Vedanta has emerged as the highest bidder to acquire Jaiprakash Associates’ assets under NCLT. However, leading brokerage house, Nuvama Institutional Equities, is not impressed.“We consider this event negative for minority shareholders, even if the assets prove to be lucrative in future in case they get monetised,” said the brokerage firm. The company agreed to pay Rs 17,000 crore. However, the brokerage awaits clarity on the matter as the CoC (committee of creditors) is likely to take two months to complete the resolution plan.
Nuvama on Vedanta: NCLT approval may take up to 10 months
Nuvama stated that if the decision goes in Vedanta’s favour, then NCLT approval is needed. This could take almost 8–10 more months, and before that, they have to pay an upfront amount of Rs 4,000 crore. The remainder needs to be paid within five years from that period. This asset shall be housed under Vedanta if the demerger of the company happens before the NCLT approval.
“We understand the company will disclose its plan of action related to this acquisition once the committee of creditors finalises the resolution plan, likely in two months,” said Nuvama.
Nuvama on Vedanta: Not able to understand reason behind acquisition
Jaiprakash Associates’ asset portfolio mainly comprises 4,000 acres of land at Delhi-NCR, 2,200MW thermal power (under Jaiprakash Power, in which Jaiprakash Associates has a 24% stake), 10mtpa cement plant, 0.72mtpa urea plant, five hotels and EPC businesses.
Nuvama stated that it is understandable that Vedanta is likely to focus on the power plant (synergy with its existing business), while the rest can be monetised in due course. Though the asset value is likely to exceed Rs 17,000 crore, they pointed out that it needs to be developed before monetising, which may take 1–2 more years post-acquisition.
Also, the brokerage highlighted that if any liability (ongoing litigation with Yamuna Expressway Industrial Development Authority on past unpaid dues) arises, it will be borne by Vedanta. “We believe Vedanta will be able to fund the acquisition, but are unconvinced by the rationale to acquire the group of assets,” said Nuvama.
Nuvama on Vedanta: Not good strategy to acquire JP assets
Nuvama considered the acquisition a negative event for shareholders, despite of whether the assets turn out to be lucrative in future, in case they get monetised. Currently, the priority of Vedanta should have been deleveraging its balance sheet, instead of getting into unrelated businesses.
Jaiprakash Associates’ assets will be housed under Vedanta, if demerged, which will make it difficult to fund the entire Rs 17,000 crore.
“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 the existing operation,” said Nuvama.
That said, Nuvama retained its ‘Buy’ rating on Vedanta with a target price of Rs 601 per share, implying an upside of 35% for the Vedanta share price.