On July 24, Vedanta shares slid 2% as downgrades rushed the metal major after Q1FY24 earnings disappointed investors. 

At 9:25 am, shares traded 1.7% lower at Rs 273.5 on the BSE.

The metal major sent a 40% YoY drop in consolidated net profit for April-June on July 21 at Rs 2,640 crore. The company reported a combined profit of Rs 4,421 crore in the last year. The decline was amid weak commodity prices weighed, particularly zinc and aluminium. Besides, Vedanta also described a one-time gain of Rs 1,780 crore.

Revenue also fell 13% YoY to Rs 33,342 crore.

Revenue could have been better impacted by the lessening in commodity prices and lower volumes, which was incompletely offset by higher premiums and favourable exchange rate movement, according to Motilal Oswal. The brokerage firm has repeated its ‘neutral’ rating on shares with a target price of Rs 280.

Meanwhile, the company has projected a capex of $1.7 billion for FY24, higher than $1.2 billion in FY23.

Citi downgraded its reference to ‘sell’ while reducing its target price on the stock to Rs 225. It believes that the semiconductors sale and display business from Vedanta Resources is hurting the leverage.

Vedanta and Foxconn on July 10 called off their joint venture, which prearranged to invest $19.5 billion for a semiconductor manufacturing unit in Gujarat. Vedanta plans to proceed with its semiconductor business venture despite Foxconn pulling out of the JV. It awaits the government’s approval to work on a semiconductor display fabs plant.

Further, dividend upstreaming in excess inflows from Hindustan Zinc and the brand fee is another negative, Citi pointed out.

Besides, Vedanta’s net debt, without Hindustan Zinc, increased by 37% QoQ to Rs 595.7 billion amid higher dividend payments. With lower cash generation, it has to take external debt to finance its parent’s debt through dividends.

With the rising debt, Nuvama Institutional Equities believes risk-reward is unfavourable, prompting to downgrade its rating on the stock to ‘reduce’ from ‘buy’ with a target price of Rs 249 against Rs 367 earlier.