10 key things to know about Vedanta delisting; brokerages say Q1 earnings better than expected

1. The bidding period commenced on October 5 and will end on October 9, during which shareholders may tender their bids.

2. As the company has opened the bidding from October 5–9, the meeting condition is bids submitted should be sufficient to take promoter shareholding to 90 percent at least.

3. After the discovery of exit price; Vedanta may either accept or come out with a counter offer within 2 working days.

4. In case the final exit offer price is not acceptable to the promoter group, it could make a counter-offer within two working days from the discovery of the final exit offer price, i.e., October 13, 2020.

5. If delisting is successful promoters have to pay within 10 days to minority shareholders who have subscribed to the offer. The remaining shareholder will have up to one year to tender their shares at exit price or new offer by the promoter.

6. The promoter group will have to make an announcement regarding the success or failure of the delisting offer, along with the final exit price, within 5 working days from the closure of the bid period, which is October 16, 2020.

7. If the delisting offer is successful, the promoter will pay the consideration to public shareholders within 10 working days of closure of the bidding period, which is October 23, 2020.

8. After the payment of consideration, the company will make the final application to the stock exchanges and after the approval of exchanges, equity shares will be delisted.

9. The rest of the public shareholders may tender their equity shares to the promoter up to a period of one year from the date of delisting. Promoter would accept the shares at the final exit offer price.

10. Continuing public shareholders shall have the right to vote and receive dividends (as and when declared).

Earnings beat expectations

The company's June quarter results beat street expectations on select parameters even as metal and oil prices continued to remain under pressure during the quarter.

Brokerages said the company's Q1FY21 results reflected the impact of weak commodity prices as EBITDA declined 12 percent quarter-on-quarter (QoQ) to Rs 3,990 crore. However, EBITDA beat estimates led by higher profitability in the aluminium business.

Motilal Oswal highlighted that the company's adjusted PAT grew 30 percent QoQ to Rs 1,030 crore due to higher other income (higher marked to market gains) and lower depreciation (due to impairment of book value in oil & gas business done in Q4FY20).

Motilal Oswal said Vedanta's Q1FY21 EBITDA was above its expectations of Rs 2,990 crore due to higher profitability in the aluminium business (EBITDA of Rs 1,300 crore against an estimated Rs 620 crore).

"The company benefitted from a reduction in renewal power purchase obligation (RPO) to the extent of Rs 395 crore," Motilal Oswal said.

Motilal Oswal has a neutral view on the stock with a target price of Rs 148.

"We have factored in the post-COVID recovery in commodity prices in our estimates. Vedanta’s cost reduction in aluminum, zinc capacity expansion completion and expected ramp-up in oil & gas should also support FY22E earnings growth. Over FY20-22E we estimate CAGR of 11 percent in EBITDA and 28 percent in EPS," said Motilal Oswal.

Brokerage firm ICICI Direct has downgraded the stock to a 'reduce' from a 'hold', with a target price of Rs 120 but said Vedanta reported higher than expected Q1FY21 numbers.

Brokerage firm Phillip Capital has a buy call on the stock with a target price of Rs 150, up from Rs 128 previously.

Phillip Capital expects commodity prices to behave in a range-bound manner in the second half of FY21. De-listing will continue to aid the stock price in the near-term.

The foreign brokerage thinks FY22 would see better volumes kicking in zinc and aluminium which along with better YoY realisation would drive the earnings.

Brokerage firm Emkay Global, too, has a buy call on the stock with a target price of Rs 170 and said that the company's Q1 numbers beat estimates.

"We note that given the high leverage at the Vedanta Plc, minority shareholders should seek a price which is at least equivalent to the nominal book value without considering the write-offs. The stock is trading at 3.9 times our FY22E EV/EBITDA. At our target price, the stock will trade at 4.3 times FY22E EV/EBITDA," said Emkay.

"Strong stimulus in China is driving demand for entire metals. This has improved the outlook for all the divisions of Vedanta; hence, an improved offer for delisting is warranted," Emkay said.

Disclaimer: The 10 key points of the delisting process have been taken from a report by brokerage firm Motilal Oswal Financial Services. The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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