Vedanta stock falls 19% in a month

In the past three months, it has lost 25% or about $1.5 billion of its earlier market value

Vedanta Plc, the London Stock Exchange-listed Anil Agarwal company, has lost $1.15 billion or 19 per cent of its market value in the past month, with investors worried about slowdown in its businesses and a fall in commodity prices.

In the past three months, it has lost 25 per cent or about $1.5 billion of its earlier market value.

Vedanta reported weaker September quarter production, with slower performance in the oil & gas, copper from its Zambia operations and power divisions.

Analysts say ongoing difficulty in sourcing domestic coal has led to a negative impact on its aluminium smelting costs. The power division's ramp-up of production failed to meet expectations.

An email to the company did not elicit a response. The production fall is mainly attributed to a maintenance shutdown in Cairn's Rajasthan facilities, lack of iron ore due to legal issues and in the case of the power business, flooding in its Talwandi Sabo (Punjab) unit.

Production of iron ore restarted early this year at Karnataka, following a partial resolution of the mining ban. Yet, a ban remains at Goa, site of its key production mines. Vedanta expects mining to resume by early next year, following an expected issue of new leases. The production at Karnataka ceased again in August, with the company awaiting a licence renewal and forestry clearance. It expects these before the end of the year.

Based on estimated dividend payouts from Sesa Sterlite, JPMorgan estimates Vedanta's net debt to remain stubbornly high at a little over $5 billion for the next 10 years. As net interest payments will remain elevated, it will leave little cash for dividends to shareholders, it says.

In a complex restructuring last year, Vedanta had transferred its stake in its businesses to India-listed Sesa Sterlite, along with its debt. Sesa Sterlite's consolidated debt surged after the exercise to around $13.5 billion.

"We, therefore, see a risk that Vedanta chooses either to lower its dividend to a more sustainable level from the 61 cents per share paid out in fiscal 2014 or to increase the payout ratio from Sesa Sterlite. Which, in turn, would likely require increased payouts from Hindustan Zinc (HZL) and Cairn India, implying significant cash leakage from the group in the form of dividends to minorities and withholding taxes. Conversely, a successful buyout of the remaining Government of India minority interests in HZL and Bharat Aluminium would be positive for both net present value and the group's ability to cover net interest and dividend payments," JPMorgan said in a note dated October 10 to its clients.