The visionary billionaire Anil Agarwal’s Vedanta Limited made a historic statement on September 29 that would have a big influence on India’s metals, electricity, aluminium, and oil and gas industries. This article takes a close look at the Vedanta demerger, revealing the emergence of six unique businesses, examining how their financials compare, and illuminating who will be in charge of each. Let’s investigate the change that might perhaps unleash unrealized potential.
Why Vedanta Demerger is Important at This Point
Vedanta Group’s Debt Burden
After deducting the cash component of $3.5 billion, the group’s net debt is around $11.8 billion. Vedanta Resources decreased its debt load from over $10 billion to $7.7 billion last year.
S&P Global Inc. has released a report stating that Vedanta Resources is fully financed through March 2023 and that its parent and largest shareholder is “highly likely” to pay its commitments until September 2023. This follows the January dividend announcement made by Vedanta Ltd., a publicly listed company.
The company’s credit rating will be put under urgent stress if Vedanta is unable to go through with either the aforementioned $2 billion fundraising effort or the sale of its worldwide zinc holdings to Hindustan Zinc Ltd. in the near future.
Moreover, the group has debt maturities of about $15 million between July and September this year that it has to meet, which means the company is required to raise something around $500 million to meet its debt obligations by June 2023.
What are the Problems that Vedanta demerger may Face
The Vedanta Group has already committed to delevering over the following three years. It has a $13.9 billion long-term debt that has to be repaid. The Group’s outstanding debt amounts to $1.2 billion by the second half of 2022–2023, $4.1 billion by 2023–2024, $3.9 billion by 2024–25, and $4.7 billion by 2025–2026 and beyond.
The group’s debt is divided into two parts: Vedanta Resources has about $8 billion and the remaining $7 billion-plus is for Vedanta Ltd.
Vedanta Resources must pay back $300 million in inter-company loans for this year by September 2023, as well as $350 million to two relationship banks.
The firm only has $500 million left, which won’t be enough to pay back $500 million in the December quarter and $1 billion in bonds in January 2024, so it has to engage in large fundraising activities.
Vedanta Resources has been searching inside for a possible way to pay off its debt. One such opportunity may be seen in Hindustan Zinc Limited (HZL), where Agarwal controls 64.92% of the country’s largest lead and zinc miner while the Indian government has the remaining 29.54%.
In order to raise $3 billion over the course of 18 months, Vedanta has been attempting to sell some of its mines in South Africa and Namibia, with Hindustan Zinc as a prospective bidder.
In 2002, the Centre sold 26% of HZL to the Vedanta group. Later, the Vedanta group bought 20% from the market and another 18.92% from the government in November 2003, bringing its ownership of HZL to 64.92%.
However, the Centre is concerned about the HZL share sale since it may be a costly transaction for the already ailing business. The Centre objected last week to Vedanta’s Ltd.’s plan to sell its worldwide zinc holdings to HZL for $2.98 billion due to valuation issues.
The government is planning to take legal action to stop the sale of the Africa-based assets to HZL, in which it holds a 29.54 per cent stake.
“The Centre needs to be convinced as to why this decision is being taken by the management. In this situation, more thorough investigation is required, a finance ministry official told Business Today on Monday.
Since the announcement of the deal in January, fears of a cash wipeout have dragged down Hindustan Zinc’s shares by nearly 15 per cent, the lowest level in a month.
Which Companies Are Going to Arise After Vedanta Demerger
1. Aluminium Dominance: Jharsuguda’s Ascension
One of the most remarkable facets of the Vedanta demerger is the ascendancy of the Jharsuguda facility. Part of Vedanta, it now stands as the world’s largest single-location aluminum smelting plant outside of China, boasting a colossal capacity of 1.8 million tonnes per annum (MTPA). When combined with Bharat Aluminium Company Ltd. (BALCO), a subsidiary owned 51% by Vedanta Limited, the group’s total capacity reaches an impressive 2.4 MTPA.
| Financial Highlights | FY23 in (Cr.) | FY22 in (Cr.) |
| Revenue | 52,618 | 50,809 |
| EBITDA | 5,775 | 17,337 |
| Operating Profit | 3,257 | 15,066 |
2. Oil & Gas Prowess: India’s Leading Explorer
Vedanta Oil & Gas, India’s largest private oil and gas exploration and production company, holds a commanding position in the country’s domestic crude oil production, accounting for over a quarter. Poised to harness India’s projected 50 percent growth in demand by 2030, the company aims to contribute to 50 percent of India’s total oil and gas production by diversifying its reserves. Its footprint spans a staggering 65,000 square kilometers, harboring more than 1.1 billion barrels of oil equivalent in gross 2P and 2C resources.
