S&P upgrades Vedanta on hopes of better conditions

S&P further said that Vedanta subsidiary Sesa Sterlite’s potential acquisition of the Indian government’s 29 per cent stake in Hindustan Zinc is positive for the group.

Having revised Vedanta Resources from ‘Negative’ to ‘Stable’ on May 16, the day the general election results indicated change in regime at the Centre, rating agency Standard & Poor’s on Wednesday said that the change in outlook has been on account of expectations that there may be a reversal in the operating conditions for Vedanta Group’s businesses in India.

Coming out with an explanation on the reasons for the change in outlook days after BJP-led coalition came to power, Mehul Sukkawala, analyst at S&P said, “We expect operating conditions at Vedanta’s India businesses to stabilise over the next 12-24 months after several operating difficulties over the past two years.”

While share price of Sesa Goa, a Vedanta Group company, rose by 1.5 per cent on Wednesday, it has risen by 29 per cent since the day the general election results were announced and market experts feel that Vedanta Group will be a key beneficiary going forward.

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“The investment climate is expected to improve in the BJP led government and it may be better for the overall metal and mining sector. Since Vedanta group has presence across zinc, aluminium, lead and copper, it may be a key beneficiary,” said Dewang Sanghavi, metal analyst at ICICI Securities.

The rating agency has said that it expects Vedanta’s largely idle iron ore capacity in Goa to commence production in fiscal 2016 with a limit of 6 million tons a year.

“We expect this development and the company’s planned ramp-up of aluminum and power capacity to add more than $500 million to Vedanta’s annual gross EBITDA over the next two years. Sesa Sterlite will have direct access to the resultant cash flow, likely easing its debt servicing burden,” the report said.

Another market expert said that the major aluminium project of the company in Orissa is stuck for lack of bauxite and a relaxation in environmental norms may just be enough for the company to go ahead with its project as that would allow it to mine bauxite and source it domestically.

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S&P further said that Vedanta subsidiary Sesa Sterlite’s potential acquisition of the Indian government’s 29 per cent stake in Hindustan Zinc is positive for the group.