Analysts are divided on the usefulness of Vedanta Limited's decision to split into six entities, though there is consensus that the debt-refinancing exercise of parent Vedanta Resources Ltd will be crucial for the stock.

Last Friday, the Anil Agarwal-led company announced plans to spin off its aluminium, oil and gas, power, steel and ferrous materials and base metals businesses. Shareholders of Vedanta Limited will get one share of each of the five newly listed companies for every share held.

Shares of Vedanta rose 3.74 per cent to close at Rs 230.80 on the BSE in an otherwise weak market even as brokerages took a mixed view of its mega demerger move.

While CLSA upped its rating for the stock to outperform from underperform because of the significant correction seen in the past three months, Citi and Kotak Institutional Equities maintained their sell rating.

After the demerger, the businesses of Hindustan Zinc as well as the display and semiconductor manufacturing units will remain with Vedanta Limited.

Analysts at Kotak Institutional Equities said in a note that the demerger reverses Vedanta Ltd’s past efforts (during 2012-17) of consolidating stakes in different businesses and contradicts the rationale of past corporate actions.
Pointing out that the demerger is unlikely to unlock any value, the brokerage said parent Vedanta Resources Ltd’s (VRL) high leverage and funding gap for upcoming bond maturities is a key overhang on the company.

The divestment of non-core businesses is the need of the hour at Vedanta.

Vedanta Resources has $2.1 billion of debt outstanding in the current financial year, the funding for which is largely sorted, according to the brokerage.

For the next fiscal, it estimates a funding gap of $3.1 billion. VRL’s high leverage and the funding gap in 2024-25 (estimated) are key areas of concern.

Steel assets

Vedanta will complete the sale of its steel assets by March 2024 as it looks to reduce overall debt, group chairman Anil Agarwal told a TV channel on Tuesday, according to Reuters.

The company began the review of its steel and steel raw material business — formed through the acquisition of ESL Steel in 2018 for Rs 5200 crore — in June and is looking to sell the company to focus on its core mining businesses.