Vedanta shares: As promoters reduce pledged stake, can the stock hit new highs?

Shares of metal and mining major Vedanta Ltd have remained unchanged since the firm on March 16 said it has repaid $100 million to Standard Chartered Bank through release of encumbrance on March 10. Vedanta stock, which stood at Rs 280.25 on March 15 was trading at Rs 274.75 in early trade today on BSE. The Anil Agarwal-led Vedanta had 99.9% of its promoters holding pledged at the end of December quarter, according to BSE data.  

However, the March 16 announcement of release of pledged shares may not help the stock much since the pledged level of promoters shares still remains very high, said analysts.  

The high promoters pledge is not the only factor, which has been plaguing Vedanta shares this year. On March 10, Moody's Investors Service downgraded its holding company Vedanta Resources Limited's (VRL) corporate family rating (CFR) to Caa1 from B3. Moody's has downgraded the ratings to Caa2 from Caa1 on the senior unsecured bonds issued by VRL and those issued by VRL's wholly owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by VRL. The outlook on all ratings remains negative. Subsequently, Vedanta stock fell 4.5% intraday to Rs 272.55 in the same session against the previous close of Rs 285.50 on BSE.  

In February this year, ratings agency S&P Global remarked that Vedanta’s credit rating may worsen if it is unable to raise $2 billion and sell its overseas zinc assets. The Vedanta stock has plunged 11.24% this year and 7% alone in the last one month amid worries over repayment of debt.  

However, Vedanta Resources Ltd Chairman Anil Agarwal on March 17 said that he has never defaulted on his company’s debt repayment ever in his career. Vedanta Resources said it has pre-paid all of its debt that was due for repayment till March 2023, deleveraging by $2 billion in the past 11 months. It added that the company is confident of meeting its liquidity requirements for the quarter ending June 2023. 

Amid all debt repayment concerns, the stock of Vedanta has turned weak falling 33.5% during the last one year.  

In the current session, Vedanta stock fell 0.17% to Rs 271.80 at 10:25 am against the previous close of Rs 271.35 on BSE. Earlier, the stock opened with a gain of 2.45% at Rs 278 on BSE. It touched an intraday high of Rs 279 rising 2.82% on BSE. 

Total 2.08 lakh shares of the firm changed hands amounting to a turnover of Rs 5.76 crore on BSE. Market cap of the firm fell to Rs 1.02 lakh crore. 

In terms of technicals, the relative strength index (RSI) of Vedanta stands at 36.8, signaling neither the stock is overbought nor oversold. The stock has a one-year beta of 1.5, indicating very high volatility during the period. Vedanta shares are is trading lower than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages. 

The PE ratio of Vedanta stands at 6.91 signaling the stock is undervalued compared to its industry. The PE of the mining industry stands at 14.39. 

At the current level, Vedanta shares are trading 38% lower to the 52 week high of Rs 440.75 hit on April 11, 2022. The stock hit a 52 week low of Rs 206.10 on July 1, 2022.  

Here’s a look at what analysts and brokerages said on the outlook of the stock.  

Abhijeet from Tips2trade said, "Vedanta is in a sideways trend with strong resistance at Rs 295 on the daily charts. A close below support of Rs 282 could lead to a target of Rs 260 in the near term." 

Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher said,"The stock has been moving within a range for quite some time between Rs 265 and Rs 288 zone finding tough resistance near the 200DMA zone, which needs to be crossed decisively to carry on the momentum further ahead. Once the breakout is confirmed, then one can expect for further upward move till Rs 310-315 levels as the next target zone. On the downside, the support near Rs 265 is crucial and a decisive breach below would weaken the trend and expect for further fresh slide with next major support visible near Rs 255-252 zone." 

Rohan Shah, Head Technical Analyst at Stoxbox sees Vedanta hitting target of Rs 340.  

“Vedanta’s price action suggests the stock is trading in Stage 3 of the distribution phase. The recent sideways trend incepted on February 28 has come on relatively higher volumes, with shorter-term EMAs acting as an overhead resistance. The initial long opportunity can come on price action crossing above Rs 295 while a positive trajectory is anticipated on a close above Rs 340 level.” 

Nuvama Wealth Management refers Vedanta as its top pick in the aluminium space. It has projected a target price of Rs 428 per share for the stock. The brokerage anticipates a rise in aluminium prices from the present levels of US$2,227 per tonne, which are down 34% from a year ago and 5% month-on-month (MoM).  

As summer approaches in China, output will presumably slow down, and downstream demand is anticipated to improve in China, which would help prices of aluminium to rise from their current levels. For FY24 and FY25, the brokerage expects the average price of aluminium to be US$2,500 per tonne.   

“We believe the China production to decline with the onset of summer. This, coupled with increasing Chinese domestic demand, should increase from current market price (CMP) of US$2,227/tonne,” said the brokerage in its report.  

Vedanta is a subsidiary of Vedanta Resources Ltd, which has major operations in oil and gas, zinc, lead, silver, copper, iron ore, steel, aluminium ,and power in India, South Africa, Namibia, and Australia.  

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