The indicative minimum price for the tender process has been set at Rs 87.25 per share. Analysts said the company’s revised consolidated book value at Rs 89.38 projects a very conservative view of the business and the floor price does not reflect the true value of the shares.
They advised investors to bid much higher than the bid price or the prevailing market price. Emkay considers the fair value of the delisting to be Rs 170, which is 24 percent higher than the current market price of Rs 137.
Stakeholders Empowerment Services (SES) say Vedanta’s stake in Hindustan Zinc is only valued at 145 rupees. Vedanta owned 64.92% of the company as of June 30.
“Therefore, investors should not mind bidding at Rs 200-250 per share,” SES said. An offer of Rs 250 would be 82% higher than the current market price.
The process
The construction of the reverse book is a mechanism to determine the price of the share for the exclusion of a share. Shareholders who wish to participate in the delisting process can offer their shares at a price equal to or higher than the minimum price.
The bidding process would close on Friday, October 9.
Once the offers are collected, they are ordered from lowest to highest. As soon as the total bids reach 90 percent of the share capital in that order, that bid price becomes the price the acquirer must pay if he wants to withdraw the company from listing.
Shareholders will then have up to one year to offer their shares, if they so wish, at the reverse book construction price arrived. For those who are not happy with the higher bid price, an acquirer can make a counter offer that must be at least above the book value.
“Investors should ignore the floor price, book value and 52-week low price as they do not reflect the true value of Vedanta shares,” Stakeholders Empowerment Services (SES) said in a note.
Book value write-offs
Emkay Global noted that Vedanta’s management previously cut the book value from Rs 189.63 per share to Rs 146.87, citing long-term concerns about post-Covid-19 oil prices, which was “very conservative.”
The book value, he said, was further reduced to Rs 89.38 per share based on the u / s 2 (57) calculations from the Corporations Act.
SES said that even when the company’s annual report presented an upbeat picture in investor presentations and conference call transcripts, it canceled nearly Rs 17.4 billion. This, it noted, was more than 40 percent of its Rs 39 billion market capitalization.
“The cancellation was announced on June 6. But the market was unflappable, to say the least. SES believes that a large write-off generally results in an almost immediate drop in share prices. However, the market has been given that the cancellation was not a loss of cash, but a mere accounting loss, and does not affect the going concern assumption. It is a mere reassessment, “he said.
Fundraising
The promoters have raised $ 3.15 billion in two tranches to fund the delisting. Furthermore, the subsidiary Hind Zinc has raised Rs 3,520 crore in three-year non-convertible bonds (NCDs) at 5.35%.
Emkay said that the money advanced by Vedanta to the promoter KCM for future transactions has been considered recoverable at the time when the Government of Zambia is opposed to Vedanta PLC continuing the business and has already appointed an interim liquidator in KCM.
“We believe that the cancellation of the O&G business is not justified, as oil prices have returned to the range of $ 40 per barrel. Assuming a reversal of this cancellation due to the recovery of oil prices and adding Rs 42.76 per share, they revised the book value to its original Rs189.63 per share, “he said.
First quarter earnings
Vedanta said on Oct. 3 that its consolidated profit for the June quarter fell 23.58 percent to Rs 1,033 crore from Rs 1,352 crore in the previous year quarter, with an Ebitda margin of 28 percent. The company’s net debt stood at Rs 24,787 crore, down 14% year-on-year. Cash and cash equivalents were at Rs 33,781 million.
ICICI Securities said Vedanta reported higher than expected Q1FY21 figures on cost reduction in the international aluminum and zinc businesses. Iron ore and steel operations were in line with expectations, he said, adding that Rajasthan’s oil and gas production did not reach its potential due to the impact of Covid.
Reviews
On Monday, Vedanta shares were trading at a discount to Hindustan Zinc (HZL) shares.
SES said that each Vedanta share has a share of HZL 0.74 embedded, which in turn is valued at 145 rupees. “Therefore, the minimum price for delisting is 145 rupees, if all other Vedanta assets are taken at zero, which is not the case,” he said.
“If not, why would Vedanta trade at a price lower than the implied price of HZL?” He asked.
Analysts noted that the dividend payment of Rs 4,500 crore that Vedanta received from Hindustan Zinc in May has not yet been transferred to the company’s shareholders, even as its dividend distribution policy says that the normal dividend received from Hindustan Zinc will be will transfer to its shareholders in full.
Emkay said that given the high leverage at Vedanta Plc, minority shareholders should seek a price that is at least equivalent to the nominal book value without considering write-offs.
“We are maintaining a ‘buy’ with a revised target of Rs 170 as a delisting target price as we remove the 30% holding company discount, which we have applied in the past for valuing Vedanta as a listed entity on a SoTP basis. Ignoring the oil and gas supply, the book value should be 189.63 rupees per share, “said the brokerage.
“SES recommends that shareholders offer their shares taking into account the range of Rs 236 to Rs 310. Even if one offers a discount to the higher price due to uncertainties, depressed economic environment and offers a discount of 20-30 percent, the fair range is between 200-250 rupees, considering the value that is seen in the business. ”Said the shareholder lobby.
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