Vedanta - knee jerk reaction

protrade

Well-Known Member
#1
Corporate Governance issues seem to be the flavor of the season - and after the Dewan Housing fiasco, no one seems to be taking any chances. Vedanta's results were bad in terms of revenues, but the profits were higher than expectations. However, the market has latched on to a related party transaction with Volcan Investments, which is a family trust of Anil Agarwal, and slammed the stock on Corporate Governance fears.

What exactly is this transaction that has the market so concerned? In March 2017, Anil Agarwal's Volcan purchased about 12% in Volcan, and followed it up with even more purchases, to take his holding to near 20%. Anglo American has been on a tear, up almost 15% from when Anil Agarwal initially purchased it.

Anil wanted a merger between Hindustan Zinc and Anglo American - but he was rebuffed. And his response has been to become the largest shareholder in Anglo American. However, he has done this using Convertible Bonds issued by JP Morgan, and others, to avoid triggering take over obligations.

It is also highly likely that Anil is acquiring more of Anglo American through some other means. And to make this easier for him, he has sold some of his holdings in Anglo American to Cairn India. Very likely, the intent is to free up cash so that he can acquire even more stake in Anglo American and force a merger between Vedanta and Anglo American.

The market may or may not like this merger, may or may not like the idea of Cairn buying a stake in Anglo American - however, clearly, Anglo American is not the toxic shell company with no assets - the sort of thing that Dewan Housing is being accused of. Anglo American is one of major players in mining globally, and owns 85% of de Beers - the largest Diamond miner in the world. So Cairn buying a stake in Anglo American, is not really money down the drain.

The market is clearly over-reacting to this situation, and slamming Vedanta shares. Just remember, Vedanta traditionally declares its dividends in February, just a few days from now, and its historically paid out in March. And last couple of years, the dividend yield has been 10%+ based on current prices - which is huge. And while the earnings this time were lower, they werent all that low, to impact dividends significantly.

You can imagine what will happen to the stock if and when the dividends are declared. And the China-US trade dispute looks like it could be resolved sometime in near future. Metals and mining have taken a beating because of fears of a global slowdown, but any resolution between China and the US could boost prices.

Scam companies don't usually trade at 10x earnings, and don't usually pay 10% dividends. Just because market is spooked with what happened in Dewan, does not justify an over-reaction in Vedanta.

Be Greedy when others are Afraid, be Afraid when others are Greedy!

(Disclosure: I have big exposure to Vedanta and its derivatives)
 

OneThatGotAway

Well-Known Member
#3
high debt company ^^ it was destiny to happen that 1 day :xD
But hey i have Virtually Zero debt company and guess wat i ain;t making money off it not up till now
Maybe in future lol. so we call it even :xD

EicherMotor 8% 4% 5% (jan 2 m jan 3 and jan29 )
Yes bank 15 % 7 % back to back
Vedanta 17% in 1 day
Whose next ?

Be Greedy when others are Afraid, be Afraid when others are Greedy! is old saying
new rule is
Be Greedy when others are Afraid, be Afraid when others are Greedy! only in virtually Zero debt companies :xD
F it market is always wrong :xD

Got my answerfor today

Rcom 36% down lol
ok whose next for tomorrow ?
 
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