Vedanta soars 7% amid heavy volumes on healthy outlook

Last month, Vedanta said that demerger on track and in its final stages, with shareholder and creditor meetings scheduled in the coming months.

Shares of Vedanta moved higher by 7 per cent to Rs 505.45 on the BSE in Friday’s intra-day trade amid heavy volumes in an otherwise subdued market on a healthy outlook. Vedanta Resources (VRL) holds 56.3 per cent stake in Vedanta and has diversified operations across the metals, mining, power, and oil and gas segments.

 

At 02:01 pm; the stock was trading 5.5 per cent higher at Rs 498.10, as compared to 0.11 per cent decline in the BSE Sensex. The average trading volumes at the counter jumped 1.6 times with a combined 18.5 million equity shares changing hands on the NSE and BSE. The stock had hit a record high of Rs 523.60 on September 30, 2024.

 

 

The second half of this year will be a transformative period with the company’s major growth and integration projects coming online and ramping up. Through structural interventions and initiatives, the company has significantly reduced cost of production over the past 12-15 months, and the company will continue this trend in the coming quarters.

 

Vedanta said on November 8 that the demerger was on track and in its final stages, with shareholder and creditor meetings scheduled in the coming months.

 

The company proposed demerger of business into six independent, pure-play companies i.e. Vedanta, Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Base Metals, Vedanta Steel and Ferrous Metals and Vedanta Power. This strategic move will simplify the corporate structure, unlock greater value and attract targeted investment for the expansion and growth of each business.  The demerger will be a simple vertical split, with shareholders receiving one share in each demerged listed company for every share of Vedanta they hold.

 

In ICICI Securities view, the upcoming demerger is likely to pave a separate sharpened growth path to individual divisions and offer investors an opportunity to invest in growth oriented pure-play companies. However, the distribution of standalone debt among different divisions (in particular Al) is likely to be closely tracked.

 

Vedanta is a fitting case of all the cylinders firing together. While Al and ZnIndia divisions are likely to grow on cost and volume leadership, respectively, the brokerage firm expects performance improvement for both O&G and Zn-international divisions as well. Besides, the focus on VAP at both Al and Zn-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. ICICI Securities has a ‘Buy’ rating on Vedanta with a target price of Rs 600 per share. Besides, dividend yield of 5–6 per cent over the next three years is an additional sweetener.

 

Meanwhile, Vedanta’s consolidated earnings before interest, tax, depreciation and amortization (ebitda) is expected to increase to more than Rs 44,000-45,000 crore by the end of fiscal 2025 (Rs 36,455 crore in fiscal 2024). This will be supported by favourable prices (already improved from the levels seen in the first half of the current fiscal) and cost reduction through various initiatives, especially in the aluminium and zinc businesses, CRISIL Ratings said in its rationale.

 

The Ebitda is expected to improve further in fiscal 2026, with expected completion of ongoing capital expenditure (capex) for capacity increase and operating efficiency improvement, especially in the aluminium business (to be commissioned by the end of fiscal 2025). The increase in Ebitda will support the ongoing capex (expected to be ~Rs 20,000 crore each in fiscals 2025 and 2026) as well as scheduled debt repayment over the medium term, the rating agency said.

 

Meanwhile, VRL has witnessed significant reduction in debt over the past two fiscal years, to ~$4.9 billion as on October 30, 2024, from $9.2 billion as on March 2022. This has been supported by large dividend payout by Vedanta over the past 2-3 fiscals, as well as fundraise through stake sale by VRL in Vedanta. Furthermore, post-liability management exercise in January 2024, VRL witnessed elongation of the debt tenure.

 

CRISIL Ratings expects the annual interest expense and debt maturities, post April 2025, to be largely managed by annual brand and management fee and materially reduced annual dividend outflow by Vedanta. In case of any open refinancing risk at VRL, CRISIL Ratings expects it to be materially low and should be refinanced in a timely manner.