Vedanta Ltd. is one of the largest diversified natural resources companies in India, with interests in oil and gas, zinc, aluminium, copper, iron ore, power and more. The company has been in the news recently for various reasons, some positive and some negative. Here are some of the factors that have been affecting Vedanta’s share price and performance.
Foxconn exits semiconductor JV with Vedanta
One of the major developments that impacted Vedanta’s share price was the exit of Foxconn, the world’s largest contract electronics manufacturer, from a $19.5 billion semiconductor joint venture with Vedanta. The JV was announced in 2021 as part of Vedanta’s diversification strategy into the high-tech sector, but faced delays and challenges due to the global chip shortage and regulatory hurdles.
Foxconn decided to pull out of the JV in July 2023, citing strategic reasons and changing market conditions. Vedanta said it has lined up other potential partners for the project, but did not disclose any details. The news sent Vedanta’s shares down by nearly 3% on July 11, 2023, as investors were concerned about the viability and profitability of the venture.
Hindustan Zinc interim dividend announcement
Another factor that boosted Vedanta’s share price was the interim dividend announcement by its subsidiary Hindustan Zinc Ltd. (HZL), India’s largest zinc producer. HZL declared an interim dividend of Rs. 25 per share for FY24 on July 10, 2023, amounting to a total payout of Rs. 10,500 crore. Out of this, Vedanta will receive Rs. 7,350 crore as it owns a 70% stake in HZL.
The dividend announcement came as a surprise to the market, as HZL had already paid a final dividend of Rs. 21.30 per share for FY23 in May 2023. The interim dividend was seen as a positive sign of HZL’s strong cash flow generation and confidence in its future prospects. HZL’s shares jumped by 9% on July 11, 2023, while Vedanta’s shares also gained by over 2%.
Metal sector outlook and challenges
Vedanta’s share price and performance are also influenced by the outlook and challenges of the metal sector, which accounts for a significant portion of its revenue and earnings. The metal sector has been facing headwinds due to the global economic slowdown, trade tensions, environmental regulations, and rising input costs.
According to a report by Kotak Institutional Equities, the metal sector margins may fall in Q1FY24 due to price weakness and cost inflation. The report said that the average prices of aluminium, copper, zinc, and iron ore declined by 4-12% quarter-on-quarter in Q1FY24, while the costs of coal, alumina, and freight increased by 8-28%. The report also said that the demand outlook for metals remains uncertain due to the resurgence of Covid-19 cases in some regions and policy tightening in China.
Conclusion
Vedanta is a diversified natural resources company that has been in focus for various reasons lately. The company’s share price has been affected by both positive and negative factors, such as the exit of Foxconn from its semiconductor JV, the interim dividend announcement by its subsidiary HZL, and the outlook and challenges of the metal sector. Investors should weigh these factors carefully before making any investment decisions regarding Vedanta.
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