debt to EBITDA, the leverage ratio at 0.966, which was maintained at low levels amongst Indian peers. The increase in the debt in the current quarter as a result of spending on various sustaining and the growth capexes at businesses and also the money returned to shareholders that resulted in better debt mix at overall Vedanta Group level. As we are committed earlier, our net debt to EBITDA level remains comfortable and well within the range of our capital allocation framework.

Moving on to the balance sheet, we have built a more harmonious balance sheet with assets and the liabilities moving towards better equilibrium and by which I mean to say the overall debt at holding company has come down significantly in the current fiscal. We are well positioned to address our current maturities, focusing on driving improvement. We also continue to have solid balance sheet with our net debt to EBITDA maintained at comfortable low levels and we finished the quarter with almost INR2.8 billion of healthy cash and cash equivalents.

Our average maturity is maintained at about 3.7 years, with average cost of borrowings at about 7.7%. Our credit rating continues to be at AA with a stable outlook both by India Ratings and CRISIL. We moved a step closer through our commitment of reducing Holdco debt by INR4 billion over three years. In the first nine months, which is April to December, in the first nine months, we deleveraged Holdco by INR1.7 billion.

Finally, we are confident in our ability to close the year with a strong performance as we have expertise to drive improvements across businesses, while successfully weathering macroeconomic uncertainties. We have numerous initiatives that support our strategic priorities and collectively, this will position us to meet growing demand for net-zero transition at the same time, returning capital to shareholders.

With this, I now hand over to operator for Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Pinakin Parekh from JPMorgan. Please go ahead.

Pinakin Parekh — JPMorgan — Analyst

Yeah, thank you very much, sir. Sir, my first question is on the proposed transaction with Hindustan Zinc. Now given that in the past, the government apparently did not approve the transaction back in 2012 when it was proposed to buy. What gives us confidence this time that the government representatives will be on-board to approve the transaction?

Sunil Duggal — Chief Executive Officer

See, this transaction is value accretive for both the organizations. So, I mean, the kind of the reserve and [Indecipherable] ZI has at that point of time, and now it has on the other Gamsberg has been put up — Gamsberg has already ramped up to almost neutral production. Second project is in pipeline, so that means the business is on track to deliver 600ktpa of volume in the next two years time. Along with that, lot of exploration success has come. And from the time then to now, you can see that the total contained metal in ZI is more than Hindustan Zinc at this point of time. So it creates a huge synergy and the success of the Hindustan Zinc transitioning to underground, putting up the smelting capacity, integrating the operation. So, I think it is a winning combination.

And with that winning combination, the government gains and you can see that ONGC Videsh, other government company, now the government has set up KABIL to acquire the assets abroad, which is under the Mine of Ministry [Phonetic] today. So there the government is looking at the global footprint. We believe that this proposal could be exciting for the country and for the government and why it should government not support it.

Pinakin Parekh — JPMorgan — Analyst

Sure, sir. And my last question is that with the expected proceeds, I think $2.4 billion upfront and then the remaining over the — over a timeframe. What does Vedanta India plan to do with the cash? Would that the entire amount be distributed as dividends or will it look at some kind of acquisitions?

Sunil Duggal — Chief Executive Officer

Ajay?

Ajay Goel — Chief Financial Officer

Yeah, sure. So, Pinakin, I mean, you remember our policy on allocation of capital of 8% [Phonetic] and the entire proceeds of $2.4 billion plus $0.5 billion in terms of time will be used and it will be guided by our policy and allocation of capital. Now, if we have multiple usages, examples means using that money for funding our project in terms of growth capex and including the payment of dividend and the deleveraging both VEDL and also via HZL.

Pinakin Parekh — JPMorgan — Analyst

But any deleveraging at VRL would be done via dividends from Vedanta Limited or can we expect intercompany loans or asset buybacks from Vedanta Resources to Vedanta Limited?

Ajay Goel — Chief Financial Officer

Any kind of IC — with the intercorporate loan is out of question. And I cover this point also in a couple of the earlier calls, there is a new ICD planned.

