Debt at the parent level, dwindling dividends and a potential demerger have kept Anil Agarwal’s Vedanta Ltd. in the spotlight through 2023.
Shares of the metals and mining major are down 17% so far in 2023, having been down nearly 30% at one point. This is the second straight year of negative returns for the stock, after having doubled in 2021.
Elevated Debt Levels
Vedanta Resources, the parent company of the listed entity, faces repayment of notes worth nearly $2 billion in the financial year 2025. Including these bonds, the company is facing debt repayment worth $3.6 billion in the next financial year, according to Kotak Institutional Equities.
“My dream, my vision is in a few years, I will have a zero debt company.”
Vedanta Resources Chairman Anil Agarwal envisaged this dream for his mining conglomerate during a town hall with CNBC-TV18’s Nigel D’souza in May this year.
With the commodity cycle turning turtle and the need to keep up with the hefty dividend payouts, Vedanta’s promoter entity Twin Star Holdings sold a 4.1% stake worth over ₹4,000 crore via block deals in August.
As of the September quarter, Vedanta’s promoter group still holds a 63.71% stake in the company.
“Vedanta’s parent’s high leverage and funding gap for upcoming bond maturities is a key overhang for Vedanta and we believe that the divestment of its non-core business is the need of the hour,” Kotak Institutional Equities wrote in a note on October 3.
Dividend Payouts
Recently, Vedanta Ltd. announced its second interim dividend for financial year 2024 worth ₹11 per share. This was the lowest payout announced by the company in the last three years.
Between October 2020 and the current dividend announcement, the company rewarded investors with ₹162 in dividends, which is almost double the price of ₹87 at which Anil Agarwal had earlier intended to take the company private, an attempt that failed.
“From the medium to long term, it still has a lot of uncertainties around this. The markets give you a far clearer, fairer way for a lot of other buys. At this point, it might not be very well set in terms of the risk-reward. But yes, the dividend is a big trigger, and that could benefit some of the people at this point,” Prakash Diwan, Market Expert said on December 4.
Demerger Tales
In late September, Vedanta announced that it would split the listed entity in India into six different entities, a decade after they were combined into one.
The management says that the demerger will simplify their corporate structure, give investors the option to invest in the commodity of their choice and also provide a platform for individual units to pursue their strategic agenda.
Interestingly, this was the same rationale highlighted when the group merged the entities a decade ago. It incorporated a base metals unit in October as part of the demerger process.
The demerger plans failed to convince the Street. While Kotak said that the demerger in itself will not unlock any value, Citi also said that it is unsure whether such a move will help the company’s multiples considering leverage concerns at both parent and subsidiary levels.
Rakesh Arora of GoIndiaStocks.com told CNBC-TV18 on December 19 that the worst is over for Vedanta and that Metal stocks can be looked at as the US Dollar weakens.
Out of the 14 analysts that track Vedanta, seven of them have a “buy” rating, four say “hold”, and three have a “sell” rating.
(With Inputs From Nigel D’Souza.)
