The company is making one of its biggest investments of ₹ 1.54 lakh crore in high-tech India for setting up the country's first-ever semiconductor chip plant.
Mumbai-based Vedanta shares skyrocketed by more than 13% on Wednesday after the company announced to set up a semiconductor and glass display plant in Gujarat. The company is making one of its biggest investments of ₹ 1.54 lakh crore in high-tech India for setting up the country's first-ever semiconductor chip plant. Investors give thumbs up to Vedanta's project as it is one step closer to India's own silicon valley and is expected to create massive job opportunities. The Indian semiconductor market is expected to grow at a healthy CAGR of nearly 19% to reach $64 billion in 2026.
On BSE, Vedanta shares rose by ₹ 27.80 or 10.01% to close at ₹ 305.45 apiece. The shares climbed by at least 13.4% today with an intraday high of ₹ 314.80 apiece.
The company's market valuation is around ₹ 1,13,541.77 crore.
On the previous day, Vedanta shares were around ₹ 277.65 apiece on BSE.
Vedanta-Foxconn ₹ 1.54 lakh crore semiconductor plant project
On Tuesday, Vedanta signed two Memorandum of Understanding (MoUs) with the Government of Gujarat to set up a semiconductor fab unit, a display fab unit, and a semiconductor assembling and testing unit in the Ahmedabad district of the state.
For the project, Vedanta will form a joint venture with Taiwanese multinational electronics contract manufacturer, Foxconn. Under the JV, Vedanta will hold a majority stake of up to 60%, and the remaining 40% will be held by Foxconn.
The project envisages an outlay of ₹ 1.54 lakh crore and is expected to employ about 1 lakh people. The JV plans to set up the semiconductor manufacturing plant in the next two years.
The proposed semiconductor manufacturing fab unit will operate on the 28nm technology nodes and the display manufacturing unit will produce Generation 8 displays catering to small, medium and large applications, Vedanta said in a statement.
In 2021, the country's semiconductor market was valued at $27.2 billion. The market is expected to rise at a healthy CAGR of nearly 19% to reach $64 billion in 2026.
Vedanta has a presence in the electronics and technology business through group companies Avanstrate Inc. and Sterlite Technologies.
While Hon Hai Technology Group ("Foxconn") is the world's largest electronics manufacturer. Hon Hai is also the leading technology solution provider, and it continuously leverages its expertise in software and hardware to integrate its unique manufacturing systems with emerging technologies.
Should you invest in Vedanta shares?
After meeting Vedanta's management on September 7, Phillip Capital Research Analyst Vikash Singh in a research note said, "We met Vedanta's management to understand its volume growth prospects, capital allocation, and strategy to manoeuvre through volatile times. We understand that Vedanta continues to keep its hope high on aluminium; it expects this segment to drive majority growth at group levels, followed by oil/gas and zinc. At the same time, the zinc business will continue to provide stable cash flows, which will support the company wrt to CAPEX and debt repayment."
Vedanta is confident of increasing zinc/aluminum/oil & gas business capacity from 1.25mn tonnes/2.2mn tonnes and 160 kboepd to 1.7mn tonnes/3.0mn tonnes and 300 kboepd by FY24. At the same time, it expects CoP for aluminium to come down by $ 500/t to $ 1,350/t (assuming 50% captive coal and 100% captive alumina) while zinc CoP to reduce by c.US$ 100/t, the analyst highlighted.
Also, Vedanta continues to guide for 300kboepd volumes capacity by FY24, and ultimately increasing it to 500kboepd, despite past failures to deliver the promised growth. The analyst said, " In order to attain this, it has trebled FY23 CAPEX yoy to US$ 687mn (US$ 360mn on monetization of 52.6mmboe reserves and US$ 327mn on growth projects. However, we remain skeptical on the growth and are not building anything as of now. A 250kboepd and 300kboepd volume will increase consolidated EBITDA by 4% and 8% respectively."
The company has set a CAPEX of $1.8-2 billion, the highest in the past 6-7 years. Singh said, "Majority of this is allocated to aluminium (US$ 1bn) and oil/gas (US$ 0.6bn) as the company is bullish on growth prospects of these two segments. Aluminium remains the key assets that Vedanta thinks has potential to surpass even zinc, once the entire projects ramps up (expansion, integration, value addition)."
Further, the company promised to keep its net debt/EBITDA below 1.5x in the next few years.
On the outlook, Singh said, " A recent sharp fall in commodity prices due to inflationary risk and recession fear would mean further deterioration in performance in 2Q, which we expect would bounce back in 2H on lower CoP (expecting coal situation to improve as linkage supply is gradually improving). While Zinc India continues to act as an anchor business and earning majority of cash flows, aluminium remains a promising prospect on three-fold improvement strategy (expansion, integration, value addition). Strong cash flows will continue to drive good dividends (yield expected in double digit) as well since parent has huge debt repayment obligation."
"If Vedanta management maintains its promise on better corporate governance, it may see some re-rating as well. We maintain our Buy rating on the stock with an SOTP of ₹ 340," Singh said on valuation.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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