ICICI Securities resumes coverage on Vedanta, sees 18% upside

Stating that Vedanta (VEDL) is weaving its growth story around volume, value, and cost reduction–across segments, domestic brokerage firm ICICI Securities has resumed its coverage on the stock with a ‘buy’ rating and a target price of Rs 600.

“In our view, VEDL is a fitting case of all the cylinders firing together. While Al and ZnIndia divisions are likely to grow on cost and volume leadership, respectively, we expect performance improvement for both O&G and Zn-international divisions as well.” the domestic brokerage firm said.

VEDL has charted growth plans, across its key divisions, for a distant horizon – at least until FY30. It aims to achieve a fully integrated supply chain from mine to metal in the aluminum segment and in the Oil & Gas segment, it plans to execute a full-field scale Alkali Surfactant Polymer (ASP) project across the MBA fields.


For Zinc India, Vedanta is planning to ramp up both mining and smelting capacities to 2 million tonnes per annum (mtpa) while for Zinc International, the Gamsberg Phase 2 expansion will add 220,000 tonnes per annum (KTPA) capacity, with a new concentrator of 4 mtpa expected to be commissioned in FY25, aiming to reach 1 mtpa of zinc and copper production by FY30.

Al and Zn-India are likely to be the bulwark of earnings growth. Together, these divisions are likely to account for 85% of incremental EBITDA through to FY26E.

ICICI Securities expects Al EBITDA to rise 2x YoY to Rs 22,100 crore in FY25E due to a combination of higher volumes, lower cost and higher LME Al price. Earnings are expected to benefit from progressively higher captive alumina, bauxite and coal.

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“In our view, management has firm plans in place to achieve volume ramp up in the Zn (India/international) and O&G division. For Al, management has nearterm CoP/the target of USD 1,650/te, largely on the back of captive alumina, bauxite, and coal,” said ICICI Securities in its report.

The upcoming demerger is also likely to pave a separate sharpened growth path to individual divisions and offer investors an opportunity to invest in growth oriented pure-play companies. However, the distribution of standalone debt among different divisions (in particular Al) is likely to be closely tracked.

However, a sharp decline in underlying commodity prices, delay in start/ramp up of coal mining operations in Al division and lower than expected volume growth in ZnIndia and Zn-International divisions have been stated as the key risks by the domestic brokerage firm.

The shares of Vedanta were trading 2% lower around 11:15 am on BSE today.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)