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Emkay Global
Vedanta (Buy)
CMP: ₹90.2
Target: ₹112
Vedanta has corrected over 50 per cent from its 52-week high, in line with the correction in other metal stocks due to the impact of Covid-19. However, with the recovery in China in nascent stages, we believe commodities are passing through trough pricing.
The pandemic will lead to a reduction in both demand and prices for most of the commodities in FY21; however, we expect a revival in FY22 and normalisation of demand in FY23, driven by fiscal stimulus implemented by most of the large economies globally.
The announcement of delisting comes at cyclical lows and we believe at a significant discount to the fair value, especially when oil, zinc, aluminum, lead all have taken a beating due to the pandemic and greenshoots of recovery have started emerging in China.
We upgrade to ‘Buy’ from ‘Sell’ with a target price of ₹112 (₹134 earlier) based on SoTP (sum-of-the-parts valuation) as we roll forward our valuation to Mar-22E and move to ‘overweight’ in sector EAP. The recent upmove in the stock does not capture its fair value and we expect a 25 per cent upside.
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