US Edition 
Questor share tip: Nascent recovery in commodity prices has not helped Vedanta
A longer-term catalyst for a recovery will be the Indian court ruling but that is very uncertain, so Questor downgrades to hold
Vedanta Resources
971p-17½
Questor says HOLD
India-focused oil and mining company Vedanta Resources reported a sharp fall in profits last week. That means Questor’s high-risk recommendation on a commodity market recovery helping the shares is now under water.
In the six months ended September, Vedanta’s revenue fell 17pc and the group slumped to a $217m (£136m) loss, compared with a profit of $174m in the same period last year.
The company experienced a painful fall in the copper price that has led to revenue from production of the metal plummeting by $1.6bn, on total group revenue in the first half of $6.2bn.
There were encouraging signs around the iron ore mining ban in India. The company said it is now waiting for final clearances to restart iron ore mining operations at Karnataka, adding that the Indian Supreme Court has permitted sales of iron ore from existing inventories. Questor thinks this progress is encouraging, but with elections in India next March there is no guarantee that the clearance will come through in time.
It wasn’t all bad news for investors as the interim dividend received a 5pc boost to 22 cents. The cash performance was also strong, with free cash flow before capital expenditure of $1bn, and after taking into account investment in new mining projects, the company still made $417m in cash.
This meant that debt levels at the group were reduced with net debt down to $8.5bn, some $1.6bn lower during the past 18 months, but there is still some $6bn of this debt due in the next two years, against net assets of $16.9bn.
Vedanta has now also completed the restructuring of its operations, which has resulted in the separate listing of Sesa Sterlite shares. The company has now brought its hydrocarbons business and metals mining operations all under one roof.
When Questor last looked at Vedanta’s shares, the nascent recovery in commodity prices was lifting the mining sector and the company represented one of the riskiest routes into that play.
However, in this case, the option hasn’t paid off, with shares down 18pc from when Questor said “buy” at £11.90.
A longer-term catalyst for a recovery will be the Indian court ruling but that is very uncertain, so Questor downgrades to hold.