Target: ₹362
CMP: ₹274.60
The successful debt restructuring at Vedanta parentco Vedanta Resources (VRL) removes a major overhang on the stock. The restructuring comes at a higher cost, but gives Vedanta a two-year breather to focus on ongoing aluminium/zinc capex and monetisation of steel & iron ore assets, which would unlock incremental cash flows.
VEDL has been performing well operationally, and even financially, and has not been in a distress situation. The real issue of the stock’s underperformance has been the continuous overhang of parentco’s debt, whose repayment has now been deferred to FY27.
The debt restructuring bolsters the case for ratcheting up Vedanta’s target valuation. We now value VEDL ex-HZ at 5.5x EV/EBITDA (earlier 4.5x) and HZ at 6.5x FY26E EV/EBITDA. Moreover, promoters still can offload up to 13.6 per cent stake to revert to 50.1 per cent stake in Vedanta, providing additional liquidity.
Monetisation of steel & iron ore assets, vertical split of businesses, etc can unlock even more upside potential. On the whole, we believe Vedanta is moving in the right direction. We upgrade to ‘Buy’ with revised target price of ₹362 (from₹265).
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.