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