Vedanta Ltd. share price has continued its resilient performance, rising by nearly 6% in the past five sessions. Vedanta stock is racing to hit the Rs 500 mark, while it has already surged by nearly 30% from its 1-year low. Brokerage Emkay Global has recommended a BUY on Vedanta, due to the strong fundamentals of its subsidiary, Hindustan Zinc.
Vedanta Ltd Share Price:
After market hours on July 2, Vedanta stock closed at Rs 469.60 apiece, up by 0.8% on BSE, with a market cap of Rs 1,83,631.82 crore. With that, the mega metal stock is up by 29.65% from its 52-week low of Rs 362.20 apiece. Vedanta's 52-week high is at Rs 527 apiece.
The stock zoomed by 5.6% in the past five sessions.
Why BUY Vedanta Stock Because Of Hindustan Zinc?
First and foremost, Hindustan Zinc (HZ) contributes 40% to profits and is a key segment for Vedanta (VEDL).
According to Emkay Global's note, Hindustan Zinc recently announced its plan to expand capacity to 2mt by the end of this decade, from 1.1mt now. HZ is positioned in the first quartile of the global zinc cost curve, and the business has generated through-cycle EBITDA margins of ~50%.
That being said, Emkay believes HZ is positioned in the first quartile of the global zinc cost curve with the cost of production at USD1,050/t, and the business has generated through-cycle EBITDA margins of ~50%.
Analysts at Emkay said, "We estimate (as part of VEDL coverage) HZ's EBITDA at Rs170bn and free cash flow of Rs100bn in FY26E/27E, based on zinc LME of USD2,600/t and silver price of USD36/oz. EBITDA is likely to increase to Rs200bn, from the 250kt capacity expansion."
"We expect steady cash flows to help sustain 4-5% dividend yield, while excess cash could be used to fund expansion. The mgmt also indicated comfort in gearing up from an almost net-debt-free balance sheet, to optimize the capital structure. HZ trades at 9x consensus FY27 EBITDA," said Emkay's analyst.
On the valuation, Emkay's analysts added, "We estimate (as part of VEDL coverage) HZ's EBITDA at Rs170bn and free cash flow of Rs100bn in FY26E/27E, based on zinc LME of USD2,600/t and silver price of USD36/oz. EBITDA is likely to increase to Rs200bn, from the 250kt capacity expansion. We expect steady cash flows to help sustain a 4-5% dividend yield, while excess cash could be used to fund expansion."
Hence, Emkay has recommended BUY on Vedanta for a target price of Rs 525.
Coming to HZL, this zinc stock is currently at Rs 446.65 apiece on BSE, with a market cap of Rs 1,88,723.87 crore as of July 2. HZL also has a better return on equity (ROE) of 134.51% compared to its parent.
Hindustan Zinc is the World's largest and India's only integrated zinc producer. With more than 50 years of operational experience, the company gives highest priority to safety of our people and conservation of scarce natural resources through technology and innovation. With a total R&R base of 453.2 million tonnes and an average zinc-lead grade of 6.5%, its mine life is over 25 years. Its fully integrated zinc operations currently hold around 77% market share in India's primary zinc market. The company is amongst the top 5 silver producers globally with an annual capacity of 800 MT.
Both Vedanta and HZL are among the top dividend-paying metal stocks and also the highest dividend-yielding large-caps.
Vedanta Ltd Demerger:
Vedanta is set to demerge into six listed entities. The demerger is of Vedanta and metals, power, aluminium, and oil and gas businesses to unlock potential value. After the exercise, six independent verticals - Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Limited - will be created.
Under the demerger agreement, every eligible shareholder of Vedanta will get one share each in the five newly listed companies, against their 1 existing share in Vedanta. Hence, the demerger ratio is of 5:1.
As per the latest update, NCLT defers approval for Vedanta's demerger to next hearing on August 20. The development around the demerger will be keenly eyed.
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.
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