Anil Agarwal is aiming for a massive 20 billion dollar investment through his metal giant Vedanta in the next 4 years in the country. The plan is to tap growth in the electronics business by investing in glass and semiconductors. The announcement was applauded by Vedanta shares as it touched a new all-time high of Rs 413.80 apiece on May 2nd. Vedanta is a hot bet to hold in the metal sector currently as the company is on the path of unlocking the value of its business split by 1:6.
Vedanta Share Price:
Vedanta stock ended at Rs 410.70 apiece, up by 3.22% on BSE with a market cap of Rs 1,52,665.27 crore. During the trading hours of May 2nd, the stock rallied as much as to touch a new all-time high of Rs 413.80 apiece. This is more than double from its 52-week low of Rs 207.85 apiece.
Vedanta's Big Investment Plan:
On May 1, Anil Agarwal during an event held in Mumbai, revealed that Vedanta is looking to invest a whopping $20 billion to drive growth in India in the next 4 years. He stated that the investment will be towards contributing in electronics, technology, and glass which are important for industries and jobs.
Agarwal said that semiconductors and glass are some of the essential tools for developing smartphones and laptops. He also shed light that in the case of the semiconductor business, Vedanta has purchased land in Gujarat. This is alongside Vedanta's progress in the glass business.
He said, we cannot depend on imports, in India, we have the best of gold and diamonds.
Vedanta 1:6 Split:
Notably, last month, in a note, Agarwal said that FY25 is going to be a transformative year for the company on many fronts as it prioritizes disciplined growth, operational excellence, and exploring opportunities along the value chain. He further revealed that Vedanta's demerger is going to be completed by December 2024-end. Further, he reiterated Vedant's goal of achieving Group EBITDA of $7.5 billion within two years and deleveraging its parent Vedanta Resources by $3 billion in the next 3 years.
In September 2023, Vedanta announced the creation of a demerger of metals, power, aluminium, and oil and gas businesses to unlock potential value. After the exercise, six independent verticals - Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and Vedanta Limited - will be created.
Under the demerger, for every share of Vedanta, shareholders will receive one share of each of the five newly listed companies. After the demerger, the businesses of Hindustan Zinc as well as the electronics business will remain with Vedanta Limited.
Vedanta Earnings:
During Q4FY24, the company posted consolidated revenue of Rs 34,937 crore, flat sequentially, while its EBITDA rose by 3% QoQ to Rs 8,969 crore with an EBITDA margin of around 30%. PAT excluding exceptional items in Q4FY24, came in at Rs 2,453 crore. Further, Vedanta recorded a decline of 10% in its net debt to Rs 56,338 crore.
For overall, FY24, Vedanta posted the second-ever ever-highest annual consolidation revenue of Rs 141,793 crore, while EBITDA also came second-highest ever to Rs 36,455 crore, up 3%. In the fiscal, EBITDA margin improved to 30%, up ~240 bps. Vedanta also said that it posted the highest dividend yield of 17% per annum (5-year average), which is 10 times higher than Nifty 50 companies. Accordingly, Vedanta paid Rs 18,572 crore dividend in FY24.
Vedanta Stock To Hold?
Systematix Institutional Equities is the latest to recommend Vedanta.
In its research note, Vedanta said, "Vedanta's(VEDL) 4QFY24 consolidated EBITDA at Rs 88bn (-7.3% YoY, 2.8% QoQ) was 4% above our estimate largely due to the lower-than-expected cost of production (CoP). VEDL reported consolidated revenue of Rs 355bn (-6.4% YoY and -0.1% QoQ), 2% above our estimate. Aluminium, zinc India, and iron ore segments were the key profitability drivers during the quarter."
Due to already high valuation, Systematix recommends HOLD on Vedanta but has raised its target price.
Its note said, "We raise FY25E EBITDA by 9% to reflect higher volumes and cost efficiency across segments. We reduce our target EV/EBITDA multiple to 4.3x as we roll forward to FY26 estimates, arriving at a revised target price of Rs 418/share (Rs 327 earlier). The revision implies an upside of 5% from CMP and a rating downgrade to HOLD after a recent stock price rally due to heightened commodity prices."
Over the near term, Systematix expects the following -- a) aluminum business volume ramp up by >35%, b) alumina capacity ramp up by 3mt (1.5mt commissioned in 1QFY25), c) captive coal mining >30mt (100% captivity), d) >100% increase in iron ore mining through new mines in Goa, Odisha, and Liberia, and e) higher output at FACOR, are positive for VEDL. Adverse commodity price swings due to geopolitical instability and its impact on demand pose key risks.
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor 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.
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