Vedanta’s demerger: Each of the six listed companies will house a different commodity, offering investors the option to invest in the commodity of their choosing and helping to unleash value, according to Nuvama.
Nuvama Institutional Equities called Vedanta Ltd’s announcement of the demerger of its existing companies into six listed firms a positive development even though it does not address the parent company Vedanta Resources’ debt issue, which it must pay off $4.2 billion by FY25. Based on estimated earnings for the fiscal year 25 (FY25), Nuvama advised an unchanged share price target of Rs 249 for the India-listed Anil Agarwal company.
“We see this demerger, which will be completed in 12 to 15 months, as advantageous since it will open up prospects for pure-play investments in standalone businesses.The stock has decreased by 21% after we downgraded it. We are upgrading Vedanta to ‘HOLD’ because to the limited potential downside going forward, according to Nuvama.
According to Nuvama, Vedanta is changing its business strategy from one of a producer of globally diverse natural resources to one of a pure-play asset owner. The six different listed corporations will each house a different commodity, providing investors the option to invest in the commodity of their choice and helping to unlock value, it was stated.
“One advantage is that new businesses (such semiconductors and glass) will be grouped under Vedanta Ltd., eliminating any doubt about who owns other commodity companies. Minority shareholders must approve the process with a two-thirds majority, and lenders and other statutory authorities must also agree. By the conclusion of CY24, the management anticipates this procedure to be finished in 12 to 15 months, according to Nuvama.
However, the debt problem with parent company Vedanta Resources is not addressed by the demerger procedure. The scenario for Vedanta Resources to refinance the loan is same because this demerger does not enhance Vedanta’s credit standing. Without taking on debt on its books, Vedanta’s cash flows are insufficient to upstream the dividend to Vedanta Resources, according to Nuvama.
In the days following Moody’s Investors Service’s downgrade of Vedanta Resources’ credit rating, S&P Global Ratings likewise downgraded the parent company’s long-term issuer credit rating and the rating on outstanding debt, downgrading both to CCC from B- and placing both under CreditWatch with “negative implications.”
“We are aware that it will take at least a year to unleash value. In order to calm concerns about a default, we therefore think Vedanta Resources will be able to refinance its debt (helping to increase duration).
Vedanta needs two years to organize its affairs, according to Nuvama. “Growth is anticipated to come from the company’s aluminum industry starting in FY25 (after the alumina, aluminum, and coal mines are put into production), and this will generate cash flows that can assist pay down debt. Additionally, the company will have the chance to either raise money by diluting its equity or sell a portion of one of its operations, according to Nuvama.