Vedanta shares: What Emkay says on revision in demerger plan, stock price target

Metals & mining giant Vedanta Ltd has announced revisions to its previously proposed demerger scheme. It has decided to retain its base metals business within Vedanta. The Anil Agarwal-led firm had earlier proposed to demerge Vedanta into six pure-play companies —Vedanta, Vedanta Aluminium, Vedanta Power, Vedanta Oil & Gas, Vedanta Base Metals and Vedanta Iron and Steel— to enhance value unlocking.

Brokerage Emkay Global said the tweaked demerger plan may ease the lender's approval process. For now, it suggested a target price of Rs 600 on Vedanta Ltd.

"We understand that retaining the Tuticorin copper smelter in Vedanta Limited would ease the lender approval process and fast-track the demerger process, with completion expected in January 25. Our estimates change marginally due to housekeeping changes," Emkay Global said.

At current valuations, stock investors are paying for Vedanta Limited and Vedanta Aluminium, with the rest of the to-be-demerged stocks largely coming for free, as per Emkay Global's estimates.

The Vedanta stock, currently trading at 5.1 times estimated FY26 EV/Ebitda, could potentially re-rate to 7 times on full value unlocking, Emkay Global said. It would imply 45 per cent upside potential via demerger with SOTP-based market capitalisation of Rs 2.7 lakh crore again the current market cap of Rs 1.9 lakh crore, the brokerage said.

Vedanta has cited its ongoing exploration of alternative avenues for restarting the Tuticorin copper smelter (non-operational) as the reason behind its revised decision, while also mentioning that lenders believe the scheme would be more favorable for unlocking value and for overall optimal balancing of debt allocation.

Vedanta is looking to complete the demerger process in January 2025, with share entitlement ratio of 1:1 for all its companies.

Emkay earlier argued that Vedanta's proposed demerger to split the group into six pure-play companies focusing on the exposed commodity would open up a case for re-rating, as investors would take exposure based on the outlook for that particular commodity, cycles, and business fundamentals without taking exposure to other commodities attached as part of the diversified group.

"We have a view that Vedanta, Vedanta Aluminium and Vedanta Power are the businesses that we would like to own through-cycle," it said.

Post demerger, Vedanta will house Hindustan Zinc Ltd, Zinc International Ltd, Copper business at Thoothukudi, and the Facor business.

Emkay Global expects Vedanta Ltd to log Ebitda CAGR of 16.5 per cent over FY24-27, with an absolute Ebitda generation of Rs 20,850 crore in FY26E. It has assigned 7.5 times EV/Ebitda to these businesses, to reach the equity value of Rs 1 lakh crore.

Vedanta’s aluminium business will include its smelters at Jharsuguda and Balco, its alumina refinery at Lanjigarh, the Sijimali bauxite mine, captive coal mines, and power plants. Emkay sees the aluminium business Ebitda CAGR at 35.5 per cent over FY24-27, with an absolute Ebitda generation of Rs 22,040 crore in FY26E.

"We are of the view that Vedanta Aluminium should re-rate and trade at 6.5x EV/EBITDA, to align with the India and global peer group. Based on our estimates, and adjusting for net debt and minorities, we arrive at an equity value of Rs 1.1 lakh crore," it said.

Malco Energy will be renamed Vedanta Oil and Gas. It will house the Cairn Oil & Gas business and, once the demerger is effective, the name will be changed to ‘Vedanta Oil and Gas Ltd’.

"We expect Malco Energy to generate Ebitda of Rs 7,430 crore in FY26E. We value this business at Rs 31,700 crore of equity value, based on 6.0x FY26 EV/Ebitda," Emkay said.

The Vedanta Iron and Steel segment will include Vedanta’s iron ore mines in Goa, Karnataka, and Liberia, as well as the ESL steel plant in Jharkhand. Emkay sees Vedanta’s iron and Steel business Ebitda growing at 27.1 per cent CAGR over FY24-FY27E, with absolute Ebitda generation of Rs 3,910 crore in FY26E. It has assigned 8 times FY26 EV/Ebitda multiple for this business, and arrived at equity value of Rs 17,900 crore.

Talwandi Sabo Power will be renamed ‘Vedanta Power Company’. This entity of Vedanta will house all the merchant power plants owned by Vedanta. Emkay values Vedanta Power at 10 times on EV/Ebitda, in line with the power sector average, leaving a meaningful upside.