Vedanta Q2 Review: Most Brokerages Retain 'Buy' But Cautious About Cost Inflation
Here's what brokerages have to say about Vedanta's Q2 results:
Vedanta Ltd.'s second quarter was in line with estimates, driven by aluminum and oil and gas business.
While most brokerages maintained their 'buy' rating on the stock, a few highlighted higher cost inflationary pressures across business verticals.
Shares of Vedanta rose 2.63% in early trade on Monday to Rs 312 apiece. Of the 20 analysts tracking the company, 14 recommend a 'buy', four maintain 'hold', and two suggest a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 34.8%.
Here's what brokerages have to say about Vedanta's Q2 results:
JP Morgan
Maintain 'overweight' rating; target price of Rs 400, up 28% from current market price
Strong Q2 performance and a beat versus elevated consensus estimates.
Aluminum cost of production was up 28% year-over-year at $1,647 per tonne given the substantial input cost inflation (carbon).
India zinc should further improve though international zinc remains an issue.
India zinc Ebitda, down 6% quarter-over-quarter, should see a sharp increase in the second half.
Oil Ebitda, up 30% quarter-over-quarter, was driven by better prices.
Expects cost inflation across businesses.
Spot LME aluminum, zinc, oil and steel prices materially higher vs Q2 average.
CLSA
Maintain 'outperform' rating; target price cut to Rs 320 from Rs 338, up 2.4% from current market price.
Q2 FY22 in line but higher costs likely to be offset by higher metal prices.
Cost guidance raised across board.
Capital allocation remains a key discussion point.
Adjust FY22-24 Ebitda by -6% to +3% to reflect higher costs and revised metal price estimates.
Investec Securities
Maintain 'hold' rating; target price of Rs 323 from Rs 269, up 3.4% from current market price.
In-line performance; higher pay-outs a given.
Environmental, social and governance goals are encouraging.
Vedanta is a special-situation dividend yield play factoring Vedanta Resources Ltd.'s debt maturity profile.
Company could explore integrating zinc assets within the group.
Promoter can make good of differential economic interest, which could be an opportunistic move.
Incremental capital allocation decisions need to be watched for.
Kotak Securities
Maintain 'reduce' rating; slash target price to Rs 320 from Rs 285, up 2.5% from current market price.
Vedanta's Q2 FY22 Ebitda in line with estimates.
Strong earnings in aluminum and oil offset weak margins in steel and zinc international divisions.
Zinc and aluminum benefit from strong prices partly offset by fuel cost inflation.
Growth capex to limit deleveraging.