Shares of the newly demerged Vedanta entities, Vedanta Aluminium Metal, Vedanta Oil & Gas, Vedanta Iron and Steel, and Vedanta Power, rallied up to 5%, extending gains for a second session on Monday.
Vedanta Aluminium shares rose 1.5% to their day’s high of Rs 465, while Vedanta Oil & Gas hit its 5% upper circuit limit at Rs 34.70 on the BSE. Vedanta Power surged over 3% to Rs 42.40, while Vedanta Iron and Steel was locked in a 5% upper circuit at Rs 26.80.
Which stock are you betting on?
Last week, Citi initiated coverage on Vedanta Aluminium shares with a ‘Buy’ rating and a target price of Rs 560 apiece, naming the newly listed stock its top Indian metals pick. The latest target price implies an upside potential of more than 22% from the stock’s previous closing price.
Citi listed key drivers for its bullish call, which include a positive aluminium outlook, growth potential (Balco expansion, Vedanta Aluminium debottlenecking), cost focus (higher captive alumina, domestic bauxite and captive coal), and improving leverage. It expects the company to have a net cash position by FY28.
Expecting aluminium prices to hover around $3,400 in FY27-28, Citi explained that every $100 per tonne change in LME can impact the company’s EBITDA by 4-5.5%, and subsequently fair value by nearly Rs 30 per share. “We open a 90-D positive CW: Our commodities team believes the aluminium market is in deficit and will draw inventories sharply over the next 3-6 months, driving prices up 15-20% to $4,000 per tonne in the base case,” it added.
Read more: Vedanta demerger: How will the mega restructuring impact dividend payouts for shareholders?
Case for Vedanta Oil & Gas
According to Sunny Agrawal, Head of Fundamental Research at SBI Securities, Vedanta Oil & Gas commands a fair value of Rs 42 per share.
Vedanta Oil & Gas, which houses Cairn Oil & Gas, claims to be India's leading private sector upstream player and is targeting production of 300,000 to 500,000 barrels per day through a planned investment of $5 billion. "A little over a decade ago, Cairn was valued at $14.5 billion. When we acquired Cairn, its market capitalisation was half of the asset value. Today, Cairn has grown manifold, adding more reserves as well as a natural gas portfolio," the company had said in a press release earlier this year.
Brokerages remain divided on valuations for Vedanta Power. Domestic brokerage Emkay estimates a value of around Rs 51.7 per share, while Kotak Institutional Equities pegs it at Rs 60 per share. Nuvama's valuation implies a value of around Rs 47 per share, while CLSA's estimate corresponds to roughly Rs 35 per share.
The company owns more than 4 GW of installed power generation capacity across Punjab, Andhra Pradesh, Chhattisgarh and Odisha. Its portfolio includes the Talwandi Sabo Thermal Plant, Meenakshi Energy, Sakti Power and the Jharsuguda Thermal Plant.
Management has outlined plans to become one of India's top three private thermal power producers by FY33 through capacity expansion and asset turnarounds. The business also benefits from several long-term and medium-term power purchase agreements with state utilities, providing a degree of revenue visibility.
Also read: Vedanta Aluminium vs Power vs Oil & Gas vs Iron & Steel: Which stock should you buy?
The company’s share price has recorded the sharpest gains so far among the four Vedanta Group companies, rallying for a fifth consecutive session. Vedanta Iron & Steel has operations spanning India and Africa, and focuses on iron ore exploration, mining, and processing. It also produces high-quality steel, wire rods, TMT bars, pig iron, ductile iron (DI) pipes, ferro-silicon, cement and metallurgical coke.
Sunny Agrawal said that Vedanta Iron & Steel offers cyclical upside and carries higher commodity and execution risks, especially given weaker listing traction and greater earnings volatility. Hence, on a forward SOTP basis, Aluminium stands out as a structural compounder with favourable operating leverage, while the rest are more tactical or cyclical plays.
Vedanta in April had announced that each of its eligible shareholders will get one share in each of the four companies, namely Vedanta Aluminium, Vedanta Power, Vedanta Oil & Gas and Vedanta Iron & Steel, for every share held in Vedanta on the record date, which was May 1.
While Vedanta shares have already adjusted to the restructuring, investors were actively awaiting the listing of the four companies that spun out of it. The stocks have been initially placed in the Trade-to-Trade (T2T) segment, where every transaction results in compulsory delivery.
