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Vedanta makes slow progress

RESULTS: Earnings at natural resources group Vedanta remain depressed, reflecting lower commodity prices and operational difficulties at a few key assets
November 20, 2013

Weak commodity prices continued to depress Vedanta 's (VED) earnings and share price in the six months to end-September. Cash profits of $2.2bn (£1.4bn), while relatively healthy, fell 14 per cent year-on-year - reflecting falling metals prices, higher taxes in India and continued iron ore mining bans in the Indian states of Karnataka and Goa.

IC TIP: Hold at 974p

Moreover, a number of one-off charges affected reported earnings - the biggest was a mark-to-market foreign exchange loss of $429m on US-dollar denominated debt held by Indian subsidiaries due to the weak rupee. Vedanta is also having trouble reducing costs at its key copper mining assets in Zambia. After mechanising much of its operations there, the company now needs to reduce its headcount, which currently stands at around 17,000-18,000 people. So far, however, the government of Zambia is having little of it.

The good news is that Vedanta's producing operations are performing better than expected and the company has also managed to simplify its group structure by consolidating its holdings in subsidiary companies. This should create a more efficient capital structure and lower its interest charges going forward.

Analysts at Deutsche Bank raised their forecasts for the full-year as a result of lower than expected costs - adjusted EPS of 105¢ is now anticipated (from 133¢ in 2013).

VEDANTA (VED)

ORD PRICE:974pMARKET VALUE:£2.60bn
TOUCH:973-975p12-MONTH HIGH:1,352pLOW: 918p
DIVIDEND YIELD:3.8%PE RATIO:na
NET ASSET VALUE:1,445¢NET DEBT:50%†

Half-year to 30 SepTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
20127.451.0763.721.0
20136.160.26-79.422.0
% change-17-76-+5

Ex-div: 27 Nov

Payment: 19 Dec

†Reflects liquid investments of $5.8bn

£1=$1.60