Following Q1 results, Vedanta shares are down 3%; here is what investors need to know
On Monday, Vedanta shares gave victim to selling pressure after the big mining company let the Street down with its quarterly results. The business posted a consolidated net profit of Rs 2,640 crore for the quarter ended June, down almost 40% from Rs 4,421 crore reported in the same quarter previous year. The scrip dropped 3% to Rs 271 in Monday’s session on the BSE.
On July 21, the metal giant reported a 40% YoY decline in its consolidated net profit for April through June, coming in at Rs 2,640 crore. The business posted a total profit of Rs 4,421 crore for the same period previous year. Weaker commodity prices, notably for zinc and aluminum, affected several market categories, which was the major reason of the fall. Additionally, Vedanta announced a one-time gain of Rs 1,780 crore during this quarter.
Additionally, revenue decreased 13% year over year to Rs 33,342 crore.
Due to lower production commodity prices and lower sales, the business recorded an EBITDA of Rs 6,975 crore for the April–June quarter, a 35% decrease from Rs 10,741 crore in the same time previous year.
The EBITDA margin for the period was 24%. In the June quarter, financial expenses increased by about 74% to Rs 2,110 crore due to a rise in the average and blended cost of borrowings.
What Ought the Client Do Now?
After the Q4 results, Kotak Institutional Equities kept Vedanta at a “Sell” rating with a target price of Rs 215 (down from Rs 235 before).
“Vedanta’s 1QFY24 EBITDA fell 10% short of our forecast, mostly due to reduced margins in the oil and gas and ferrous industries. We anticipate that the current commodities cycle’s downturn will continue in the medium term and lead to muted profitability, according to the brokerage business.
High dividends are no longer sustainable, according to declining FCF throughout the FY2024–25E period and growing debt. According to our assessment, significant repayments at parent VRL throughout the period of FY2024–25E remain a major overhang.
Citi cut its target price on the company to Rs 225 and reduced its rating to “sell.” It thinks that Vedanta Resources’ planned sale of its semiconductor and display operations is undermining the company’s leverage.
Due to higher dividend payments, Vedanta’s net debt—excluding Hindustan Zinc—rose by 37% QoQ to Rs 595.7 billion. Due to its decreased cash flow, the metal giant must take on external debt to pay down the dividend obligation of its parent company.
Nuvama Institutional Equities feels the risk-reward ratio is unfavorable due to the mounting debt, which has caused the brokerage company to drop its recommendation on the stock from ‘buy’ to’reduce’ with a target price of Rs 249 as opposed to Rs 367 before.
The minority shareholders of VEDL (Vedanta) are negatively impacted, according to Nuvama Institutional Equities. “We do appreciate management’s commitment to repay VRL’s (Vedanta Resources) debt, but it affects VEDL’s (Vedanta) minority shareholders adversely,” the firm stated.
