Vedanta Share Price Rises Over 4% on Demerger Plan; Analysts Optimistic for the Long Term but Cautious About High Debt

Vedanta’s share price experienced a gain of over 4% in early trading on Tuesday following the company’s approval of a restructuring plan that involves demerging its diversified business into six separate listed companies. The shares of Vedanta climbed as high as ₹232.35 apiece on the BSE.

In a bid to unlock value for its shareholders, Vedanta Group, led by billionaire Anil Agarwal, unveiled a comprehensive overhaul of its Indian metals, mining, and energy conglomerate, Vedanta Ltd.

The Vedanta Demerger:

The proposed demerger entails dividing the existing company into six distinct entities: Vedanta Aluminum, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and Vedanta Ltd.

Shareholders will receive one additional share in each newly listed entity for every share held in Vedanta. The demerger and listing of these separate business units are expected to take 12-15 months, subject to obtaining all necessary approvals.

Unlocking Value:

Analysts believe that the newly listed demerged companies will unlock stakeholder value, attract strategic investments, and enhance competencies.

“We believe this move will have a positive long-term impact, as it will give the group flexibility, unlock value for investors (give them the choice of commodity they want to invest in), and the parent company would have the option to liquidate fully/partly particular assets to manage its debt repayments,” said Vikash Singh, Research Analyst at Phillip Capital.

Kunal Kothari, Research Analyst – Metals & Mining at Centrum Broking, believes that the demerger into six entities is the right step and will unlock value for investors in the future.

Debt Concerns Remain:

While analysts view the demerger as a means to simplify the corporate structure, enhance risk mitigation, ensure autonomy, and improve transparency, the debt positions of both Vedanta and its holding company remain unchanged.

Vedanta’s parent company, Vedanta Resources Ltd, faces challenges in managing its debt maturities with repayments of $1.3 – 1.4 billion in the next six months, including $1 billion in bond payments due in January 2024. Additionally, there are approximately $3 billion in repayments in FY25, along with interest-servicing requirements.

Kotak Institutional Equities stated that Vedanta Resources Ltd’s high leverage and a funding gap of $3 billion in FY2025 are areas of concern and overhang for the company. The brokerage firm believes that hefty dividends, similar to those in FY2022-23, are no longer sustainable.

Conclusion:

As of 9:20 am, Vedanta shares were trading 2.13% higher at ₹227.25 apiece on the BSE. Analysts offer mixed sentiments, with optimism for the long-term potential of the demerger but caution regarding the high debt and repayment challenges faced by the company.