The National Green Tribunal’s (NGT) decision to let Vedanta Ltd resume operations at its Sterlite copper plant in Thoothukudi, Tamil Nadu, has brought some respite for investors. The Vedanta stock has risen 4% in the last two trading sessions, erasing some of its earlier losses. The Sterlite copper plant in Thoothukudi contributed 5% of Vedanta’s operating profits last fiscal. The plant was shut in May and its reopening will boost Vedanta’s earnings.

But the pertinent question investors need to ask is whether the NGT order will hold before courts and, more importantly, the political powers that be.

The Tamil Nadu government plans to appeal against the NGT decision in the Supreme Court. This can delay the plant’s reopening. “We believe the restart of the copper smelter may be contingent upon the decision by the Supreme Court and will also require preparatory work by Vedanta," said Kotak Institutional Equities.

Even if the apex court upholds the NGT decision, it has to be seen how the state government takes it forward. The recent Supreme Court judgments with larger ramifications (such as the Sabarimala verdict) have wedged a split between the judiciary and political authority, with the later pandering to popular beliefs. Most political parties in Tamil Nadu support those protesting against the plant.

Perhaps the apex court’s ratification will provide the legal cover, paving the way for a resolution. This is happening in the resolution of stressed ultra mega power projects in Gujarat.

Even so, given the limited contribution of the copper business to consolidated earnings and the fact that final deliberations are yet to begin, the stock’s trajectory will continue to be determined by existing businesses, and the outlook here is mixed.

On the positive side, Vedanta’s zinc business, which generated three-fifths of consolidated operating profit last year, is adding new capacities. This provides a healthy outlook on volumes and revenue. The company is also trying to ramp-up captive alumina production and source cheaper coal. The measures are expected to lower aluminium production costs.

These positives may, however, be overtaken by the US-China trade war and the resultant volatility in metal prices.

Last quarter, Vedanta saw cuts in earnings estimates as low prices crimped profitability. The situation remains uncertain over concerns of slowing demand in China clouding the outlook. The company’s undemanding valuations of 9 times FY19 earnings estimates, coupled with cost reduction plans, should hold the stock in good stead. But for it to break the downtrend, global demand outlook has to improve.

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