Emkay Global Financial's report on Vedanta
Cairn India Holdings Ltd, a 100% subsidiary of Vedanta Ltd (Ved Ltd), has provided a loan of Rs23.11bn to promoter entity Vedanta Resources (Ved Plc) which can extend up to Rs79.05bn ($1.05bn) in loans and guarantees. Contours of the transaction are awaited. Ved Ltd is treating this loan as cash in its books, even though the money has been transferred outside its books, which we believe is not the best way of accounting loans given to parent. Management has reduced Rs42.76/sh of book value in Ved Ltd books through the writeoff of a substantial portion of the O&G book despite Brent hovering around $43/bbl. But advance given to promoter entity KCM is treated as recoverable despite the appointment of a provisional liquidator in KCM.
Maintain Buy with a revised TP of Rs170 as delisting price target as we remove the 30% holdCo discount which we applied in the past for the valuation of Ved Ltd as a listed entity on SoTP basis. Ignoring the O&G provisioning, the book value should be Rs189.63/sh.