Shares of Vedanta Limited fell by 3.35% on Thursday following a double downgrade by brokerage firm Citi Research. The downgrade shifted Vedanta from a ‘buy’ to a ‘sell’ rating and reduced its target price to Rs 265, indicating limited potential for growth. Citi’s negative assessment was driven by concerns over zinc prices and uncertainties in Vedanta’s dividend policy.
Citi highlighted a pessimistic outlook on zinc and uncertainties surrounding the company’s capital allocation strategy as the main factors behind the downgrade. Vedanta’s earnings heavily rely on its zinc business, which contributes over 90% of the company’s attributable EBITDA, according to the brokerage. The bearish view on zinc prices exposes Vedanta to potential profitability risks in case of further softness in the metal market.
Moreover, Citi expressed worries about Vedanta’s revised dividend framework. The company’s detachment from its previous dividend distribution policy introduces ambiguity regarding future cash deployment and shareholder payouts. Historically, Vedanta has been favored by income-focused investors due to its robust dividend payouts. However, Citi pointed out that this policy change weakens a fundamental aspect of the company’s investment proposition.
Citi further mentioned that Vedanta seems adequately valued at current London Metal Exchange (LME) spot prices, making the risk-reward balance unattractive at the current levels. Despite a positive return of Rs 20.50 or 7.19% in the last five days, investors experienced significant wealth erosion over the past month, with shares plummeting by Rs 407.45 or 57.13%. This downward trend persisted over the last six months, with a decrease of Rs 209.25 or 40.63% during this period.
