 "Vedanta quotes higher for fifth straight trading day; surges 12% in 1 week")
Shares of Vedanta have moved higher by 2 per cent to Rs 464 on the BSE in Monday’s intra-day trade, extending their past four days' gains, on expectations of an improvement in the company's consolidated operating profitability (earnings before interest, tax, depreciation and amortisation (Ebitda)).
The stock is quoting higher for the fifth straight trading day, having rallied 12 per cent during the week. In comparison, the BSE Sensex has gained nearly 1 per cent and the BSE Metal index climbed by 5.8 per cent during the period. The market price of the Anil Agarwal-led metals and mining company had hit a record high of Rs 527 on December 16, 2024.
Thus far in the financial year 2024-25 (FY25), Vedanta has declared a total interim dividend of Rs 43.50 per share. On May 24, Vedanta declared a dividend of Rs 11, and a dividend of Rs 2 on August 2, apart from declaring a Rs 20 dividend on September 10. It further announced a dividend of Rs 8.50 per share on December 16 last year.
Vedanta Resources Limited (VRL), the parent firm of the Mumbai-based mining conglomerate Vedanta, has witnessed a significant reduction in debt over the past two fiscals, to approximately $4.9 billion as on October 30, 2024, from $9.2 billion as on March 2022. This has been supported by large dividend payouts by Vedanta over the past 2-3 fiscals, as well as fund raise through stake sale by VRL in Vedanta.
According to CRISIL Ratings, Vedanta’s consolidated 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.
The company's Ebitda is expected to improve further in fiscal 2026, on the back of the expected completion of its 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 said increase in Ebitda will support the ongoing capex (expected to be around Rs 20,000 crore each in fiscal 2025 and 2026) as well as scheduled debt repayment over the medium-term, the ratings agency said in the company's rationale dated December 3, 2024.
Increased mined metal capacity in domestic zinc, along with the ramp-up of Gamsberg’s (South Africa) operations in zinc international, will support the scale-up in volume. Furthermore, Vedanta is undertaking brownfield expansion of its aluminium smelter capacity (by 414 kilo tonne per annum in Balco), and increasing its level of integration by expanding its refinery, commissioning of captive coal mines and increasing the share of value-added products. All these projects are expected to be commissioned in a phased manner by fiscal 2026. In addition, CRISIL Ratings noted that the company will be increasing its iron ore capacities (domestic as well as overseas) over the next 1-2 years, which would further support volume growth. While the company is looking to divest its steel business to support deleveraging, CRISIL Ratings said that no binding sale agreement has been executed, which is a monitorable for the company.
Meanwhile, according to analysts at ICICI Securities, Vedanta is a fitting case of all the cylinders firing together. "While Al (aluminum) and Zn (Zinc)-India divisions are likely to grow on cost and volume leadership, respectively, we expect performance improvement for both oil & gas 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," it noted.
In the analysts' view, the upcoming demerger is likely to pave a separate sharpened growth path for 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, the brokerage firm said in a company note.