Motilal Oswal's research report on Vedanta
On upgrade in volumes (O&G and aluminum) and zinc prices, consolidated EBITDA is raised by 16% to INR318b in FY19E. We have toned down the valuation multiple from 7x to 6.5x EV/EBITDA (to align with peers) because we now factor in full volume potential and optimistic zinc prices. As a combined effect, the target price has increased 32% to INR311/share on the basis of FY19E SOTP, implying 18% upside. VEDL has now stated a clear dividend policy of minimum 30% payout. It has also started stating that parent debt will be serviced by dividend payouts. We are modeling 38% payout. This may lead to USD281m dividend payout to the parent. A higher payout is possible as this may not be sufficient to service debt. This has reduced concerns about capital misallocation.
Outlook
The stock has been re -rated on higher dividend payout, volume growth and strong balance sheet. We are upgrading VEDL to Buy .
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