Pinakin Parekh — JPMorgan — Analyst

Sure.

Ajay Goel — Chief Financial Officer

And in terms of how the money we can repatriate, beat dividend or other means. I think that is something we are working on Pinakin. But as I mentioned, allocation of capital policy remains OALP. So it is used to — it will be used for funding our growth capexes, any acquisitions and at the same time payment of dividend and deleveraging VDL or VRL. I feel we have spoken at many fronts and many times.

Pinakin Parekh — JPMorgan — Analyst

Sure, understood. Thank you very much, sir.

Sunil Duggal — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Prashanth KP Kota from Emkay Global. Please go ahead.

Prashanth KP Kota — Emkay Global — Analyst

Hello, sir. Good evening and congratulations, sir for the deal with HZL and clearly reassuring that you’re committed again that there will be no ICDs, etc., is you’re assuring. Sir. couple of questions, on aluminium business how do we expect the COP to progress in Q4 FY ’23, assuming the coal linkage materialized at 65%, 70%. And all other sources of coal are priced at where they are today. What is the COP that we can expect in Q4?

Sunil Duggal — Chief Executive Officer

See, I have colleague in the name on Rahul Sharma, who’s the CEO of Aluminium business with me. But in the meantime, you can appreciate that we reduced the cost by say around $300 in quarter three compared to quarter two. But we’ve seen that broadly the journey could continue, depending on how much of the coal realization, linkage coal realization at the movement would come. But there are lot of levers in hand and we believe that we may have good cost reduction. So any guidance Rahul, you want to give.

Rahul Sharma — Chief Executive Officer of Aluminium Business

Yeah, thanks [Indecipherable]. I think first I would just like to — maybe just to take the flashback in terms of in Q2 win, if we recall, we have said that we will reduce our cost by $200 and that was the H2 guidance. If you feel Q3 itself, we have reduced $280 which 12% reduction and that is purely comes from three sector volumes, for sure, is the coal cost, improved operational KPIs and also by the mine efficiencies. But coming to the Q4, I think we see that it is going to better from here. And especially the lever which we have seen because we are going to have the 100% coal materialization and also our Jamkhani coal mine, which has started in December, we are looking quantity from Jamkhani mine and also soften the commodity price. We see that there is going to be a further reduction and we’ll be doing maybe around 5% to 7%.

Prashanth KP Kota — Emkay Global — Analyst

Understood, sir. Thank you. And sir my second question is on the all India business. Sir am I missing something here, the realizations Q-o-Q are lower, because of the lower crude prices. The volumes are same, COP is same. However, EBITDA and revenue are same despite lower realization. So is there any mix issue here or what is it that I’m missing?

Sunil Duggal — Chief Executive Officer

See the volumes are up slightly, the volumes are up by 3%. The cost is down by $1 per barrel also. So there are positive levers around the operation, because of which — see what is the percentage increase in EBITDA from oil and gas?

Prashanth KP Kota — Emkay Global — Analyst

It is flat sir, it is flat Q-o-Q, despite much lower crude prices and realization prices.

Sunil Duggal — Chief Executive Officer

Yes. So you can see that the volume has gone up to 145, 146 and cost has also reduced.

Prashanth KP Kota — Emkay Global — Analyst

Okay, sir. Understood, sir. If there is any other thing, I will try to consult with the team. Yes, thanks sir. Thanks and all the best.

Sunil Duggal — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Yeah, hi sir, thanks for the opportunity. Sir, couple of questions. First is, just wanted to have a sense on understanding of the debt maturity profile at Vedanta Resources, please correct me if I’m wrong. But what I understand is that we have an total outgo of around $2.5 billion. I think we are trying to tap into PSUs probably to rollover at Barclays and even potentially looking to top up at Oaktree. So I just wanted to understand how should one look at the cash flows from now till June if one has to take care of the cash flow requirement at the parent level?

