All you want to know about Vedanta’s plan to restructure, demerge key businesses

by 5paisa Research Team Last Updated: Dec 12, 2022 - 11:03 pm 45.9k Views

Mining and energy conglomerate Vedanta Ltd could soon list its three main arms—the oil and gas division, aluminium division and steel division—after it has carved them out as separate entities. 

This move, Vedanta said, will help unlock value and simplify the group structure. 

“Considering the scale, nature, and potential opportunities for various business verticals of the company, it should undertake a comprehensive review of the corporate structure and evaluate a full range of options and alternatives (including demergers, spin-offs, strategic partnerships, etc.,) for unlocking value and simplification of corporate structure,” the company said.

What has Vedanta done about its proposed plan so far?

The company has appointed a committee of directors to look into the proposed demerger of businesses and a separate listing of each one of them, it said in a stock exchange filing. 

What did Vedanta’s promoter Anil Agarwal say about the proposed move?

Agarwal told the Press Trust of India that following the restructuring of the group, the three businesses carved out of the company will operate parallelly. 

“All the three businesses have great potential for growth, and we think the model being evaluated will provide natural avenues for growth as well as enhance shareholder value,” he said.

“Over the past few years, the group has materially improved the operational performance of the businesses, increased cash flows, reduced debt whilst concomitantly focusing on accelerating investments in energy transition, health and safety, diversity and ESG (environmental, social, and governance) in general,” Agarwal said. 

Agarwal added that the move was intended to create independent, industry-leading, global public companies, where each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees.

But isn’t this a U-turn of sorts? Wasn’t Vedanta looking to delist from the exchanges?

Yes, this is indeed a U-turn of sorts. In October last year, Vedanta’s promoter family led by Agarwal wanted to take the listed group company private. But the plan failed as non-promoter shareholders did not tender the requisite shares needed to let the company delist from the Indian exchanges. 

So, why did Agarwal want to take Vedanta private in the first place?

Vedanta’s promoter family wanted to take the company private as doing so would have allowed them to use its surplus cash and its dividends to cut the debt of the holding company. 

What do analysts have to say about the proposed move?

Analysts seem to be buying into Agarwal’s idea. Deven Choksey, managing director, KR Choksey Shares and Securities Ltd, told the Mint newspaper that since Vedanta is an integrated player, with both ferrous and non-ferrous businesses, it made sense to separate the businesses to unlock value.

“Currently, high metals and commodity prices are not getting reflected in the company’s business largely due to the integrated manufacturing they are doing,” he added. 

How did the Vedanta counter perform on Thursday?

The share market, however, appears not to have taken too kindly to the news as the counter was down 8.5% at close of trade on Thursday.

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