Vedanta shares at Rs 330 or Rs 200? What market analysts say

Following Vedanta's announcement on demerging of its businesses into six listed companies, a host of brokerages believe the process would simplify the corporate structure, enhance risk mitigation framework, ensure autonomy and improve transparency at the Anil Agarwal-led firm. They, however, maintained that debt concerns at parent Vedanta Resources remains key concerns for the stock.

"We believe this move will have a positive long-term impact, as it will give the group flexibility, unlock value for investors (give them the choice of commodity they want to invest in) and the parent company would have the option to liquidate fully/partly particular assets to manage its debt repayments," said Phillip Capital while suggesting a target price of Rs 290 on the stock.

The brokerage said Vedanta’s stock price has fallen 20 per cent since its 1QFY24 result update. Though 2Q average base metal prices are set to fall 1-5 per cent sequentially, lower cost of production should the help the company to keep its margins intact, it said.

"At the same time, commodity prices have recovered a bit and are now slightly higher than Q1 average levels, which we expect will help the company to post better operating performance in H2FY24. We do not expect any meaningful downsides in the stock from current levels, so we have kept target unchanged at Rs 290. We upgrade the stock to Buy," Phillip Capital said.

Citi has suggested a target price of Rs 225 on the stock. CLSA has reduced its target on the stock to Rs 230 from Rs 255.

"Our target multiples for aluminum and base metals at 5.5– 6.5 times are in line with other non-ferrous companies under our coverage; while oil & gas upstream businesses are valued at a lower multiple of 3–4 times EV/ Ebitda as against 5 times that we are currently valuing it at. We maintain BUY rating at a target of Rs 326 with an implied FY25 EV/Ebitda multiple of 4.1 times," said Antique Stock Broking.

Centrum Broking suggested a target of Rs 273 per share on the stock. Motilal Oswal said the debt positions at both Vedanta and Holding company Vedanta Resources would remain unchanged. It said the holding company and Vedanta continue to face refinancing risks, considering substantial portion of debt maturing by CY25.

The developments concerning the company’s debt, it said, will be a key monitorable moving forward.

Besides, the broking firm said the commodity markets are facing multiple headwinds, such as volatile input raw material prices, multi-decade high interest rates in developed economies, muted demand pick-up from China, and a slowdown in the Chinese real estate sector. It maintained its 'Neutral' rating on Vedanta with a target of Rs 250, valuing it at FY25 EV/Ebitda of 4.9 times and FY25E P/BV multiple of 2.2 times.

"The demerger reverses Vedanta's past efforts (during 2012-17) of consolidating stakes in different businesses and contradicts the rationale of past corporate actions. VRL’s (parent) high leverage and funding gap for upcoming bond maturities is a key overhang for Vedanta and we believe the divestment of non-core businesses is the need of the hour. The demerger, by itself, is unlikely to unlock any value, in our view," Kotak Institutional Equities said while suggesting a 'SELL' on the stock with an unchanged fair value of Rs 200, given the unfavorable risk-reward.

Nuvama has suggested a target price of Rs 249 on the stock based on FY25 earnings estimates. It said the scrip has corrected 21 per cent since its cent downgrade. Given limited downside hereon, it has upgraded the stock to ‘Hold’.

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