Published on 18/01/2021 11:36:33 AM | Source: ICICI Direct

Hold Vedanta Ltd For Target Rs.100 - ICICI Direct

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Steady operational performance....

On the back of a sequential uptick in non-ferrous metal prices, Vedanta reported a steady Q2FY21 performance. Consolidated topline for Q2FY21 came in at | 21107 crore, up 32% QoQ. Consolidated EBITDA for Q2FY21 came in at | 6531 crore, up 48% YoY, 64% QoQ. Steady EBITDA performance in Q2FY21 on a YoY basis was supported by higher volume at Zinc India business, subdued input commodity prices, lower cost of production at aluminium, steel and zinc business and rupee depreciation, partially offset by lower volume at the oil & gas business. Consolidated EBITDA margin for the quarter was at 30.9%, up 1080 bps, 590 bps QoQ. Tax expense for Q2FY21 was at | 2370 crore vs. |510 crore in Q1FY21 and a tax credit of | 1609 crore in Q2FY20. Normalised tax rate (excluding tax on dividend income of Zinc India business) for the quarter was 29% vs. 20% in Q1FY21, driven by change in profit mix in business. Ensuing reported PAT for Q2FY21 was at | 824 crore while adjusted PAT (before exceptional items and tax on dividend) was at | 1979 crore.


Aluminium segment performs well…

During Q2FY21, blended cost of production (CoP) of the aluminium segment was at US$1288/tonne (US$1852/tonne in Q2FY20 and US$1268/tonne in Q1FY21). During the quarter, YoY there was a notable 30% reduction in aluminium CoP, aided by lower input costs (on a QoQ basis, blended CoP of aluminium segment was largely flattish). Both Jharsuguda and Balco smelter operated in the first quartile of the cost curve in 2020.


Extends intercompany loan (ICL) of US$956 million to VRL…

As part of its cash management activities, Vedanta Ltd’s overseas subsidiary (CIHL) has extended an inter-company loan (ICL) to Vedanta Resources (VRL). As of date, the loan of US$956 million carrying interest rate @ 7% per annum is outstanding and has an average maturity profile of 2.2 years. The management has indicated that this is the upper limit of intercompany loans that will be extended to promoter entity, VRL. The loan amount will gradually reduce as per the repayment schedule.


Valuation & Outlook

Vedanta’s earnings remain sensitive to movement in commodity prices. On a sequential basis, non-ferrous prices have witnessed an uptick auguring well for the company. We value the stock on a SoTP basis and arrive at a target price of | 100. We maintain HOLD rating on the stock.


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