Vedanta climbs 4%, hits over 11-year high on soaring commodity prices

In the past one week, Vedanta has outperformed the market by gaining 12 per cent on higher commodity prices including crude oil and metals as tensions between Russia and Ukraine flared up

Shares of Vedanta hit an over 11-year high of Rs 395.25, up 4 per cent on the BSE in Wednesday's weak market, on rising commodity prices. The stock was trading at its highest level since May 2010. In comparison, the S&P BSE Sensex was down 1.3 per cent at 55,515 points at 10:22 am.

In the past one week, Vedanta has outperformed the market by gaining 12 per cent on higher commodity prices including crude oil and metals as tensions between Russia and Ukraine have flared up and are creating havoc in most of the asset classes. The benchmark index was down 3 per cent during the same period.

Vedanta, a subsidiary of Vedanta Resources, is one of the world's leading oil & gas and metals company with significant operations in oil & gas, zinc, lead, silver, copper, iron ore, steel, and aluminium & power across India, South Africa and Namibia.

Last week, CRISIL Ratings upgraded its long-term rating of Vedanta to 'CRISIL AA' from 'CRISIL AA-', and revised the outlook to 'Stable' from 'Positive'. The short-term rating on bank facilities and commercial paper has been reaffirmed at 'CRISIL A1+'.

The rating action factors in stronger-than-expected operating profitability (earnings before interest, tax, depreciation and amortisation {EBITDA}), driven by elevated commodity prices during fiscal 2022, volume growth across businesses, and sustained cost efficiency, especially in the aluminium business.

"While commodity prices are likely to moderate in fiscal 2023, from current spot levels, prices are expected to remain healthy. EBITDA is thus, likely to be higher than expected, at over Rs 44,000 crore in fiscal 2022 (vis-à-vis around Rs 27,500 crore in fiscal 2021), and over Rs 40,000 crore in fiscal 2023, and aid improvement in free cash flow and return on capital employed over the medium term," CRISIL Ratings said in its rating rationale.

Meanwhile, the management is expected to utilise the cash accruals to reduce the outstanding consolidated debt, and improve resilience to a decline in commodity prices.

"Strong improvement in operating accrual and expected reduction in outstanding consolidated gross and net debt, should help net leverage drop to 2.2-2.3 times as on March 31, 2022, and to sustain below 2.5 times thereafter (net leverage was 3.1 times as on March 31, 2021)," the rating agency said.