Vedanta Shares Fundamental Analysis and Future Outlook
Vedanta is the world’s 6th largest diversified resources company and the largest in India. The company is listed in India as well as on NYSE through ADR (American Depository Receipts). They operate in 5 verticals namely Oil and Gas, Zinc-Lead-Silver, Aluminium and Power, Copper, Iron Ore and Steel.
- Vedanta has ranked 15th by the Dow Jones Sustainability Index globally in 2019. Hindustan Zinc, a 64.9% subsidiary of Vedanta ranks 11th overall in the Mining and Metal industry based on its performance.
- The metals and mining industry is characterized by cyclic demand and asset-heavy structure. This reduces profit margins as the capacity increases. Therefore the companies focus on revenue growth in order to improve the quantum of profits.
- Coming to the company, Vedanta is the 2nd largest Zinc producer in the world with a mining capacity of 1000 kilo tonne. The company has 2.2% inducted impact on Indian GDP and contributes 0.4% directly. The indirect contribution to the economy through its supplier network is as large as 1% of India’s GDP. This shows the scale of operations which the company has.
- Significant technical expertise and capital are required to achieve a scale like this, but the company is still vulnerable due to its week financials.
- Vedanta has grown through both organic and inorganic expansion. Overall the company has expanded the scale but has not been successful in achieving a strong financial position.
- Therefore the management has decided to take the company private, which will help them to restructure the business without any supervision from the market regulator.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Vedanta Shares Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The company is expected to be taken private by the end of 2020. This means there may be major restructuring and scaling down of businesses which are not profitable. Turning around such a large enterprise depends upon the management capabilities and economic outlook. Therefore any comments cannot be made at this point in time. The company may relist again in the future at higher valuations once it is restructured.
- The ongoing mine expansions at Hindustan Zinc are on track. The underground shaft at Rampura Agucha has been commissioned but overhauling is expected to get delayed due to the lockdown in the country. Once finished this will increase the production to 4.5 million tonnes.
- Aluminium cost of production was 9% lower in the last quarter ($ 1691 per tonne). This was because of lower coal costs and higher alumina production. The cost of production is expected to increase in double digits after the lockdown.
- The global outlook remains week due to the disrupted supply chains and economic impact of COVID-19 outbreak. The management’s decision of taking the company private comes in the time where the stock price has been beaten down. This allows the management to buyback the shares at a lower price subjected to the approval by the independent valuer and the market regulator.
The company if taken private can see several critical changes to its operations and structure as it would no longer be subjected to scrutiny by the market regulator. This can improve the business efficiency and profitability for the company in the coming years.
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