Vedanta Resources Limited and persons acting in concert with it (promoter group) have improved the present size and cost for the voluntary open present for Vedanta Limited. While the revised present represents a 4% premium to the existing industry cost, the fragmented nature of shareholding may possibly be an impediment to complete tendering.
Going ahead, we see leverage issues at parent level exacerbating in the wake of the upward revision of the open present cost. That stated, we do not rule out close to-term volatility in the stock cost. All in all, we retain ‘HOLD/SP’ on Vedanta with a TP of Rs 186, implying 3x Q1FY23e Ebitda. Our recommendation also elements in a dividend yield of 9%.
An present one can not refuse? The promoter group has decided to raise the quantity of equity shares of Vedanta to be acquired in the open present to 651mn (earlier 371.75mn), representing 17.5% (earlier 10%) of equity shares, at a revised cost of Rs 235 (earlier Rs 160). The revised present represents a premium of 4% to the CMP, a far better deal for investors than the earlier present cost that implied a discount of 13% to the CMP then. That stated, the fragmented nature of shareholding might impact tendering of shares nonetheless. The final date for upward revision of present cost was March 19.
Leverage issues exacerbate at parent level The total consideration assuming the complete tendering of shares in the open present would be `153 bn. We have an understanding of that promoter group has tied up an added debt facility of $1.2 bn (8.95% due 2025). The proceeds may possibly be partially utilised for funding the acquisition of shares in the open present. Hence, we anticipate total debt at Vedanta Resources (standalone) to raise to $8.2 bn. While the improved shareholding in Vedanta would fetch them added money distributed by means of dividend, we think that debt servicing issues nonetheless persist.
Outlook: Stock cost volatility ahead Vedanta’s revised present cost is a far better deal for minority shareholders. That stated, we think that complete tendering of 17.5% of equity shares may possibly be difficult provided the fragmented shareholding. The revised timelines indicated the upward revision in the open present cost deadline as March 19.
Over the medium term, we anticipate leverage at the parent’s finish to rise. While larger shareholding would outcome in a larger share of dividend from Vedanta, we nonetheless think that debt servicing would be onerous. On balance, we preserve ‘HOLD/SN’ with a TP of Rs186. Our recommendation also elements in a potentially sustainable dividend yield of 9%.