Detailed Analysis of Vedanta Delisting 2020

Vedanta Delisting

Introduction

We heard about reverse book-building of Vedanta Ltd from 5^th October’20 to 9^th October’20 . The final outcome of the delisting will be out on 16^th October’20. Let us analyse this delisting of Vedanta in this blog.

Vedanta Delisting Analysis

What is Delisting?

• Delisting is basically permanent removal  of stocks from the stock exchange. A company buys out all its publicly listed shares and the company is no longer available for trading.
• If the promoter can acquire 90% of the total share capital for delisting, it is successfully delisted, else promoter has to come up with new offer for delisting in 10 days of bid closure.
• Remaining 10% of shareholders can tender their shares to promoter upto 1 year from delisting date.
• If a shareholder has not tendered his/her equity shares, he/she will continue to remain shareholder of the company and will receive all the rights and benefits that a shareholder of unlisted company receives.

Details of Vedanta Delisting

• Main reasons for delisting are – corporate simplification which will provide financial and operational flexibility.
• The offer price given by Vedanta is at a deep discount to the current market price (INR 122.4). Hence, chances of shares getting delisted at the offer price given by company are slim.
• Let us take a look at Vedanta’s journey till date

• As we have seen due to the impairment charges, book value reduced drastically from INR 147 to INR 89, however this did not lead to share price going down.
• This was mainly because it was a mere book value loss and not cash loss.

Financial Analysis of Vedanta Limited

• Vedanta incurred a loss of INR 4,473 crore in FY20 as compared to a net profit of INR 9,698 crore in FY19 mainly due to the major impairment losses.
• Due to this, company’s book value of INR 54,600 crore is revised to less than 50% i.e INR 21,400 crore.
• This seems to be a deliberate attempt to reduce the book value taking advantage of current pandemic’s impact on metal and gas sector.
• Company has heavy debt of $1.9 billion maturing in one year.
• According to Stakeholder Empowerment Services (ESS), since Vedanta’s stake (64.92%) in Hindustan Zinc is valued at INR 145, minimum price for delisting shares should be INR 145 (considering other assets of Vedanta valued at INR 0).
• Thus, investors can bid at INR 200-225 per share, looking at the company’s financials.

Financial Ratios

• As we can see, company’s profitability and return ratios have deteriorated significantly in this year.
• Also, company’s Enterprise value has reduced to almost 50% to INR 54,342 crores.
• This is mainly because of the impairment losses taken by the company in FY20.
• However, this seems shows promoter’s intent to dampen the sentiment about the company in markets and thus, be able to delist at lower price.

What lies ahead?

• High debt of Vedanta still remains a point of concern.
• However, metal prices have bottomed out and they have factored marginal recovery from current levels in FY22.
• Vedanta seems to be well placed because of its cost reduction, completion of capacity expansion in zinc and good recovery in metal prices.
• This will help Vedanta’s operating performance and profitability in future.
• Looking at this, it seems unlikely that shares will get delisted at the given floor price INR 87.25. It will most likely get delisted at a higher price of INR 200-INR 250.