Vedanta share price jumps over 4% on demerger plan; analysts positive for long-term, caution on high debt
- In a move to unlock value for its shareholders, the billionaire Anil Agarwal-led Vedanta Group unveiled a complete overhaul of its Indian metals, mining, and energy conglomerate, Vedanta Ltd.
Vedanta share price gained over 4% in early trade on Tuesday after the company approved restructuring that includes demerger of its diversified business into six separate listed companies. Vedanta shares gained as much as 4.42% to ₹232.35 apiece on the BSE.
In a move to unlock value for its shareholders, the billionaire Anil Agarwal-led Vedanta Group unveiled a complete overhaul of its Indian metals, mining, and energy conglomerate, Vedanta Ltd.
Vedanta demerger
Under the proposed demerger, the existing company will be split into Vedanta Aluminum, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Ltd.
Read here: Vedanta to demerge biz into six firms
Shareholders will receive additional one share of each newly listed entity for one share held in Vedanta. The demerger and listing of separate business units is expected to take 12-15 months, subject to all the necessary approvals.
Analysts believe the newly listed demerged companies are expected to unlock stakeholder value, attract strategic investment and improve competencies.
Demerger to unlock value
“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.
The analyst upgraded Vedanta to Buy and has an unchanged target price of ₹290 per share.
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Kunal Kothari, Research Analyst - Metals & Mining at Centrum Broking believes the demerger into six entities is the right step and unlock value for investors in future.
“Currently, the large focus is on the debt repayment obligation of the parent company which is under stress and the course of actions are uncertain. The brand fee continues to flow from Vedanta Ltd as per current agreements and will alter once demerger is concluded,” Kothari said.
He maintains a ‘Buy’ rating on the stock with a target price of ₹273 per share.
Debt concerns prevail
While analysts believe the demerger to simplify the corporate structure, enhance risk mitigation framework, ensure autonomy, and improve transparency, the debt positions at both Vedanta and holding company remain unchanged.
Vedanta’s parent company, Vedanta Resources Ltd, is facing an uphill task in managing its debt maturities and has repayments of $1.3 - 1.4 billion in the next six months, including bond payments of $1 billion in January 2024; also, around $3 billion of repayment in FY25, plus interest-servicing requirements.
“Holding Company/Vedanta continue to face refinancing/repayment risks, considering a substantial portion of debt maturing by CY25. The developments concerning the company’s debt will be a key monitorable moving forward,” analysts at Motilal Oswal Financial Services said.
Kotak Institutional Equities said that Vedanta Resources Ltd’ (VRL) high leverage and funding gap of $3 billion in FY2025E are key areas of concern and overhang for the company.
“We believe the hefty dividends by Vedanta/Hindustan Zinc, similar to that in FY2022-23, are no longer sustainable. VRL can deleverage only through the divestment of the stake in Vedanta or individual businesses. The demerger could make a partial divestment in different businesses easier, which would help VRL in deleveraging. However, the demerger by itself is unlikely to unlock any value, in our view,” Kotak Institutional Equities said.
The brokerage house maintained a ‘Sell’ call on the stock and a target price of ₹200 per share, given the unfavorable risk-reward.
At 9:20 am, Vedanta shares were trading 2.13% higher at ₹227.25 apiece on the BSE.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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