Vedanta shares up 15% from 52-week low level. Where is the stock headed?

From a 52-week low level of Rs 207.85, hit on September 28, shares of Vedanta Ltd have climbed 15 per cent even as the Anil Agarwal-led mining company reported a net loss of Rs 1,783 crore for the September quarter on a muted sales growth. Analysts said the Q2 numbers were largely in line with estimates and, in fact,  aluminium and iron & steel businesses fared better than their expectations.

For the quarter, CLSA said, Vedanta's net debt fell by Rs 1,700 crore  sequentially to Rs 57,800 crore. The foreign brokerage noted that the parent Vedanta Resources (VRL) has $1 billion in debt repayments due in January 2024.

"In our view, leverage at VRL will be key to watch for. Moreover, while the focus remains on capital allocation and restructuring issues, we believe execution on cost savings and expansion projects are key to a rerating. We maintain our Outperform rating," the brokerage said while suggesting a target of Rs 230 on the stock.

Shares of Vedanta rose 0.9 per cent to hit a high of Rs 239.80 on Wednesday. CLSA's target at the prevailing price suggests a potential downside.

Systematix Institutional Equities said a strong operational performance coupled with a few additional benefits from lower tax rates with the adoption of new tax regime and the favourable arbitration award provided some relief from the overhanging debt situation at Vedanta and the parent.

"However, it remains to be the key monitorable for the company, in our view. Adverse commodity price swings due to geopolitical instability and its impact on demand pose key risk," it said.

This brokerage values Vedanta at 4.5 times FY25 EV/Ebitda, with a revised target price of Rs 323 per share against Rs 317 earlier, as it accounts for lower net debt levels.

"Over the near term, aluminium business volume ramp up by 35 per cent, alumina capacity ramp up by 150 per cent, captive coal mining of over 30 mt, 100 per cent increase in iron ore mining through new mines in Goa, Odisha, and Liberia and higher output at FACOR, are positive for Vedanta," it said.

The benefit of the arbitration award will result in lower cash outflow over the next 4-5 quarters, it said adding that the Arbitration Tribunal has also allowed the company to claim exploration cost recovery for the computation of Profit Oil, likely to result in a benefit of $20 million quarterly.

Kotak Institutional Equities said that elevated global interest rates, weak commodity prices and higher risk premiums have made refinancing challenging. Promoters, it said, are working on various options, such as restructuring, refinancing at Vedanta resources, securitisation of brand fees and divestment of the iron ore steel business of Vedanta.

"We note that high leverage and negative FCF at Vedanta would restrict dividend payouts in the future. Debt restructuring of parent has been an overhang and remains a key near-term catalyst," it said while suggesting a fair value of Rs 220 on the stock. Motilal Oswal Securities also has a target price of Rs 220 on the stock. Antique Stock Broking finds the stock worth Rs 317 while Nuvama  sees it at Rs 265 level.

 

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