Vedanta ADR - Thinly Traded, Deceptive Valuations

Vedanta proposes to delist ADR for 16.11 cr shares, being 4.33% of present equity. Post ADS buy back, promoter stake will rise to 68.18% from 65.18%. ADR is very thinly traded and hence is not discovering right price. ADR Holders are given an option, either to convert in equity or ADR will get extinguished by paying cash. Promoter and company may be keen to see that, ADR holder go for redemption and not for equity conversion.

Vedanta is transferring Rs. 12,587 crore from General Reserve to Retained Earnings, largely to enable the company to use funds for Acquisition of PSUs ike BPCL, NALCO, SCI, Hind Zinc residual stake etc. General Reserve use has limitations, as it can not be used for all purposes, while mandatory creation of General Reserve no more exist in the law as well.

Promoter may also be keen in raising their stake by 5%, via creeping acquisition, to 73.18% in the last quarter of FY 22, after ADR redemption. Retail investors are now also turning into loyal investors, realising that stock can give a dividend yield of over 6% annually, for the next 2-3 years, hence they are not seen big sellers as well. On an estimated EPS of Rs. 52 for FY22, share is ruling at PE of sub 6x only.

Q2 PAT of Rs. 4,615 cr alone can make company to buy back all ADRs, or make Promoter to raise their stae by 5% with this amount.

Hence, all data, points to a big appetite for the stock, more especially after robust Q2FY22 numbers.

This is not a Buy or Sell recommendation, while stock recommendations are provided exclusively to our paid members in the Member Zone.