Vedanta debt: Systematix Institutional Equities said elevated dividend is likely to be a drain on cash and lead to rising levels of debt already seen in the last two quarters. 
Special 
Vedanta debt: Systematix Institutional Equities said elevated dividend is likely to be a drain on cash and lead to rising levels of debt already seen in the last two quarters. Vedanta, which had 15.28 lakh small investors as of June 30, saw its shares falling nearly 3 per cent in Monday's trade, as a few brokerages see downside potential for the stock after a miss of June quarter results and also on concerns over higher debt figures and likely lower dividends ahead. The upcoming debt repayment at the parent level, and plausible foray into semiconductor business would require further capex impetus and may significantly hamper deleveraging initiatives, they added.
"With lower cash generation, Vedanta has to take external debt to finance its parent’s debt via dividend. With rising debt, we believe risk-reward is not favourable. We downgrade the stock to ‘Reduce’ from 'Buy' with a revised target price of Rs 249 from Rs 367 earlier," said Nuvama Institutional Equities. Citi in fact downgraded the stock to 'Sell' with a target of Rs 225 per share.
Following the development, Vedanta shares dropped 2.62 per cent to hit a low of Rs 271 on BSE. Foreign brokerage
"Benefits from most of the company’s cost optimising initiatives are expected to accrue 2HFY24 onwards. Hence, short term subdued commodity prices might impact profitability. Lowering of CoP for most metals and a better sales mix would enhance profitability. Higher FY24 capex guidance of $1.7 billion might limit dividend payout," said Antique Stock Broking.
Motilal Oswal Securities finds the stock worth Rs 280. Antique Stock Broking cut its target on the stock to Rs 329 apiece adding that a sharp rise in debt is posing a concern.
Vedanta reported a net debt of about Rs 59,200 crore. Net debt-to-Ebitda stood at 1.88 times in the June quarter against 1.28 times in the March quarter. Vedanta's adjusted profit came lower than Motilal Oswal Securities' estimate. The miss was led by higher finance cost, lower other income, and higher normalised effective tax rate, it said.
Globally, the commodities market is facing multiple headwinds such as inflationary pressure, monsoon-led seasonal slowdown, muted demand pick-up from China, and a slowdown in the Chinese real estate sector, it said adding that it has largely retained its FY25 Ebitda and adjusted profit forecasts for Vedanta.
"We believe elevated dividend is likely to be a drain on cash and lead to rising levels of debt already seen in the last two quarters. Net debt increased by Rs 13,900 crore during the quarter due to sustaining capex and dividend payout, resulting in a deterioration in the net debt/Ebitda ratio," said Systematix Institutional Equities.
Copyright©2025 Living Media India Limited. For reprint rights: Syndications Today
