Vedanta (VEDL) share price has done well this year even as the prices of key commodities like iron ore, aluminum, and copper retreated. It soared to a record high of ₹470.60, meaning that it has jumped by over 1,453% from its lowest point in 2020. This growth has pushed its market cap to over ₹1.75 trillion or $16 billion.
Commodity prices weakness
Vedanta is one of the biggest companies in the commodities industry. It is a key player in commodities like aluminium, zinc, lead and silver, oil and gas, iron ore, steel, copper, and power.
The company’s goal is to go out there, source key minerals, and then bring them to India, one of the fastest countries in the world. India’s economy is expected to grow by over 7% this year while China is struggling to hit the 5% mark.
Vedanta also sells its products around the world, especially in the Asian region, which is doing modestly well. It is made up of many subsidiary companies like Cairn India, Hindustan Zinc, BALCO, Talwandi Sabo, and Meenakshi Energy.
Its challenge, however, is that the prices of key commodities that it specializes in are not doing well this year, which is a sign of low demand. Other items have struggled because of overcapacity from China, a country whose economy is slowing.
Copper, often seen as a barometer of the world economy, has dropped by over 18% from its highest point this year. Similarly, the price of iron ore has dropped by more than 33% from the year-to-date high.
Aluminium, a metal used in the engineering and construction industries, has also dropped by 40% from its 2022 highs and by 11% from the YTD highs.
Vedanta is also a big player in the energy sector, where it produces crude oil. It moved into this industry by merging with Cairn Oil & Gas, and is hoping to grow the share of domestically-produced crude oil in the country.
Crude oil price has retreated in the past few months as concerns about global demand remain. Its oil and gas production fell to 112 kboepd in the last quarter from 135 in 2023.
Vedanta earnings
The most recent financial results showed that the company produced 596kt of alumium, up by 3% from the same period in 2023. Domestic sales rose by 27% to 268kt.
Vedanta also continued to break records in its zinc business as its mined and refined production soared to 263kt and 262kt, respectively.
Altogether, Vedanta’s revenue rose by 6% to ₹35,239 crore or over $4.2 billion. Its EBITDA rose by 47% to ₹10,279 crore while the EBITDA margin was 34%.
The challenge, however, is that its total debt has jumped in the past few months. It had a net debt of ₹56,338 crore in 2023 and ₹61,324 crore at the end of the last quarter with 83% of this debt being in INR and the remaining being in USD terms.
Outlook for Vedanta
Vedanta is a core part of the Indian economy. It has a close resemblance to Japan trading companies like Mitsubishi, Mitsui, and Marubeni that go out, buy resources, and ship them to Japan.
The company has operations around the world that do exactly that since India has limited natural resources. Therefore, in theory, there is a likelihood that the company will continue doing well as long as India’s growth is continuing.
However, the firm also faces some challenges. The most notable one is that China has overcapacity in key areas and is flooding the market with them. As a result, prices of key items like steel, copper, and aluminium will likely continue falling in the near term, which will affect Vedanta’s profits.
The other challenge is that the company is relatively overvalued as these concerns remain. It has a price-to-earnings ratio of 33.7, higher than its five-year average of 5.5x, according to data by Fintel.
Vedanta share price analysis
Turning to the weekly chart, we see that the Vedanta stock price peaked at ₹470 earlier this month as its bull run accelerated. It then formed a double-top pattern at that level. In most cases, this is one of the most bearish patterns in the market. The neckline of this pattern was at ₹387.
Vedanta stock has remained above the 50-week and 200-week Exponential Moving Averages (EMA), meaning that bulls are in control.
Therefore, the short-term outlook for Vedanta is relatively bearish, with the next point to watch being the double top’s neckline at ₹387. A break below that level will see it move to the 50-week moving average at ₹350.
However, a move above the double-top level of ₹468 will point to more upside as bulls target the next key resistance level at ₹500.
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