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Analysts maintained their positive stance on Vedanta and also increased target price after second quarter earnings.
While retaining a buy call with increased target price at Rs 405 (from Rs 380 per share), CLSA said earnings outlook is strong given ramp-up of new aluminium smelters and zinc expansion.
The research house sees robust 18 percent EBITDA (earnings before interest, tax, depreciation and amortisation) and 44 percent EPS CAGR over FY17-20 and expects return on equity to double and net debt to fall to near-zero by FY20.
Rise in Q2 EBITDA was driven by higher commodity prices and low base for Hindustan Zinc volume, it said.
Macquarie also maintain its outperform rating on the stock with increased target price at Rs 372 (from Rs 345 per share) as it sees a case for multiple re-rating and raised India business EV/EBITDA to 6x from 5.5x.
Higher costs & short alumina position drove 5-6 percent cut in FY18-19 EPS estimates, the research house said, adding Q2 EBITDA was 5 percent below its estimates due to higher costs in the aluminium division.
Macquarie expects lower risk of aluminium oversupply.
Vedanta’s second quarter consolidated profit grew by a higher-than-expected 20 percent YoY at Rs 2,986 crore on higher sales and operating income across segments barring power.
EBITDA (earnings before interest, tax, depreciation and amortisation) grew by 21.3 percent to Rs 5,669 crore, but margin contracted by 159 basis points to 26.26 percent compared with corresponding quarter.
"PAT and EBITDA growth was on the back of solid operational performance in zinc and copper businesses, supported by strong commodity prices," Kuldip Kaura, Chief Executive Officer, Vedanta said.
"We expect second half of FY18 of this fiscal year to be more robust with the continuing production ramp up and we continue to maintain a strong balance sheet and remain focused on creating long term shareholder value," he added.
Motilal Oswal feels Vedanta has a portfolio of high-quality base metals and oil & gas assets, and is well poised to benefit from the bullish price outlook for zinc.
While maintaining buy call on the stock, it raised target price to Rs 394 (from Rs 358 per share), led by increasing zinc price assumption.
Morgan Stanley, too, has maintained its overweight call on the stock with a target price of Rs 391 per share as Q2FY18 was in-line quarter with positive surprise from zinc segment.
The brokerage house feels cost for aluminium will remain elevated in Q3 owing to higher coal and alumina prices, before potentially easing in Q4.
Gross and net debt of the company continued to decline with loan repayment.
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