Vedanta shares melt after company issues clarification on semiconductor plant

Vedanta shares melt after company issues clarification on semiconductor plant

After surging 13 percent in two days, Vedanta stock took a beating on September 16 and opened 6 percent lower

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Shares of metals and mining company Vedanta  dropped 6 percent in early trade on September 16 after the company issued a clarification that the proposed semiconductors business is not under it, and will be undertaken by its ultimate holding company – Volcan Investments.

At 10 am, the script was trading below Rs 295 mark on the NSE.

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After exchanges sought clarification on reports of Vedanta-Foxconn JV chip plant in Gujarat, the company said: “We reiterate that the proposed business of manufacturing semiconductors is not under Vedanta Limited and we understand that it will be undertaken by the ultimate holding company of Vedanta Limited, Volcan Investments Limited.”

It may be noteworthy that Volcan Investments is a holding company wholly owned by the Agarwal family trust. It is also the majority shareholder of Vedanta Resources Plc- which is London based and owns more than 50 percent stake in Vedanta India. However, unlike Vedanta India, Volcan Investments is unlisted.

Also Read: Which one owns the semiconductors business: Vedanta Limited or Vedanta Resources?

The speculative rally seen in the stock over the last two days will now halt, say analysts.

“One should remember that Vedanta is a large group with various entities. Trying to get speculative and rushing into a position doesn’t help. The value of any business should be evaluated step by step. Starting with confirming whether that business is part of an entity. Next whether it is significant or is likely to become significant in terms of revenue and profits,” said Dr Vikas Gupta, CEO and Chief Investment strategist, OminiScience Capital.

Even if the semiconductor plant was under the listed entity, analysts believe that the target of beginning production in two years is an ambitious one. “The plant will take 5-7 years to breakeven” said another analyst who did not wish to be named.

Meanwhile, Religare Broking has a Sell call on the stock with a target price of Rs 235.

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