Edelweiss’ research report on Vedanta
Vedantas (VEDL) Q4FY18 EBITDA was ahead of consensus due to: 1) robust performance of oil & gas division; 2) one-off gain of INR3.5bn in aluminium (Al) division expenses; and 3) stable performance of Zinc India. Despite the sanguine long term outlook, we expect near-term cost pressures in Zinc India, International and Al divisions due to mine development activities and input costs. Factoring in the shutdown at Copper India, higher costs and capex guidance, we have cut FY19E EBITDA by 4% and revised our TP to INR410 (INR425 earlier), implying an exit multiple of 5.5x FY20E. At CMP, the stock trades at 4.2x FY20E EBITDA, which is at lower end of its historic trading range.
We view VEDL primed for growth following emerging operating leverage benefits in key divisions, despite short-term cost pressures. Factoring in higher costs and capex, we trim FY19E EBITDA by 4% and revise our TP marginally to INR410 (INR425 earlier), implying an exit multiple of 5.5x FY20E EBITDA.
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