Vedanta Limited has brought a different plan for its demerger scheme, which is to retain the base metal business under the parent company's umbrella. So, instead of six separate companies, billionaire Anil Agarwal-led Vedanta will demerge into five distinctive entities – Vedanta Limited, Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Steel and Ferrous Materials, and Vedanta Power, with the process to be completed by January 2025, distributing shares in 1:1 ratio.
This revised demerger plan is in response to lenders' feedback and efforts to restart the Tuticorin copper smelter. Vedanta thinks this strategic move will ease the process of lenders' approval, given the recommencement of the smelter will streamline operational and financial complexities.
However, as the new demerger plan unfolds, it is essential to see how this will shape the future of Vedanta's business and whether it will be advantageous for shareholders to buy or hold Vedanta's stocks.
A renowned India-based financial firm, Emkay Global, has given Vedanta's stocks a 'Buy' rating after its new demerger plan. According to Emkay, Vedanta's share price will likely jump to a target price of INR 600 from the current trading price of INR 461.40. Emkay suggests that investment in Vedanta's stocks will be highly suitable for those eyeing medium-term returns, as Vedanta Limited, Vedanta Aluminium, and Vedanta Power will deliver balanced growth.
"We have a view that Vedanta, Vedanta Aluminium and Vedanta Power are the businesses that we would like to own through-cycle," said Emkay.
Emkay speculates that with this latest demerger plan, Vedanta Group will have a 'Sum of the Parts' market capitalisation of INR 2.7 lakh crore against the current market cap of INR 1.9 lakh crore.
The brokerage house has also estimated an EBITDA growth for individual Vedanta entities. For instance, Vedanta Limited is expected to log EBITDA growth at a CAGR of 16.5 per cent over FY2024-27 to reach INR 20,850 crore by FY2026. Vedanta Aluminium, which will include its smelters at Jharsuguda and Balco, its alumina refinery at Lanjigarh, the Sijimali bauxite mine, captive coal mines, and power plants, is projected to see a 35.5 per cent CAGR growth in EBITDA over the same period, with absolute EBITDA generation of INR 22,040 crore in FY26E.
"We are of the view that Vedanta Aluminium should re-rate and trade at 6.5x EV/EBITDA, to align with the India and global peer group. Based on our estimates, and adjusting for net debt and minorities, we arrive at an equity value of Rs 1.1 lakh crore," said Emkay.
In Q2 FY2025, Vedanta reported a profit of INR 5,603 crore, up by 55.4 per cent from INR 3,606 crore in Q1 FY2025. On a year-on-year basis, it demonstrated a significant turnaround from a loss of INR 1,783 crore.
Revenue in Q2 stood at INR 37,171 crore, up by 5.5 per cent Y-o-Y from INR 35,239 crore. EBITDA was INR 9,828 crore (US$9.83 billion), close to Vedanta's long-term goal of $10 billion EBITDA.
Vedanta has demonstrated strong financial performance through the second quarter. However, it is crucial to closely watch the developments in the coming months as the demerger process nears completion. The key focus should be effectively managing debt while maintaining growth across the various business units.
Disclaimer: AL Circle is a media platform and is not responsible for any investment decisions made based on Emkay's suggestion regarding Vedanta's shares.
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