Reviews

In this edition, we have reviewed Vedanta Limited and Steel Authority of India. We suggest our reader-investors to HOLD Vedanta Limited and Steel Authority of India.

 

We had recommended Vedanta Limited in Volume 37, Issue No. 09 dated March 28 to April 10, 2022 under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹404. We had recommended the stock on account of improving asset quality, margin expansion and robust individual disbursement. Vedanta is a top global natural resources company with operations in Liberia, Namibia, South Africa and India. With holdings in oil and gas, zinc-lead-silver, aluminium and semiconductors, the firm has a particularly broad range of natural resource interests. 
 

To lead the natural resources industry in ESG, the company has established a thorough framework. By making financial contributions to the national coffers and generating thousands of jobs, the enterprise has assisted in the expansion of the Indian economy. Analysing the performance of the company during the recent quarter, its net sales for Q3FY23 was recorded at ₹33,391 crore as compared to ₹33,697 crore reported in the last quarter. The operating profit saw a decline and was recorded at ₹7,783 crore in Q3FY23 as against ₹11,387 crore in Q3FY22. The quarterly net profit for Q3FY23 stood at ₹3,092 crore, down from Q3FY22 net profit of ₹5,354 crore. 
 

On an annual basis, the figures showed a rise in outcomes. The net sales increased by 51.03 per cent to ₹131,192 crore in FY22, up from ₹86,863 crore in FY21. The operating profit similarly jumped 54.28 per cent to ₹47,424 crore in FY22 from ₹30,739 crore in FY21. The net profit also showed a growth of 57.71 per cent in FY22 and stood at ₹23,709 crore, as compared to net profit of ₹15,033 crore reported in FY21. With other mines set to open and Vedanta’s recent start of operations at the Jamkhani coal mine, VEDL is on course to reach complete thermal coal self-sufficiency. This would be a structural step in the direction of lowering the cost of production. 
 

In terms of its aluminium business, the corporation keeps emphasising volume growth and raising the proportion of capacity, which should boost profitability. Because of the increasing demand for aluminium, the company anticipates higher costs. The company’s overall EBITDA would continue to grow as a percentage of aluminium EBITDA. With the lifting of export limitations, iron ore shipments are predicted to increase. Although expectations for demand and price support from China’s openness are mixed, worries about an impending European recession remain. Hence, we recommend HOLD.



 

We had recommended Steel Authority of India in Volume 37, Issue No. 09 dated March 28 to April 10, 2022 under the ‘Low Price’ segment. The recommended price for the stock was ₹99.50. We had recommended the stock on the basis of improving asset quality, leading position in digital space and de-risking of its balance-sheet. Steel Authority of India Limited (SAIL) is one of India’s leading steel-making corporations and one of the country’s central public sector companies’ Maharatnas. Around 65 per cent of SAIL’s equity is owned by the Indian government, which also maintains voting power over the business. 
 

Nonetheless, SAIL has a lot of operational and financial autonomy because of its Maharatna status. Taking into account the quarterly performance on a consolidated basis, the net sales for Q3FY23 showed de-growth and stood at ₹25,042.10 crore reported in Q3FY22, down from ₹25,246.99 crore. It reported operating profit of ₹2,176.57 crore for Q3FY23, thus contracting compared to the operating profit of ₹3,553.29 crore posted for Q3FY22. The company’s net profit tightened in Q2FY23 to ₹429.73 crore compared to the net profit of ₹1,347.30 crore earned in Q3FY22. On the annual front, the net sales for FY22 increased by 49.72 per cent to ₹103,476.84 crore from ₹69,113.61 crore reported for FY21.
 

It recorded operating profit of ₹22,200.07 crore for FY22, ascending by 63.24 per cent against operating profit of ₹13,599.41 crore posted for FY21. On the same lines, its net profit jumped by 221.31 per cent to ₹11,825.35 crore in FY22 as compared to ₹3,680.39 crore recorded in FY21. SAIL’s Q3FY23 EBITDA recovered from a low and was in line with expectations. As SAIL conducts its next wave of expansion (13 MT) without significantly expanding its personnel base, its employee costs may be comparable to those of its counterparts. Over the next three to four years, SAIL plans to decongest 3 MT of capacity, and over the next few years, it will begin a 4.5 MT brownfield expansion project of 13 MT planned by FY31. This will result in a shorter growth trajectory than its counterparts who have started their capital expenditures between FY24 and FY26. The global prices may maintain their upward trend in the short to medium term. Also, the danger posed by the pandemic has noticeably reduced globally, which is aiding in the normalisation of steel demand patterns. Thus, we recommend HOLD.