Vedanta Demerger: Shareholders approve the proposed 5-unit plan— Key things to know

Vedanta Ltd., a leading private-sector mining giant last week secured approval from its shareholders and creditors to proceed with its much-anticipated demerger plan.

The restructuring will result in the creation of five independent, sector-specific entities and the management expects the demerger process to be finalized by the first quarter of the financial year 2026.

The earlier plan was to split the existing listed entity into six separate listed companies. However, earlier this year, the company announced that it will not be demerging its base metals unit and that will be considered in the future once the business matures and realises the full potential for value creation for shareholders.

Key things to know

Demerger Approval: A Step Towards Transformation

On February 18, 2025, Vedanta convened meetings with its shareholders, secured creditors, and unsecured creditors, all of whom overwhelmingly supported the restructuring plan. The regulatory filing dated February 20, 2025, confirmed these approvals, marking a major milestone in Vedanta’s strategic transformation.

While the plan has cleared significant hurdles, it remains subject to statutory, government, and regulatory approvals. If successfully implemented, the demerger could position Vedanta for enhanced agility, better growth prospects, and improved value creation for stakeholders.

The demerger was backed by 99.99 percent of shareholders, along with 99.59 percent and 99.95 percent of secured and unsecured creditors, respectively.

Demerger Plan and Rationale

The five newly formed entities post-demerger will include:

Vedanta Aluminium – One of the largest aluminum producers globally.

Vedanta Oil & Gas – India’s leading private-sector crude oil producer.

Vedanta Power – A major player in the power generation sector.

Vedanta Iron and Steel – Specializing in the ferrous products industry.

Vedanta Ltd. – Continuing as the parent entity, housing the silver and zinc businesses while incubating emerging ventures, including technology.

Existing shareholders of Vedanta Ltd. will receive shares in each of the five new companies. The move aims to provide investors with the flexibility to hold sector-specific investments based on their market strategies and risk appetite. Over time, these independent units are expected to attract distinct investor groups, fostering deeper collaborations and unlocking sector-specific growth opportunities.

Review

According to Emkay Global, investors are expected to remain bullish on Vedanta Ltd. along with its Aluminium and Power entities. Vedanta currently trades at an enterprise value to EBITDA multiple of under 5x, assuming an EBITDA of approximately ₹50,000 crore for the financial year 2026 and a debt burden of around ₹60,000 crore. Post-demerger, the individual businesses could command higher valuations of 6x to 7x, depending on their industry dynamics.

The Aluminium segment is expected to drive significant value, given its increasing focus on captive sourcing of raw materials such as alumina, coal, and bauxite—initiatives that could lower production costs. Meanwhile, Vedanta Ltd. will continue to hold the group’s zinc assets, including a 63 percent stake in Hindustan Zinc and its international zinc operations. However, the demerged entity’s copper business, which remains non-operational, might weigh slightly on valuations.

Sectors such as oil and gas, power, and iron and steel are likely to be valued at multiples of 5.5x to 6x. In total, the sum-of-the-parts valuation of Vedanta’s businesses could reach approximately ₹2.7 lakh crore—higher than its current enterprise value—suggesting potential upside for shareholders in the next six months. This could lead to Vedanta Ltd. outperforming its peers in the near term.

Financial Performance

Vedanta Ltd. reported strong financials for the December 2024 quarter, with revenue rising 10 percent year-on-year (YoY) to ₹385.3 billion, compared to ₹349.7 billion in the same quarter last year. Net profit surged 76 percent YoY to ₹35.5 billion, up from ₹20.1 billion. Consolidated EBITDA jumped 30 percent YoY to ₹112.8 billion, with margins improving to 34 percent.

For the full financial year 2024, Vedanta posted revenue of ₹14.37 crore, reflecting a 2.4 percent decline YoY. Net profit for the period stood at ₹75 lakh, registering a downturn compared to previous years. The company’s robust EBITDA performance in Q3 FY24, driven by cost optimization and higher production across key business segments, underscores its focus on operational efficiency and profitability.

Looking Ahead

As Vedanta moves ahead with its demerger, the strategic restructuring is expected to unlock significant value for investors while ensuring sharper operational efficiencies. With sector-specific growth prospects and the potential for improved valuations, the demerger could be a pivotal step in reshaping Vedanta’s long-term trajectory. Shareholders now await further regulatory approvals and final execution, which will determine the full impact of this transformative corporate move.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.