With a price crash and fall in valuation, Vedanta is an attractive buy
A fall of more than 20 % in stock price and the merger of Vedanta's cash-rich subsidiary Cairn India with itself has made analysts bullish on the counter.
Though weak commodity prices will continue to be an overhang on this counter, investors should not ignore positive developments in the company, most importantly, the merger of its cash-rich subsidiary, Cairn India, with itself. The boards of Vedanta and Cairn India have already approved the merger and the entire process is expected to be completed by end of 2015-16. This merger is will increase Vedanta's earnings per share. Also, Cairn India, as of March 2015, had a cash balance of more than Rs. 16,000 crore, and this merger will help reduce the debt on Vedanta's balance sheet.
The share price fall in Cairn, due to the fall in crude prices, is also working out in favour of Vedanta and it will have to issue less number of preference shares to Cairn shareholders.
After the recent 20 per cent cut in price, analysts are getting bullish on the counter mostly because of favourable valuations. For instance, Vedanta holds 64.92 per cent in Hindustan Zinc and its market value works out to be Rs. 43,000 crore, higher than the current market capitalisation of the Vedanta Group, which is valued at just Rs. 42,000. Possible triggers for the counter are the acquisition of the central government's stake in Hindustan Zinc, winning bauxite mines in auction and completion of the proposed Cairn India merger.
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