NEW DELHI: Shares of Vedanta traded flat in Monday’s trade as the reverse book-building process kicked off for the delisting of the stock.
The indicative floor price for the bidding process has been set at Rs 87.25 per share. Analysts said the revised consolidated book value of the company at Rs 89.38 projects a very conservative view of the business and the floor price does not reflect the true value of the stock.
They advised investors to bid at a much higher price than the offer price or prevailing market price. Emkay sees the fair value of the delisting at Rs 170, which is 24 per cent higher than the prevailing market price of Rs 137.
Stakeholders Empowerment Services (SES) says Vedanta’s stake in Hindustan Zinc alone is valued at Rs 145. Vedanta held 64.92 per cent in the company as of June 30.
“Hence, investors should not mind bidding at Rs 200-250 per share,” SES said. A Rs 250 bid would be 82 per cent higher than the current market price.
Reverse book building is a mechanism to determine the share price for delisting of a stock. Shareholders, who wish to participate in the delisting process, can tender their shares by quoting a price at or above the floor price.
The bidding process would close on October 9, Friday.
After the bids are collected, they are arranged in lowest to highest order. As soon as the total bids touch 90 per cent of share capital in that order, that bid price becomes the price that the acquirer needs to pay if he wants to delist the company.
Shareholders will then have up to one year to tender their shares, if they wish to, at the arrived reverse book building price. For those not happy with the higher bidding price, an acquirer can make a counter offer that needs to be at least above the book value.
“Investors must 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 the Vedanta management earlier reduced the book value from Rs 189.63 per share to Rs146.87, citing long-term concerns over oil prices after Covid-19, which was ‘very conservative’.
The book value, it said, was further reduced to Rs 89.38 per share as per the calculations u/s 2(57) of the Companies Act.
SES said even as the company’s annual report presented a rosy picture in investors presentations and conference call transcripts, it wrote off almost Rs 17,400 crore. This, it noted, was more than 40 per cent of its market capitalisation of Rs 39,000 crore.
“The write-off was announced on June 6. But the market was unperturbed, to say the least. SES is of the view that a huge write-off generally results in share prices plunging almost immediately. However, the market has realised that the write-off was not a cash loss, but a mere book loss, and it does not impact the going concern assumption of business. It is mere re-evaluation,” it noted.
The promoters have raised $3.15 billion in two tranches to fund the delisting. In addition, subsidiary Hind Zinc has raised Rs 3,520 crore in three-year non-convertible debentures (NCD) at 5.35 per cent.
Emkay said the money advanced by Vedanta to promoter entity KCM for future transactions has been considered recoverable at the time when the Government of Zambia is opposed to Vedanta PLC‘s continuing the business and has already appointed a provisional liquidator at KCM.
“We believe the write-off of the O&G business is not warranted, as oil prices have returned to the $40 a barrel range. Assuming a reversal of this write-off due to the recovery in oil prices and adding back Rs 42.76 per share, the revised the book value to its original Rs189.63 per share,” it said.
Vedanta on October 3 said its consolidated profit for the June quarter fell 23.58 per cent to Rs 1,033 crore from Rs 1,352 crore in the year-ago quarter, with Ebitda margin coming in at 28 per cent. Net debt for the company stood at Rs 24,787 crore, down 14 per cent YoY. Cash & cash equivalent stood at Rs 33,781 crore.
ICICI Securities said Vedanta reported higher-than-expected Q1FY21 numbers on cost reduction in alumunium and zinc international businesses. Iron ore and steel operations were in line with expectations, it said, while adding that Rajasthan oil and gas production failed to reach its potential given Covid impact.
On Monday, Vedanta shares traded at a discount to Hindustan Zinc (HZL) shares.
SES said that each Vedanta share has 0.74 HZL share embedded, which itself is valued at Rs 145. “Therefore, the minimum price for delisting is Rs 145, if one takes all other Vedanta assets at zero, which is not the case,” it said
“Otherwise, why would Vedanta trade at less than the embedded price of HZL?,” it asked.
Analysts noted that the dividend payout of Rs 4,500 crore that Vedanta received from Hindustan Zinc in May is yet to be passed on to the company’s shareholders, even as its dividend distribution policy says normal dividend received from Hindustan Zinc shall be passed on to its shareholders in entirety.
Emkay said 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 the write-offs.
“We maintain a ‘buy’ with a revised target of Rs 170 as delisting price target, as we remove the 30 per cent holding company discount, which we applied in the past for the valuation of Vedanta as a listed entity on an SoTP basis. Ignoring the oil & gas provisioning, the book value should be Rs 189.63 per share,” the brokerage said.
“SES recommends that shareholders must offer their shares in keeping the range Rs 236 – 310 in mind. Even if one offers a discount to the highest price for uncertainties, depressed economic environment and gives a discount of 20-30 per cent, the fair range comes to be anywhere between Rs 200-250, considering the value that is seen in the business,” the shareholders’ lobby said.