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Motilal Oswal Report
Vedanta Ltd. announced its plan to demerge its existing business verticals into six independent ‘pure play' companies i.e. Vedanta Aluminum, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta.
This move aims to unlock stakeholder value, attract strategic investment, improve competencies, and ensure transparency.
The proposed demerger is anticipated to conclude, with separate units being listed, within the next 12-15 months, subject to all the necessary approvals from shareholders, lenders, creditors, and regulatory authorities.
The proposed demerger will be a simple vertical split, i.e., for every one share held in Vedanta, the shareholders will receive one additional share of the newly listed five entities.
Vedanta will remain listed and will include the newly proposed semiconductor and display verticals while also functioning as the holding company for Hindustan Zinc Ltd.
Valuation and view
The demerger into different entities is expected to simplify the corporate structure, enhance risk mitigation framework, ensure autonomy, and improve transparency.
However, the debt positions at both Vedanta and Holding companies remain unchanged. HoldCo./Vedanta continue to face refinancing/repayment risks, considering substantial portion of debt maturing by CY25. The developments concerning the company's debt will be a key monitorable moving forward.
Globally, commodity markets are facing multiple headwinds, such as volatile input raw material prices, multi-decade high interest rates in developed economies, muted demand pick-up from China, and a slowdown in the Chinese real estate sector.
We reiterate our 'Neutral' rating on Vedanta with our SoTP based target price of Rs 250. At current market price of Rs 223, the stock is trading at FY25E enterprise value/Ebitda of 4.9 times and FY25E price/book multiple of 2.2 times.
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