Citi Downgrades Vedanta to 'Sell' on Zinc Worries, Stock Falls 3%

Citi downgraded Vedanta from 'buy' to 'sell' and slashed its target price to Rs 265, signaling limited upside from current levels.

The brokerage cited a weak outlook on zinc along with uncertainty surrounding the company's capital allocation strategy as the primary reasons behind its negative stance.

Following the development, the shares were trading lower at Rs 305.80, down by Rs 10.60 or 3.35 per cent during the intra-day trading session.

According to Citi, Vedanta's earnings profile remains heavily dependent on its zinc business, which contributes more than 90 per cent of the company's attributable EBITDA.

The brokerage warned that its bearish outlook on zinc prices leaves Vedanta vulnerable to any further softness in the metal market, potentially impacting profitability.

The brokerage also flagged concerns over the company's revised dividend framework.

Vedanta is no longer tied to its earlier dividend distribution policy, a move Citi believes creates uncertainty around future cash deployment and shareholder payouts.

Vedanta has historically been a preferred pick among income-focused investors due to its strong dividend payouts.

However, Citi noted that the change in policy weakens one of the key pillars of the company's investment case.

The brokerage further stated that Vedanta appears fairly valued at current London Metal Exchange (LME) spot prices, making the risk-reward equation unattractive at existing levels.

On equity front, the stock has delivered a positive return of Rs 20.50 or 7.19 per cent in last five days.

However, in last on month, investors clocked massive wealth erosion as shares were dropped by Rs 407.45 or 57.13 per cent.

The downward trend continued in last six months as it was down by Rs 209.25 or 40.63 per cent during the tenure.

- IANS