Vedanta and Cairn India were up on a day when the market was largely trading in the red as the companies’ merger was effective from April 11. The record date for the merger was April 27, 2017.
The stock rose over 3 percent intraday on Wednesday and analysts are largely bullish on Vedanta on the back of this development.
Morgan Stanley remains overweight on the stock due to volume growth in aluminium and zinc business as well as improvement in balance sheet due to volume ramp up and improved cash flows.
“While the merger will be 7 percent PAT accretive in FY2018, as the company will now account for 100 percent of Cairn’s earnings, it will be 15 percent EPS dilutive given the issuance of 753 million shares (25 percent of current outstanding) to the current shareholders of Cairn India,” it said in its report.
The research firm says the company’s capacity ramp up and its capex plans will be something to watch out for, particularly in the oil business, given the target of ramping up production.
Meanwhile, JP Morgan too remained overweight on the stock.
“In our view, a diversified resource major with an improving balance sheet and exposure to attractive metals is born. Importantly for global investors, Vedanta with its free float and large market cap should become a key benchmark stock, especially in the resources space,” the research firm said in its report.
Moreover, increased market cap and free float combined with strong fundamentals should attract global investors, the firm added.
“Vedanta’s market cap post the issuance of new shares to Cairn shareholders would be USD 15.6 billion and with a 49.9 percent float, it would likely become part of major indices and be an index benchmark stock, especially for resources. Combined with improved fundamentals, we would expect more global investors to look at the stock,” the research firm added.