Metals and energy conglomerate Vedanta Ltd has unveiled a significant strategy aimed at enhancing operational efficiency and attracting investments. The company is initiating a demerger plan to separate its commodities businesses into five distinct entities, all of which will be publicly listed on stock exchanges. This strategic move is designed to unlock intrinsic value and provide a diverse array of investment opportunities for various categories of investors.
The post-demerger landscape will consist of six distinct companies, each focusing on specific sectors. These entities encompass Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and the pre-existing Vedanta Limited. As of now, only Vedanta Ltd and Hindustan Zinc Ltd are publicly traded entities under the Vedanta umbrella.
As part of this restructuring, Vedanta Ltd will house the semiconductor business and Hindustan Zinc Ltd (HZL). Vedanta Aluminium will incorporate Balco, while Vedanta Oil and Gas will oversee Cairn Energy. This strategic overhaul aims to offer global investors, including sovereign wealth funds, retail investors, and strategic partners, direct access to these dedicated companies, thereby enhancing investment opportunities.
Anil Agarwal, Chairman of Vedanta Limited, expressed his optimism about this demerger, believing it will unlock value and expedite growth in each vertical. Each company, while operating within the broader natural resources sector, will have the autonomy to cater to its unique market dynamics, supply-demand trends, and employ technology for productivity enhancements.
Vedanta’s diversification spans metals, minerals, oil, gas, and power, with upcoming ventures into semiconductor and display glass manufacturing. The demerger is expected to enable each independent entity to pursue its growth potential and intrinsic value through self-directed management, capital allocation, and specialized growth strategies.
Vedanta Ltd has been grappling with high debt levels, compounded by its parent company, Vedanta Resources Ltd, facing substantial debt repayments of $3.6 billion over the next two years. As of March 2023, Vedanta’s debt-to-EBITDA ratio stood at 3.7 times. Moreover, rating agencies Moody’s Investors Service and S&P have recently downgraded Vedanta Resources to speculative grade, underscoring the need for favorable business conditions to meet debt obligations. In August 2023, Vedanta Resources mitigated some of this pressure by divesting a 4.3% stake in its key subsidiary, Vedanta Limited, for approximately $500 million.
In reshaping its future, Vedanta Group is set to unleash the potential of its six demerged entities, with each entity focusing on specific sectors and businesses:
- Vedanta Limited: House of Hindustan Zinc Limited and the semiconductor and display businesses.
- Vedanta Aluminium: Including a 51% stake in BALCO (Bharat Aluminium Company).
- Vedanta Oil & Gas: Home to Cairn India Limited.
- Vedanta Base Metals: Comprising the downstream copper business and Zinc International.
- Vedanta Steel and Ferrous Materials: Covering the Iron Ore Business (IOB), Western Cluster Limited (WCL), and ESL Steel Limited.
- Vedanta Power: Encompassing all Vedanta Limited Independent Power Producers (IPPs), including Athena and Meenakshi.
This strategic move aims to reposition Vedanta for a more efficient and focused approach to business operations, offering distinct value propositions to investors in each sector.