Vedanta's investor dilemma: Dividend king, pauper returns; time to buy or say bye?

Time of India

14 hours ago

Vedanta's shares are stagnant despite positive triggers like demerger plans, strong operational performance, and debt reduction efforts. Experts suggest caution until the demerger's completion due to corporate governance concerns. The stock's appeal lies in its high dividend yield, but technical analysis indicates a lack of clear trend, advising investors to wait for more certainty.
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Vedanta share price performance
Tech view
1) Vedanta demerger
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2) Operational performance
3) Debt reduction
4) Hindustan Zinc factor
Dividend king Vedanta 's shares have languished in an extended consolidation phase, stubbornly refusing to break out despite a flurry of positive triggers — from buzz around its ambitious demerger plans and impressive operational milestones to its focused efforts on debt reduction. Over the past year, the stock has been eerily stagnant, inching up a mere 0.1% and underperforming not just the metal sector, but the broader Nifty as well.While investors watching from the sidelines are left wondering what will finally ignite a breakout and if it is time to buy, experts advise caution until the demerger mystery is resolved."We would recommend the investor to buy only if the demerger takes place as it will unlock value for the shareholders," Sunny Agrawal, Head - Retail Fundamental Desk at SBI Securities told ETMarkets.The sentiments are echoed by expert Kranti Bathini who suggested a wait and watch strategy as there is a demerger overhang. The company suffered corporate governance issues in the past, he added.Bathini said that the stock's popularity among investors is owing to its high dividend yield.Vedanta is among the top 10 stocks with highest dividend yield. According to a note by SBI Securities, its dividend yield in FY24, FY23 and FY22 stood at 7%, 24.2% and 10.7%, respectively. Among the largecaps, Vedanta tops the chart with last 12 months yield of 7%, according to Axis Securities.Vedanta's price performance has been lackluster with six months returns at 2% against a 10% rally in the Nifty Metal index and 5% in the Nifty.Though metal stocks have picked up in H1CY25, the sector suffered heavily in H2CY24 and that may have had a sentimental impact on Vedanta shares as well.Most commodities including metals often mirror international price trends and the cyclical nature adds additional variables in the performance of metal stocks.Nilesh Jain, Head Vice President, Equity Research Technical and Derivatives at Centrum Broking 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, Jain opined.Bulls have failed to unbolt despite a host of positive triggers such as: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 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.Post the demerger, every Vedanta shareholder - both retail and institutional - will receive one new share in each of the newly demerged companies.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.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.Zinc India achieved its highest-ever Q1 mined metal production at 265 kt, up 1% YoY, while Zinc International output soared 50% YoY and 12% QoQ. Ferro Chrome production surged 150% QoQ, supported by best-ever ore production, which climbed 66% QoQ. Additionally, power sales rose 11% QoQ, reflecting broad-based strength across segments.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 been focusing on deleveraging push. CFO Ajay Goel in a company filing had said that Vedanta 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.Hindustan Zinc (HZL), a key profit driver for Vedanta, 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, Emkay said in a note."Positioned in the lowest quartile of the global zinc cost curve, HZ has 50% EBITDA margins. Management projects EBITDA of Rs 17,000 crore and free cash flow of Rs100bn for FY26E/27E, rising to Rs 20,000 post-expansion. HZ's steady cash flows should support a 4-5% dividend yield and fund further growth. Management remains positive on retaining mines due for re-auction in 2030 and plans to boost renewable energy share to 27% by FY26," this brokerage said.It has taken a 'Buy' view on the counter for a price target of Rs 525.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)