Vedanta hits 52-week high after promoter raises open offer price

Vedanta Resources Plc has raised the open offer price for buying shares in flagship Indian firm to Rs 235 per share from Rs 160 per share earlier

Shares of Vedanta hit a fresh 52-week high of Rs 230, up 2 per cent on the BSE, in the intra-day trade on Wednesday after the promoter, Vedanta Resources Plc, raised the open offer price for buying shares in flagship Indian firm to Rs 235 per share from Rs 160 per share earlier. At 10:38 am, the stock was trading flat at Rs 226.15, as compared to a 0.12 per cent decline in the S&P BSE Sensex.

Vedanta Resources has also has upward revised the number of shares it wants to buy to 651 million shares (17.51 per cent of voting share capital of Vedanta) as compared to 371.7 million shares earlier (10 per cent of voting share capital of Vedanta earlier). Earlier in January 2021, Vedanta resources had offered to buy up to 10 per cent of voting share capital of Vedanta at Rs 160 per share.

"The revised offer is around 4 per cent higher than Tuesday’s closing price of Vedanta. In its revised offer, Vedanta resources have raised the offer price as well number of shares it wants to buy. The total consideration for the offer is Rs 15,300 crore and if the offer is successful, Vedanta Resources' shareholding in Vedanta Ltd will increase from the current 55.1 per cent to 72.6 per cent post the transaction," ICICI Securities said in a note.

In the past three months, the stock of Vedanta has outperformed the market by surging 55 per cent, as against a 7 per cent rise in the S&P BSE Sensex. Vedanta’s earnings, the brokerage says, remain sensitive to movement in commodity prices. The improvement in major commodity prices over the last couple of quarters thus augurs well for the company.

Analyst view

Vedanta’s revised offer price is a better deal for minority shareholders, said analysts at Edelweiss Securities. However, they believe that full tendering of 17.5% of equity shares might be challenging given the fragmented shareholding. 

"The revised timelines indicate the upward revision in the open offer price deadline as March 19, which might cause volatility in the stock price in the near term. That said, over the medium-term, we expect leverage at parent’s end to rise. While higher shareholding would result in a higher share of dividend from Vedanta, we still believe that debt servicing would be onerous," wrote Amit Dixit and Meera Midha of Edelweiss Securities in a March 17 report.

They have maintained a 'HOLD' rating on the stock with a target price of Rs 186, implying 3x Q1FY23E EBITDA. "Our recommendation also factors in a potentially sustainable dividend yield of 9 per cent," they said.