Vedanta shares up 3% today but Kotak says sell stock. Here's why

Vedanta Ltd shares climbed 3 per cent in Wednesday's trade after the Anil Agarwal-led company reported a 54 per cent year-on-year rise in profit after tax at Rs 5,095 crore for the June quarter. Analysts largely remained positive on Vedanta's business prospects but their price target varied, thanks to a 63 per cent surge year-to-date that made stock valuations a bit unattractive.   

With the recent QIP at Vedanta and 4.4 per cent stake sale by promoters, the peak leverage and risk of funding gap for group is now behind Vedanta, which has been a key overhang in recent years, Kotak Institutional Equities said,  as it upped earnings estimate and fair value (FV), mainly led by the aluminum division. 

"Our FV increases to Rs 390 from Rs 320 on higher earnings. But we maintain 'Sell' as risk-reward after the recent rally remains unfavorable," the brokerage said.

On Wednesday, the stock climbed 2.87 per cent to hit a high of Rs 425.50 on BSE.

Antique Stock Broking said benefits from most of the company’s cost-optimising initiatives are expected to accrue FY25 onwards. The brokerage likes the company’s low-cost producer advantage but said high debt levels remain a concern.

"We maintain HOLD rating and SoTP-based target price of Rs 457 with an implied 1HFY27E EV/EBITDA multiple of 4.2x (in line with global peers)," it said.

Vedanta, MOFSL said, remains firm on its deleveraging plans. It believes higher cash flow going forward will support Vedanta's expansion plan. "The stock currently trades at 5.4 times FY26E EV/Ebitda. We reiterate our Neutral rating on the stock with a revised SoTP-based target price of Rs 460," the brokerage said.

Nuvama reduced its FY25 and FY26 Ebitda estimates by 3-8 per cent to factor in lower commodity prices on delay in demand recovery. The recent money raising via Rs 8,500 crore QIP should take care of upcoming debt repayment, and it can afford lower commodity prices without leveraging, the brokerage said.

"The earnings cut yields a reduced target price of Rs 608 (earlier Rs 644). This excludes Rs 25 dividend per share in rest of FY25 and Rs 40 in FY26. Retain ‘BUY’," Nuvama said.

MOFSL noted that Vedanta is committed to execute about $8 billion of growth capex in the next few years. It is aiming to reach a production of 3,00,000 barrels per day for its oil & gas business, whereas the iron ore business in Liberia is likely to produce 30 mtpa.

"The BALCO expansion is scheduled to be commissioned this year in 4QFY25 (earlier 3QFY25), and the operation is likely to commence from 1QFY26. The Radhikapur coal block is likely to start operations by 4QFY25, having secured environmental clearance and completed stage 1 forest clearances, following compliance checks," it said.