Discounted book value unlikely to drive down Vedanta delisting price: analysts


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Analysts said the lower than expected book value of shares in Vedanta Ltd. does not necessarily mean a lower write-off price, although it tempers expectations of minimum floor prices.

The metals and mining conglomerate said the book value – the company’s equity divided by the total number of shares outstanding – in accordance with write-off regulations for the fiscal year ended March 31, 2020, s’ amounts to Rs 89 per share, according to additional information. made in a company statement. This, according to Emkay Global, is at a 40% discount from the calculated book value (according to accounts) of Rs 147 each.

The book value of Vedanta’s shares has been reviewed by the company’s advisers, according to the company’s statement.

To be clear, a reduced book value “only implies that the implied premium would appear higher on a lower basis,” Investec said in a report. The price of the delisting or final exit offer will be based on the price obtained through the reverse book constitution process, i.e. the price at which the shares accepted under eligible offers carry the stake. 90% promoter.

“If Vedanta Resources Ltd. (the developer) finds that the price of building the reverse book is high, it can make a counter-offer that cannot be less than the book value, ”CLSA explained in a note.

Brokerages including CLSA, CITI Research and Investec expect minority shareholders to reject the price, prompting the company to make a higher counterbid. This, they said, can be in the range of Rs 150 to Rs 167 per share, considering the $ 3.15 billion in funds raised by promoters in the recent past and dividend payments from Hindustan Zinc Ltd.

Most analysts have therefore kept their bullish investment recommendations for Vedanta. Of the 15 analysts following the action, 11 have a “buy” and one suggests a “hold”. The Bloomberg Consensus 12-month average target price implies an increase of 12.1%. The company’s shares are trading down 0.92% on Thursday, compared to a gain of 0.14% for the Nifty 50 index.

Here’s what brokers have to say:

CLSA

  • Maintains the “outperform” rating with a target price of Rs 133 each
  • Book value per write-off settlement at Rs 89.3 against Rs 147 calculated per share
  • Falling Book Value Per Share May Temper Expectations
  • If Vedanta finds the reverse book construction price too high, he may make a counter-offer.
  • Promoters guaranteed funds and HZL dividend indicate possibility of offering Rs 128 – 151 per share for delisting

CITI research

  • Maintains “buy” with a target price of Rs 150 each
  • Book value reviewed before write-off
  • The stock has rallied since it captured some of the rise caused by the events
  • Write-off will likely occur at a value closer to / greater than the brokerage’s fair value
  • Promoter’s $ 3.15 billion debt financing involves a purchase price of Rs 125 / share

Investec

  • Maintains “buy” with a target price of Rs 162 each
  • The revised book value is Rs 89.38 / share, calculated on free reserves only
  • The minimum price of the counter-offer goes from Rs 147 / share to Rs 89.38 / share
  • Find this a “good shot” per company (legally speaking)
  • The minority can always get aggressive about building reverse books, the process can always be rejected
  • Promoters could place a counter-offer
  • A reduced book value only means that the implied premium will appear higher on a lower basis
  • Minorities would do better to seek an exit closer to the target price of Rs 162

Global Financial Service Emkay

  • Vedanta reduces book value to Rs 89 / share, counter-offer bar is lowered again
  • Book value arrival 40% lower than book value generally calculated at Rs 147
  • The book value could have been at Rs 192.9 / share
  • Write-off of petroleum assets in Q4 FY20 and merger adjustments in 2013 resulted in a sharp decline in book value

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