Why Vedanta Share Price is Falling

Debt-ridden Indian tycoons are having a difficult time in 2023, following the Adani fiasco.

Amid the collapse in Adani stocks, there's another prominent group which has come under the scrutiny of late.

The Vedanta group.

The share price of Vedanta, the largest metal and mining company in India, dropped by 18% in February 2023.

This isn't the first time Vedanta has come under intense pressure. The stock experienced a similar decline in July 2022 and we wrote explaining about it in our editorial - Why Vedanta share price was falling.

Let's find out why Vedanta's stock took a beating this time.

#1 High debt on books

The primary reason behind the decline in Vedanta's stock price is due to investor concerns regarding the group's debt.

The Vedanta group's net debt after adjusting the cash component stands around US$ 11.8 bn (Rs 988 bn).

By June 2023, Vedanta resources, the Vedanta group company, has to repay US$ 300 million (m) in inter-company loans and US$ 350 m in interest to two banks. Vedanta, therefore, needs to raise at least US$ 500 m by then.

It plans to deploy internal funds to meet half the requirements over the next financial year. It hopes to refinance the rest.

This plan of using subsidiaries' cash to pay the debt could have another impact on the subsidiary level's rising debt.

As a result, the group companies could become debt-laden.

Nevertheless, the Anil-Agarwal group is in talks with various lenders to refinance its debt.

And if it fails to raise funds by then, it will be left with a mere US$ 500 m. That will not be enough to repay US$ 500 m in the December quarter and US$ 1 bn in bonds in January 2024.

Two rating agencies have raised concerns about its liquidity scenario, which has made banks and investors concerned about the group's financial health.

However, these worries took a breather after the group announced that it pre-paid all of its maturities due till March 2023 and has deleveraged by US$2 billion in the past 11 months.

The firm has achieved half of its US$ 4 billion 3-year debt reduction commitment in the first year, ahead of its plans.

Investors have calmed to some extent after the pre-payment of debt, but until all of the liabilities are paid back, the sentiment is expected to be jittery.

#2 Sale of international zinc assets to Hindustan Zinc

Earlier, the Vedanta group announced its deleveraging commitment over the next three years. It has to pay back a long-term debt of US$ 13.9 billion.

The company has US$ 1.2 bn of debt repayment due by the second half of 2022-23, and US$ 4.1 bn by 2023-24.

To reduce this debt, the Vedanta group is looking forward to selling its stake in Hindustan Zinc Limited (HZL), where it owns 64.92% stake, while 29.54% lies with the Indian government.

Vedanta has been trying to offload some of its mines in South Africa and Namibia to raise around US$ 3 bn over the past 18 months, with Hindustan Zinc as a potential buyer.

But Hindustan Zinc's stake sale has got the Indian government worried as it could be an expensive deal for the already struggling company.

On 20 February 2023, the center opposed Vedanta's proposal to sell its international zinc assets to HZL for US$ 2.98 bn over valuation concerns.

The government is also planning to take legal action to stop the sale of the Africa-based assets to Hindustan Zinc.

How Vedanta shares have performed recently

Vedanta shares have declined by more than 5% in the last one month. So far in 2023, the stock is down more than 8%.

Vedanta has a 52-week high of Rs 440.75 touched on 11 April 2022 and a 52-week quote of Rs 206.1 touched on 1 July 2022.

At the current price, Vedanta trades at a PE multiple of 6.4 times and a price to book multiple of 1.6.

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...