Vedanta Share Falls Over 3% Today As Profit Declines in Q2; Should You Buy, Sell or Hold?

Dhaneshwar Prasad

Vedanta Ltd’s shares fell over 3.5% to ₹252.30 on the BSE today after the company reported a consolidated net loss of ₹1,783 crore for the September quarter.

Vedanta Q2 Results Disappoint; Profit Falls on Impairment Losses

Vedanta reported a consolidated net loss of ₹1,783 crore for the quarter ended September 30, 2023. This compares with a net profit of ₹2,464 crore in the same quarter last year.

The company’s revenue from operations increased by 13% to ₹38,945 crore in Q2FY23 from ₹34,102 crore in Q2FY22.

However, Vedanta took an impairment charge of ₹3,097 crore in its aluminium, oil and gas, and iron ore business which dented its overall profitability.

Higher costs of raw materials also affected the company’s profit margins during the quarter.

Vedanta Share Price Falls Over 3% Post Q2 Results

Reacting to the dismal Q2 results, Vedanta’s share price fell 3.57% to ₹252.30 on the BSE in afternoon trade. The stock hit an intraday low of ₹250.95.

So far this year, Vedanta’s share price has declined 15.14%. Over the past one month, the stock has gained 0.38%.

Should You Buy, Sell or Hold Vedanta Shares?

Vedanta is currently trading at a P/E ratio of 15.88x which is at a discount to the sector average of 15.26x.

The company offers an attractive dividend yield of 23.88% and has a healthy balance sheet with low debt. Its book value per share stands at ₹102.

12 analysts track Vedanta currently. Among them, 3 analysts have a strong buy rating on the stock while 2 have a buy rating.

The mutual fund and FII holdings in Vedanta have increased in the September quarter showing confidence among institutional investors.

However, higher input costs, weak commodity prices, and one-time impairment losses could continue to affect the company’s profitability in the coming quarters.

Vedanta Faces Headwinds From Lower Commodity Prices

Vedanta is engaged in the business of metals, oil and gas, mining, and other segments.

The company has benefited in recent years from buoyant commodity prices. However, commodity prices have corrected sharply from their highs which could impact Vedanta’s earnings.

Aluminium, zinc, oil, and iron ore prices are down 15-20% from their record highs seen earlier this year. This led the company to take an impairment charge on some of its assets in Q2.

If commodity prices remain subdued in the coming quarters, Vedanta’s profits are likely to get affected. The company may also have to take further write-downs on its assets.

Vedanta Trying to Reduce Debt; Focus on Volume Growth

Vedanta has been trying to reduce its debt in the last few years. The company’s debt-to-equity ratio has moderated to 0.57x currently from a high of 1.6x in FY19.

The management has guided for gross debt reduction of up to $2 billion in FY23 which will strengthen the balance sheet further.

With uncertainty in commodity prices, Vedanta is focusing more on driving volume growth across its key segments to boost profitability.

Higher EBITDA from its zinc, oil and gas, and aluminium business aided its Q2 performance despite the one-time losses.

Outlook on Vedanta Stock

Vedanta offers a good value proposition for long-term investors given its attractive valuations, high dividend yield, and strong market position.

However, near-term headwinds for the company remain in the form of lower commodity realizations and input cost pressures.

Investors should wait for more clarity on the commodity price scenario before making fresh purchases in Vedanta stock. Existing investors can continue to hold the stock for its dividend yield.

Overall, Vedanta stock looks fairly valued at current levels. The risk-reward is balanced for new investors to take a position.

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Former Sony professional turned multi-business owner and stock investor, Dhaneshwar leverages his MBA to produce market, IPO and biz content and personal investments on
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