Brokerages Up Vedanta’s Target Price But Cite Dividend, Debt Concerns
Even as most brokerages increased Vedanta Ltd.'s price targets on a higher operating income forecast for 2021-22, they cited rising debt of the parent and lack of clarity on dividend as concerns.
Lower production guidance for the oil and gas division, which contributes 12% to operating profit, is also a worry for analysts. But higher commodity prices support analysts calls on the counter.
Oil and gas division production guidance for FY22 was kept at 175-185 thousand barrels of oil equivalent per year compared with fourth-quarter exit rate of 173 kboepd. Net debt of parent Vedanta Resource Ltd. stood at $7.2 billion and consolidated debt stood at $10.5 billion.
Earnings before interest, tax, deprecation and amortisation rose 17% sequentially to Rs 9,037 crore in the quarter ended March against the estimated Rs 8,863 crore.
Vedanta's stock fell as much as 3% on Monday before paring losses to trade 0.9% lower at 1:45 p.m. after the company announced earnings on a market holiday. That compares with a 0.14% fall in Nifty 50. 10 out of 18 analysts have a 'Buy' rating on the stock, while six suggest a ‘Hold’ and two recommend ‘sell’.
Here's what brokerages had to say after Q4 earnings:
Q4 operationally in line; raised 12-month target price to Rs 300—a potential upside of 6.34%.
Guidance looks achievable as further capacity addition announced.
Hindustan Zinc stake sale a trigger; dividend outlook uncertain.
Key beneficiary of commodity upcycle; FY22/23 consolidated Ebitda estimate raised by 13%/7%.
Concerns remains over dividend and inter-company loans.
Delays in growth projects likely overhang.
Maintains 'buy'; price target revised to Rs 315, suggesting an upside of 11.6%.
Better-than-consensus Ebitda; oil and gas production uptick but guidance subdued.
Expect major capex projects to translate into 5-10% volume growth across segments.
Cautious on deviation on dividend strategy, tendency towards big-ticket investments and pledges keeps.
Pure commodity play; upside looks limited.
Maintains 'hold'; target price revised to Rs 241, implying downside of 14.5%.
Q4 Ebitda in-line with brokerage's estimates.
No final dividend payout a negative.
Government's Hindustan Zinc's stake should be up for auction and final verdict is expected.
Maintains 'Hold'; increases price target to Rs 275, a potential downside of 2.5%
Q4FY21 performance beat the brokerage's estimates due to the ferrous division.
Repayment of $207-million inter-corporate loan from a total of $956 million lent to parent a positive.
Increased the implied valuation to 3.5x (from 3.2x) due to this part repayment.
Near-term repayment obligations of $1.5 billion might require further support from the parent.
Parent’s high debt servicing obligation remains a cause for concern.
Concerned about the slower than-expected uptick at the oil and gas and zinc divisions.
Q4FY21 Ebitda at Rs 9,040 crore slightly ahead of estimates on aluminium volumes, iron ore profitability.
Energy business and zinc International unit offset the gains partly.
FY22-23 Ebitda estimates raised by 15-16% on higher price assumptions.
Oil and gas volume guidance at 175 kboepd remains muted on delayed completion of capex.
Overall debt ($3.3 billion at Vedanta Ltd. and $7.2 billion at parent) remains high.