Vedanta rallies 6%, hits over three-year high

In last three weeks, stock has surged 27% after the company reported a strong operational performance in Q1

Shares of Vedanta hit over a three-year high of Rs 324.80, as they rallied 6 per cent on the BSE in intra-day trade on Wednesday. In the past three weeks, the stock has surged 27 per cent on strong June quarterly earnings. The company reported a consolidated net profit attributable to owners of the company at Rs 4,224 crore in the June quarter (Q1FY22), up 309 per cent from the same period last year on the back of increased revenue. In the March quarter, the company’s consolidated net profit was at Rs 6,432 crore.

The stock was trading at its highest level since March 2018. The stock had hit a record high of Rs 494 on April 8, 2010.

Vedanta’s Q1FY22 Ebitda (earnings before interest, taxes, depreciation, and amortization) stood at Rs 9,870 crore, up 9 per cent quarter-on-quarter (QoQ), benefitting from favourable commodity prices despite subdued volumes in the key Zinc-India division. Income from operations grew 79 per cent QoQ at Rs 28,105 crore from Rs 15,687 crore in the previous quarter. Higher revenue growth during the quarter was primarily due to improved commodity prices, partially offset by lower sales volume at zinc India, iron ore & steel and copper business.

The company is upbeat on its Aluminum business outlook. It has announced a 414kt smelter at BALCO at capex of Rs 6,600 crore and expects to complete the project within 18–24 months. The company expects an IRR of 20–25 per cent from the project across cycles.

The management hinted at the possibility of higher dividend payouts in FY22 as it looks to pare debt at the promoter entity through dividend payments. Dividends would be declared through either free cash flow or borrowings. Furthermore, the company could pass on the dividend declared by Hindustan Zinc in FY21 to shareholders up to October 31, 2021, to avail a set-off on dividend tax, the brokerage firm Motilal Oswal Securities said in result update.

Going forward, analysts at Edelweiss Securities expect Vedanta to benefit from production ramp-up at key divisions despite its assumption of moderation in LME price, resulting in FY22E Ebitda exceeding Rs 40,000 crore (consensus estimate at Rs 38,300 crore).