Emkay Analyzes Vedanta Upside

Emkay Global Financial Services (Emkay) has found a surprising reason to believe Vedanta’s earnings could be much higher than expected. They’re pointing to Hindustan Zinc (HZ), a big part of Vedanta’s business, and seeing a chance for a significant upgrade in how much money Vedanta makes. This is based on a recent visit to HZ’s mines and talks with the company’s leaders.

Key Points

• Emkay forecasts Vedanta’s FY27 Ebitda at ₹25,800 crore.
• Consensus estimates currently predict ₹22,000 crore.
• HZ’s strong mine life provides a secure outlook.
• Cost competitiveness: Mining costs are low and efficient.
• Renewables investment boosts profitability and reduces costs.
• Silver prices offer significant upside potential for HZ.

The core of Emkay’s argument is that HZ, which produces zinc and silver, is doing really well. They think HZ will produce at least 1,080 kilo tonnes of zinc and around 700 tonnes of silver by 2027. This puts HZ in a leading position among zinc producers worldwide. Because of this, Emkay estimates Vedanta’s earnings will jump by about 17%.

A big part of what makes HZ so strong is that their mines are easy to operate. The RA mine will be running until 2030, while the Sindesar Khurd mine is good for another 10 years. Importantly, HZ gets to choose if someone else wants to buy the RA mines when they are put up for auction in 2030.

HZ also focuses on efficiency. Their mining costs are relatively low – around $580 to $590 per tonne of zinc. They also have a smart way of making the metal, which makes it harder for new companies to compete and keeps HZ’s costs down.

To top it all off, HZ is investing in renewable energy – like solar and wind power – to lower its costs. They plan to use renewable energy to power 55% of their operations by 2027 and 70% by 2028. This will help them avoid rising costs as they dig deeper for the metal.

Emkay is also convinced that silver is a big opportunity. HZ only hedges (protects) a small amount of its silver production, meaning they’re confident that silver prices will keep going up. A $1 increase in silver prices would boost HZ’s profits by 1%, and a $100 increase in zinc prices would boost profits by 2.5%.

As of today, Vedanta’s stock price rose by 1.39% to ₹577.95. The broader market, the BSE Sensex, was also up slightly. Emkay believes that because of these factors, investors are likely to change their estimates for HZ and Vedanta, which would be a good thing for both companies.

Ultimately, smart investors look for hidden opportunities, and Emkay’s analysis shows that Vedanta’s potential is being overlooked.