Vedanta shares succumbed to selling pressure on Monday after the mining major disappointed the Street with its quarterly performance. The scrip fell 3 per cent to Rs 271 in Monday’s trade on BSE after the company reported a consolidated net profit of Rs 2,640 crore for the quarter ended June, down about 40 per cent from Rs 4,421 crore reported in the same quarter last year.
The metal major posted a 40 per cent YoY drop in consolidated net profit for April-June on July 21 at Rs 2,640 crore. In the same quarter last year, the company had reported a consolidated profit of Rs 4,421 crore. The decline was mainly because weaker commodity prices weighed on various segments, particularly zinc and aluminium. Besides, Vedanta also reported one-time gain of Rs 1,780 crore in this quarter.
Revenue also fell 13 per cent on year to Rs 33,342 crore.
The company reported an EBITDA of Rs 6,975 crore for the April-June period, down 35 per cent from Rs 10,741 crore in the same period of last year, due to lower output commodity prices and lower sales.
EBITDA margin for the quarter stood at 24 per cent. Financial costs jumped nearly 74 per cent to Rs 2,110 crore during the June quarter on account of an increase in the blended cost of borrowings and average borrowings.
What Should Customers Do Now?
Following the Q4 results, Kotak Institutional Equities maintained its ‘Sell’ rating on Vedanta with a target price of Rs 215 (Rs 235 earlier).
“Vedanta 1QFY24 EBITDA came 10 per cent below our estimate, led by lower margins in oil & gas and ferrous businesses. We expect the ongoing weakness in commodity cycle to persist in the medium term and result in subdued earnings,” the brokerage firm said.
“Negative FCF over FY2024-25E and rising debt suggest that high dividends are no longer sustainable. Substantial repayments at parent VRL over FY2024-25E remain a key overhang, in our view,” it added.
Citi downgraded its recommendation to ‘sell’, while slashing its target price on the stock to Rs 225. It believes that the sale of proposed semiconductors and display business from Vedanta Resources is hurting the company’s leverage.
Vedanta’s net debt, excluding Hindustan Zinc, increased by 37 per cent QoQ to Rs 595.7 billion due to higher dividend payment. With lower cash generation, the metal major has to take external debt to finance its parent’s debt by way of dividend.
With the rising debt, Nuvama Institutional Equities believes risk-reward is not favourable, which has prompted the brokerage firm to downgrade its rating on the stock to ‘reduce’ from ‘buy’ with a target price of Rs 249 against Rs 367 earlier.
“We do appreciate management’s commitment to repay VRL’s (Vedanta Resources) debt, but it affects VEDL’s (Vedanta) minority shareholders adversely,” said Nuvama Institutional Equities.
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