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The Rise of Vedanta – Journey from Delisting to 52W High

From delisting at a price of Rs.87 to the current value of Rs.450 πŸ€‘

πŸ“œ The Story

Recently the Vedanta group has made a new high at a market cap of 1.48LCr and the CEO of Vedanta has claimed that it can be a 50 billion-dollar revenue-generating company. Vedanta Limited is an Indian multinational mining company headquartered in Mumbai, with its main operations in Iron Ore, Gold, and Aluminium mines in Goa, Karnataka, Rajasthan, and Odisha. Vedanta Limited, a subsidiary of Vedanta Resources Limited, is one of the world’s leading Oil & Gas and Metals companies with significant operations in Oil & Gas, Zinc, Lead, Silver, Copper, Iron Ore, Steel, and Aluminium & Power across India, South Africa and Namibia.

From delisting at a price of Rs. 87/-  to the recent high of Rs. 450/-, let’s deep dive into what changed and how Vedanta drove from a market cap of Rs.125 crore to claiming its future revenue at 50 billion dollars

🎯 The Vision

CEO Anil Agarwal believes that India is in a sweet spot, with abundant natural resources, a thriving start-up culture, capital availability, and the government is moving in the right direction. It only needs to move faster.

1. Capital allocation of Vedanta focuses on growth Capex and dividend growth by allocating 1-1.5 b annually in growth Capex which will result into:

  • Volume expansion 
  • Cost reduction
  • Increase in share of value-added products
  • An increase in ESG standards
  • Vedanta plans to deliver a dividend of 4bn over the next 3 years

2. Along with the capital allocation, the company also plans to expand the capacity of its plants (Aluminium, Zinc/lead, Silver, Crude oil, etc).

3. While speaking about increasing capacity the company also plans for new ventures with the Foxconn group to manufacture semiconductors in India.

4. Management remains upbeat about the demand for metals and minerals on the back of a surge in demand for EVs and renewable energy. Know more about the top-listed electric vehicle stocks in India.

5. Vedanta is likely to restructure its business into three broad segments.

  • Aluminium
  • Ferrous
  • Oil/ Gas

6. Major sources of earnings of Vedanta:

Points to be Considered

1. High debt at the promoter level and the cyclical nature of its business have translated into low participation from institutional investors (barring LIC) in Vedanta despite the jump in dividend.

2. Vedanta currently ranks third in terms of profitability among manufacturing companies in India after Reliance Industries and Tata Steel.

3. Recent volatility in commodity prices and a likely increase in FSA (Fuel Supply Agreement)  linkage coal prices by Coal India remain the key monitorable for VEDL.

The Broader Picture

The rising prices of commodities and surge in their demand indicate that we are into the commodity bull run. How?

Well, like most things, Covid has a role to play here. When multiple countries across the world shut down, demand for commodities surged.

Global demand has skyrocketed and supplies haven’t kept pace. In the meantime, prices have been on the up. Back in, Aluminium was selling at $3,250 per tonne. It’s expected to touch over $4,000 in the coming months. According to one report from Morgan Stanley, we could be witnessing a deficit of nearly 1 million tonnes of aluminium this year.

So the 2 years of lockdown in which the mines were shut for good, and then opened up the economy has surged in the demand but with the least supply.

The following graph represents a comparison of Vedanta, Aluminium, Metals, and crude oil from 2020 to the date.

Moreover, the US has planned to revamp its infrastructure (roads, bridges, rails, etc.) to boost its economy and job creation. The government has planned to spend 20 trillion dollars for the same. Similarly, India in its recent budget has planned to invest Rs. 10 Lakh Crores in its infrastructure. As the building of infrastructures would require more commodities and the largest commodity supplier remains shut. This makes a surge in the prices of commodities and the related companies.

In the meantime, global demand is expected to remain robust. People will want more homes, more cars, more everything. And manufacturers will need more commodities to keep pace with demand. According to one forecast, aluminium prices are expected to reach $4,399.87 a tonne in the next 12 months and may even hit $8000 in the next five years.

So yes, this is a developing story and we will have to wait and see how the world & stock market navigate this rally.

You can also be a part of this trend by investing directly in commodities or by investing in stocks related or by trading directly into them via MCX’s recently announced Gold Mini Options which brings great opportunities for traders. Open Demat account online and start investing in minutes!

🎞️ Watch our YouTube Shorts on Vedanta to get more insights.

Happy Investing πŸ˜‡

Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.

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Sudhanshu Chandak

Bringing you deep market insights each week by connecting the dots of finance.

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