Challenging time for the world; aim to cut costs upto 20% – Vedanta’s Anil Agarwal

Update on the Indian Equity Market:

On Thursday, NIFTY continued its negative trend, closing at 8,263 (-2.4%). The top losers in NIFTY50 were Infratel (-18.3%), Zee (-13.8%) and Shree cement (-12.4%). Top gainers in NIFTY50 were ITC (+6.8%), Bharti Airtel (+4.5%) and Infosys (+3.3%). All the sectors ended on a negative note, and the top sectoral losers were Auto (-5.8%), Metal (-5.3%) and Media (-4.8%).

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Excerpts from an interview of Mr Anil Agarwal, Chairamn, Vedanta with CNBC -TV18 dated 17^th March 2020:

• Definitely this is a very challenging time for the world because a lot was depending on China. Entire leadership of the world has come into the action and they are doing whatever is necessary.
• India is in a better position. Whatever is being manufactured in India is being sold in India.
• According to him, India has a huge home consumption, which is a great advantage. India has got logistics and supply chain which is not much dependent on the world. So, India is little bit isolated.
• Out of 15 best companies in the world, 9 are run by Indians. Indian minds are good and he is sure this will give advantage to India. For coronavirus nobody has a solution, the only thing is not to panic and to safeguard ourselves.
• Oil has come down almost 50 percent. Definitely a lot of companies will shut their door and some of the people who are strong can cut their cost. Out of 100 companies, 50-60 will remain; 30-40 will go away.
• In India, they have a different position. As far as Vedanta is concerned, they have a home market and they have a cost advantage. They are looking to tighten their cost. They have a process of reducing our cost upto 20 percent whether from the mining or the logistics.
• As far as Vedanta is concerned, they still make 10 percent profit. They are not going to stop any of their growth projects because that will increase their production to 40-50 percent.
• They are looking to reduce costs. For the world, he will go with what the analysts are saying but India demand will continue to be there.
• They used to import a lot of things from China but India has a capability and entrepreneurship – this is the time when government should support manufacturing in India.
• He encourages investing in India. This is a great opportunity, Vedanta will also look at it but this is an opportunity for the world oil company to look at Bharat Petroleum Corporation Ltd (BPCL) and take the advantage of this time.
• Vedanta will also look at Air India. For NMDC – as far as Vedanta is concerned, we will do expression of interest (EoI) if we qualify and then look at what is the benefit.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of Vedanta was ₹ 70/- as of 19-March-2020.  It traded at 4.5x/ 4.0x/ 3.6x the consensus earnings estimate of ₹ 15.7/ 17.3 /19.2 for FY20E/21E/22E respectively.
• Consensus target price for Vedanta is ₹ 162/- which implies a PE multiple of 8.4x on FY22E EPS of ₹ 19.2/-.