Recommendation from Mining and Minerals Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
Vedanta Ltd. : Creating Wealth, Nature’s Way!
HERE IS WHY
✓Market leader in core business segments
✓Progressive on ESG front
✓High dividend yield
Vedanta Limited is India’s largest natural resource company with a portfolio of large, world-class, low-cost, scalable assets, operating in high-growth markets. The company is a leading player in the zinc, oil and gas, iron ore, lead, silver, steel, copper, aluminium and commercial energy segments. Its operations are primarily based in India, South Africa, Ireland and Australia. As India’s only diversified natural resources’ group, the company is uniquely placed to make a ‘home-grown’ contribution to the nation’s growth and to assist in its process of modernisation. The company reported net sales of ₹ 88,021 crore in FY21 as compared to ₹ 84,447 crore in FY20.
This was on account of the zinc and steel segments that delivered strong perfor- mance which yielded revenue growth of nearly 4.23 per cent. EBIDTA stood at ₹ 30,739 crore in FY21 as against ₹ 23,197 crore in the previous year. It achieved its highest ever production of 1,969 KT of aluminium by maintaining lower cost of production that resulted in high EBITDA growth of over 32.5 per cent. The PAT stood at ₹ 15,033 crore while it had suffered net loss of ₹ (4,743) crore in FY20. The loss in FY20 was on account of an impairment charge in the category of exceptional items.
The company’s balance-sheet has a strong liquidity position as the cash flows from operating activities increased from ₹ 19,300 crore in FY20 to ₹ 23,980 crore in FY21 by 24.24 per cent. The Q3FY22 performance was exceptional for the company as it witnessed its highest ever quarterly revenue that grew by 49.78 per cent YoY to ₹ 33,697 crore. On a sequen- tial basis, the top-line was up by 12.14 per cent. Almost all the business segments posted double-digit growth. It recorded its highest ever PBIDT exclusive of other income at ₹ 10,742 crore, up by 38.48 per cent YoY and its margin was reported at 31.5 per cent, contracting by 262 basis points YoY.
The robust performance was driven by favourable sales realisations on the back of high prices with zinc and aluminium being at historical highs and also due to high Brent prices. PAT was reported at ₹ 5,354 crore, up by 26.75 per cent YoY. The PAT margin stood at 15.7 per cent in Q3FY22, contracting from 18.58 per cent in Q3FY21. Among other key ratios, ROE and ROCE stood at 25.8 per cent and 17.9 per cent, respectively. The stock is trading near the PE multiple of 7.5x. It has a debt-to-equity ratio of 1.05x and a high dividend yield of nearly 11.2 per cent. Vedanta is undoubtedly one of the biggest natural resource companies on a global level. Let’s briefly understand its main business segments.
In India, it has about 80 per cent market share in the zinc market with its subsidiary Hindustan Zinc Ltd. Also, it is the world’s largest fully integrated zinc-lead producer. In aluminium, it has about 47 per cent market share, being the largest producer in the nation. Recently, it acquired Nicomet Industries, which has made it a sole large producer of nickel in the country. It operates about 25 per cent of total oil production in India. On the ESG front, the company aims to achieve zero net impact on environment by 2025. It has recycled about 94 per cent of its total waste with 30.7 per cent water recycled. By virtue of all these factors, we recommend our reader-investors to BUY the scrip.
