Target: ₹362
CMP: ₹274.60
The successful debt restructuring at Vedanta parentco Vedanta Resources (VRL) removes a major overhang on the stock. The restructuring comes at a higher cost, but gives Vedanta a two-year breather to focus on ongoing aluminium/zinc capex and monetisation of steel & iron ore assets, which would unlock incremental cash flows.
VEDL has been performing well operationally, and even financially, and has not been in a distress situation. The real issue of the stock’s underperformance has been the continuous overhang of parentco’s debt, whose repayment has now been deferred to FY27.
The debt restructuring bolsters the case for ratcheting up Vedanta’s target valuation. We now value VEDL ex-HZ at 5.5x EV/EBITDA (earlier 4.5x) and HZ at 6.5x FY26E EV/EBITDA. Moreover, promoters still can offload up to 13.6 per cent stake to revert to 50.1 per cent stake in Vedanta, providing additional liquidity.
Monetisation of steel & iron ore assets, vertical split of businesses, etc can unlock even more upside potential. On the whole, we believe Vedanta is moving in the right direction. We upgrade to ‘Buy’ with revised target price of ₹362 (from₹265).