Vedanta shares down 2% in 1 year but giving 7% dividend. Is it enough to buy the stock?

Time of India

6 days ago

Vedanta shares have struggled despite a strong 7% dividend yield and robust operational performance. Analysts remain cautious due to the pending demerger and past governance issues. While some advise waiting, others see long-term value, driven by Hindustan Zinc's growth plans, aluminium expansion, and the company's focus on debt reduction.
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Vedanta's share price conundrum
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Metal major Vedanta , one of the top 10 dividend-yielding stocks, has seen its share price struggle on Dalal Street over the past year. Despite offering a healthy 12-month dividend yield of 7%, the large-cap stock has declined 2% in the same period. This raises a crucial question if investors should consider buying it purely for its attractive dividend, despite its uninspiring stock performance.Stock's dividend yield in FY24, FY23 and FY22 stood at 7%, 24.2% and 10.7%, respectively according to a note by SBI Securities.Kranthi Bathini, Director-Equity Strategy at WealthMills Securities said that Vedanta shares draw their popularity among investors from high dividend yield. He attributed the current underperformance to the demerger overhang while highlighting that the company has suffered corporate governance issues in the past.His advice to investors is to wait till the time the demerger is completed.Echoing similar sentiments, Sunny Agrawal, Head - Retail Fundamental Desk at SBI Securities told ETMarkets to buy the stock only when the demerger takes place as it will unlock value for the shareholders.Technical analyst Nilesh Jain also does not find Vedanta's current proposition attractive on charts. In the absence of any clear trend, it is best to avoid the stock for now, the Head Vice President, Equity Research Technical and Derivatives at Centrum Broking opined.However, brokerage firm Emkay takes a contra view on Vedanta stock as it recommends a 'Buy' view on the counter for a price target of Rs 525. The reason for its optimism is Hindustan Zinc (HZL), a key profit driver for Vedanta. The company plans to double its capacity to 2mt by the end of the decade from 1.1mt currently and the first step includes a 250kt zinc smelting expansion at Debari with Rs120bn capex, targeting completion in 36 months.Vaibhav Vidwani, Research Analyst at Bonanz's Vidwani has also recommended a 'Buy' on Vedanta riding on the prospects of HZL. The profitability will be supported by the price of silver (Hindustan Zinc) and aluminium, while the company's core business remains solid, he said. "Expansion in both upstream and downstream in the aluminium industry, the Sijimali bauxite mine and backward integration for the aluminium smelter will support revenue growth in the upcoming year," he added.Vedanta shares have delivered modest returns of 2% so far in 2025, underperforming the Nifty , which is up 7.2% year-to-date and 4.7% over the past 12 months. In comparison, the Nifty Metal index — a benchmark for the sector — has gained 10% YTD but remains down 3.6% on a 12-month basis.Stock prices have not moved despite the merger news. In March, Vedanta extended the deadline of the demerger of its businesses from March 31, 2025, to September 30, 2025, citing pending approvals from government authorities and the National Company Law Tribunal (NCLT). The mining conglomerate is looking to demerge its businesses - aluminium, oil & gas, power and steel- as separate entities. At present, these businesses are subsumed within Vedanta Ltd, which is an Indian arm of UK-based Vedanta Resources. There will be no change in the overall shareholding structure.Chairman Anil Agarwal in a letter to company shareholders had said that he envisions each of the four newly demerged companies to potentially grow into a $100 billion company. Post the demerger, every Vedanta shareholder - both retail and institutional - will receive one new share in each of the newly demerged companies.Metal major Vedanta posted strong operational performance in Q1FY26 across its portfolio. The Lanjigarh Refinery reported a record quarterly alumina production of 587 kt, marking a 9% year-on-year and a 36% quarter-on-quarter jump. The mining major had reported stellar Q4FY25 earnings posting a 154% year-on-year rise in consolidated net profit to Rs 3,483 crore while the revenue from operations grew 14% YoY to Rs 40,455 crore.Vedanta has also been focusing on debt reduction and the company's CFO Ajay Goel in a company filing had said that Vedanta's balance sheet deleveraged by $500 million in Q4 with a closing net Debt of $6.2 billion, enabling substantial improvement in leverage to 1.2x.