Breaking up to grow: Vedanta’s demerger and its impact on investors

From HUL’s ice cream spin-off to ITC’s hotel split and Tata Motors’ strategic realignment, corporate shake-ups are redefining India Inc. The goal? To drive focused growth, enhance efficiency, and unlock untapped potential.

Now, Vedanta has entered the spotlight, gearing up for a transformational shift.

Read this | Vedanta: After a robust Q3, all eyes now on demerger timeline

About Vedanta

Vedanta is a global natural resources giant with a strong presence in India and operations spanning multiple sectors, including aluminum, copper, zinc, lead, iron ore, oil & gas, and power generation.

Additionally, the company produces pig iron and metallurgical coke while offering shipping and port services.

Beyond India, Vedanta operates in key global regions, including the US, Asia-Pacific, Europe, the Middle East, and Africa, reinforcing its position as a global player.

On 18 February 2025, Vedanta held meetings with shareholders, secured creditors, and unsecured creditors, all of whom overwhelmingly supported the restructuring plan. A formal regulatory filing on 20 February confirmed these approvals, marking a key milestone in Vedanta’s journey toward a more agile and growth-driven structure.

Read this | For Vedanta, dividends and demerger delays play spoilsport

While the plan has been set in motion, it still awaits statutory, government, and regulatory approvals. If successfully executed, this demerger could redefine Vedanta’s corporate landscape.

The demerger plan

In 2023, the Anil Agarwal-led Vedanta Ltd unveiled its ambitious demerger blueprint, aiming to split the company into five independent, sector-focused entities. 

The restructuring will see Vedanta Aluminium Metal Ltd, Talwandi Sabo Power Ltd, Malco Energy Ltd, and Vedanta Iron and Steel Ltd operate as standalone businesses, specializing in aluminum, power generation, oil and gas, and iron ore, respectively.

Designed to create globally scaled entities with sharper strategic focus, the demerger plan received overwhelming support, with 99.99% of shareholders, 99.59% of secured creditors, and 99.95% of unsecured creditors voting in favor, as per the company’s stock exchange filing. 

The demerger is expected to be completed in the first quarter of 2025.

What are the resulting companies?

Vedanta’s restructuring will result in five distinct, sector-focused entities.

Vedanta Aluminium will continue as one of the world’s largest aluminum producers, while Vedanta Oil & Gas will remain India’s largest private-sector crude oil producer. Vedanta Power will emerge as one of the country’s leading power producers, and Vedanta Iron and Steel will establish itself as a key player in the ferrous products industry. 

The parent entity, Vedanta Ltd, will continue as an incubator for emerging businesses, including the group’s technology ventures.

By structuring the businesses independently, the demerger allows investors to hold separate stakes in each, offering direct exposure to specific industries with unique growth potential. Over time, each entity is expected to attract a distinct set of investors, strategic partners, and financial stakeholders, fostering deeper collaboration and unlocking sector-specific expansion opportunities.

Demerger benefits for Vedanta

Analysts believe the demerger will enhance operational efficiency by allowing management to focus on individual business verticals. The restructuring is expected to unlock hidden value, improve resource allocation, and attract specialized investors.

Currently, Vedanta operates a highly diversified portfolio spanning metals, mining, oil and gas, and power generation. By streamlining this structure, each business will be better positioned for independent growth while Vedanta Ltd continues to oversee its base metals operations.

What does this mean for shareholders?

For Vedanta’s shareholders, this marks a pivotal shift. Investors will receive one share in each of the four newly formed companies for every Vedanta share they hold, giving them direct exposure to all five businesses at no additional cost.

This restructuring enhances portfolio diversification while giving shareholders greater flexibility to focus on specific industries within the Vedanta ecosystem. With each entity operating independently, investors can benefit from sector-driven growth while retaining their stake in the larger group. 

Over time, this structural change is expected to generate greater investor interest, potentially driving better valuation and liquidity across Vedanta’s businesses.

Vedanta financials

For the December 2024 quarter, Vedanta reported revenue from operations of ₹385.3 billion, marking a 10% year-on-year increase from ₹349.7 billion a year ago. Net profit surged 76% year-on-year to ₹35.5 billion, up from ₹20.1 billion in the previous year. Consolidated Ebitda rose 30% year-on-year to ₹112.8 billion, with margins improving to 34%.

Vedanta recorded its highest-ever third-quarter Ebitda, driven by a strategic focus on cost optimization and production ramp-up across its key businesses. This approach has enabled the company to sustain its strong performance and consistently deliver outperformance.

For the full financial year 2024, revenue stood at ₹1,437 billion, reflecting a 2.4% decline year-on-year. Meanwhile, net profit fell to ₹75.3 billion. Between 2020 and 2024, Vedanta’s net sales have grown by 9.3%, while the bottom line has turned profitable. The average return on equity and return on capital employed over the past five years have stood at 24.4% and 25%, respectively.

Recent developments

Vedanta recently secured the status of the preferred bidder for the Kauhari Diamond Block in Madhya Pradesh. The state’s Department of Geology and Mining had invited tenders for the block through an e-auction for a composite license. Vedanta participated in the live bidding process and emerged as the highest bidder.

Spanning 643.4 hectares, the mine is currently at the G4 exploration stage. This phase, known as reconnaissance, involves large-scale identification of potential mineral deposits through grassroots exploration, systematic geological mapping, and airborne geophysical surveys. With this development, Vedanta strengthens its footprint in India’s natural resource sector, aligning with its strategy to expand into high-value mining assets.

What’s next?

Vedanta has outlined an ambitious expansion plan, committing $8 billion in growth capital expenditure over the coming years. Of this, $1 billion will be allocated over the next five years to boost copper and cobalt production. The company also aims to scale its aluminum production capacity to 3.1 million tons per year, with 90% consisting of value-added products and alloys.

As part of its backward integration strategy, Vedanta is targeting first ore production from the Kurloi and Radhikapur coal mines in the first quarter of FY26. This initiative is expected to ensure a steady raw material supply to support its aluminum operations.

Conclusion

The demand for primary aluminum and zinc has grown by 16–17%, with strong momentum expected to continue in the coming years, driven by thriving infrastructure, manufacturing, automotive, and EV/renewable energy sectors. While global demand for these minerals is projected to rise by 2–3% on average, India’s demand is expected to grow at a significantly higher rate of 5–9%.

With advancements in technology and increased investments, the semiconductor industry is poised for exponential growth, estimated at around 9% between 2024 and 2027. Ongoing infrastructure development across India further strengthens industry prospects, positioning Vedanta to capitalize on these emerging opportunities.

Investors should evaluate the company’s fundamentals, corporate governance, and stock valuations as key factors when conducting due diligence before making investment decisions.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com