Vedanta shares are in focus after the stock received a double downgrade from Citi Research, which has taken a significant u-turn in terms of its outlook towards the company.
The brokerage firm has downgraded Vedanta from 'buy' to 'sell' while slashing its target price to 265. Citi has cited a bearish outlook on zinc and a concerning shift in dividend policy as key reasons for the downgrade.
Citi's central concern, though, lies in Vedanta's heavy earnings concentration. With more than 90% of the company's attributable Ebitda coming from its zinc business, the firm's bearish view on zinc prices means things are looking bleak for the diversified metals major, as it leaves the company exposed to any further softness in the metal.
The change in Vedanta's dividend policy is also worth keeping an eye on. The company is no longer bound by its earlier dividend distribution framework, a change Citi flagged as a source of uncertainty around capital allocation and cash use.
For a stock that has historially attracted income-focused investors on the strength of its dividend payouts, the policy change removes a key pillar of Vedanta's investment thesis.
Citi also noted that at current spot LME prices, Vedanta appears fairly valued, leaving little room for upside and making the risk-reward unfavourable at present levels.
Shares of Vedanta are currently trading at Rs 310, accounting for a drawdown of around 1.72% compared to the last closing price of Rs 316.
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