Vedanta: After a robust Q3, all eyes now on demerger timeline

The stock’s recovery is not surprising, given the significant improvement in its financials for the December quarter (Q3FY25), results for which were out during market hours on Friday. Consolidated Ebitda increased 30% year-on-year to ₹11,100 crore, beating some analysts’ estimates. Plus, there is excitement about the upcoming demerger, expected to be complete by the June quarter.

The metals and mining company’s Q3 Ebitda growth was primarily fuelled by a strong 58% increase in the aluminium business Ebitda to ₹4,500 crore. This was helped by an over 20% improvement in realisation, which more than compensated for the increase in prices of alumina, a key raw material. This is Vedanta’s largest business, contributing 38% to 9MFY25 revenues.

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In the zinc business, combined domestic and international Ebitda was ₹4,900 crore, up 35%, aided by higher realisation and lower raw-material costs. While Ebitda for the iron ore and oil & gas segments fell by 41% and 5%, respectively, the impact on aggregate numbers was limited because of their relatively small contribution.

Vedanta is expected to maintain its profitability in the near term, with firm finished goods prices and alumina prices coming off-peak. A Nuvama Institutional Equities report projected a more than 10% quarter-on-quarter jump in Q4FY25 Ebitda amid firm prices and lower cost of production of aluminium and zinc. This would imply 39% year-on-year growth. “Lower alumina prices will largely show up in Q1FY26," said the report.

Expansion plans delayed

While its financial performance remains robust, Vedanta faces delays in its expansion plans. The second phase of its 3 million tonnes per annum (mtpa) alumina expansion is expected to be completed by the end of FY25 against the earlier schedule of Q2FY25. The project will take its captive alumina capacity to 70%, reducing its vulnerability to global alumina price fluctuations.

Similarly, the Balco aluminium capacity expansion is also running behind schedule and is now expected to be completed by Q1FY26. On the positive side, the company commissioned its downstream project for rolled products, helping increase the share of value-added products to two-thirds of total capacity.

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The company’s mining projects are also facing delays, with environmental clearance for its bauxite mines in Odisha still awaited. “We estimate a 3-6 month delay across various projects and 9-12 months for commissioning of mines (coal and bauxite) in comparison to guidance, given pending regulatory approvals," said a 1 February Kotak Institutional Equities report.

To be sure, the improvement in financials helped Vedanta lower its net-debt-to-equity ratio to 1.4x at the end of Q3FY25 from 1.5x at the end of Q2FY25. The net debt of its parent Vedanta Resources Ltd (VRL) also dropped to $4.8 billion (about ₹42,000 crore) by Q3 from $6 billion at the end of FY24, helping to improve its credit rating.

The debt reduction has come about primarily through a stake sale, with the promoters’ stake in Vedanta dropping to 56.4% by Q3FY25 from 62% at the end of FY24. “High-cost private debt is expected to be repaid by August 2025, which should bring down the weighted average cost of debt to <10% (versus around 11% currently). Concerns around high leverage and funding gaps are now behind," said Kotak’s analysts.

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The stock is trading at an enterprise value of 4.5 times estimated FY26 Ebitda, according to Bloomberg data, which looks reasonable. The company is being demerged into five separate entities, with a meeting of shareholders and lenders scheduled for this month. With the process expected to be completed by Q1FY26, investors will have their eyes on the potential gains from this value-unlocking exercise.