Vedanta shares fall 3% on weak Q1 results. Should you buy or sell?

Its revenue from operations fell 13% to Rs 33,342 crore for the first quarter as against Rs 38,251 crore. The fall in revenue was mainly due to a steep reduction in output commodity prices, partially offset by favourable movement in the exchange rate.

The company reported an EBITDA of Rs 6,975 crore for the April-June period, down 35% from Rs 10,741 crore in the same period of last year, due to lower output commodity prices and lower sales.

EBITDA margin for the quarter stood at 24%. Financial costs jumped nearly 74% to Rs 2,110 crore during the June quarter on account of an increase in the blended cost of borrowings and average borrowings.

At 10.06 am, the scrip was trading 2.5% lower at Rs 271.4 on BSE. On a year-to-date basis, the stock has declined nearly 14%.

Here’s what brokerages say:

Kotak Institutional Equities
Following the Q4 results, Kotak Institutional Equities maintained its ‘Sell’ rating on Vedanta with a target price of Rs 215 (Rs 235 earlier).

“Vedanta 1QFY24 EBITDA came 10% below our estimate, led by lower margins in oil & gas and ferrous businesses. We expect the ongoing weakness in commodity cycle to persist in the medium term and result in subdued earnings,” the brokerage firm said.

“Negative FCF over FY2024-25E and rising debt suggest that high dividends are no longer sustainable. Substantial repayments at parent VRL over FY2024-25E remain a key overhang, in our view,” it added.

Investec
Investec maintained a ‘Sell’ rating on Vedanta with a target price of Rs 180. Q1 EBITDA numbers were below estimates and the debt continues to swell.

The brokerage firm sees risks of Vedanta’s cash flow mismatch, forcing the company to divest assets. The company’s foray into semiconductors is surprising considering its current cash flow profile.

Nuvama
Brokerage firm Nuvama downgraded Vedanta to ‘Reduce’ from ‘Buy’ rating with a target price of Rs 249 (Rs 367 earlier).

“We cut FY24E/FY25E EBITDA by 18%/10% to factor in lower commodity prices. With lower cash generation, VEDL has to take external debt to finance its parent’s debt via dividends. With rising debt, we believe risk-reward is not favourable,” Nuvama said.

“We do appreciate management’s commitment to repay VRL’s debt, but it affects VEDL’s minority shareholders adversely,” it said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)