Here’s all you need to know as a shareholder

After being combined into a single unit a decade ago, Anil Agarwal, the mining billionaire of the Vedanta Group is on the verge of separating the single unit into six different entities again.

The plan is to split the entities with a focus on their core competencies. Shareholders will now get one share each of the newly listed entity for every one share of the currently listed Vedanta Ltd. that they hold.

Here’s how the demerged businesses would look like:

The management says that the demerger will simplify their corporate structure, gives 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 had merged the entities a decade ago.

Subject to approval from the board, stock exchanges and the NCLT, this process is likely to take another 12-15 months.

How Does This Help The Group?

With this move, the Vedanta Group gets the flexibility to unlock value for investors either by liquidating a particular asset or by bringing a strategic investor on board.

While in the current structure, there would be a double taxation on profit of sale of an asset and on the dividend payout, but the promoters will pay only long-term capital gains post the demerger.

The $4 Billion Elephant In The Room

Corporate structure simplification, value unlocking and such points are justified in their own way, but the demerger does not resolve the biggest issue surrounding the group which has left the street anxious currently – Reduction of debt.

After increasing its stake by nearly 20 percent in the listed entity, Vedanta Resources sold over 4 percent of that via block deals a couple of months earlier. That has made the street more nervous.

What Are The Analysts Saying?

Investec maintained a sell recommendation on Vedanta as they highlight the company has carbon-heavy assets and they also remain skeptical on the cash flow burn in the new ventures.

CLSA has upgraded the stock to outperform from its earlier rating of underperform. However, it has cut its price target to Rs 230 from Rs 250 as it believes the focus needs to shift to operational improvements for sustained re-rating.

Nuvama has upgraded the stock to Hold as it believes the demerger is a step in the right direction. However, it has left its price target unchanged.

Philip Capital has a buy rating on Vedanta with a price target of Rs 290 as it does not see any further meaningful downside in the stock.