Edelweiss' is bullish on Vedanta has recommended buy rating on the stock with a target price of Rs 315 in its research report dated July 12, 2017.
Edelweiss' research report on Vedanta
We attended the Oil & Gas Day hosted by Vedanta (VEDL) and gained clarity on the division’s prospects. Key takeaways are: 1) Enhanced Oil Recovery (EOR) projects are expected to arrest the production decline; 2) new projects’ RoE estimated at ~20% even at Brent price of USD40/bbl; and 3) operating cost at USD6/bbl is amongst the lowest in the world. In our view, the company’s long-term target of enhancing production to 500kboepd and reserves at 3bnboe is challenging and hinges largely on success of EOR initiatives and new discoveries. Over the next 2 years, we believe, VEDL’s earnings growth will be more dependent on base metals (refer: 'COFFEE WITH CEO' Vedanta - Base case; visit note; Buy) and any upside from oil & gas will be an additional sweetener. Maintain ‘BUY’ with TP of INR315, implying exit multiple of 4.2x FY19E.
We believe, oil & gas production growth could be another sweetener for the stock and further bolster the robust earnings outlook from base metals. At CMP, the stock is trading at 3.2x FY19E EBITDA. We maintain ‘BUY/SO’ with target price of INR315.
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