Which one owns the semiconductors business: Vedanta Limited or Vedanta Resources?

Shares of Vedanta Ltd surged 10 percent higher on September 14 after the company announced that it will be setting up a semiconductor manufacturing plant in Gujarat with Foxconn, and the product will be out in the market in two years.

But, let’s turn the clock back to February this year. That’s when the Foxconn-Vedanta joint venture was first proposed. The company had then clarified that the semiconductor business would be undertaken by the holding company – Vedanta Resources.

It must be noted that Volcan Investments is a holding company wholly owned by the Agarwal family trust. It is also the majority shareholder of Vedanta Resources Plc- which is London based and owns more than 50 percent stake in Vedanta India. However, unlike Vedanta India, Volcan Investments is unlisted.

In an exchange filing dated February 16, it said “The proposed business of manufacturing semiconductors is not under Vedanta Limited and we understand that it will be undertaken by the holding company.”

Then, what justifies the rally in Vedanta Ltd? Well, a press release from the company’s website dated September 13, says “Vedanta will hold 60 percent of the equity in the JV while Foxconn will own 40 percent. The JV will look at setting up a semiconductor manufacturing plant in the next two years.”
This is clearly contrary to what was mentioned in the February exchange notice.

To add to the confusion, Group Chairman Anil Agarwal said in an interview with CNBC-TV18 that the funding for the JV is going to come from the listed entity.

He also said that Vedanta is looking to set up an iPhone manufacturing hub in the State of Maharashtra. Again, is this Vedanta Ltd or Vedanta Resources?

The exchanges are confused, too. BSE and NSE have sought clarification from the company on both the developments – the semiconductor plant in Gujarat and the electronics manufacturing hub in Maharashtra.
Meanwhile, analysts are not too positive on the stock.

“Till the time there is no official communication to the exchanges from the company, it is better for retail investors to avoid this kind of hype,” said Parimal Ade, Co-Founder, Investyadnya.in.

Another analyst, who did not wish to be named, said “It does not matter whether the chip project is a part of listed entity or not. The mainstay business of metals is unlikely to do well. Aluminum and copper prices have cooled off from highs. There are slowdown and recession fears in Europe and the US. There is no reason for metals stocks to outperform.”

On September 14, after market hours, the company informed that it has emerged as the highest bidder for Ghogharpalli and its Dip Extension coal block, located in Sundargarh district, Odisha. The mine has total reserves of 1,288 million tonnes and an estimated per annum capacity of 20 million tonnes.

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Was the market anticipating this development? Could this have been the reason behind the rally?

According to Dr Vikas Gupta, CEO and Chief Investment strategist, OminiScience Capital, "The coal mine could probably add around 5-10 percent to the annual revenues of Vedanta. While it is an important step by Vedanta, it is not too significant in terms of revenues directly."

"If entry into Odisha is from a viewpoint of finding rare earth metals, then it could eventually become quite significant given the importance of rare earth metals for electric vehicles and other electronics" he added.

Investment of Rs 25,000 crore for aluminium expansion 

Meanwhile, in a series of tweets today, London-based entrepreneur Anil Agarwal- the chairman of Vedanta group said the company announced a single largest expansion plan worth Rs 25,000 crore in Odisha. This would be for the expansion of aluminium ferrochrome and mining business. According to the chairman, this investment alone would have made the single largest investment in Odisha and contribute to 4% of the state’s GDP.

The scrip is trading 3 percent higher​ on September 15 intraday, quoting Rs 315 apiece on the NSE.