Vedanta share price fell as much as 2.21 per cent to ₹435.05 apiece in Monday’s trading session after the analysts expressed “concerns” following reports that the group had emerged as the leading bidder for the bankrupt Jaiprakash Associates Ltd (JAL).
Vedanta shares have remained largely in the red in the last one year. The mining giant’s stock has declined less than a per cent in six months and 5.38 per cent in one year.
Vedanta – JAL details
Anil Agarwal-owned Vedanta, in its successful bid for the debt-ridden Jaiprakash Associates Ltd (JAIL), has proposed an upfront payment of ₹4,000 crore upon NCLT approval, with the remaining amount to be paid over the next 5-6 years, according to a PTI report.
Vedanta outbid the Adani Group with an offer having a net present value (NPV) of ₹12,505 crore in an auction conducted by lenders to find buyers for Jaiprakash Associates Limited, which has interests in real estate, cement, power, hotels, and roads.
JAL is currently undergoing the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), with the Resolution Professional inviting Resolution Plans on June 24. As part of this process, a challenge round was held among five bidders – Vedanta, Adani, Dalmia, Jindal Power, and PNC Infratech – where Vedanta emerged as the H1 bidder with an NPV of ₹12,505 crore.
According to sources, Vedanta was selected as the H1 bidder for JAL by the NARCIL-led Committee of Creditors (CoC).
JAL reported an unpaid outstanding amount of ₹55,371.21 crore as of August 15, according to its stock exchange filing.
Brokerage firm Nuvama Institutional Equities said in a note that it considers this event negative for minority shareholders, even if the assets prove to be lucrative in future, in case they get monetised.
“Getting into unrelated businesses at this point in time, when the priority should be deleveraging, is a cause for concern. In the demerged entity, it will house this asset under Vedanta Limited only, where funding the entire INR170bn will be difficult. However, we believe that the company can monetise some of the assets quickly, which could aid the balance sheet in not getting bloated. Despite this, the culmination of the transaction is likely to restrict any re-rating of the stock amid improved fundamentals of existing operations,” the brokerage said.
Vedanta share price – Should you buy or sell?
Despite some concerns about the proposed deal, Nuvama retained its ‘buy’ tag on Vedanta stock. The brokerage firm has given a target price of ₹601, and sees an upside potential of up to 35 per cent.
“We believe VEDL’s focus will stay on core businesses (power) and it is likely to monetise other assets in due course. Getting into unrelated businesses at this point in time, when priority should be deleveraging, is a cause of concern. We await finalisation of the resolution plan to account for it in our estimates; retain BUY,” the brokerage firm said.