Vedanta Demerger: Will NCLT Nod Finally Unlock Rs 2 Lakh Crore In Shareholder Value?

The National Company Law Tribunal approved Vedanta Limited's demerger plan earlier this week. The approval sent Vedanta stock higher by 3.5% to an all-time high of Rs 569, capping a two-year journey marked by regulatory hurdles, objections from the petroleum ministry, and missed deadlines.

Billionaire Anil Agarwal's ambitious plan to split the metals-to-oil conglomerate into five separately listed entities—Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Power, Vedanta Iron and Steel, and a restructured Vedanta Limited—has finally cleared its most significant legal obstacle. 

For every Vedanta share you own, you will get one share in each of the four new companies. The parent company keeps its stake in Hindustan Zinc.

Brokerage firm Nuvama Research believes the split could add around 84 rupees per share by eliminating the conglomerate discount.

But with the stock up 28% this year, investors face a tricky question: Does this NCLT win create value, or is it just another step in a messy restructuring that may not deliver what is being promised?

The demerger looks simple on paper, but it creates operational headaches.

Vedanta Aluminium runs one of India's biggest aluminium operations. In the September quarter, it posted record output—617,000 tonnes of metal and 653,000 tonnes of alumina. That brought in Rs 5,532 crore in Ebitda with a 35% margin.

Management guided that the hot metal cost would decline to sub-Rs 1,650 per tonne in the second half, driven by alumina cost reductions of $50 per tonne in each of the remaining quarters and lower power costs.

Vedanta Oil and Gas will hold the company's hydrocarbon assets, most notably the Rajasthan RJ block. 

The business produced 89,000 barrels of oil equivalent per day in the quarter and generated Ebitda of Rs 1,029 crore, with a 44% margin. 

However, these vertical carries the overhang of a Rs 5,600-crore dispute with the government over cost disallowances. 

Vedanta Power, which added 1.3 gigawatts in the first half to reach total merchant capacity of 4.2 gigawatts, generated record quarterly output of 3.9 billion units. 

Vedanta Iron and Steel operate the group's steel business; a smaller vertical compared to aluminium.

The rationale for this split rests on debt reduction, a sharper management focus, and the removal of the conglomerate discount. 

The five entities will have dedicated management teams and transparent capital structures. The split aims to attract sector-specific investors who have historically avoided Vedanta due to its diversified structure. 

However, the company has already missed two demerger deadlines—the original March 2025 target and the revised September 2025 date—before setting a new completion target of March 2026. 

Managing five listed companies requires substantial bandwidth, and investors must contend with the reality that five smaller entities may have lower trading liquidity than a single large-cap stock.

The petroleum ministry's opposition was the most formidable obstacle Vedanta faced, and the NCLT's decision to overrule those objections does not eliminate the underlying concerns. 

The ministry raised three primary issues. First, it flagged liquidity risks at Malco Energy Limited, which reported a negative net worth of Rs 94 crore as of March 31, 2024, and cash losses of Rs 85.64 crore in FY24. The ministry warned that Malco could slip into liquidation, making recovery of government dues impossible.

Second, the ministry highlighted the long-pending dispute over the Rajasthan RJ oil and gas block. The matter is pending before the Delhi High Court with orders reserved. 

Third, the ministry accused Vedanta of misrepresenting hydrocarbon assets and providing inadequate disclosure of liabilities.

Vedanta countered by arguing that the ministry lacked the locus standi to oppose the scheme since it is neither a creditor nor a stakeholder. The company pointed to its 99.9% shareholder and creditor approval and SEBI's endorsement. 

During the earnings call, CEO Deshnee Naidoo explained that Vedanta addressed the ministry's financial risk concerns by providing a corporate guarantee from Vedanta Limited covering the full extent of alleged claims. 

However, the NCLT clarified that its sanction does not bar ongoing or future litigation, arbitration, tax proceedings, or regulatory action. This means the petroleum ministry's concerns could resurface post-demerger.

Vedanta delivered second-quarter results with revenue of Rs 39,868 crore, up 5.4% year-on-year, and Ebitda of Rs 11,397 crore, up 14.9%.

The management guided that fiscal 2026 would mark Vedanta's strongest year ever, surpassing the previous record Ebitda of $6 billion in fiscal 2022.

However, the quarter included exceptional items totalling Rs 2,067 crore during the July-September period. The company recorded a provision of Rs 1,407 crore against accounts receivable following a Supreme Court judgment on a TSPL customs duty dispute. 

Additionally, Vedanta reached a full and final settlement of Rs 660 crore with SEPCO to resolve a long-standing dispute as part of the demerger proceedings. Its profit after tax was Rs 3,479 crore, while PAT before exceptional items stood at Rs 5,027 crore, up 13% year-on-year.

Net debt-to-Ebitda improved to 1.37 times from 1.49 times last year. CFO Ajay Goel confirmed the company's commitment to reduce leverage to one time at Vedanta India and by $3 billion at Vedanta Resources over the next two years. 

At the parent level, external debt stood at $4.4 billion plus a $400 million inter-company loan, totalling $4.9 billion. The company refinanced $550 million of high-cost debt, reducing the overall interest rate from 11.6% to 10%.

The Rs 84 per share upside estimated by Nuvama Research is plausible if the demerger is executed smoothly, debt is allocated transparently, and commodity prices remain supportive.

Analysts tracking Vedanta stock forecast the combined entity to increase revenue from Rs 1,625 crore in fiscal 2026 to Rs 1,875 crore in fiscal 2028. In this period, earnings are forecast to grow from Rs 45 per share to Rs 59 per share. 

Today, Vedanta stock trades at a forward price-to-earnings multiple of 11.4x, which is higher than its five-year average of 8.72x. 

Due to its elevated multiples, Dalal Street forecasts the Vedanta share price to remain rangebound over the next 12 months, given the consensus price target of Rs 572. 

The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.