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April 28, 2024

Vedanta Positioned to Thrive Amidst Surging Commodity Prices, Analysts Predict

Mining giant Vedanta Ltd is poised for a significant upturn as analysts predict reduced pressure on cash flows and increased profitability driven by the surge in commodity prices. The company’s recent financial performance, coupled with strategic moves in liability management and business restructuring, positions it as a frontrunner in the commodities market.

In the January-March quarter, Vedanta recorded an impressive EBITDA of Rs 87,600 crore, marking a 4% increase from the previous quarter. This growth was attributed to improved performance in aluminium, power, and zinc, driven by lower production costs and higher sales volumes. Despite softer zinc prices, the company’s overall performance was robust.

Analysts anticipate further growth for Vedanta, especially with the completion of its alumina, aluminium, and international zinc expansion projects during the current fiscal year. These expansions are expected to enhance volume growth and reduce costs, particularly in aluminium production, with the commencement of coal mines in the following fiscal year.

The prospect of demerging its businesses into six listed entities is seen as a strategic move that could unlock higher value for Vedanta. Nuvama Institutional Equities believes that this restructuring, expected by the end of the current fiscal year, will position Vedanta favorably to capitalize on rising commodity prices and potentially increase its valuation multiple.

Citi also expresses confidence in Vedanta’s balance sheet, citing liability management at the holding company level. The potential sale of steel/iron ore businesses and restructuring initiatives are expected to further strengthen Vedanta’s financial position, leading to a dividend yield estimate of over 10%.

Phillip Capital notes that Vedanta has successfully resolved its debt issues, which, combined with the uptrend in commodity prices, provides substantial support to its cash flows. The firm maintains a positive outlook, expecting continued improvement in commodity prices, particularly driven by Chinese stimulus measures and increased demand.

Antique Stock Broking Ltd underscores the importance of strengthening commodity prices in supporting Vedanta’s revenue growth. With ongoing cost optimization initiatives and the company’s status as a low-cost producer, profitability is expected to improve significantly.

Centrum forecasts strong growth in Vedanta’s zinc and aluminium segments due to sharp increases in commodity prices, driving overall earnings growth. The company’s capacity expansion and cost-saving measures are expected to further enhance margins and earnings over the coming years.

Despite a substantial dividend payout and capex outlay, Vedanta is expected to generate strong free cash flows, allowing it to deleverage its net debt position. CLSA highlights Vedanta’s guidance of achieving group EBITDA of USD 6 billion to USD 7.5 billion by FY27 through various expansion and integration projects.

Reported net debt has already seen a significant reduction, and Vedanta aims to further decrease debt at the parent company level. With ongoing project ramp-ups and prudent financial management, the company is well-positioned to achieve its debt reduction targets while driving growth and profitability in the long term.

Jhumpa Lahiri

Jhumpa Lahiri

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