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Buy Vedanta, target price Rs 170: Emkay Global

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Emkay Global has given a buy rating to Vedanta with a target price of Rs 170. The share price moved down by 1.02 per cent from its previous close of Rs 137.45. The stock’s last traded price is Rs 136.05.

Vedanta Ltd., incorporated in the year 1965, is a Large Cap company (having a market cap of Rs 51092.87 Crore) operating in Diversified sector.

Financials
For the quarter ended 31-03-2020, the company reported a Consolidated sales of Rs 19513.00 Crore, down 7.64 % from last quarter Sales of Rs 21126.00 Crore and down 15.50 % from last year same quarter Sales of Rs 23092.00 Crore. The Company reported net profit after tax of Rs -12083.00 Crore in latest quarter.

vedanta

Investment Rationale
The promoters have raised $3.15bn (in 2 tranches) to fund the delisting. In addition, subsidiary Hind Zinc has raised Rs35.2bn 3-yr NCD at 5.35%. The brokerage notes that given the high leverage at the Ved Plc, minority shareholders should seek a price which is at least equivalent to the nominal book value without considering the write-offs. The stock is trading at 3.9x our FY22E EV/EBITDA. At our TP, the stock will trade at 4.3x FY22E EV/EBITDA. Strong stimulus in China is driving demand for entire metals. This has improved the outlook for all the divisions of Vedanta; hence, an improved offer for delisting is warranted. The brokerage maintains Buy with a significant OW in EAP.

Key risk to the call is promoters not extending counter offer beyond the calculated book value u/s 2(57) viz., in which case the delisting is likely to fall off and a sharp correction should ensue.

Promoter/FII Holdings
Promoters held 50.1 per cent stake in the company as of June 30, 2020, while FIIs held 15 per cent, DIIs 19.1 per cent and public and others 15.8 per cent.

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