Why Vedanta Share Price is Falling

Editor's note: Broader markets took a dip yesterday with midcap and smallcap indices falling 3-4%, while benchmark indices Sensex and Nifty traded sideways to end marginally higher.

Among the big names, Vedanta share price experienced a decline of 3%.

The stock has been under pressure throughout 2023, falling 25% so far.

In August 2023, we covered a detailed editorial explaining the reasons why Vedanta's stock is under pressure and what lies ahead.

A lot has changed since then, which could offer some insights on where the stock is headed next and when the next significant move might occur...

Continue reading.

Why Vedanta Share is Falling

Semiconductor stocks have quietly emerged as outstanding performers in the stock market. The Indian semiconductor industry has been experiencing a remarkable surge in growth, propelled by a combination of technological advancements.

These firms have skillfully ridden the wave of innovation, global market expansion, and government backing for the electronics manufacturing sector.

However, amid this overall positive landscape, there's a notable company that has raised eyebrows: Vedanta. The company's shares are experiencing a downturn, hovering near their 52-week low.

Here's why the shares of the company are falling.

#1 Block deal

The decline in Vedanta's stock value can be linked to a significant development involving Twin Star Holdings, a prominent promoter of Vedanta. Twin Star Holdings made headlines by divesting a notable 4.3% stake in the company through a series of block deals.

This strategic transaction, valued at a substantial US$ 501 million (m) or approximately Rs 41.3 bn, was executed at a base price of Rs 258.5 per share.

This price point marked a 5% reduction, when compared to the closing price of Rs 272.8 on the National Stock Exchange as of 3 August 2023.

Before this stake sale, Twin Star Holdings had held a considerable ownership position, boasting a total of 1.7 bn shares, which translated to a significant 46.4% stake in Vedanta.

#2 Weak quarterly results

In the June 2023 quarter, Vedanta faced headwinds in its financial performance. It reported a 3% decrease in revenue to Rs 333.4 bn compared to Rs 382.5 bn in the corresponding period last year.

The earnings before interest, taxes, depreciation, and amortisation (EBITDA) experienced a significant downturn, plummeting 39% year-over-year (YoY) to Rs 60.3 bn, in contrast to the Rs 98.3 bn registered in the June 2022 quarter.

This decline in EBITDA also led to a contraction in EBITDA margins, which diminished by 7.6% to stand at 18.1% from 25.7%.

The company's net profit took a substantial hit, falling by 40% to Rs 26.4 bn compared to Rs 44.2 bn recorded in the corresponding quarter of the previous year. This decline is due to the adverse impact of weakening commodity prices, especially zinc and aluminium.

Coming to the individual segments, the revenue generated from zinc, lead, and silver witnessed a decline of 23%, amounting to Rs 70.6 bn. Meanwhile, the aluminium segment experienced a drop of 19% in revenue, totaling Rs 119.1 bn.

Copper and iron ore segments also grappled with reduced performance during this period.

#3 Debt Concerns

The other reason why Vedanta shares are under pressure is because the company is facing certain debt-repayment obligations soon.

Bloomberg data shows that the company's bonds are trading below 75 cents, which indicates distress.

Recently, the company repaid debt, which was due in May and June this year, reducing debt to US$ 6.4 bn.

According to reports, Vedanta is facing debt repayment of US$ 3.6 bn in 2024 and around US$ 2 billion in FY25.

Vedanta Resources is reportedly planning to meet bondholders soon.

Rising borrowing costs in the global markets have put Anil Agarwal's firm under pressure for now. All depends on how the potential roadshow goes, scheduled in the coming weeks.

What next?

In the financial year 2024, Vedanta has projected a capital expenditure (capex) of US$ 1.7 bn (Rs 136 bn), representing an increase from the US$ 1.2 bn spent in the previous fiscal year, FY23.

In a statement made on 18 July 2023, Akarsh K Hebbar, the semiconductor head at Vedanta, reiterated the company's commitment to establishing India's inaugural semiconductor and display fabrication facilities within the Dholera Special Investment Region located in Ahmedabad, Gujarat.

Hebbar's affirmation follows Vedanta's recent decision, alongside electronics manufacturing giant Foxconn, to discontinue their joint venture. This partnership had initially aimed to invest a substantial US$ 19.5 bn towards the establishment of a semiconductor manufacturing unit in Gujarat.

The company is also set to benefit from the demand for semiconductors is likely to soar, driven by emerging technologies like 5G, artificial intelligence, and the internet of things. This could lead to substantial revenue growth for semiconductor companies like Vedanta in the long term.

Update: The parent firm Vedanta Resources is planning to move Konkola Copper Mines (KCM) into Vedanta as it embarks on a plan to integrate all its copper businesses.

How Vedanta shares have performed recently

Vedanta shares have declined by more than 16% in the past six month. So far in 2023, the stock is down more than 25%.

Vedanta has a 52-week high of Rs 340.75 touched on 20 January 2023 and a 52-week quote of Rs 230 touched today, i.e., 13 September 2023.

At the current price, Vedanta trades at a PE multiple of 3 times and a price to book multiple of 1.3.

About Vedanta

Vedanta is a diverse natural resource company that explores, extracts, and processes minerals as well as oil and gas. The company explores, produces, and sells zinc, lead, silver, copper, aluminum, iron ore, and oil and gas.

Vedanta's other businesses include commercial power generation, steel manufacturing, and port operations in India, as well as glass substrate manufacturing in South Korea and Taiwan.

Vedanta is committed to achieving net-zero carbon emissions by 2050 or sooner and has promised US$ 5 bn over the next ten years to accelerate the transition.

Vedanta has also launched Spark 2.0 in line with its mission to support startups. Startups chosen for the program will collaborate with Vedanta's group companies, which have operations on three continents.

For more details, checkout the Vedanta company fact sheet and Vedanta News and Analysis.

We have recently covered a detailed dividend editorial comparing Vedanta and NALCO. Do take a look.

You can also compare Vedanta with its peers.

Vedanta vs Hindalco

Vedanta vs Hindustan Copper

Vedanta vs Hindustan Zinc

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...