Analysts at global brokerage Citi believe that a hike in brand fee to the parent firm, higher dividend payout by its arm Hindustan Zinc than inflows and acquisition of a semiconductor unit are hurting Vedanta Ltd.'s leverage, as they forecast up to 19 percent decline in the stock price.

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Citi has downgraded mining and oil behemoth Vedanta to ‘sell’ and reduced its price target to Rs 225 per share, implying a potential downside of 19 percent, following weak quarterly results by the company.

The brokerage in a note mentioned that Vedanta's operational profits or earnings before interest tax depreciation and amortisation (EBITDA) declined 30 percent on a quarterly basis due to lower commodity prices and volumes.

“Dividend upstreaming in excess of inflows from Hindustan Zinc Ltd. (HZL), brand fee (hiked to 3 percent) to Vedanta Resources (VRL), sale of the proposed semiconductors and displays business from VRL to Vedanta – all seem to be hurting Vedanta Ltd’s leverage,” the brokerage observed.

Vedanta’s net debt excluding Hindustan Zinc is up $2 billion from March 2023 to June 2023 largely on dividend outgo, it stated.

Vedanta last week reported a 40 percent fall in its June quarter net profit to Rs 2,640 crore compared to Rs 4,421 crore in the year-ago period.

A sharp nearly two-fold increase in finance cost to Rs 2,110 crore in the June quarter from Rs 1,206 crore during the same period last year was the key reason for the decline in profits.

Vedanta’s net debt was Rs 59,192 crore in June quarter against Rs 45,260 crore in the March quarter and Rs 26,799 crore during the June quarter last year.

Shares of Vedanta ended 2.4 percent lower at Rs 271.55.