Sesa Ster­lite Likely to Get Rerated

The Economic Times - - Markets + Finance - BISWA­JIT BARUAH

Sesa Ster­lite, a Vedanta group com­pany, may be rerated as an­a­lysts are op­ti­mistic about its chances of buy­ing the resid­ual stake in Hindustan Zinc and Balco af­ter the new BJPled govern­ment as­sumed power. The BJP-led NDA govern­ment had al­lowed the dis­in­vest­ment of a ma­jor­ity stake in these two sta­te­owned com­pa­nies in 2002. The Anil Agar­wal-owned Sesa Ster­lite stock has ral­lied nearly 50% in the last one month and has been the best per­form­ing scrip in the bench­mark in­dex, Nifty. About 60% an­a­lysts have put a ‘buy’ rec­om­men­da­tion on the com­pany, which is at its high­est level in six years, while only 20% have a ‘sell’ on it, and the rest have a ‘hold’. Shares of Hindustan Zinc have risen 18% in the pe­riod.

“In our view, com­ple­tion of Hindustan Zinc stake pur­chase would lead to sub­stan­tial rerat­ing of Sesa Ster­lite, as it would ad­dress the is­sue of cash fun­gi­bil­ity,” said Pinakin Parekh, an­a­lyst at JP Mor­gan.

An­a­lysts say once the govern­ment sells its 29.5% stake in Hindustan Zinc, cash and equiv­a­lent of about Rs 25,000 crore with the com­pany will be­come fun­gi­ble for Sesa Ster­lite; be­sides, the com­pany will also have ac­cess to fu­ture cash flows of Hindustan Zinc, which is ex­pected to be over Rs 5,000 crore for the next cou­ple of years. “Ac­cess to cash flows of cash-gen­er­at­ing sub­sidiaries like Hindustan Zinc and Cairn In­dia will be the key trig­ger for the stock’s per­for­mance. We re­tain our ‘buy’ rat­ing on the stock,” said Ashutosh So­mani, an­a­lyst at JM Fi­nan­cial Re­search.

The deal, if it’s con­cluded, will pro­vide Sesa Ster­lite un­re­stricted ac­cess to the cur­rent and fu­ture cash pile of Hindustan Zinc, which it can dip into to meet its debt obli­ga­tions as well as fund fu­ture growth. Sesa Ster­lite has a con­sol­i­dated net debt of close to Rs 80,000 crore. “We ex­pect rerat­ing of zinc busi­ness to six times of EV/EBITDA against four times cur­rently, post mi­nor­ity stake ac­qui­si­tion by Sesa Ster­lite,” said Nan­dan Chakraborty, MD — in­sti­tu­tional eq­uity re­search at Axis Cap­i­tal.

Fi­nance Min­is­ter Arun Jait­ley, at a meet­ing with of­fi­cials of the depart­ment of dis­in­vest­ment (DoD) on Wed­nes­day, gave the go-ahead to the on­go­ing resid­ual stake sale of Hindustan Zinc and Balco.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.