Credit Suisse cuts Vedanta Resources to 'underperform' on valuation

Credit Suisse cut its stance on Vedanta Resources to ‘underperform’ from ‘neutral’ on valuation grounds and fading earnings momentum.

After last week’s interim results, CS upped its price target on the stock to 670p from 600p but downgraded the stock as the valuation is now at a large premium to both its main India-listed subsidiary and its major European peers following a rally of about 200% this year.

“Earnings upgrade risk is muted compared to the broader sector due to the recent correction in oil prices and lower exposure to bulks (iron ore and coal) and we think the group's reduced financial risk, following the recently approved merger between Cairn India and Vedanta Limited, is now priced in.

“We continue to like the outlook for zinc and this remains a positive driver for the group, but we prefer Vedanta Ltd which offers a much cheaper valuation and cleaner corporate structure.”

In addition, CS pointed out that the company still has a significant amount of maturing debt over the next three years, which will remain an ongoing area of focus for the market.

At 0920 GMT, the shares were down 3.1% to 788.50p.