Shares of Hindustan Zinc fell as much as 7 percent in morning trade on Friday after the company announced the acquisition of Vedanta Ltd.'s international zinc assets for $2,981 million.

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Hindustan Zinc, a subsidiary of Vedanta Limited, is a leading producer of zinc, lead, and silver in India.

Payments will be made in a phased manner, based on the agreed milestones. This will ensure that Vedanta receives the full value of the assets over time, while also providing Hindustan Zinc with the necessary flexibility to fund the acquisition.

The move will also enable Vedanta to simplify its portfolio and focus on core operations.

Annualising Zinc International's operating profit for the first half of the current financial year, the deal has been done at 10x EV/EBITDA.

Hindustan Zinc believes that these assets will earn significantly higher returns compared to current treasure returns and will also improve overall synergies between the businesses. The company hopes to not only achieve market share gains, but also geographical diversification.

The deal is said to be a negative for Hindustan Zinc as it is a related party transaction and done on an expensive valuation. As of December 2022, Vedanta held 64.92 percent stake in Hindustan Zinc.

At the end of last year, Hindustan Zinc's gross cash levels stood at Rs 16,482 crore, while net investments stood at Rs 11,378 crore. The acquisition also drains he company of most of its cash.

The proposed transaction is subject to regulatory approvals.

Hindustan Zinc reported a net profit of Rs 2,156 crore for the December quarter, which was marginally lower than the CNBC-TV18 poll of Rs 2,210 crore. EBITDA margin at 47.1 percent was also lower than estimates of 48.5 percent.

The company also approved a third interim dividend of Rs 13 per equity share. The total payout for the same will be Rs 5,493 crore and record date will be January 30.

Shares of Hindustan Zinc are trading 6 percent lower at Rs 355.30.

First Published:Jan 19, 2023 8:57 PM IST