Vedanta analyst meet: Debt, dividend, capex & share price target

Nuvama Institutional Equities, which attended Vedanta's analyst meet, said FY25 should be the transformational year for the Anil Agarwal company with debt likely peaking out, expansion of aluminium and Zinc International slated for completion and value unlocking happening on the back of demerger and listing of all business verticals.

Nuvama said the Vedanta management has guided for $3 billion in debt reduction at Vedanta Resources (VRL) by FY27 without any incremental debt at Vedanta. The monetisation of steel and iron ore assets are likely by Q1FY25E and would act as a first step.

Nuvama also expects a dividend per share (DPS) of Rs 40 each in FY25E and FY26E. For now, the brokerage has reiterated its ‘BUY’ rating on the Vedanta stock with a revised target price of Rs 394 from Rs 371 earlier.

After successful bonds restructuring by parent VRL in January, the parent's net debt is expected to reduce to $6.2 billion by end-FY24.

The Vedanta management guided for $3 billion in debt reduction at VRL by FY27, which would be via brand fee and dividends available from subsidiaries and assured no further leverage at Vedanta.

"VRL’s debt obligation stood at $1.6–1.8 billion each in FY25E and FY26E. Vedanta may pay out a DPS in FY25E and FY26E of Rs 40 each, which would help meet VRL’s debt obligation. As Vedanta's cash flows would not be enough for such dividend, it needs to monetise its steel & iron ore assets. We expect this to happen by Q1FY25," Nuvama sai.

Besides, Nuvama said the expansion of aluminium and International Zinc will be concluded in FY25. Vedanta, Nuvama said, is incurring major capex in its aluminium/International zinc businesses—both slated for completion during FY25.

"Our calculation implies incremental cash flow of $1 billion-plus a year once the plants ramp up fully, potentially from H2FY26. Management targets to generate aluminium EBITDA/t of $1,000 from end-FY26 upon full ramp-up. The management is targeting Vedanta's FY25E Ebidta at $5.6–5.7 billion (our estimate: $4.6 billion). Business spin-off to enhance value, particularly of power," it said.

The vertical split of its businesses into six listed entities can yield higher-than-the-current SoTP value, particularly as it may enhance the power subsidiary’s value by Rs 38 per share, Nuvama said.

"We view this demerger as positive since it would provide opportunities to invest in standalone businesses (pure-play). Vedanta is moving in right direction," Nuvama said.

Nuvama said the monetisation of Vedanta's steel and iron ore assets would provide comfort on debt-servicing.

"Moreover, promoters can still offload up to an 11.9 per cent stake (strategic sale would be advisable) to revert to 50.1 per cent stake in Vedanta, providing additional liquidity. We are raising FY25E/26E Ebitda by 2-3 per cent to factor in higher power sale. We retain positive stance," Nuvama said.

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