Vedanta Resources Plc – Value Analysis (LONDON:VED) : December 29, 2017

Capitalcube gives Vedanta Resources Plc a score of 25.

Our analysis is based on comparing Vedanta Resources Plc with the following peers – Antofagasta plc, Rio Tinto plc, Anglo American plc, KAZ Minerals PLC and Glencore plc (ANTO-GB, RIO-GB, AAL-GB, KAZ-GB and GLEN-GB).

Investment Outlook

Vedanta Resources Plc has a fundamental score of 25 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • From a peer analysis angle, relative underperformance over the last year has improved more recently.
  • Vedanta Resources plc currently has a negative book value and its current Price/Assets ratio of 0.10 is lower than its peer median (0.67).
  • VED-GB‘s book value of equity is not positive and suggests that that it is not meaningful to analyze its ROE versus P/E in order to determine whether the company has an operating or growth advantage.
  • VED-GB has relatively low profit margins and median asset efficiency.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • Over the last five years, VED-GB‘s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • While VED-GB‘s revenue growth in recent years has been above the peer median, the stock’s Price/EBITDA ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company’s capital investment program and to-date returns suggest that the company is likely making big bets on the future.
  • VED-GB seems too levered to raise additional debt.

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Leverage & Liquidity

VED-GB would seem to have a hard time raising additional debt.

  • With debt at a relatively high 102.59% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 40.99%), and relatively tight interest coverage level of 1.80x, VED-GB would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • All 5 peers for the company have an outstanding debt balance.

VED-GB has maintained its Limited Flexibility profile from the prior year-end.

  • VED-GB‘s interest coverage is its highest over the last four years and compares to a low of 0.57x in 2016.
  • The increase in its interest coverage to 1.80x from 0.57x (in 2016) was also accompanied by an increase in its peer median during this period to 5.02x from 1.79x.
  • Interest coverage fell 2.00 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • VED-GB‘s debt-EV is its highest over the last four years and compares to a low of 63.32% in 2013.
  • While its debt-EV increased to 102.59% from 100.16% (in 2016), its peer median decreased during this period to 40.99% from 82.01%.
  • Relative to peers, debt-EV rose 43.45 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Antofagasta plc 23.53 2.51 14.03 59.03
Rio Tinto plc 17.58 1.58 8.65 76.27
Anglo American plc 42.97 1.98 7.01 45.74
KAZ Minerals PLC 81.36 2.09 1.84 8.5
Glencore plc 39.01 1.03 3.04 31.1
Vedanta Resources plc 102.59 0.87 1.8 10.38
Peer Median 40.99 1.78 5.02 38.42
Best In Class 17.58 2.51 14.03 76.27

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Company Profile

Vedanta Resources Plc is a diversified metals and mining company with interests in aluminum, copper, zinc, lead, silver, iron ore, oil, gas, and power. It operates through the following segments: Zinc-India, Zinc-International, Oil and Gas, Iron Ore, Copper-India or Australia, Copper-Zambia, Aluminum, and Power. The company was founded by Anil Kumar Agarwal in 1976 and is headquartered in London, the United Kingdom.

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