The stock of Vedanta Ltd recently crashed to a 52-week low of Rs 211, whick makes the stock attractive at the current levels.
The Anil Agarwal controlled Vedanta has interest in a wide range of mining, metal and oil and gas activities. Let us see why the stock may not be a bad bet at the current levels.
This Vedanta controlled company, reported an excellent set of numbers and is a cash rich company. Vedanta will now increase its mining capacity from 1.2 million tonnes to 1.5 million tonnes. The board approved Phase-I of the expansion, which will take the mined metal and smelting capacity from 1.2 MT to 1.35 MT. The cost likely to be incurred is Rs 4,500 crores.
Zinc has been a solid business for Vedanta Ltd and the company has cash and cash reserves of more than Rs 24,000 crores.
Oil and gas business
The oil and gas business, which was the erstwhile, Cairn Energy is also going to see a significant ramp up in operations. With a capital expenditure of near $2 billion, peak production is likely to be enhanced and to 220-250 kboepd for FY19 (estimated) and 275-320 kboepd for FY20 (estimated).
One positive development for the oil and gas business of the company is that crude prices have been rising. This would ensure that margins continue to be decent in the coming few quarters.
We are unlikely to see any significant drop in crude prices in the coming days. Margins here too are expected to be robust and cash flow positive in the coming years.
The other businesses like the copper, aluminum and iron ore mining are also likely to do well on firming of prices. Apart from this, the company also has huge cash and bank balances of almost Rs 34,000 crores. Though it must be admitted that there is even debt of Rs 44,000 crores.
The company has over the last few months, hugely underperformed the indices. We have seen the stock price collapse from levels of Rs 355 to the current levels of Rs 212.
Cheap on fundamentals
The company pays a decent dividend and the shares are currently trading very near to 52-week lows. Apart from this, the stock is quoting at a price to book value of just 0.80 times. This leaves immense potential for an uptick in the stock. Buy the shares, if you have a long term perspective in mind.