Targets for the price of Vedanta shares: High dividend payout is probable, but headwinds persist

After seeing Vedanta’s results for the March quarter, experts think that aluminium prices may go down in FY24, but that lowering costs will improve margins. Due to the debt obligations of parent company Vedanta Resources, they think that Vedanta may keep paying bigger dividends in the future, but they are neutral to optimistic about the stock’s future.

Nuvama Institutional Equities said that Vedanta Resources owed $2 billion in debt (it paid back $1 billion in Q1FY24, making the total debt $7 billion).

“We think Vedanta will keep paying higher dividends in FY24E and FY25E, so we’ve figured in a dividend per share of Rs 45 for each of those years. To move Rs 12,590 crore from general reserve to retained earnings, which will assist in dividend payment, Vedanta is seeking final approval from lenders, the company stated.

The cost saves from the 3 MTPA alumina expansion and the start of all coal blocks will show up in FY25E. This will lower the cost of production (CoP) on a structural basis.

Due to a greater dividend distribution, the total net debt for the company will increase to Rs 65,699 crore (from Rs 55,300 crore in FY23). “The stock is attractive because it has a dividend return of 16%,” Nuvama said when it cut its 12-month share price target from Rs 428 to Rs 367.

The Anil Agarwal company said that its combined profit for the March quarter fell 57% from the same time last year, from Rs 7,261 crore to Rs 3,132 crore. Net sales for the quarter dropped 5 percent year over year, from Rs 39,342 crore to Rs 37,225 crore.

Motilal Oswal said that its profit fell short of the Rs 3,700 crore it had expected. It said that higher financial costs and depreciation were to blame for the loss, but that higher other income and lower taxes helped to make up for some of it.

On a global scale, the commodities market is facing a number of problems, such as inflationary pressure, a weak fiscal outlook, recessionary pressures in Europe, a lack of cash in some developing countries, a slowing real estate market in China, and a slowing increase in demand from China.

“We have kept our estimates for Ebitda and APAT for FY24 for the most part. We keep our Neutral rating on Vedanta and a TP of Rs 280 based on the SoTP. At its current market price of Rs. 275, the stock is selling at an EV/Ebitda multiple of 5.3 and a P/B multiple of 2.2 for FY24E. Even though we slightly lowered our volume and EBITDA/tonne expectations for aluminium, savings from captive/linkage coal should help stop the downward trend,” the report said.

Kotak Institutional Equities said that Vedanta’s Ebitda for the quarter was higher than expected because of lower costs in the steel, aluminium, and zinc divisions. It said that all of Vedanta’s growth projects are behind schedule, and that low commodity prices should keep earnings in a narrow range over the next few years.

“In FY2024-25E, FCF will be negative because profit will be low and capital expenditures will go up. We think that large repayments at VRL’s parent company over FY2024-25E remain a key risk. We cut earnings and Fair Value to Rs. 235,” it said, recommending a’ sell’ on the stock.

Ajith Kumar

Ajith Kumar

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