Vedanta's Demerger Strategy: Balancing Core Competencies for Shareholder

Vedanta, a prominent player in the mining industry, is set to embark on a significant corporate transformation. This initiative is aimed at streamlining its structure and augmenting returns for shareholders, a move long anticipated. The pivotal question remains: will this restructuring effectively tackle the prevailing debt challenge?

Vedanta, a prominent player in the mining industry, is set to embark on a significant corporate transformation. This initiative is aimed at streamlining its structure and augmenting returns for shareholders, a move long anticipated. The pivotal question remains: will this restructuring effectively tackle the prevailing debt challenge?

Over the last decade, Anil Agarwal's Vedanta Group has executed a series of mergers and splits, culminating in its current singular entity. Now, on the brink of a groundbreaking shift, Vedanta is poised to fragment this unit into six distinct entities. This strategic maneuver seeks to "unlock significant shareholder value," as stated by the company's announcement.

While Vedanta's stocks experienced a notable surge in 2023, the year's overall performance still reflects a decrease of over 25 percent. The proposed plan involves distributing shares of the newly listed entities proportionally to current Vedanta Ltd. shareholders. This distribution will align with the strengths and specialties of each entity.

Outlined below are the proposed demerged businesses:

• Vedanta Ltd: This entity will retain its 64.92 percent stake in https://topstoriesworld.com/news/ruturaj-gaikwad-to-lead-indian-cricket-team-at-asian-games-2023-with-his-distinctive-style and encompass the burgeoning semiconductor and display ventures alongside the stainless steel sector. Hindustan Zinc notably contributed a substantial portion of Vedanta's operating profit in the 2023 fiscal year.

• Vedanta Aluminium: This entity will be the home of the aluminum business and will also hold a 51 percent stake in BALCO.

• Vedanta Oil & Gas: Encompassing Cairn India.

• Vedanta Base Metals: Comprising the international copper and zinc operations.

• Vedanta Steel & Ferrous Metals: Housing the domestic iron ore sector, Liberia assets, and ESL Steel Ltd.

• Vedanta Power: This entity will consolidate all power-related assets.

The management emphasizes that this demerger will not only simplify the corporate framework but will also offer investors the opportunity to invest in specific commodities. Furthermore, it provides a platform for individual units to pursue their distinct strategic goals. Intriguingly, these same benefits were highlighted a decade ago when the entities were initially merged.

Pending approval from the board, stock exchanges, and the NCLT, this process is estimated to span another 12-15 months. This move affords the Vedanta Group greater flexibility in unlocking value for investors, whether through asset liquidation or strategic partnerships. Post-demerger, the promoters will only be subject to long-term capital gains tax, alleviating the burden of double taxation.

Yet, amidst all these positive shifts, a $4 billion debt looms large. Vedanta Resources faces significant payments until the 2025 fiscal year. The entity does possess revenue streams, including dividends from Hindustan Zinc and Vedanta Ltd., potential stake sales, and brand fees. However, depleting cash balances and credit rating downgrades have led to higher interest rates, leaving the group in a challenging financial position.

In light of recent events, analysts have expressed varied opinions on Vedanta's prospects. Investec maintains a sell recommendation, citing concerns over carbon-intensive assets and cash flow sustainability. CLSA, though upgrading its rating, underscores the need for operational improvements. Nuvama views the demerger as a positive step forward, while Philip Capital remains bullish on Vedanta, anticipating a stable trajectory in the stock's value.