“From the shareholders’ point of view, I am looking at a company which is highly risky given the promoter debt,” said Rakesh Arora, Founder of Go India Advisors, while sharing his views.
“If commodity cycle was to turn, this would be only a risky bet,” he added.
The dividend yield is going to remain high but it is risky, Arora shared.
The biggest challenge the promoters have is the debt on their own books which, with this open offer to increase stake, will go up to USD 9.4 billion.
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“Servicing this debt of USD 9.4 billion would require close to a dividend of Rs 8,000-9,000 crore every year from Vedanta Ltd,” he said.
So promoters need some solution and there is no solution in sight at the moment, Arora noted.
The restructuring doesn’t add value until and unless Hindustan Zinc shares are also allocated to shareholders.
“The stock is fairly valued, the volatility is going to increase because free-float is reducing,” he said.
According to him, the stock becomes a market performer because no further buyback from the promoters is expected.
“The stock becomes the market performer and given the gap in valuation, investors would be better switching off to some of the cheap earnings in the same sector,” he stated.
Hindalco is better placed than Vedanta, Arora mentioned.
“Hindalco is definitely a much better company to own right now in base metals,” he said.
For the full interview, watch the accompanying video.
Catch all market updates here. (Edited by : Dipikka Ghosh)