Shares of Vedanta Ltd fell as much as 20%, its biggest single day fall since March 2011, to hit a 30-month low on the concerns of corporate governance issue after earning release shows that billionaire Anil Agarwal's family trust paid buying interest in South African miner Anglo American Plc
Many brokerages have downgraded the stock and cut its target price. ICICI Securites downgraded to sell from reduce and lowered its target price to ₹145 from ₹1475 a share. CLSA rated sell and reduced its target price to ₹170 from ₹250 a share.Goldman Sachs downgraded to neutral from buy and cut its target price to ₹203 from ₹230 a share. IDFC Securities downgraded to neutral from outperform and lowered its target price to ₹213 from ₹244 a share.
The stock fell as much as 19.82%, its maximum fall since 7 March 2011, to hit a low of ₹158.35 a share — a level last seen on 4 August 2016. At 9.52am, the scrip was trading at ₹163.15 on BSE, down 17.4% from its previous close. India's benchmark Sensex rose 0.38% to 36395.38 points. Its group company, Hindustan Zinc Ltd fell 3.6%.
Cairn India Holdings arm of Vedanta Ltd paid Volcan Investments, also a groups parent, $200 million for an interest in Anglo American in December, according to a note to its earnings filing. The company said it will invest ₹2000 crore more in miner, 19% owned by Anil Agarwal in the next 20 months.
"Related-party transaction will de-rate the stock. Although this transaction appears at arm’s length, the counter party risk is high because parent drives its value from Vedanta itself and is highly leveraged. Investors are now concerned about future allocation of capital, especially from foreign subsidiaries", ", Motilal Oswal Securities said in a 31 January report. The brokerage firm has downgraded to sell and reduced its target price by 30% to ₹162 a share.
Management stated that this transaction is to earn higher returns. "We fail to see merit in such an arrangement, given Vedanta has no strategic interest in the promoter’s investment in Anglo American and returns are dependent on movement in stock price of Anglo American", said Kotak Institutional Equities in a 1 February note. The brokerage firm has cut its target price to ₹275 from ₹290 a share earlier.
Lower then expected earnings in December quarter also weighted the stock. The company reported 21% drop in net profit to ₹1574 crore due to higher cost and lower realisation across operations. Net sales fell 3% to ₹23669 crore due to shut down of copper smelter at Thoothukudi and lower commodity prices.
Copper operations reported EBITDA loss of Rs75 crore due to shut-down—this can change based on the Supreme Court’s final verdict on smelter opening. EBITDA at steel plant increased 48% quarter on quarter to ₹250 crore led by volume ramp-up, improved efficiencies