Ajay Goel — Chief Financial Officer

Sure, Ritesh. So if you look at maybe that two quarters, the one is the fourth quarter, the current quarter, Jan, Feb, March. The need for the funding at VRL [Phonetic] is about $550 million. And with the current dividend of INR12.5 and the remainder amount, so we are fully covered. So the entire cash requirement in terms of source and application are fully in equilibrium for the current quarter.

If you look at the Q1 of next fiscal, which is April to June, the total requirement at Vedanta Resources is almost $2.1 billion. In fact, $2,050 million I think precise. Now again, multiple discussion, you’re right are going on. I would say three large buckets of — to meet $2.1 billion, first of all the Oaktree upsizing by almost $750 million is one event. Secondly, we are in talks with the various banks with PSC or multinational banks and at least $0.5 billion, we assume we’ll get from there so 1.2. Remainder amount is a combination of, I guess, the sub-brands which was paid in the first quarter in dividend. So both for Q4, we are fully locked in and Q1, we are in the advanced stages of closing all of those over next two weeks’ time.

Ritesh Shah — Investec — Analyst

Right. So sir, if I just go by the numbers what you indicated, assuming Oaktree at $750 million, brand fee at the $300 million, PSU is $550 million, BARCAP at $150 million. It still lives with a gap of nearly $750 million. So is this what you are saying that could be by way of dividends and are we pretty much okay that the cash flows from India operations will be able to cover up for this post capex?

Ajay Goel — Chief Financial Officer

Well, I think those are the ones which are already in the pipeline [Indecipherable] and even the numbers can go high. But with the combination of $750 million, $0.5 billion and the brand fee we’ll be covering almost $1.7 billion or so. And that is a small number and even that we can cover. Any additional payment of dividend always an option in Q1.

Ritesh Shah — Investec — Analyst

Sure. And sir I just wanted to understand we were striving for GR to RE, which I think the court has actually put a spanner. How does your thinking change basically when we are looking at cash flows for the next year, specifically given there is again upwards of $2.5 billion plus of maturity for Vedanta Resources? So I’m just trying to understand your thought process when it comes to matching the cash flows, cash flow requirement of the parent.

Ajay Goel — Chief Financial Officer

Yeah, sure. So the whole proposal as you remember, we spoke in last also couple of investors call, the whole movement from GR to RE was futuristic knowing that the whole GR concept is basically passed under new companies act, including, I would think in very contemporary, technical accounting and companies are doing it even to manage things for the future, amount that we paid in the last fiscal, including the [Indecipherable] amount is from the current reserve and profitability.

The hearing at NCLT has taken place and all the hearing by both the parties have been swithced, now the order is reserved and we’re expecting the order to come over the next four to six weeks’ times. What we are looking right now is to get entry from the bankers and we have significant portion more than 50% bankers have given NOC. So we expect that the whole GR to RE closures will be happening within the fourth quarter.

Sunil Duggal — Chief Executive Officer

And we are quite hopeful about it.

Ritesh Shah — Investec — Analyst

Perfect. Sir, last question. Sir, are there any covenants that one has to be mindful of? We understand Vedanta India balance sheet is pretty much okay. But when we look at the bond documents, we have in past taken levy to actually basically soften out the covenants. Are there any hard covenants that one needs to be watchful for?

Sunil Duggal — Chief Executive Officer

I think all the covenants even at Vedanta Resources are quite, I think rating is standard, nothing that I think we need to worry about.

Ritesh Shah — Investec — Analyst

Sure. And that is very helpful, sir. More questions, I’ll join back the queue. I wish you good luck. Thank you.

Sunil Duggal — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.

Indrajit Agarwal — CLSA — Analyst

Hi, sir, two questions from my side, both again on the transaction. First, what would be the tax incidence of this inflow that we will get about INR2.98 billion. So what is the kind of cost on the books that we have and if there is any tax incidence on this?

Ajay Goel — Chief Financial Officer

Sure. So again, Indrajit, in terms of taxation, want to look at, in fact, the two aspects, one is the international one and the entire transaction from the international tax viewpoint is a fully tax agnostic. So $2.98 billion, one would receive the full consideration, there is no tax implication. Secondly, from the Indian tax perspective, I think that’s where we are still evaluating certain tax optimization ideas.

