Hold Vedanta; target of Rs 150: ICICI Direct

ICICI Direct's research report on Vedanta

Vedanta reported a broadly in line operational performance wherein topline and EBITDA came in line with our estimates. Consolidated topline was at Rs 21374 crore (down 3.7% YoY, 8.9% QoQ, broadly in line with our estimate: Rs 22315 crore). Consolidated EBITDA for the quarter was at Rs 5198 crore (down 15.3% QoQ, 17.3% YoY, broadly in line with our estimate of Rs 5341crore). The EBITDA margin was at 24.3% (down 400 bps YoY, 180 bps QoQ, in line with our estimate of 24.1%). Zinc International EBITDA was at Rs 128 (vs. EBITDA of Rs 391 crore in Q4FY19). Zinc international reported cost of production of US$1597/tonne in Q1FY20 vs. US$1488/tonne in Q4FY19. Aluminium business cumulative EBITDA (Balco + Vedanta Aluminium) came in at Rs 179 crore (vs. EBITDA of Rs 379 crore in Q4FY19). Muted aluminium prices adversely impacted the performance during quarter. Other income was at Rs 380 crore (down 9.1% YoY. Ensuing PAT was at Rs 1351 crore (down 48.3% QoQ, 21.6% higher than our estimate of Rs 1229 crore).

Outlook

Vedanta’s earnings remain sensitive to movement in base metal prices. Base metal prices have witnessed volatility and declined primarily on account of uncertainty over global trade due to trade friction between the US and China. We value the stock on an SoTP basis and arrive at a target price of Rs 150. We upgrade the stock from REDUCE to HOLD.