SEBI has no role in matters of book value, ICICI Sec clarifies on its report on Vedanta

ICICI Securities has clarified on its research report on Vedanta. In its report released on October 5 the brokerage firm has mentioned in its Institutional Research report that the book value of Rs 89.3/share was approved by SEBI. But the fact is SEBI has no role in valuation, as a process SEBI neither approves floor price nor the book value. The research report created anguish among investors.   

In a statement issued on Tuesday the brokerage firm said “The Institutional Research Team of ICICI Securities had issued Research Report on the Q1 results of Vedanta Ltd on October 5, 2020. In this report it was inadvertently mentioned that - Vedanta has highlighted the SEBI approved book value (ex the revaluation reserves) of Rs 89.3 /share. The same should be read as - Vedanta has highlighted that the FY20 book value is Rs 89.3 /share. SEBI, as a matter of policy, neither approves nor disapproves any Book Value or Delisting Price.” 

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Currently reverse book building process for Vedanta’s delisting is going on and will close on October 9. As per proxy advisory firm SES the book value of Vedanta works out around Rs 148/ share considering the One of the jewels in the group, cash rich Hindustan Zinc Ltd (HZL). SES says, “The present market capitalization of HZL is more than Rs 85,000 crores. Based on the market cap of HZL, the value of HZL embedded in Vedanta is approx. Rs 55,000 crores, translating into Rs 148 per equity share, almost 70% higher to Floor price and 65% higher to book value”    

SES said in its report that, while, the Investors Presentation and conference calls transcripts and Annual Report presented a very rosy picture of the state of affairs of the company, the company wrote off almost Rs 17,400 Cr (Rs 15,900 cr owing to Oil & Gas alone) which was more than 40% of the then market cap of Vedanta of Rs 39,000 cr . This write off amounting to Rs 17,400 Cr reduces book value by Rs 90/share. SES in its report dated 5th June, 2020 had calculated valuation of Vedanta from various methods in range of ‘market price’, ‘sum of parts of Vedanta Businesses’, ‘Book Value’, etc. The value had ranged between Rs 236-310/share.  

SES opines that a huge write off generally results in share price to plunge almost immediately, however, the market realized that write off is not a cash loss, but a mere book loss and it does not impact going concern assumption of business.