Vedanta Shares Rise Over 4% On Demerger Plan; Know What Analysts Say About The Stock

Vedanta Demerger: Vedanta (VEDL) shares gained 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 per cent to Rs 232.35 apiece on the BSE.

As part of the arrangement, shareholders will get one share each in the five new listed entities for every share held in Vedanta Ltd. The five entities will be: Vedanta Aluminium, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Oil & Gas, and Vedanta Base Metals. The company expects to complete the entire process by the financial year 2024-25.

Shareholders will receive an additional one share of each newly listed entity for one share held in Vedanta.

Here’s how the demerged businesses would look like:

Vedanta Ltd: The currently listed entity would hold the 64.92 percent stake it has in Hindustan Zinc, along with the upcoming semiconductor and display business, along with the stainless steel business. A substantial chunk of Vedanta’s operating profit in financial year 2023 came from Hindustan Zinc, followed by the oil and gas business.

Vedanta Aluminium: To house the aluminium business and the 51 percent stake it holds in BALCO.

Vedanta Oil & Gas: Cairn India

Vedanta Base Metals: To include the copper and zinc international business.

Vedanta Steel & Ferrous Metals: To house the domestic iron ore business, Liberia assets and ESL Steel Ltd.

and Vedanta Power will include all the power assets.

The management says that the demerger will simplify their corporate structure, gives investors the option to invest in the commodity of their choice and also provide a platform for individual units to pursue their strategic agenda.

Interestingly, this was the same rationale highlighted when the group had merged the entities a decade ago.

Subject to approval from the board, stock exchanges and the NCLT, this process is likely to take another 12-15 months.

Analysts believe the newly listed demerged companies are expected to unlock stakeholder value, attract strategic investment and improve competencies.

CLSA double-upgraded Vedanta to ‘outperform’ from ‘underperform’ but reduced its price target for the stock by Rs 25 to Rs 230. The brokerage is of the view that from an operational perspective, nothing is likely to change for the company in the near term owing to the demerger. The move will enable the parent company, Vedanta Resources Ltd, bring strategic investors into these entities and hence ease its debt.

“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 Rs 290 per share.

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