Goldman Sachs backs Vedanta as Glencore cuts zinc production1 min read . Updated: 13 Oct 2015, 09:49 AM IST
A $100-a-tonne increase in prices will boost Vedanta's pretax earnings for the next fiscal year by at least 3%, according to Goldman Sachs
Mumbai: Vedanta Ltd, India’s biggest zinc miner, posted its sharpest two-day surge in six years after Glencore Plc announced cuts in its production of the metal last week, sparking a rally in prices.
Shares of Vedanta Ltd, controlled by billionaire Anil Agarwal’s London-listed Vedanta Resources Plc, rose 7.1% at close in Mumbai on Monday, extending an advance of 12% on 9 October. The stock, which posted a sixth day of gains, was the best performer on the benchmark S&P BSE Sensex, which fell 0.7%.
Glencore, the world’s biggest miner of zinc, said on Friday it will cut output by one-third. Zinc rose $151, or almost 9%, last week on the London Metal Exchange. A $100-a-ton increase in prices will boost Vedanta Ltd’s pretax earnings for the next fiscal year by at least 3%, according to the Indian unit of Goldman Sachs Group Inc.
“We believe the cuts announced by Glencore will lead to tightening of the demand-supply situation and could provide support to zinc prices," Goldman Sachs analysts Navin Gupta and Indrajit Agarwal said in note dated 11 October. Vedanta is well-placed to take advantage of the price rally, they said.
Zinc made up 37% of Vedanta Resources’ 2014-15 pretax earnings, and the parent may benefit from the supply cutbacks, Bloomberg Intelligence analyst Eily Ong said on Monday. Vedanta Resources’ total refined-zinc production in the first half of the year ending 31 March rose 15% from a year earlier due to higher smelter efficiency and ore output, she said.
Goldman Sachs reiterated a buy rating for the company with a 12-month target of ₹ 135 rupees, implying an increase of 30% from the close on 9 October. Three-month zinc on the LME rose 1.9% to $1,870 a metric ton on Monday, while copper gained 0.7% and aluminium advanced 0.7%.
Peter Grauer, the chairman of Bloomberg Lp, the parent of Bloomberg News, is a senior independent non-executive director at Glencore. Bloomberg