Some special conditions seem to be developing in Vedanta Limited. In such a situation, this stock can be rerated. Earlier this week, Vedanta's shareholders and creditors approved the demerger plan. Vedanta's management believes that the demerger process will be completed by the first quarter of the next financial year. Vedanta's board had approved the demerger plan in September last year itself. This plan has already received a No Objection Certificate (NOC) from the stock exchanges.
Base metal unit will not be demerged
Earlier, there was a plan to split Vedanta's listed companies into six separate listed companies. But, earlier this year, the company said that it would not demerge its base metal unit. It had said that a decision on this would be taken in the future when the business matures. This will help in creating good value for the shareholders.
Shareholders will get 1 stock each of the new companies
After the demerger, Vedanta shareholders will get 1 share each of the 5 new companies. These companies will focus on aluminium, oil and gas, power, steel and iron business. Domestic and international zinc and copper business will come under the already listed company.
More interest in Vedanta Limited
According to brokerage firm MK, investors will be more interested in the currently listed Vedanta Limited. They will also be interested in aluminum and power companies. If we talk about valuation, Vedanta is currently trading at less than five times its enterprise value and EBITDA. However, after the demerger, the multiple of the companies may be higher i.e. around 6 to 7 times. This will depend on the nature of the business.
More value will come from aluminum business
Most of the value is going to come from the aluminium business. This business is in a strong position. Its focus has been on capital sourcing of alumina, coal and bauxite, which will reduce the production cost of aluminium. The zinc business will also come under Vedanta Limited. This will include a 63% stake in Hindustan Zinc. Along with this, there will also be a stake in its international zinc business. However, a slightly negative value may be obtained for the closed large copper operation.
Vedanta shareholders are going to get huge benefit
The multiple of oil and gas along with power, iron and steel businesses can be between 5.5 to 6 times. In this way, the total sum of the enterprise value of individual businesses will be around Rs 2.7 lakh crore. This is more than the current enterprise value. It does not include the net debt of the books. This means that shareholders can get good profits in the next six months. This also means that in the short term, Vedanta's performance can be better than its rival companies. On February 21, Vedanta's shares saw a rise. It was trading at Rs 439, up 0.40 percent.
