Buy Vedanta Ltd for the Target Rs 350 by Motilal Oswal Financial Services Ltd
We attended VEDL’s analyst meet where the key focus remained on growth potential across various segments of the company. Post-demerger, we expect HZL to remain VEDL's earnings anchor, helped by its industry-leading cost position, long reserve life, and superior earnings visibility. Based on our FY28 assumptions of zinc at $3,000/t and silver at $65/oz, we estimate HZL to contribute 47% of consolidated revenue but 87% of EBITDA, supporting the group's cashflow generation. While the remaining businesses provide meaningful growth optionality, execution across Zinc International, Copper, and Ferro Chrome remains the key monitorable. Our SOTP valuation (8x FY28E EV/EBITDA for HZL; 5x for the remaining businesses) yields a TP of Rs350; maintain BUY.
HZL to be the earnings flagbearer
Post demerger, VEDL will comprise the Zinc India, Zinc International, Copper, FACOR, and Nickel businesses. While each vertical offers long-term growth potential, we believe HZL will remain the group's financial and operational anchor, driven by its scale, industryleading cost position, and superior earnings visibility. With mine life secured through CY49 at Sindesar Khurd and CY30 at Rampura Agucha (with right of first refusal upon re-auction), HZL enjoys unmatched reserve visibility. The management has guided for FY27 zinc production of ~1.15mt and silver output of ~680t, while company-wide unit costs are expected to remain at around $1,000/t – among the lowest globally. Based on our FY28 assumptions of zinc at $3,000/t and silver at $65/oz, we estimate HZL to deliver EBITDA of Rs269bn, contributing only 47% of the consolidated revenue but nearly 87% of VEDL's consolidated EBITDA, underscoring its role as the primary driver of earnings, cash flows, and shareholder value in the post-demerger entity.
Growth optionality remains; execution is key
While HZL will remain Vedanta's principal earnings driver, the group's other business verticals have also clearly defined growth roadmaps. Management expects Ferro Chrome to evolve into a stable cash-generating business, aided by 10% CAGR in stainless steel demand, sustainable EBITDA of ~$350/t, and a structurally competitive cost base. Zinc International is nearing a key inflection point, with Gamsberg Phase-II (97% complete); this is expected to reduce C1 costs to ~$1,500/t, with the high-manganese ore issue largely under control, paving the way for Gamsberg to become the business's primary earnings driver. In Copper, Vedanta is pursuing disciplined expansion across India and Saudi Arabia, with a proposed 400kt smelter in Saudi Arabia involving ~$2bn capex and targeting project IRR of 16%, while benefiting from healthy domestic copper premiums and strengthening its integrated value chain. On balance, VEDL’s recent stake sale of 1.7% was mainly to fund obligations associated with debt restructuring at VRL level.
Post-demerger SOTP based valuation
Our SOTP-based valuation assigns 8x FY28E EV/EBITDA to Zinc India (25% holdco discount) and 5x FY28E EV/EBITDA to the remaining businesses, reflecting HZL's superior earnings visibility and execution risks across the rest of the portfolio. We arrive at a postdemerger TP of Rs350; maintain BUY.
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