All About Vedanta Demerger: Effective Date and Impact on Shareholders

Vedanta Limited has announced a revision in its proposed demerger plan. Last year, in September, the company announced that it would demerge its business into six entities, which will eventually get listed on the exchanges. In this article, we look at the details of the revised demerger plan and what it means for the shareholders.

Vedanta Demerger Plan

As part of the revised plan, Vedanta will not demerge its base metal units. The demerger of Vedanta Base Metals will be considered in the future when the Base Metals business evolves and matures to realize the full value potential of such a demerger for shareholders.

Earlier, the company planned to split into six businesses, but now they have decided that base metal will not be demerged. Hence, the demerger will have five companies. Here is the breakdown:

• Vedanta Limited: The parent company will consist of Hindustan Zinc, Zinc International, the copper business at Thoothukudi, and the Facor business.
• Vedanta Aluminum Metal: Vedanta’s aluminum business will include its smelters at Jharsuguda and Balco, its Lanjigarh alumina refinery, the Sijimali bauxite mine, as well the company's captive coal mines and power plants.
• Vedanta Power: Talwandi Sabo Power will be renamed to Vedanta Power Company post the demerger. This entity will include all the merchant power plants owned by Vedanta.
• Vedanta Iron and Steel: This entity will house Vedanta’s iron ore mines in Goa, Karnataka, and Liberia. It will also include the ESL steel plant in Jharkhand.
• Vedanta Oil and Gas: Malco Energy, which will be renamed to Vedanta Oil & Gas, will include the company's Cairn Oil & Gas business.

What it Means for Investors?

The first thing investors need to understand is the change in the market cap from the current scene to the post-listing scene. At present (26 December 2024), the market cap of Vedanta is Rs 1.80 lakh crore. Post the demerger, the market cap of the five listed companies would be around Rs 2.73 lakh crore (as per Emkay Research). It means there is a significant upside gains to be made for the investors.

As per experts, the proposed demerger of Vedanta into five distinct, pure-play companies unlocks significant value for investors. This restructuring allows investors to gain targeted exposure to specific commodity sectors - aluminum, oil and gas, ferrous metals, copper, and power. Each company is likely to command higher valuations as standalone entities compared to diversified mining conglomerates.

This pure-play structure creates a compelling case for a re-rating of the newly formed companies by the market, potentially leading to increased valuations. Crucially, the demerger enables investors to tailor their portfolios based on their commodity outlook, eliminating the need to take on exposure to other commodities within the conglomerate's portfolio, as is the case with the existing structure.

Experts suggest that, based on current valuations, the market is primarily pricing in only Vedanta and Vedanta Aluminium, effectively valuing the remaining demerged businesses—oil and gas, ferrous, copper, and power—at close to zero.

It implies that investors are essentially getting these businesses "for free," presenting a substantial value opportunity. Consequently, experts project a significant upside potential of approximately 45% for Vedanta shareholders following the demerger, driven by the anticipated re-rating of the individual businesses.

How Many Shares of Each Company Shareholder Will Receive?

As part of the demerger plan by the company, the shareholders will additionally get ONE share of each of the FIVE newly listed companies for every ONE share of Vedanta they own. The proposed demerger will create independent companies housing aluminum, oil and gas, power, steel and ferrous materials, and base metals businesses.

What is the Effective Date of Vedanta Demerger?

Vedanta Limited Chairman, Anil Agarwal, recently told media that the demerger process is expected to conclude in the first quarter of next year. He added, “We will have a very good dividend policy. Share price will do very well according to me,” he added. The Vedanta Chairman went on to add that the demand for businesses under these companies remains strong.

Before you go

Vedanta share price is currently trading at Rs 460 per share and is down nearly 5% in the last five trading sessions. However, in 2024, the company has given an exceptional rally of 80% and over 200% returns in the 5-year time frame. Existing investors should closely monitor the demerger news, and new investors should carefully analyze the pros and cons before making an investment decision.