37.24% Dividend Yield: Brokerage Kotak Increases Target Price On Metals Giant Vedanta, But Maintains 'Sell'

Metals and Minings giant, Vedanta is in focus after its Q3 results announcements. Vedanta is the highest dividend yield stock on the Indian stock exchange a staggering 37.24%. In Q3FY24, the billionaire Anil Agarwal-backed company reported highest ever revenue with EBITDA margins expanding robustly. Aluminium and zinc production was also the highest ever in the quarter. Post its Q3 results, brokerage Kotak Institutional Equities is the latest to recommend Vedanta shares.

Brokerage Kotak has increased its target price on Vedanta to Rs 255 from earlier Rs 220. However, the brokerage continued to be 'SELL' on Vedanta.

However, Vedanta shares are currently trading at Rs 275.35 apiece, up by 1.06% with a market cap of Rs 1,02,353.01 crore, at the time of writing on BSE on Monday. Last week, on BSE, Vedanta's share price ended at Rs 272.45 apiece, down by 1.5% with a market cap of Rs 1,01,275.02 crore on Friday.

In Q3FY24, Vedanta's share price reported the highest ever quarterly revenue on a consolidated basis to Rs 34,968 crore, up 4%QoQ1 and 4%YoY. Consolidated quarterly EBITDA of Rs 8,677 crore, up 21% QoQ and 22% YoY. Meanwhile, EBITDA margin stood at 29%, expanding by 438 bps QoQ and 507 bps YoY. PAT before exceptional items of Rs 2,868 crore, up 112% QoQ and 8%YoY.

Further, in the quarter, the company posted the highest ever r Quarterly Aluminium Production at 599kt up 6%YoY and 1%QoQ. Also, it posted the highest ever 9M mined metal at 780kt and silver production at 556 tonnes.

Kotak sees a decline in Vedanta shares from its price level.

In its research note dated February 2nd, Kotak said, "VEDL's expansion plans for the aluminium division would increase capacity (2.8 mtpa from 2.4 mtpa), increase backward integration with captive coal mines/alumina and raise value-added volumes with downstream assets. We estimate the aluminium division's EBITDA to grow 40% over FY2024-26E-key growth driver for VEDL."

According to Kotak, the projects would gradually complete in the next 12- 18 months, with (1) capacity expansion at Balco (from 0.6 mtpa to 1 mtpa) likely to be completed by 2QFY25, (2) phase 1 (1.5 mtpa) of the alumina refinery is expected to be commissioned by 4QFY24 and phase II by 2QFY25 and (3) captive coal mines Kurloi/Radhikapur/Ghoghrapalii's capacities of 8/6/20 mtpa are expected to be commissioned in 2QFY25/2QFY25/1QFY26.

On the parent company's debt restructuring, Kotak's note said, "VRL has successfully restructured its outstanding bonds of US$3.2 bn and pushed the maturity by three years to +FY2027E. However, high-cost refinancing has led to an increase in interest liability (~US$750 mn in FY2025E). The brand fee has been securitized and cashflow from it would be used for repayments of recently raised debt."

It added, "We note that the dividend income from HZ's cash flows would not be sufficient for meeting interest liabilities at VRL. Divestment of the iron-steel business or a further stake sale by promoters in VEDL would help reduce the funding gap. High leverage at VRL remains an overhang and deleveraging would be a key near-term catalyst."

On the valuation, Kotak added, "We have increased consolidated EBITDA by 3%/3%/7% for FY2024E/25E/26E, mainly led by higher earnings in the aluminium and oil & gas divisions. Our FV increases to Rs255 (from Rs220) on higher earnings and roll forwards to March 2026E. Maintain SELL on rich valuations."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.