Broker’s call: Vedanta

| Updated on October 19, 2021

Credit Suisse

Vedanta (Overweight)

Target: ₹420

CMP: ₹374.85

Aluminium and Zinc prices are up 19 per cent and 29 per cent from the Q2-FY21 average. While the former has been elevated on continued deficit amid China smelting constraints, zinc prices rose due to Nyrstar’s planned shutdown in Europe driven by high electricity prices. We remain most bullish on aluminium among base metals.

An extended base metals and crude upcycle makes us more comfortable on parent’s leverage. We expect dividends to remain elevated and are watchful for: parent’s attempts to raise stake in Vedanta to reach 75 per cent; and progress on Hindustan Zinc (HZL) stake.

While we continue to value Vedanta’s ex-HZL business at a discount to peers, we raise target multiple to 4.5x from 4x (Hindalco at 6x) FY23 EBITDA. We increase aluminium and zinc LME price forecasts to $2,900/t (from $2,670) and $2,800/t (from $2,550) and brent crude to $70/bbl (from $60). FY22/23 EPS rise 15 per cent/27 per cent.

We upgrade Vedanta to Outperform with revised target price of ₹420 (from ₹285) and expect street to upgrade estimates. We see upside risks to commodity prices, esp. aluminium and reiterate our preference for Hindalco as our top metals pick for its structural drivers in Novelis.

Published on October 18, 2021

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