Indrajit Agarwal — CLSA — Analyst

So even if upstream this as a dividend, will there be a tax incidence thing or that is still under consideration?

Ajay Goel — Chief Financial Officer

That we are still working on Indrajit.

Indrajit Agarwal — CLSA — Analyst

Sure. My second question is on the first trans payment of $2.5 billion or $2.4 billion. So what are the milestones or approvals that we are awaiting post which we will see that this amount will be upstream to us, what kind of numbers are we looking at or what kind of milestones we’re looking at?

Ajay Goel — Chief Financial Officer

So in terms of approvals — this is in RPT as we know and that too also material RPT, which is crossing the INR1,000 crores. So in terms of approvals, it is the audit committee of both the companies Zinc and Vedanta Limited, which was done. Board of both the companies also has cleared the transaction. But the third step, of course, is sending a postal ballot and getting the approval by the shareholders. There we need the majority of the minority. The entire process both from the Zinc side and from the Vedanta side will be finished over next six weeks’ time, so early March, it will be finished. Thereafter the $2.4 billion sale consideration leaving that deferred consideration can finish pretty quickly over the next 12 months’ time.

Indrajit Agarwal — CLSA — Analyst

So we don’t have to wait for — sorry.

Sunil Duggal — Chief Executive Officer

We don’t have to wait for?

Indrajit Agarwal — CLSA — Analyst

Any government approvals say that in India or overseas?

Sunil Duggal — Chief Executive Officer

No, it’s Board matter, so the Board has already approved this. And post that we have to get the shareholder approval as explained by Ajay.

Indrajit Agarwal — CLSA — Analyst

Sure. Thank you so much. That’s all from side.

Operator

Thank you. The next question is from the line of Rahul Jain from Systematix. Please go ahead.

Rahul Jain — Systematix — Analyst

Yes, hi sir. Thanks for taking my call. Sir, I had a couple of questions, firstly on, can you give some update on the expansion of alumina and aluminium at Lanjigarh and what is the status over there, when can we see additional output coming from there?

Sunil Duggal — Chief Executive Officer

So, the election work is in full swing. So the expansion is in two parts, one is 1.5 million tonne train one, 1.5 million tonnes train two. So as we speak, the train one mechanical completion is getting over. And by this quarter-end or the early quarter, next quarter, the plant will be fired and we are hopeful that in the next one to two quarters, it should ramp up to the full volume, that is train one. And the second train, I think by the mid of the next year, the mechanical completion will be over and then thereafter, it will take one quarter or one and half quarter to fully ramp up. So by the end of the next year exit, the total alumina refinery up to a capacity of 3 million tonnes will be up and running.

Rahul Jain — Systematix — Analyst

Right. And sir, on the sale of the transaction, Ajay, whatever it —

Operator

This is the operator.

Sunil Duggal — Chief Executive Officer

We lost him.

Operator

Sir. we are not able to hear you.

Sunil Duggal — Chief Executive Officer

Can you hear me?

Operator

One moment sir. This is the operator. Sir, we can hear you. Rahul Jain from Systematix, please repeat your question, sir.

Rahul Jain — Systematix — Analyst

I was asking that whatever dividend payment we will get from the sale of the — completion of the transaction, whatever money we will get, will be paid out as dividend?

Ajay Goel — Chief Financial Officer

I covered this early in the call that — so I said, so in terms of this entire money, 2.4 plus 0.5, in terms of this addition will be guided by company’s policy and allocation of capital and it can be used for funding our capexes both growth and sustaining. At the same time, payment of dividend and deleveraging for VB than the VRL. But the substantial portion, we intend to use for deleveraging at a group level.

Rahul Jain — Systematix — Analyst

Okay sir, thank you. Thank you so much.

