1:6 Split Ratio Soon In 2024: Metal Stock Vedanta Liked By Brokerages, Outlook Positive; Highest Target Rs 644

Brokerages both domestically and internationally have recommended BUY on Vedanta as the billionaire Anil Agarwal-backed company is likely to benefit from the latest spike in LEM prices and improving integration in aluminium business. Vedanta is on the path of demerger in the ratio of 1:6. Furthermore, Vedanta including its parent Vedanta Resources have about $2.6 billion in debt, which is likely going to mature in FY25. YTD, Vedanta stock has zoomed by nearly 22% on BSE.

On June 20, Vedanta stock ended at Rs 470.25 apiece, up by 4.9% on BSE with a market cap of Rs 1,74,801.17 crore. The stock is near its 52-week high of Rs 506.85 apiece and has more than doubled from its 52-week low of Rs 207.85 apiece.

In a board meeting held on June 20, Vedanta received approval for raising Secured, Rated, Listed, Redeemable, Non-Convertible Debentures ("NCDs") on a private placement basis, (up to 1,00,000 having a face value of Rs 1 lakh each aggregating to Rs 1,000 crore.

Vedanta's demerger is of a 1:6 ratio, where the company will be split up into six listed entities to unlock value. The demerger plan has been in full swing, which is why investors are further optimistic about Vedanta's shares. The company now seeks NCLT approval and as per the official will apply for the same soon.

It was last year in September when Vedanta declared 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.

As part of the demerger plan, 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.

BUY/SELL Vedanta Stock?

In its latest research note, Phillip Capital said, "We continue to maintain a positive stance on the company. The recent upsurge in LME and improving integration in the aluminium business will augur well for Vedanta as aluminium is poised to take the top spot in EBITDA contribution while HZL will continue to provide steady cash flows."

With debt-related issues largely settled in the medium term, the company continues to focus on growth and guiding for US$ 7.5-10bn of EBITDA in future (Phillip Capital has taken a conservative stance at US$ 6bn).

Further, Phillip's note said, "Out of all the businesses, aluminium has the most potential for EBITDA improvement due to improving backward integration into coal and bauxite mining. Given parent Company VRL promised to retire US$ 3bn debt in the next three years, we expect the dividend yield to remain supportive. We maintain buy with our SOTP target price at Rs 552."

Analysts from brokerages visited Vedanta's Jharsuguda plant in Odisha, Dariba (SK Mines), and Barmer block in Rajasthan to get a deeper understanding of its processes and operations. The latest views come after this visit.

According to Motilal Oswal, VEDL is continuously striving to reduce costs across its businesses through backward integration, operational efficiencies, and captive power usage (including renewables). The capex plans are progressing well to drive the next level of growth. VEDL expects cash flows to be sufficient to manage the upcoming debt maturities in FY25 and is exploring refinancing options where feasible. The demerger is on track and is anticipated to be completed by the end of CY24.

Motilal added, "VEDL currently trades at 5.8x FY26E EV/EBITDA. We raise our EBITDA estimates by 20%/23% for FY25/26, considering the various cost-reduction initiatives being undertaken by the management. We reiterate our Neutral rating on VEDL with a revised SoTP-based TP of INR500."

Also, global brokerages have upgraded their stance on Vedanta. Investec has upgraded its rating to HOLD on Vedanta with the target price raised to Rs 345 per share alongside a positive outlook, although the target is lower compared to the latest price.

Meanwhile, CLSA is positive on the company and maintained BUY. The brokerage raised its target price to Rs 520 per share.

But its brokerage Nuvama has set the highest target price of Rs 644 on Vedanta with a positive outlook and BUY rating.

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.