Home / Markets / Mark To Market /  Why Vedanta shares touched a new 52-week high?

Vedanta Ltd’s stock touched a new 52-week of 416 apiece on the NSE on Tuesday. Analysts who met the company’s management recently have come back pleased.

According to analysts at Motilal Oswal Financial Services and Systematix Institutional Equities, Vedanta has capex plans of $1 billion-$1.5 billion per annum over the next few years. The upshot: volume expansion, cost reduction, increase in share of value-added products and improvement in ESG (environmental, social and governance) standards, note analysts at Motilal Oswal in a report. “Capex is likely to continue even during a downturn to support these initiatives," added the report.

The company aims to enhance its volume capability across all its business. "In the near term over the next three years, Vedanta plans to raise its aluminium smelting capacity by 36% to 3mtpa (million tonnes per annum), raise zinc/ lead output by 36% to 1.7mtpa, silver capacity by 24% to 800 tpa, steel capacity by 133% to 3.5mtpa, ferro chrome capacity by 67% to 0.15mtpa, and add nickel smelting capacity of 7,000 tpa," said a report by Systematix. In the oil and gas business, analysts at Motilal Oswal remarked that its FY24E target production of 300kboepd (barrels of oil equivalent per day) seems to be a tall ask.

The elevated demand for the commodities it produces such as steel, aluminium, zinc would support the expansion in capacities. Note that shift towards electric vehicles and renewable energy would mean increased demand for metals and minerals. “Both the segments require 5-10x more minerals compared to the conventional transportation and energy generation sources," said the Systematix report.

Currently, it benefits from the high pricing environment for such metals due to concerns over supply chain amid the ongoing Russia-Ukraine war. Also, the cost of manufacturing such metals would remain elevated as energy and coal costs would maintain their high momentum with increased demand and subdued supply, which would mean a pass through of costs by resorting to price hikes.

Accordingly, analysts have upgraded the earnings estimates. “We raise our FY22E/FY23E earnings per share by 2%/3% on the back of a $10/barrel increase in our forecast for crude oil for both years," said the Motilal report.

Further, it plans to declare dividend in the next three years amounting to about $4 billion. This would help Vedanta deleverage at the parent level.

To be sure, the stock has appreciated meaningfully in the last one year, rising by around 80%. This may limit further significant near-term upsides. “At current prices, we do not expect a favorable risk-reward scenario in the stock," said Motilal Oswal’s analysts.

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