Sunil Duggal — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Yeah. Hi sir, thanks for the opportunity, again. Duggal, sir, question for you. Sir, how should we look at the incremental capital allocation? I think we have been awaiting clarity specifically on the semiconductor foray, if you can provide some color over there. I think secondly after Athens, we have gobbled another asset, Meenakshi at pretty attractive valuations. So I was just trying to get a sense on incrementally on capital allocation and how are we marring this decision specifically with the ESG target what we already stated.

Sunil Duggal — Chief Executive Officer

You’re asking about the semiconductor business?

Ritesh Shah — Investec — Analyst

Yes, sir.

Sunil Duggal — Chief Executive Officer

So, semiconductor business as of now is not under ambit of Vedanta. So if any call will be taken, so we’ll discuss this question at that point of time.

Ritesh Shah — Investec — Analyst

Sir, if I may just, if one had, if hypothetically it goes at the parent or at the Vedanta India listed entity. How should we look at the financials or if you can — if it’s possible if you can indicate what is the quantum of capex which is required? I assume that the JV that Foxconn 50-50 and there might be 30-70, so the effective outgo might be a bit low. Can you give us some comfort with some numbers over here? So basically, we can take — we can understand it better.

Sunil Duggal — Chief Executive Officer

So, Ritesh, you have to appreciate that, once this transaction is not approved, I’m not supposed to discuss this number also at this point of time, but you can do your math. Some of the numbers you are doing in your mind is also right, but it would not require much of a capex, with the participation of Foxconn and the government subsidy. You understand and there is a state subsidy also, over 50% subsidy from the center.

Ritesh Shah — Investec — Analyst

Sure, sir.

Sunil Duggal — Chief Executive Officer

Beyond this, it will not be possible for me to comment.

Ritesh Shah — Investec — Analyst

No problem. And, sir, on power and secondly, basically Hindustan Zinc incremental basically workers if at all. So after Athens, we had Meenakshi, anything on that side specifically, we have steep targets even on ESG.

Sunil Duggal — Chief Executive Officer

See. As far as ESG is concerned, we made the 10 commandments declaration to the market that what are we going to do. One of that was that, 25% of our operation will be decarbonized by 2030. And there are various approvals, projects, initiatives various entities are taking and the plan is that, we put 4 gigawatt of the capacity in the pipeline this quarter itself. So when — even when we take the PLF of 4 gigawatt, it will reduce the carbon footprint by 15% from our current level. So against our overall declaration of 25% we would be able to decarbonize 15% in the next two years’ time. I think we should pat ourselves on the back, number one.

Number two, as far as Athena and Meenakshi is concerned, see the power demand in country, you might have seen last year has gone up by 8% to 10%. And the way the GDP growth is projected and the way the standard of living of the people is going up. I feel that the power growth — the power demand growth is going to be 8% to 10% in the next few years’ time.

So these are idled types. It is in the best interest of the nation that we’ve idled assets should we put into operation. So from that point of view, our footprints are not increasing from our operations, but this is an initiative, I think which is in the best interest of the society and the country and that is why we think that what we are doing is the right thing to do.

Ritesh Shah — Investec — Analyst

Sure. And, sir, on the Hindustan Zinc welfare, if there’s any update on the status.

Sunil Duggal — Chief Executive Officer

Welfares on Hindustan Zinc, Arun, you are a party to roadshow. If you can comment on that.

Arun Mishra — Chief Executive Officer, Zinc Business

So we have — so thank you for the question. We have conducted roadshow extensively spanning many countries along with the Government of India and a very positive feedback from the potential buyers. So it’s — I think government is working out in what form, how many tranches they would do and let’s wait for that.

Operator

Thank you, Mr. Shah, may we request that you return to the question queue for follow-up questions. Thank you. We’ll take the next question from the line of Alok Deora from Motilal Oswal. Please go ahead.

Alok Deora — Motilal Oswal — Analyst

Good evening, sir. Sir, just a question on aluminium growth outlook on the volume side. If you could just highlight how’s the demand scenario looking and what kind of volume growth we could look at on the aluminium side?

Sunil Duggal — Chief Executive Officer

The world is very excited about the green metal and the demand is going to grow. But, Rahul, over to you for the detailed information from your side.

