Metal giant Vedanta has revised its offer for sale (OFS) on Hindustan Zinc. The billionaire Anil Agarwal-backed Vedanta received approval for a stake sale of up to 14,00,00,000 equity shares of HZL, for which the floor price has been fixed on a discount. Vedanta shares have corrected sharply in a month, falling by nearly 9% on BSE. There is a buy-on-dips opportunity.
Vedanta, Hindustan Zinc Share Price:
After the offer for-sale announcement, both Vedanta and Hindustan Zinc shares tumbled on August 14. Vedanta closed at Rs 420.05 apiece, down by 0.63% on BSE, while HZL stock dipped by 1.31% to Rs 572.95 apiece.
In a month, Vedanta's stock price has dipped by 8.6%, while HZL shares dropped by 13.14% on BSE.
Vedanta, Hindustan Zinc Offer For Sale:
After market hours of Wednesday, Vedanta received approval for the sale of up to 14,00,00,000 equity shares of Hindustan Zinc Limited ("HZL"), representing 3.31% of the issued and paid-up equity share capital of HZL, by way of an offer for sale through the stock exchange mechanism.
Vedanta is the promoter company of HZL. The offer for sale will open on August 16, 2024, where the base size of 5,14,40,329 equity shares or 1.22% of shareholding in HZL, will be offered by Vedanta for sale. Only non-retail investors can bid on August 16.
Further, the OFS will continue on August 19, with an option of additional stake sale of 8,23,04,527 Equity Shares or 1.95% by Vedanta. On this day, only retail investors and those non-retail investors who chose to carry forward their unallotted bids from T+1 will be eligible for bidding.
In its regulatory filing, HZL said, "The Offer is being undertaken by the Seller, inter-alia, to gain access to funds for inter alia growth and expansion purposes and for optimization of the capital structure of the Company. The Company has a market capitalization of INR 1,000 crore and above, with the threshold of market capitalization computed as the average daily market capitalization for six months period before the month in which the OFS opens.
The floor price for OFS is set at Rs 486 per share, which is at a discount of 17.9% from HZL's current price.
BUY Vedanta, Hindustan Zinc Shares?
As per Trendlyne data, the consensus recommendation from 14 analysts for Vedanta Ltd. is BUY. EPS is expected to grow by 622.3% in FY25. The 1-year target price is at Rs 473.43 apiece, hinting at nearly 13% potential upside.
On the other hand, the consensus recommendation from 12 analysts for Hindustan Zinc Ltd. is SELL. However, EPS is expected to grow by 31.0% in FY25. The 1-year target price is set ar s 392.58 apiece, hinting at a nearly 31.34% potential upside.
Earlier, Centrum in its latest research report said, "Vedanta (VEDL IN) reported in line with our estimate adjusted EBITDA of Rs99.5bn, up 13% QoQ (CentrumE: Rs98.7bn). The outperformance in aluminium, power, Zinc India, Steel business and Zinc International was offset by underperformance in Oil and gas and Copper segment. Ex-HZ, EBITDA was Rs51.3bn, up 17% QoQ due to higher profitability in the aluminium business (up 48% QoQ), zinc international, power and steel business. VEDL is witnessing various positive developments - 1) Capacity expansion 2) Cost reduction 3) Improving liquidity and overall financial muscle with net debt/EBITDA dropping to 1.2x. We believe company is set to reap earnings and margins growth over next 2-3 years and can achieve USD10bn in EBITDA over next 5 years. We maintain our FY25/FY26 DPS estimate of Rs45/sh (~11% dividend yield), as VEDL intends to reduce leverage of the parent company, Vedanta Resources (VRL). Our equity target price is revised higher to Rs478 (earlier Rs438), based on FY26E SoTP. At CMP, we see upside of ~15% with BUY rating."
Whereas, on HZL, JM Financial said, "The company is set to expand its zinc product portfolio with EcoZen, a low-carbon green zinc offering primarily targeted at European markets. Net debt as of 1Q stood at INR3bn vs a net cash position of INR17bn in 4Q. We remain positive on HZL given its presence in the lower end of the global cost curve facilitated by high grade captive mines sufficient to meet requirements for decades, 100% captive power plants, sizeable scale, diversified revenue stream with increasing contribution from silver sales. Maintain BUY." The target price is set at Rs 540.
One of the much awaited development in Vedanta is its demerger into six business, aka 1:6 ratio. Vedanta has received approval for demerger of metals, power, aluminium, and oil and gas businesses to unlock potential value. After the exercise, six independent verticals - Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Limited - will be created.
As part of the demerger plan, for every share of Vedanta, shareholders will receive one share of each of the five newly listed companies. After the demerger, the businesses of Hindustan Zinc as well as the electronics business will remain with Vedanta Limited.
The company is expecting to complete its demerger by December 2024 end.
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