| Financial Highlights | FY23 in (Cr.) | FY22 in (Cr.) |
| Revenue | 15,038 | 12,430 |
| EBITDA | 7,782 | 5,992 |
| Operating Profit | 5,205 | 4,359 |
3. Powering the Future: Vedanta Power
In addition to the 1980 MW Talwandi Sabo Power Limited (TSPL) in Punjab, India, the 600 MW Jharsuguda plant, the newly purchased 1200-MW Athena project, and the current acquisition of the 1000 MW Meenakshi plant, Vedanta Power consolidates Vedanta’s Independent Power Plants. After completion, this company’s capacity will be close to 5 GW, making a substantial contribution to India’s electricity production.
| Financial Highlights | FY23 in (Cr.) | FY22 in (Cr.) |
| Revenue | 6,724 | 5,501 |
| EBITDA | 913 | 1,082 |
| Operating Profit | 294 | 470 |
4. Iron Ore Expansion: Going Beyond Boundaries
Vedanta’s Iron Ore Business spans across Goa, Karnataka, and Liberia, alongside the Value Added Business (VAB). With ambitious goals, they aim to more than double their annual iron ore production, reaching 13 million tonnes by 2025. ESL Steel Limited (ESL), a 95.49 percent subsidiary of Vedanta, an integrated steel manufacturer based in Bokaro, Jharkhand, India, is another company in this sector.
Currently commissioned at 1.5 million tonnes per annum, they are expanding to a 3 million tonnes per annum hot metal capacity by mid-2024.
| Financial Highlights | FY23 in (Cr.) | FY22 in (Cr.) |
| Revenue | 13,882 | 12,707 |
| EBITDA | 1,302 | 2,981 |
| Operating Profit | 770 | 2,585 |
5. Base Metals Resurgence: A Global Impact
The Base Metals section of Vedanta will include downstream companies, growth initiatives, and worldwide production assets that are essential for the world’s energy transformation. With the help of the Gamsberg mine in South Africa, its Zinc International assets reached a phenomenal output record of 208,000 tonnes in 2023. The copper industry, which may provide almost a third of India’s copper, consists of copper rod manufacturing facilities, phosphoric acid and sulfuric acid plants, refineries, and custom smelters. Vedanta’s standing on the international scene will be further cemented when production starts up again in 2024.
| Financial Highlights | FY23 in (Cr.) | FY22 in (Cr.) |
| Revenue | 22,700 | 19,635 |
| EBITDA | 1,930 | 1,418 |
| Operating Profit | 1,243 | 697 |
6. Technology and Zinc: Synergy Residual Vedanta Limited
Vedanta Limited will continue to incubate new businesses, particularly in technology, supported by robust earnings from the top-tier Hindustan Zinc assets. With a well-defined capital allocation plan, investors will have the chance to participate in zinc production properties that are among the best in the world.
What is the Anil Agafrwal’s vision Behind Vedanta Demerger
Billionaire Anil Agarwal, the driving force behind Vedanta, envisions a future where each of these verticals operates independently, focused on its specific goals. By demerging the businesses, Vedanta Limited seeks to cater to a broader spectrum of investors and facilitate accelerated growth trajectories for each vertical.
The Impact on Shareholders
With Vedanta demerger, shareholders of Vedanta Limited will receive shares in each of the newly listed companies. This strategic move aims to realize the full value of each vertical and attract investors who align with the unique objectives of each business.
Meeting the Debt Challenge
The demerger also holds potential solutions to debt challenges faced by Vedanta. With rising global interest costs and approximately $2 billion in bonds maturing next year, streamlining the corporate structure becomes imperative. This restructuring does not directly address the debt issue but creates opportunities to unlock value within Vedanta Ltd, which could positively impact its financial standing.
Conclusion
In a rapidly changing business landscape, Vedanta’s demerger announcement marks a pivotal moment. As the company divides into six independent entities, each with a clear focus and growth strategy, the future looks promising. Anil Agarwal’s vision to unlock value and facilitate accelerated growth for each vertical holds the promise of creating a lasting impact on India’s metals, power, aluminium, and oil and gas industries. This demerger is not just a strategic move; it’s a testament to Vedanta’s commitment to innovation and progress.
Intriguingly, it appears that the demerger decision is driven by a vision for a brighter and more prosperous future. As Vedanta Limited plans to file for mandatory SEBI approval in October, we eagerly await the next chapter in this transformative journey.
Disclaimer: The information in this “Stock Profile” blog post is for informational purposes only. It is not financial advice. Always consult a qualified expert before making investment decisions.
