Vedanta shares at Rs 600? ICICI Securities recommends buy, says this on stock demerger

ICICI Securities has resumed its coverage on Anil Agarwal-led Vedanta Ltd, with a 'Buy' rating and a target price that hints at 18 per cent potential upside over Friday's closing price. The domestic brokerage said Vedanta is weaving its growth story around two ‘Vs’ and one ‘C’ i.e. volume, value, and cost reduction–across segments, especially in its aluminium and Zinc-India divisions. 

The forthcoming demerger is likely to pave a separate sharpened growth path to individual divisions and offers investors an opportunity to invest in growth-oriented pure-play companies, it said. The distribution of standalone debt among different divisions, in particular aluminium, is likely to be closely tracked, ICICI Securities said, as it suggested a target price of Rs 600 on Vedanta for now. 

Vedanta has significant volume growth aspirations for all divisions, ICICI Securities said adding that aluminium and Zinc India are potentially key earnings growth drivers. 

"Oil & gas (O&G) production is likely to bottom up by FY26E. Growth vectors at Vedanta may help pare debt by $3 billion over the next three years. Dividend yield could sustain at over 5 per cent p.a. Put together, we envisage an Ebitda CAGR of 25 per cent YoY through FY26E and RoE of 40–45 per cent over the next two years," ICICI Securities.  

The brokerage suggested a target price of Rs 600 for Vedanta, implying an EV/Ebitda of 5.7 times on blended Ebitda estimates for FY26E and FY27E.

ICICI Securities said the management has firm plans in place to achieve volume ramp up in Zinc India, international; and O&G divisions. For aluminium, the  management has near-term CoP/te target of $1,650/te, largely on the back of captive alumina, bauxite, and coal.

"Vedanta is a fitting case of all the cylinders firing together. While Al and Zinc India divisions are likely to grow on cost and volume leadership, respectively, we expect performance improvement for both O&G and Zinc International divisions as well. Besides, the focus on VAP at both Al and Zinc-India is likely to aid in ameliorating performance in the medium term. Over the long term, there are also plans to grow capacity in steel, power and base metal divisions," it said.

Dividend yield of 5–6 per cent over the next three years is an additional sweetener, it said.