1:10 Split, 2 Bonuses, 39.55% Yield: Metal Stock Vedanta In Demand, 51% Rise Seen; 3 Brokerages Recommend Buy
After having a dull 2023, billionaire Anil Agarwal’s Vedanta Ltd is back in demand. In the past six months, the dividend king stock has risen by 9%, and it trading lower by 13% from its 52-week high levels.
The big spoilsport for investors to be hesitant in Vedanta shares was due to its parent company’s mountain of debt. But looks like a new leaf has turned over Vedanta and brokerages are now recommending to buy the stock. There is the potential of a nearly 51% surge in Vedanta stock ahead.
Among key factors for the bullish trend in Vedanta going forward is that — medium to long-term trajectory is robust, the demerger of businesses is a key positive for unlocking values, and management is planning massive debt reduction of Vedanta Resources by FY27. Hence, Vedanta is expected to have a turnaround from FY25.
Vedanta Share Price:
At the time of writing, Vedanta’s share price traded at Rs 257.90 apiece, up by 2.40% on BSE with a market cap of Rs 95,736.40 crore. The stock is trading near its intraday high of Rs 261.45 apiece.
The stock’s 52-week high and low are at Rs 301 apiece and Rs 207.85 apiece respectively.
YTD, Vedanta is marginally up on BSE. In a year, the stock has corrected by 8%.
Vedanta has a long history of rewarding its investors with bonuses, dividends, and stock splits. Vedanta is by far the highest dividend yield stock in the large-cap basket.
Vedanta Dividend:
As per Trendlyne data, Vedanta has delivered 41 dividends since July 2001. In the past 12 months, the company paid dividends of Rs 50 per share.
In FY23 alone, the company paid dividends of a massive 10,150% valuing Rs 101.5 per share. Currently, it has a dividend yield of 39.55%.
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Vedanta Bonus Issue:
Vedanta has paid 2 bonuses so far. The first bonus issue was 1:1 in February 2005, followed by another 1:1 bonus issue in August 2008.
Bonus issues are free of cost and usually multiply investors’ shareholding in listed companies. This increases the value of the portfolio.
Vedanta Stock Split:
Stock splits are another sweet treat that multiplies investors’ number of shareholding in listed companies. The demand for a stock is higher in stock splits and it improves liquidity, Although, stock splits reduce the face value, they increase the number of shares and become affordable for both new and existing investors.
Vedanta has multiplied investors’ shares by 10 times in a stock split. In August 2008, Vedanta carried its first and only stock split so far, in the ratio of 1:10. This trimmed the face value of Rs 10 in Vedanta to Rs 1.
Vedanta Earnings:
In Q3FY24, Vedanta reported highest ever consolidated revenue of Rs 34,968 crore, up by 4% QoQ and 4% YoY. While consolidated quarterly EBITDA stood at Rs 8,677 crore, up 21%QoQ and 22%YoY. EBITDA margin of 29% up 438 bps QoQ1 and 507 bps YoY. Meanwhile, PAT before exceptional items were at Rs 2,868 crore, up 112%QoQ and 8%YoY.
The company paid dividends up to Rs 4,089 crore in Q3. While it generated strong free cash flow (pre-capex) of Rs 4,306 crore in 3QFY24. It also posted a strong double-digit return on capital employed ~23% up 140bps QoQ.
Vedanta Share Price Outlook:
Motilal Oswal Outlook, Target Price On Vedanta:
Though the global commodity landscape is witnessing multiple headwinds, India is outshining its global peers. Domestic demand continues to remain robust, driven by higher demand and VEDL being the largest natural resources company in India with a diversified portfolio of low-cost – long-life assets is expected to benefit from this growth story.
We believe that despite VEDL undertaking multiple capex to expand its capacities across verticals, this will continue to exert pressure on the company’s cash flows. We believe the recent LM, which resulted in elevated cost of borrowings would reduce HoldCo’s flexibility to deleverage going forward, and hence, HoldCo. would have to rely on VEDL’s dividend payout, which would further exert pressure on the company.
We believe that until the debt repayment overhang at HoldCo is resolved, debt overhang at VEDL and HZL will continue to loom. We reiterate our Neutral rating on the stock with our SOTP-based TP of INR270.
Phillip Capital Outlook, Target Price On Vedanta:
VDL has very ambitious plans in terms of capacity expansion and seems like trying to adopt the GE way (Jack Welch) that they want to be a top player in every business they enter. However, it has disappointed us several times w.r.t. to meeting its expansion deadline and thus we are not very keen on looking into FY28 or FY30 targets as of now.
Backward integration into coal and Bauxite/alumina, higher ferrous sales and ramp-up of Gamsberg (Zinc International) look achievable to a large extent which is expected to drive the performance in the medium term. Demerger to unlock value and provide stake sale flexibility to the company. With medium-term financial risk diluted meaningfully, we continue to hold our positive stance on the company and reiterate our BUY rating on the stock with a SOPT target price of Rs 350.
Nuvama Outlook, Target Price On Vedanta:
We came out positive after attending the analyst meeting of Vedanta (VEDL). FY25 should be the transformational year for VEDL with debt likely peaking out, expansion of aluminium & zinc international slated for completion and value unlocking happening on the back of demerger and listing of all business verticals.
Management has guided for USD in debt reduction at VRL by FY27 without any incremental debt at VEDL. The monetisation of steel and iron ore assets by Q1FY25E (expect ~USD2bn) shall act as a first step. Moreover, we expect a DPS of INR40 each in FY25E and FY26E. Reiterate ‘BUY’ with a TP of INR394 (earlier INR371)
Nuvama’s target price is highest at Rs 394, signalling an upside of 50.69% compared to its March 14th intraday price.
