Neutral on Vedanta, target price Rs 114: Motilal Oswal

Motilal Oswal has given a neutral rating to Vedanta with a target price of Rs 114. The share price of the company moved down by -0.19 per cent from its previous close of Rs 105.30. The last traded stock price is Rs 105.10.

The Vedanta Management expects to exit the second quarter of FY21 at a production run-rate of 225kboepd. It expects the reduction of cost of production (CoP) in aluminum to sustain in the near term due to better coal availability and lower alumina prices. It further expects the extension of the profit-sharing contract for RJ Block for 10 years at 40 per cent profit sharing. However, the brokerage expects profit sharing to be at 50 per cent.

Investment Rationale


The company did not declare the final dividend for FY20. It informed there was no change in dividend policy; however, in order to conserve cash, the board decided not to distribute dividend received from Hindustan Zinc.
The company managed to reduce the cost of production of aluminum through higher captive bauxite and linkage coal. However, as economic activity revives, coal availability could get constrained, thereby increasing cost of production. High debt at Vedanta (ex-Hindustan Zinc) and its parent entity remains a concern. The brokerage maintains a neutral rating , with an SOTP-based target price of Rs 114/share.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 19513.00 crore, down -7.64 per cent from last quarter sales of Rs 21126.00 crore and down -15.50 per cent from last year's same quarter sales of Rs 23092.00 crore. The company has reported net profit after tax of Rs -12083.00 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 50.14 per cent stake in the company as of March 31, 2020, while FIIs held 15.18 per cent, DIIs 17.99 per cent and public and others 15.51 per cent.