Vedanta stock likely to remain rangebound

ET Intelligence Group: The stock of Anil Agarwal-owned mining conglomerate Vedanta may see some consolidation amid volatile metal prices, regulatory challenges for its copper and iron ore businesses, and high raw material costs.

While these factors might limit the upside, attractive valuations – 6 per cent dividend yield (FY19 estimated) – should ensure that Vedanta wouldn’t wither in the face of headwinds.

In the June quarter, Vedanta’s performance was a bit lower than expected. For Vedanta, zinc and lead, aluminium and oil businesses remain the most important in the near term as these contribute the most to EBIDTA – in excess of 80 per cent. Weak performance by the zinc business resulted in below-estimated earnings for Vedanta – down 20 per cent quarter-on-quarter.


EBIDTA for zinc (43 per cent of total EBIDTA) reduced 28 per cent on a sequential basis. Zinc, lead and silver businesses, which are part of Vedanta’s subsidiary Hindustan Zinc, saw 16 per cent-19 per cent decline in sales on sequential basis, while the cost of production was higher 13 per cent.

Zinc prices have corrected 18 per cent since mid-June and the coming quarters are likely to remain muted. Higher production should partially offset the impact of weak prices and analysts are expecting higher volumes in the second half.

EBIDTA for the oil and gas business (28 per cent of total EBIDTA) improved 23 per cent on a sequential basis, but was below expectations. Higher crude realisations at $67 per barrel helped. The company expects to gradually increase volumes.

EBIDTA for aluminium (19 per cent of the total) declined 3.9 per cent over the preceding quarter. The second quarter is likely to remain weak due to high raw material alumina prices.

Regulatory challenges in the copper and iron ore businesses are likely to keep their contribution to overall EBIDTA weak in the coming quarters.