Vedanta Demerger: Mcap, Shareholder Benefits And Way Ahead — All You Need To Know
Vedanta Limited will now be demerged into five separate listed entities versus six before.
Vedanta Limited announced revisions to its previously proposed demerger scheme on Dec 20. The conglomerate has decided to retain its Base Metal's company within Vedanta Ltd.
Therefore, when approved, the company will demerge into five separate listed companies compared to the proposed six before. The process is expected to be completed by January 2025, and shareholders will receive 1 share each of the newly formed companies for every one share held in Vedanta Ltd. currently.
Vedanta Demerger: Resultant Entities
As per the tweaks made to the demerger plan, Vedanta Ltd. will break up into the following firms:
Vedanta Limited: The Parent company will include Hindustan Zinc, Zinc International, the copper business at Thoothukudi, and the Facor business.
Vedanta Aluminum Metal: Vedanta’s aluminum business will include its smelters at Jharsuguda and Balco, its Lanjigarh alumina refinery, the Sijimali bauxite mine, as well the company's captive coal mines and power plants.
Vedanta Oil and Gas: Malco Energy which will be renamed to Vedanta Oil & Gas will include the company's Cairn Oil & Gas business.
Vedanta Iron and Steel: This entity will house Vedanta’s iron ore mines in Goa, Karnataka, and Liberia. It will also include the ESL steel plant in Jharkhand.
Vedanta Power: Talwandi Sabo Power will be renamed to Vedanta Power Company post the demerger. This entity will include all the merchant power plants owned by Vedanta.
Potential Market Capitalisation
As of Dec 24, Vedanta Ltd.'s market capitalisation stands at Rs 1.82 lakh crore. Post the demerger, the potential market capitalisation of the five entities combined could stand at around Rs 2.73 lakh crore, as per Emkay Research. This indicated significant value unlocking for shareholders.
Benefits To Vedanta Shareholders
Emkay notes how the demerger would allow investors to get exposure to 5 pure play companies which tend to trade at a premium compared to diversified miners. This allows the newly formed companies to have a strong case for a re-rating.
Furthermore, the scheme allows investors to take exposure in the firms based on the outlook of individual commodities, without taking exposure to other commodities - which is the case in the current structure.
Emkay also notes that at current valuations, investors are only paying for Vedanta Limited and Vedanta Aluminum. The rest of the to-be-demerged stocks are largely coming for free as per estimates. The brokerage expects the demerger to give an upside potential of 45% to shareholders.
Growth Potential Of The New Companies
Vedanta Ltd: Emkay expects the company to clock an Ebitda ACGR of 16.5% over FY24-27.
Vedanta Aluminium: The company stands out as a clear winner in the demerged framework and benefits from favourable factors like a positive pricing outlook and the firm's effort to improving its backward and forward integration. Emkay expects the company to clock an Ebitda CAGR of 35.5% over FY24-27.
Vedanta Oil & Gas: The company is expected to generate an Ebitda of Rs 7,430 crore in FY26, as per Emkay Research.
Vedanta Iron & Steel: To company is expected to generate Ebitda of Rs 3,910 cr in FY26, as per Emkay Research.
Vedanta Power: The company is likely to attract solid investor interest and benefits from strong power demand in coming years. Vedanta expects to ramp up its power capacity with upcoming thermal plants of over 2 GW by FY25-26. The company could start generating positive free cash flow from FY26 onwards, states Emkay.
