Vedanta shares climb 3%; CLSA says better operational performance will likely aid re-rating

Shares of Vedanta, the diversified metal company, climbed in Wednesday’s trade (February 28) as global brokerage CLSA upgraded the counter to ‘reduce’ as against the earlier 'sell’ view with a new higher target of Rs 260.

At around 9:23 am, shares of the company traded with gains of 2.82 per cent at Rs 271.2 per share, while at day's high it climbed to 271.5.

In its analyst meet, the company stated that it is well aligned with India’s Atmanirbhar Bharat goal. The metal giant also noted that the demerger will create pure-play companies, unlocking the value of all our businesses.

Further in its analyst meet, underscoring its progress, the Anil-Agarwal-led company said that, “We've delivered industry-leading growth, achieving a nearly 13% CAGR in production and a staggering nearly 15% CAGR in EBITDA over the past 20 years, solidifying our place as global industry leaders."

“We're well-positioned for exponential near-term growth, with projected annual EBITDA exceeding $7.5 billion, setting the stage for continued financial dominance," added the company’s Vice Chairman, Navin Agarwal.

In Q3, the company posted a net profit of Rs 2,013 crore as against a loss of Rs 1,783 crore in the previous quarter of the fiscal year.

How should investors approach Vedanta?

Global brokerage CLSA has upgraded the stock to a 'reduce'. It sees the company's EBITDA target at $6bn/US$7.5bn by FY25/27 (FY24: US$5bn) through capacity expansion, backward integration, and value additions (largely in aluminium, base metals, and power).

With deleveraging, its capital allocation and corporate structure have been focal points over the past few years, and thus improvement in operational parameters will be key to a rerating, it added. 

Earlier in its January 27 report, Motilal Oswal Financial Services (MOFSL) maintained its neutral view on the stock with a revised target of Rs 270.

“To account for its better performance, comfortable debt position, higher volumes, and improved EBITDA guidance by the management, we have raised our FY24/FY25/FY26 EBITDA estimates by 15%/1%/3%. VEDL currently trades at 6.4x FY26E EV/EBITDA, and we believe that the stock is adequately priced in at current levels,” underlined the brokerage.