Vedanta invests a staggering 17,000 crores in JP's assets, but Nuvama pleads caution, deeming it a risky decision.
In a significant development, Vedanta has been announced as the highest bidder for the assets of Jaiprakash Associates under the National Company Law Tribunal (NCLT) for a staggering Rs 17,000 crore. If the demerger of the company happens before NCLT approval, the acquired assets will be housed under Vedanta. However, this potential acquisition may pose financial challenges for Vedanta.
The asset portfolio of Jaiprakash Associates includes 4,000 acres of land at Delhi-NCR, a 2,200MW thermal power plant, a 10mtpa cement plant, a 0.72mtpa urea plant, five hotels, and EPC businesses. The acquisition may potentially make it difficult for Vedanta to fund the entire Rs 17,000 crore, according to financial analysts at Nuvama Institutional Equities.
Before NCLT approval, Vedanta is required to pay an upfront amount of Rs 4,000 crore. The remainder of the payment needs to be paid within five years from the period of NCLT approval. To prevent the balance sheet from getting bloated, Nuvama suggests that Vedanta may monetize some assets quickly.
Nuvama believes that Vedanta will likely focus on the power plant, while the rest can be monetized in due course. However, the monetization of the assets may affect the shareholders of Jaiprakash Associates. Despite the acquisition, Nuvama does not expect any significant re-rating of the Vedanta stock due to the transaction.
The Committee of Creditors is likely to take two months to complete the resolution plan. If the decision goes in Vedanta's favor, NCLT approval could take up to 10 more months. It's worth noting that Nuvama believes Vedanta will be responsible for any liabilities arising from ongoing litigation with Yamuna Expressway Industrial Development Authority on past unpaid dues.
Nuvama has retained its 'Buy' rating on Vedanta with a target price of Rs 601 per share, implying a potential 35% upside for the Vedanta share price. However, they consider this event negative for minority shareholders. Nuvama's concern is that Vedanta's priority should have been deleveraging its balance sheet, instead of acquiring unrelated businesses.
In conclusion, while the acquisition of Jaiprakash Associates' assets could potentially lead to future profitability for Vedanta, it comes with financial challenges and potential negative implications for minority shareholders. The asset value is likely to exceed Rs 17,000 crore, but it may need development before monetization, which could take 1-2 more years post-acquisition.
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