Diversified natural resources giant Vedanta has finalized the demerger of its operations into five independent, sector-focused companies. This strategic move aims to unlock value by separating its aluminium, power, oil and gas, iron and steel, and residual parent businesses into distinct publicly traded entities. The new companies are targeted for listing and trading by Q1FY27.
Understanding Your Investment Split
For investors holding shares in Vedanta Ltd. prior to the demerger, the company has provided a clear framework for how the cost of acquisition will be apportioned across the new entities. This apportionment is based on the relative net asset values and net worth of the respective undertakings, serving as the official tax cost basis rather than an indication of future market prices.
Consider an investor with a Rs 1,00,000 stake in Vedanta before the demerger. This investment will be allocated as follows:
- Existing Vedanta Entity (Residual Business): 52.34 percent, or Rs 52,340.
- Malco Energy (Oil and Gas): 21.49 percent, or Rs 21,490.
- Talwandi Sabo Power (Power): 12.23 percent, or Rs 12,230.
- Vedanta Aluminium Metal (Aluminium): 7.15 percent, or Rs 7,150.
- Vedanta Iron and Steel (Iron and Steel): 6.79 percent, or Rs 6,790.
Share Allotment and Market Impact
Under the approved scheme, shareholders on the record date will receive shares in the four newly created companies in a 1:1 ratio. This means for every single share held in Vedanta Ltd., an investor will receive one share each in Vedanta Aluminium Metal, Talwandi Sabo Power, Malco Energy, and Vedanta Iron and Steel, in addition to their continued holding in the residual Vedanta entity.
Vedanta clarified that any immediate fall in the standalone share price of the existing Vedanta entity post-demerger is a technical adjustment. It reflects the value that has been carved out and attributed to the new companies, rather than representing a direct financial loss for shareholders.
Analyst Perspectives and Future Outlook
Brokerage firm Systematix Institutional Equities has maintained a 'buy' rating on Vedanta, citing the demerger as a potential catalyst for value unlocking. They revised their target price to Rs 944 per share, allocating Rs 341 to the existing Vedanta and Rs 603 combined to the four demerged companies. Individual target prices include Rs 515 for Vedanta Aluminium Metal, Rs 29 for Vedanta Iron and Steel, Rs 25 for Vedanta Power, and Rs 34 for Vedanta Oil and Gas.
Similarly, BP Equities also retained a 'buy' rating on the existing listed Vedanta, setting a target price of Rs 387. They noted that integrated operations, including captive mines and smelters, should lead to higher metal realizations flowing into earnings.
Beyond the demerger, Vedanta has also revised its dividend policy to a principle-based framework. This change removes the previous requirement for mandatory upstreaming of Hindustan Zinc dividends within six months, granting the respective boards greater flexibility in dividend distribution.