Vedanta share price experienced a decline of over 2% during Monday’s trading session, prompted by weak Q1FY24 numbers that fell short of market expectations, disappointing investors. The company’s net consolidated profits saw a 40% year-on-year decrease, dropping from 5,592 crore to 3,308 crore in the first quarter results. Moreover, sales also declined by 13%, from 38,251 crore in Q1FY23 to 33,242 crore in Q1FY24.
The company attributed the decline in revenue to a slowdown in output commodity prices and reduced sales volumes. However, there was a 6% sequential increase in net profit, reaching ₹3,132 crore in Q4FY23. Despite this, the stock faced significant downward movement and broke below its key support level of ₹275.
Brokerages weighed in on the situation, with Angel One’s equity technical and derivative analyst, Rajesh Bhosale, anticipating further weakness in the stock in the near term. He suggested that prices could slip towards the ₹260 – 255 levels, with a bearish gap acting as resistance at ₹275 – 278.
One brokerage firm downgraded the stock from ‘Buy’ to ‘Reduce’ and set a target price of ₹249 instead of ₹367. The analysis outlined that Vedanta posted lower-than-expected EBITDA of ₹6,420 crore, which was primarily due to lower commodity prices, especially zinc and aluminium, despite lower CoP partially offsetting the decline. The decline in volumes was attributed to seasonal factors. As a result, Vedanta’s net debt, excluding Hindustan Zinc, increased by 37% quarter-on-quarter to ₹59,570 crore.
The brokerage firm believes that the risk-reward ratio is unfavorable due to the company’s mounting debt and reduced cash creation, leading to the need for external debt in order to pay off its parent company’s debt through dividends. They suggest that Vedanta Resources should seek strategic buyers and sell its stake to reduce debt and alleviate concerns for minority shareholders.
In terms of financials, while Vedanta’s revenue was in line with expectations, EBITDA fell slightly short. Consolidated net sales stood at ₹33,700 crore, down 12% year-on-year, impacted by lower volumes and commodity prices. However, higher premiums and favorable exchange rate movements provided some offset. Consolidated EBITDA for the company was ₹6,400 crore, a 37% decline from the previous year, falling 6% short of projections. The aluminum vertical experienced a 19% decline year-on-year, reaching ₹1,800 crore.
The commodities market globally is facing various challenges, including inflationary pressure, seasonal slowdown driven by monsoons, muted demand from China, and a slowdown in the Chinese real estate sector. Based on this assessment, the brokerage firm maintained a Neutral rating on Vedanta, with a target price of ₹280.
