MUMBAI: The massive impairment that billionaire Anil Agarwal’s Vedanta Ltd took on its books in the March quarter will significantly bring down the company’s book value, market experts told Mint. Whether this will have a bearing on the company’s ongoing delisting process is yet unclear.
On Saturday, Vedanta reported a net loss of ₹12,083 crore for January-March compared to a profit of ₹3,218 in the year-ago period. Even though revenue fell 15% year-on-year to ₹19,513 crore for the quarter, the massive quarterly net loss was attributed to a write-off of ₹17,132 crore on impairment of assets in oil and gas, copper and iron ore businesses.
An asset is impaired, or its value written down in books of the company, when its projected future cash flows are lower than current carrying value. Vedanta’s stock has taken a beating through the first half of this year, much like other commodity players, during the covid-19 pandemic which saw lockdowns across countries leading to a slowdown in economic activity and thus demand for commodities.
US crude oil prices had briefly turned negative for the first time ever in April on a glut and lack of adequate storage. Prices of most industrial metals have been hammered through March and April, with the largest declines seen in copper and zinc, key metals for Vedanta in India.
Meanwhile, the company is in the process of delisting from Indian stock exchanges at an offer price of ₹87.5. The company’s share price, since the delisting was announced last month, has remained stayed above the offer price, indicating that shareholders believe the intrinsic book value of the company should reflect a price higher than the delisting offer. The stock closed at ₹105.35 on the BSE on Friday.
"The impairment is just an accounting entry," Dharmesh Kant, independent market analyst, told Mint.
"It is up to the discretion of the management to do it. According to international practice, assets are valued at book value or net realisable value, whichever is lower. These impairments can be reversed in future years when (commodity) prices go back up, effecting an increase in net realisable value... I don’t think this reporting of impairment will affect the delisting price and it won’t influence shareholders during the reverse book-building process for price discovery," Kant added.
He said it may be difficult for the company to make the delisting go through as many retail and institutional shareholders may not want to tender in their shares.
"The impairment has caught the attention of investors," a senior industry analyst who did not wish to be quoted told Mint. “While some individual businesses within Vedanta have done well, such as aluminium, steel and power, the focus will now be on asset value. Institutional shareholders have been unwilling to tender their shares at the offer price because they believed the book value was higher. Now with the impairment, the company has been able to lower the book value. However, no other commodity company in the world has taken such a large impairment on commodities in the March quarter, especially when global crude oil prices have bounced back in the last month."