Discounted Book Value Unlikely To Lower Vedanta Delisting Price: Analysts

Analysts said the less-than-expected book value of equity shares of Vedanta Ltd. may not necessarily mean a lower delisting price even as it tempers minimum floor price expectations.

The metals and mining conglomerate said the book value—net worth of the company divided by total number of outstanding equity shares—as per delisting regulations for the year ended March 31, 2020, works out to be Rs 89 a share, according to additional disclosures made in a company statement. That, according to Emkay Global, is at a discount of 40% to calculated book value (as per accounts) of Rs 147 apiece.

Vedanta’s equity shares’ book value has been reviewed by the company’s advisers, the company statement said.

To be clear, a reduce book value “only implies the implied premium would look higher on a lower base” Investec said in a report. The delisting or final exit offer price will be based on the price arrived at via the reverse book building process - that is, the price at which equity shares accepted through eligible bids take the promoter shareholding to 90%.

“If Vedanta Resources Ltd. (promoter) finds the reverse book built price to be high, it can make a counter offer which cannot be less than the book value,” explained CLSA in a note.

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

Most analysts, therefore, retained their bullish investment recommendations for Vedanta. Of the 15 analysts tracking the stock, 11 have a 'buy' and one suggests a 'hold'. The average of Bloomberg consensus 12-month target price implies an upside of 12.1%. Shares of the company are trading 0.92% lower on Thursday, compared with 0.14% gain in the Nifty 50 Index.

Here’s what brokerages have to say:

CLSA

• Maintains ‘outperform’ rating with a target price of Rs 133 apiece
• Book value per delisting regulation at Rs 89.3 versus the calculated Rs 147 a share
• Lower book value per share may temper expectations
• If Vedanta finds the reverse book building price to be too high, it can make a counteroffer
• Funds secured by promoters and dividend from HZL indicate the ability to offer Rs 128 - 151 per share for delisting

CITI Research

• Maintains ‘buy’ with a target price of Rs 150 apiece
• Book value revised ahead of delisting
• The stock has rallied since capturing some of the event-driven upside
• Delisting will likely happen at closer to/higher than the brokerage’s fair value
• Promoter’s $3.15-billion of debt funding implies purchase price of Rs 125/share

Investec

• Maintains ‘buy’ with a target price of Rs 162 apiece
• The revised book value stands at Rs 89.38/share, calculated on free reserves only
• The minimum counter-offer price declines from Rs 147/share to Rs 89.38/share
• Find this a ‘good move’ by company (legally speaking)
• Minority can still go aggressive on reverse book building, the process can still stand rejected
• Promoters could place a counteroffer
• Reduced book value only means the implied premium will look higher on a lower base
• Minorities will be better off seeking an exit closer to target price of Rs 162

Emkay Global Financial Service

• Vedanta reduces book value to Rs 89/share, bar for counter-offer lowered again
• Arrived book value 40% lower than generally calculated book value at Rs 147
• Book value could have been at Rs 192.9/ share
• Write-off in oil assets in fourth quarter of FY20 and amalgamation adjustments in 2013 has led to sharp decline in book value