VEDL: 182-192 May Be A Good Hurdle Despite Merger Dynamics With Cairn

Trading Idea: VEDL

CMP: 172

Either Sell around 177-182 OR on rise around 192-202

TGT: 155*-129- 115-105-95-85 (1-6M)

TSL> 185 OR > 210

Note:Sustaining above 185 area, VEDL may further rally to around 192-202, which is again a strong resistance zone and only consecutive (3 days) closing above 210 zone, it may further rally up to 225-245*-256-275* & 295-330 in the near to long term (alternative bullish case scenario).

Any existing long position holder may also watch the 164-155*-145 area on the downside as immediate support zone for the scrip.

VEDL has huge debt of around Rs.71356 cr as on FY-16. The primary objective to merge with Cairn is to utilize the latter's huge cash reserve, although some serious objection may be raised in future for this from other minority share holders/regulatory bodies.

Also Cairn will need to use its cash for capex related to its core business of exploration in future.

VEDL is a high leverage metal/natural resource co and any downturn in the commodity cycle may affect its balance sheet severely. 

Presently, around 30% of its EBITDA is being used to repay the loan interest alone on an average.

For VEDL (Consolidated):

EBITDA/Share: 49.14 (FY-16/Actual)

Projected EBITDA/Share: 54.15 (FY-17/Estimated)

Average PE: 2 (Considering its debt profile and outlook of metal sector)

(As normal TTM EPS is negative amid various other income/exceptional items, EBITDA/Share may be more reasonable)

Present fair value may be around: 98 (FY-16/TTM)

Projected fair value might be around: 108 (FY-17/FWD)

Analytical Charts:

Article Courtesy: Frontiza.com