Vedanta shares extend rally on demerger plan; surge 12% in 2 sessions
Shares of Vedanta continued uptrend for the second straight session on Tuesday as investors cheered the company’s demerger plan, which could potentially unlock value for its shareholders. The metal and mining heavyweight has gained as much as 12% in the last two trading days, snapping seven straight sessions losing streak, after billionaire Anil Agarwal-led firm announced the demerger of its diversified business into six separate listed companies.
On Tuesday, Vedanta shares opened 3.8% higher at ₹230.95 against the previous closing price of ₹222.5 on the BSE. The largecap stock rose 5% to hit an intraday high of ₹233.8, while the market capitalisation increased to ₹86,610 crore.
The shares of Vedanta touched a 52-week low of ₹207.85 on September 28, 2023, with the share price falling nearly 12% in seven consecutive sessions between September 20-28. The mining heavyweight has witnessed selling pressure in the recent past amid a slew of negative developments such as the withdrawal of Taiwan's Foxconn from a $19.5 billion semiconductor joint venture.
The stock, currently, trades 31% lower than its 52-week high of ₹340.75 touched on January 20, 2023. It has given a negative return of 13% in the last one year, while it shed more than 26% in the calendar year 2023. The counter tumbled nearly 18% in a six month period, and slipped nearly 4% in a month.
As per the proposed demerger, Vedanta will be split into Vedanta Aluminum, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Ltd, which will be listed as separate entities on domestic bourses. The demerger is planned to be a simple vertical split, for every 1 share of Vedanta Ltd, the shareholders will additionally receive 1 share of each of the 5 newly listed companies.
Vedanta's business portfolio spans assets in zinc, silver, lead, aluminum, chromium, copper, and nickel; oil and gas; a traditional ferrous vertical including iron ore and steel; and power, including coal and renewable energy; and semiconductors and display glass.
Once demerged, says Vedanta, each independent entity will have "greater freedom" to grow to its potential and true value via independent management, capital allocation, and niche strategies for growth. Additionally, it'll help the group attract global and Indian investors.
In its rationale behind the demerger of the business, Vedanta says it simplifies Vedanta’s "corporate structure", with sector focussed independent businesses. Also, the demerger will provide opportunities to global investors, including sovereign wealth funds, retail investors, and strategic investors, with direct investment opportunities in these dedicated pure-play companies, says Vedanta.
Vedanta’s demerger plan is being seen as part of the group’s strategy to help its parent company manage its debt load. The London Stock Exchange (LSE)-listed Vedanta Resources is the parent company of Vedanta, which has to repay term debt worth $4.2 billion in FY24.
Last week, Moody’s Investor Services downgraded Vedanta Resources’ corporate family rating, citing slow progress on refinancing of its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024. The global rating agency also warned that it could cut VRL's ratings further if the company fails to make progress on funding arrangements to service its debt such that the risk of default increases materially higher than indicated by the current ratings.
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