- These projects potentially deliver $5 billion in free cash flow
- Rapid growth in the Indian economy is a major growth driver
- Brokerage house Nuvama has upgraded its target price to Rs 644
INDIA: The Vedanta Group’s strategic roadmap to a $10 billion near-term EBITDA will be powered by the timely execution of 50+ high-impact growth projects including those in Zinc, Aluminum, Oil & Gas, and Power businesses. These projects are at an advanced stage of completion, as per a PowerPoint presentation made to more than 45 fund managers and analysts, who were on a site visit organized by Vedanta Group. PTI has reviewed a copy of the presentation.
Vedanta’s aluminum business has projects underway to achieve ~3.1 MTPA of integrated supply. It sits in the first quartile of the global cost curve, with the cost of production at multi-year lows – $1711/T – with a 100% vertically integrated supply chain. The business has a 2x strong demand outlook with India’s domestic market set to double every 5 years.
Vedanta’s Zinc business currently produces 1.2 MTPA (Zinc metal) at the cost of $1,000/t while silver volumes are at 800 MTPA. The business has a 75% + market share in India’s primary zinc market and the growth plan for 2 MTPA is currently under development.
Similarly, Vedanta Group’s Oil and Gas business is focusing on expanding its resource base to >2 BBOE (billion barrels of oil equivalent) in the next 3 years, with a production target of 300 KBOEPD (thousand barrels of oil equivalent per day). Additionally, the Vedanta Group has major projects under execution that include capacity expansion at the Lanjigarh alumina refinery from 3.5 to 5 MTPA, BALCO smelter from 0.6 to 1 MTPA, and raising the overall power generation capacity from 2.9 GW to 5 GW. Together, the Vedanta Group is investing around $8 billion in its ongoing growth projects.
Several leading brokerage houses have taken note of this, upgrading their target price for the company.
Upgrading Vedanta’s price target to Rs 644, Nuvama in its report said, “We are raising FY25E/26E EBITDA by 5%/6% factoring in operational efficiency, lower aluminum CoP due to captive alumina and higher premiums for aluminum and zinc. Meanwhile, the approval by lenders shall allow for the demerger of companies by end-FY25. We value VEDL ex-HZ at 6x FY26E EV/EBITDA (earlier 5.5x) and HZ at 7x FY26E EV/EBITDA, yielding a TP of INR644 (earlier INR542),”.
Further, Investec upgraded the target price to Rs 473. CLSA noted in its recent report that profitability improvement initiatives like major cost reductions via alumina refinery capacity expansion, higher power generation efficiency, and commissioning coal blocks and bauxite mines will be key to a re-rating.
Vedanta’s existing assets along with the growth projects will potentially generate $5 billion in free cash flows while contributing significantly to nation-building through a sustainable return to stakeholders. The $10 billion near-term EBITDA includes $ 4.2 bn from Aluminium, $2.7 bn from Zinc India (Zinc and silver), and $0.9 billion from Oil and Gas.
The Group’s plans make it well positioned to capitalize on India’s economic growth as the country’s Gross Domestic Product (GDP) is expected to grow at a healthy rate, reaching $7 trillion by 2030 as per MoF’s economic review report.
The company has proposed a vertical split of the businesses and will list five additional entities on the stock exchanges, subject to receiving all regulatory approvals, by the end of this year. As per the plan, for every share of Vedanta Limited, the existing shareholders will additionally receive one share of the five newly listed companies. The demerger will create independent pure-play companies in the Aluminium, Power, Base Metals, Oil & Gas, and Steel and Ferrous, while Zinc and other existing businesses will remain under Vedanta Limited.
