The proposed split of Vedanta is expected to address the undervaluation of the stocks due to its diversified business interest and the value of investment holding.

Interestingly, valuation of Vedanta is much lower than the value of substantial stake it holds in Hindustan Zinc.

At the current market capitalisation of ₹128,091 crore, Vedanta’s stake of 65 per cent in Hindustan Zinc alone is worth ₹83,286 crore. Surprisingly, Vedanta’s total market capitalisation stands was only ₹80,589 crore, as of Monday prices.

Ashish Kapur, CEO, Invest Shoppe said the demerger is expected to address this issue of depressed valuation by enabling investors to access the full intrinsic value of these individual businesses, potentially resulting in a significant enhancement of shareholder value.

Furthermore, this simplified corporate structure is likely to facilitate Vedanta Resources’ long-term efforts to reduce its debt burden. Currently carrying a debt obligation of $4.2 billion, Vedanta Resources faces substantial repayments in the near future, including $1.3 billion in H2FY24 and $2.9 billion in FY25. The demerger’s streamlined structure will make it more manageable for Vedanta Resources to divest stakes in specific operational entities, thereby providing a viable avenue to meet these impending debt obligations. The revised structure will streamline the payment of brand fees to Vedanta Resources, optimizing financial operations and improving overall efficiency, he said.

Late last month, Anil Agarwal-led Vedanta Group decided to split its business into six independent companies with focus Aluminium, Oil & Gas, Power, Steel and Ferrous Materials, Base Metals and Vedanta.

“By demerging our business units, we believe that will unlock value and potential for faster growth in each vertical. While they all come under the larger umbrella of natural resources, each has its own market, demand and supply trends, and potential to deploy technology to raise productivity,” Anil Agarwal, Chairman of Vedanta, said in a statement after the board meeting.

Given the intricacies involved in the demerger process, Kapur said it will take at least a year to complete this corporate transformation. Consequently, the possibility of stake sales in individual businesses to meet impending debt repayments may be limited in the short term. While the demerger provides a feasible avenue for Vedanta Resources to divest stakes in operational entities, the timeline for this process may not align with immediate debt obligations.

With the demerger expected to be completed by FY25, Vedanta is positioning itself for a new phase of growth and value creation that will benefit both the company and its valued shareholders.

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