What Analysts Have To Say About Vedanta’s Fourth-Quarter Performance

Shares of Vedanta Ltd. swing after the mining conglomerate posted its first quarterly loss in nearly five years. Yet, analysts maintained their stance on the company on better-than-expected performance by its aluminium division.

Net loss stood at Rs 12,521 crore in the quarter ended March compared with a profit of Rs 2,615 crore in the year-ago period, according to an exchange filing. That was mainly on account of a one-time exceptional loss of Rs 17,132 crore due to impairment in oil and gas business, triggered by a plunge in crude price amid the Covid-19 pandemic.

The company’s operating profit, however, met estimates. Higher sales and lower production costs of aluminium and a weaker rupee offset increased operational costs at its zinc and oil and gas subsidiaries.

Vedanta’s stock fell as much as 3.8% in opening trade but soon rebounded to trade 3% higher. It again pared some of the gains to trade flat at Rs 105.90 apiece. In comparison, the Nifty 50 Index is up 1.54%.

Here’s what brokerages have to say about Vedanta’s fourth-quarter performance:

CLSA

• Raises rating to ‘outperform’ from ‘underperform’; hikes target price from 80 to Rs 95 apiece.
• Operational results in line with estimates but one-off impairment weighs on profit after tax.
• Vedanta deferred its dividend declaration despite dividend income from Hindustan Zinc.
• Strong aluminium segment offsets weakness in other segments.
• High leverage, weak zinc and oil volume, exposure to multiple commodities make fundamentals weak.
• Delisting progress could support the stock.

BoFA Securities

• Maintains ‘no rating’.
• Positive cost surprise in aluminium; oil and gas disappoints on volumes.
• Factors significant production ramp up of zinc over the next two years
• Volume growth in zinc, oil and gas, cost efficiencies in aluminium division remain critical for earnings upside.
• Stock is no longer trading on fundamentals following delisting offer.

ICICI Securities

• Maintains ‘hold’ rating but cuts target price to Rs 110 from Rs 130 apiece.
• Aluminium delivers on cost savings.
• Attributes 50% of the valuation to book and hence, any large write-down impacts valuation.
• This write-down has about Rs 30 per share of impact on the book value (net of taxes).
• Impacts valuation estimate by about Rs 8 a share.

Motilal Oswal

• Maintains ‘neutral’ rating.
• Ebitda in line with estimates but profit after tax higher than estimate due to lower finance cost.
• Share of Hindustan Zinc and oil and gas Ebitda—the lowest in four years.
• Lower commodity prices impact earnings.

HSBC

• Maintains ‘hold’ rating with a target price of Rs 110 apiece.
• Fourth quarter Ebitda was in line as lower input costs boost aluminium margin.
• FY20 was the third time in the past six years that company posted large losses due to impairments in the oil and gas assets.
• Focus remains on delisting process with shareholder approval awaited.