Vedanta demerger goes live: Will aluminium shine or keep a downward trend?

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The next chapter of Vedanta Limited’s restructuring journey begins on June 15, with four newly demerged businesses making their stock market debut. The entities, viz., Vedanta Aluminium Metal Limited, Vedanta Power Limited, Vedanta Oil & Gas Limited, and Vedanta Iron & Steel Limited, will be listed separately, offering investors direct exposure to individual business verticals.

Under the demerger scheme announced earlier this year, shareholders received one share of each newly created company for every Vedanta share held as of the May 1 record date. While Vedanta's stock price had already adjusted to reflect the restructuring, the value of these standalone businesses has largely remained untested in the market until their listing.

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Based on the debut prices, the implied value combining the five arms of Vedanta, including the parent entity, Vedanta Limited (VEDL), amounts to an estimated INR 943.5 (USD 9.99) per original Vedanta share. The figure indicates an 18 per cent hike over Vedanta’s pre-demerger price on April 29, which closed at INR 773.25 (USD 8.19).

According to exchange notifications, all four companies will initially trade in the Trade-to-Trade (T2T) segment, where delivery-based settlement is mandatory.

Aluminium to take centre stage?

On April 30, as the demerger fell into process, standalone Vedanta, barring its arms of the aluminium business, power, oil & gas, and iron & steel businesses, was valued at INR 293.5 (USD 3.11) per share on April 30. The remaining value of INR 480.1 (USD 5.08) was equally distributed among the four demerger entities. This implied an indicative value of INR 120.02 (USD 1.27) per share for each Vedanta arm.

However, the special pre-opening session conducted to establish fair market valuations painted a different picture.

The listing price of Vedanta Aluminium stood at INR 527 (USD 5.58) per share on the BSE, indicating a gain of approximately 339 per cent over the notional demerger value. Similarly, the NSE listing price was recorded at INR 522 (USD 5.52), marking about a 334.93 per cent hike.

In contrast, Vedanta Iron & Steel was valued at INR 20 (USD 0.21) per share, indicating an 83.5 per cent decline (approx.) compared to the equal-value allocation.

Likewise, Vedanta Power and Vedanta Oil & Gas indicated potential declines of up to 66 per cent and 69 per cent, respectively.  

Therefore, among the newly listed entities, Vedanta demerger’s aluminium business is believed to have the potential to attract notable investor interest.

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Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, mentioned that investors may consider evaluating Vedanta Aluminium Metal, as it has substantial support from the company's ongoing capacity expansion plans and favourable trends in LME aluminium prices.

Brokerage firm Nuvama Institutional Equities highlighted Vedanta’s diversified resource portfolio, reinforced by its low-cost zinc-lead-silver operations. The firm expects future growth to be driven by higher volumes across aluminium and zinc businesses, alongside continued improvements in aluminium production efficiencies.

Meanwhile, Emkay Global Financial Services said that following the demerger, a strong potential for re-rating in Vedanta Aluminium as well as Vedanta Power can be noticed.

Will the market mirror speculations?

However, most of these newly demerged entities were signalling steep declines of as much as 83 per cent on several trading platforms ahead of their market debut on Monday.

Contrary to the market speculations, shares of Vedanta Aluminium Metal Limited (VEDO) have been trading at INR 495.9 (USD 5.25) per share, indicating a difference of 5 per cent from the BSE baseline.

Similarly, shares of Vedanta Limited, inclusive of Vedanta Power, are running 0.86 per cent lower at INR 307 (USD 3.25).

How the market will be closing today, and with what update – whether with a rise, a flat line or a drop in the pricing graph – remains to be seen.  

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