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Home / Markets / Mark To Market /  Vedanta’s investors eye delisting for returns as stock fares poorly

Shareholders of Vedanta Ltd have not been getting good returns for the past few years. The stock is down 10.4% in the last three years compared with the Nifty 50’s gains of 9.6% in the same period.

Now, with the start of a reverse book-building process to delist the shares, investors may want to see whether returns could improve. Besides, given that the outlook for metals is improving, analysts see a potential increase in the final delisting price.

Parent Vedanta Resources Ltd has raised resources of about $3.15 billion for the delisting process, which implies a delisting price of about 132 per share, say analysts.

But investors could be looking at a higher price.

Operating cost advantage
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Operating cost advantage

The parent company has borrowed $307 million from Vedanta’s subsidiary Cairn India Holdings Ltd and can borrow further from subsidiaries up to $1.05 billion without specifying the usage of these loans, said analysts. While companies are known to borrow or lend to subsidiaries, analysts are concerned over the accounting of these proceeds.

“Vedanta is treating this loan as cash in its books, even though the money has been transferred outside its books, which we believe is not the best way of accounting loans given to parent," analysts at Emkay Global Financial Services wrote in a note.

Those at Investec Securities believe this could potentially raise the delisting price. “Vedanta’s potential $1.05 billion of inter-company loan is well within the limits defined by section 186 of Companies Act.

“Headline math of $3.15 billion plus $1.05 billion, plus potential upstreaming dividends, if for delisting purposes, indicate an exit price well beyond our target price ( 162)," said Ritesh Shah, analyst, Investec Securities.

Earlier, Vedanta had taken an impairment charge on its book which reduced the book value to 89.38 per share, which is close to the near floor price of 87.5 for the reverse book-building process. However, Vedanta’s shares were still hovering around the 137 mark, implying that investors are expecting a better delisting price.

Meanwhile, Vedanta’s Q1 numbers were not that bad, given the lockdown. The firm’s 25.3% drop in revenues against the year-ago period was in line with Street estimates. However, Vedanta’s operating profits were a step ahead of the Street largely due to good performance from its aluminium business. Against the Street’s expectation of a drop of about 44% in Ebitda, Vedanta reported just 23% drop year-on-year. Ebitda is earnings before interest, tax, depreciation and amortization.

Meanwhile, analysts also note that the global outlook for metals has been improving, thanks to the recovery in China. “With commodity prices hovering near decadal lows, attractive valuations, and Hindustan Zinc Ltd’s potential second call option, Vedanta promoters have sought a de-listing, an opportunistic move on both valuations and timing," said Investec analysts.

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