Vedanta dips 3% after company announces value unlocking plans

The board to evaluate and recommend a range of options and alternatives, including demergers, spin-offs or strategic partnerships of its aluminium, iron & steel, and oil & gas businesses

Shares of Vedanta dipped 3 per cent to Rs 326.15 on the BSE in Thursday's intra-day trade after the company on Wednesday after market hours said it has appointed a committee of directors to evaluate and recommend a range of options and alternatives, including demergers, spin-offs or strategic partnerships of its aluminium, iron & steel, and oil & gas businesses.

With today's fall, the market price of Vedanta was down 16 per cent from its 52-week high level of Rs 385.75 touched on October 19, 2021. The stock had hit a 52-week low of Rs 106.20 on November 18, 2020. In comparison, the S&P BSE Sensex was down 0.13 per cent at 59,930 at 09:48 am.

The board of directors of the company has decided that, considering the scale, nature, and potential opportunities for various business verticals of the Company, the Company should undertake a comprehensive review of the corporate structure and evaluate a full range of options and alternatives (including demerger(s), spin-off(s), strategic partnerships etc.) for unlocking value and simplification of corporate structure, Vedanta said in exchange filing.

Subject to a detailed evaluation, it is the intention that the aluminium, iron & steel, and oil & gas businesses would be housed in standalone listed entities, it added.

The strategic objectives for undertaking such an exercise to simplification and streamlining of corporate structure, unlocking value for all stakeholders, creation of businesses which are positioned better to capitalize on their distinct market positions and deliver long-term growth and enable strategic partnerships. The such exercise will also tailored capital structure and capital allocation policies based on business specific dynamics, distinct investment profiles to attract deeper and broader investor bases; and accelerate emissions reduction and strong ESG practices, the company said.

Vedanta, a subsidiary of Vedanta Resources, is one of the world’s leading oil & gas and metals company with significant operations in oil & gas, zinc, lead, silver, copper, iron ore, steel, and aluminium & power across India, South Africa and Namibia.

Last year, after promoters of Vedanta failed to buy the non promoter share holding and delist the company, it has been looking at other ways of adding value. One option it is considering at this point of time is the demerger of its key business units into separate listed companies to give shareholders better value.

According to Deepak Jasani, head of retail research at HDFC Securities, Vedanta is a conglomerate of commodities and comprises iron ore, steel, oil, aluminum and copper. It is one of the most integrated commodity plays in India but that leadership position is not exactly reflected in its market capitalization. "Separating these businesses into listed entities is expected to give more focus and add value," he said.

"The obvious bet is that the commodity upcycle will last for some more time during which focused commodity franchises will have a profitable run. Of course, the shareholders of Vedanta would then get proportionate shares in all the split companies. The only question for Vedanta is that as these business are all in commodities, how much value unlocking can happen overtime?" Jasani added.