Vedanta hits 14-year high on fund raising plan; zooms 75% in 2 months

Shares of Vedanta hit 14-year high of Rs 438.30, surging 6 per cent on the BSE in Tuesday’s intra-day trade amid heavy volumes after the company said its board will meet on Thursday, May 16 to consider fund raising plan. The board will also consider first interim dividend on equity shares, if any, for the financial year 2024-25.

Currently, Vedanta is trading at its highest level since May 2010. The stock had hit a record high of Rs 494.30 on April 8, 2010. In past two months, the market price of Vedanta has appreciated by 75 per cent.

In an exchange filing, the company said the board will deliberate on various fundraising strategies, including the issuance of equity shares or other convertible securities.

Earlier this month, the Vedanta Group’s chairman Anil Agarwal said the group is aiming to invest $20 billion across all its businesses in India over the next four years. The investments will be focused on technology, electronics, and glass businesses apart from the other activities that the group is engaged in, PTI reported quoting Agarwal.

Vedanta, a subsidiary of Vedanta Resources, is one of the world’s leading natural resources companies spanning across India, South Africa, Namibia, Liberia, UAE, Korea, Taiwan and Japan with significant operations in Oil & Gas, Zinc, Lead, Silver, Copper, Iron Ore, Steel, Nickel, Aluminium, Power & Glass Substrate and foraying into electronics and display glass manufacturing.

Vedanta’s consolidated operating profitability (earnings before interest, tax, depreciation and amortisation [Ebitda]) for FY24 is expected to be around Rs 34,500 crore (~Rs 35,250 crore in fiscal 2023). This will be supported by reduced cost pressure and healthy operating rates across key business segments, along with recent gains from the arbitration award in the oil and gas business, despite commodity prices remaining modest and slower-than-expected progress on the planned capital expenditure (capex) in the aluminium business.

In the financial year 2023-24 (FY24), Vedanta reported second highest-ever annual revenue of Rs 1.42 trillion and EBITDA of Rs 36,455 crore with EBITDA margin of 30 per cent in spite of moderate commodity cycle, purely driven by total cost optimization to the tune of about Rs 10,000 crore year-on-year.

With the recent surge in commodity prices, particularly aluminum, zinc and silver, the company said it is going to unlock tremendous value. “Our low cost and world-class assets across businesses, coupled with strong financial position and commitment to ESG, position us perfectly to capitalize this opportunity from rising demand and unlock exceptional growth for all of our stakeholders,” the company’s management said in its earnings call.

For Q1FY25, analyst at Centrum Broking expect sharp increase in commodity prices to aid strong growth in zinc and aluminium segment driving overall earnings growth. Vedanta is set to level up across businesses through capacity expansion and cost savings through backward integration shall drive margin improvement and earnings growth.

The brokerage firm expects zinc and aluminium (73 per cent of EBITDA) to grow by 18 per cent and 30 per cent CAGR over FY24-26. Despite a huge dividend payout of Rs 45/share each for an capex outlay of ~$2 billion each in FY25 and FY26, the brokerage firm expects strong earnings visibility to help to generate strong FCF to deleverage net debt position by ~$1.4 billion. The brokerage firm revised rating to ‘buy’ from ‘hold’ with a target price of Rs 438 per share.

Meanwhile, Vedanta reported muted earnings performance in March quarter (Q4FY24), majorly due to a fall in aluminium and zinc segments. However, aluminium and zinc have recorded a fall in CoP for the 7th and 5th consecutive quarters, respectively.

Further, the net debt/EBITDA has improved sequentially. The management is focusing on strategic deleveraging techniques, capacity expansion plans and further cost reduction to enhance efficiency.

Analysts at Geojit Financial Services believe these factors should boost the company’s performance in the near term. The stock is currently trading above the brokerage firm’s target price of Rs 421 per share.