Rahul Sharma — Chief Executive Officer of Aluminium Business

Yeah. Thanks for the question. I think aluminium is a strategic metal and we know that this calendar year CY ’22, primary demand was 70 million and we see that it is going to be a CAGR of 4% to 5% as a growth which is likely to happen. And if I talk about India per se, India demand if you see that on the backdrop of 17% Y-o-Y growth has been seen in the last nine months and we see that demand for the country, especially for India last year was 3.9 million and this year, it’s going to touch 4.5 million.

So you can see that there is a very strong demand, especially India is — demand has been increased in electrical and power sector. Other sector also China is coming back and we see that China is also growing 4.4% year-on-year growth. Overall demand is quite robust and strong and that’s what I think as on the line — same line we are also looking to expand our capacity from 2.3 million to 2.8 million then picking up to 3 million.

Alok Deora — Motilal Oswal — Analyst

Sure. And also sir on realization, how do you see the realization moving now going forward? Because, the prices have started to go up. So just your thoughts on that from a near to medium-term perspective?

Sunil Duggal — Chief Executive Officer

Go ahead, Rahul.

Rahul Sharma — Chief Executive Officer of Aluminium Business

Yeah. Again, price point of view, I can only say that key indicator, which drives the growth and I have said few, asset you, but important is that, I think China removal of COVID-related restriction that’s one. Second is India, which I have already spoken, third is that U.S. inflation dropped by 6.5% in December from vis-a-vis 7.1% in November.

U.S. dollar index also dropped from 115 to 102. And other side if I see that, the kind of production cut which is 2.5 million in China and 1 million in Europe. And there is also if you see the inventory level, which is I think the lowest since 2002 is 1.4 million. All the indicators you’ll see that that is a very strong indicator to have the better level from the current which maybe has gone to 3,200 [Phonetic] kind of LME [Indecipherable] on that point.

Alok Deora — Motilal Oswal — Analyst

Sure. And just last question, so this you mentioned during the call that in the iron ore after this export ban removal, just the exports are picking up. So has it normalized now or it will take still take one quarter?

Sunil Duggal — Chief Executive Officer

No, we export last quarter, we see when the ban was removed and we took a conscious call of slowing down the domestic sale because there is a increase in EBITDA by around $8 to $10 per tonne. So as we speak, we have been able to move some shipments already. And I feel that from the current month, it will be dispatched and the sales would come up to the normal level. So that means around 6 million tonnes — 0.6 million tonnes this month itself it will take. So, that is one story. Although, we still have some inventory at the end of this month, which we’ll be able to capitalize on the current quarter.

Alok Deora — Motilal Oswal — Analyst

Got it. Thank you, sir. That’s all from my side and all the best.

Sunil Duggal — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Sumant Kumar from Antique Stock Broking Limited. Please go ahead.

Sumant Kumar — Antique Stock Broking Limited — Analyst

Good evening, sir. I had a small question, could you please elaborate on the amount of hedging gains specifically we had in this quarter? And if at all some portion we have sustained coming in Q4.

Ajay Goel — Chief Financial Officer

Yeah. So the hedging gain in the third quarter is almost INR475 crores. And if you look at, I mean, for the first nine months, is in fact almost touching INR3,000 crores, the number exactly is INR2,905 crores, so almost INR3,000 crores for the nine months and INR475 crores for the third quarter. The quantum of hedge impact is a tad low for the fourth quarter and we also can evaluate taking further hedging, specifically in aluminium side. But right now, if you look at the mark-to-market for the quantity hedged, the gain is almost still around $50 odd million [Phonetic] for the fourth quarter. So the answer to your question is typically the INR475 crores for third quarter.

Sumant Kumar — Antique Stock Broking Limited — Analyst

Okay. Sure, sir. Thank you.

Sunil Duggal — Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sandep Agrawal for closing comments. Thank you, and over to you, sir.

Sandep Agrawal — Head of Investor Relations

Thank you. Thanks, everyone.

Operator

[Operator Closing Remarks]