The mining giant’s stock is facing a bad year, falling almost 30% in 2023 alone!

 

The mining giant was witnessing good movement in the early half of January 2023. However, the Adani-Hindenburg saga spooked all investors as Vedanta suffered from panic selling. The stock was consolidating during February but began falling by the end.

Vedanta was planning a $2 billion fundraise while simultaneously planning to sell its global zinc assets to its subsidiary HZL. However, these plans faced major roadblocks as the strengthening dollar and degradation of Vedanta’s bonds resulted in an 8-day decline with a fall of 9%!

Although buyers were available for the stock, it couldn’t rally upwards as the selling pressure kept the stock in a range. The stock was consolidating near its support at Rs 284.30 throughout March, April, and half of May.

Around mid-May, the stock breached its resistance at Rs 284.30 and sustained its move upward as Indian market sentiments were positive and Nifty 50 was witnessing a Bull Run. It briefly reclaimed its Rs 300 mark but fell back down the next day when it turned ex-date for a Rs 18.50 per share interim dividend.

The share fell back into consolidation immediately. It challenged its resistance at Rs 284.30 multiple times but was unable to breach it. The company announced its Q1FY24 results, which resulted in a 2.5% decline in a single day.

Although it managed to recover, August 2023 brought about a meltdown. The stock fell through its support at Rs 262.60, losing over 6.5% in a single session. Twin Star Holdings, one of Vedanta’s promoters, offloaded a 4.3% stake in a massive block deal, driving the price well below Rs 250!

The sell-off continued throughout August as Vedanta lost 17% of its value in the month of August 2023. By the end of August, Vedanta had fallen almost 30% from its 52-week high of around Rs 340 per share. The company’s bonds were trading below the price of 75 cents as its debt was troubling. 

Throughout the first half of September, the stock hovered around its immediate support at Rs 230.60 before it fell through the level on 20th September. The stock kept declining as a downgrade was rumoured. On 27th September, Moody’s officially announced a bond downgrade with a negative outlook.

Vedanta broke through its support at Rs 213.60 as it fell 6.7% in a single day and that day marked 8 consecutive sessions of decline. However, the stock surged 6.8% a day later when Vedanta announced its six-unit split plan. 

 

 

What’s the future outlook??

Fundamentally, the company’s latest performance wasn’t good. Its Total Income for the quarter came in at Rs 34,279 crores, down 13% YoY and 11.3% sequentially. Revenues fell across all segments other than Silver, Copper, Iron Ore and a few others, which formed less than 30% of total revenues. Profit during Q1FY24 came in at Rs 3,308 crores, down 41% annually, but up 5.6% on a sequential basis.

Moreover, the company’s Q2FY24 Production release hasn’t shown good numbers. The company’s Iron Ore, Steel, and Power segments have shown double-digit growth, while Aluminium (its highest contributing segment) saw a marginal growth of 2% YoY.

On the other hand, the Zinc India and Oil & Gas segments reported a single-digit decline in production while its Zinc International, FACOR, and Copper segments reported massive double-digit declines in production with FACOR production declining a staggering 48% YoY!

 

 

Technically, the stock is trading below its 5, 20, 50, 100, and 200-day averages. Moreover, the RSI is at 45.63, indicating that the stock is neither overbought nor oversold.

Although Vedanta has announced the demerger to unlock shareholder value and improve core competencies, the demerger may not be a good idea. The plan is to split the mining giant into the following companies:-

 

  • Vedanta Aluminium 
  • Vedanta Oil & Gas 
  • Vedanta Power 
  • Vedanta Steel and Ferrous Materials 
  • Vedanta Base Metals 
  • Vedanta Limited 

Although this demerger will simplify the corporate structure and allow investors to invest in their desired segment, this demerger will also affect the fungibility of cash flows while increasing the volatility of earnings.

Moreover, a report suggests that the lenders of Vedanta are not happy with the plan. Vedanta hasn’t received the necessary approvals for finalising this demerger as it will need to give detailed plans for sustaining and growing these companies, considering that Vedanta has a $4 billion repayment obligation between now and 2025.

Considering the poor results published in July 2023 and the poor production release published for Q2FY24, the stock is expected to see near-term weakness. Moreover, the stock recently hit its resistance at Rs 230.60 per share and was unable to sustain the price above it.

Furthermore, global markets are jittery currently due to the ongoing Israel-Hamas war.

Thus, the stock is expected to be range-bound between its immediate support and resistance until there is a major announcement that sends the stock in either direction.