Vedanta Demerger Gets NCLT Approval: What Investors Should Know

Introduction

Vedanta Ltd has secured a crucial approval from the Mumbai bench of the National Company Law Tribunal (NCLT) for its plan to demerge the diversified metals-to-oil conglomerate into five separate listed companies. This decision marks a significant milestone in the company's long-standing effort to simplify its corporate structure and unlock value for shareholders. The market reacted positively to the news, with Vedanta's shares surging to a 52-week high as investors welcomed the clarity on the restructuring plan, which is targeted for completion by March 2026.

The Approved Demerger Structure

The approved scheme will reorganize Vedanta's sprawling operations into five distinct, sector-focused entities. Each of these companies will be listed on the stock exchanges, providing investors with direct exposure to specific commodity businesses. The five resulting entities will be:

1. Vedanta Aluminium: Housing the company's aluminium business.
2. Vedanta Oil & Gas: Comprising its upstream oil and gas assets.
3. Vedanta Power: Focusing on power generation operations.
4. Vedanta Iron & Steel: Containing the ferrous and steel portfolio.
5. Vedanta Limited (Residual): This entity will hold the company's significant stake in Hindustan Zinc, which is a major producer of zinc, lead, and silver. It will also act as an incubator for new business verticals, including semiconductors and technology.

Under the terms of the demerger, existing shareholders of Vedanta Limited will receive one equity share in each of the four newly demerged companies for every one share they currently hold, in addition to retaining their shares in the residual Vedanta Limited.

Rationale Behind the Split: A Vision for Growth

Vedanta Chairman Anil Agarwal has championed the demerger as a transformational strategy to unlock the full growth potential of each business. The primary goal is to eliminate the 'conglomerate discount' that markets often apply to diversified companies, where the combined market value is less than the sum of its individual parts. By creating pure-play companies, Vedanta aims to attract specialized investors and achieve better valuations for each vertical.

In an interview, Agarwal stated his vision is for each of the demerged companies to grow to the scale of the current parent company. "Effectively, we are creating five more Vedantas, which will make shareholders the happiest," he said. This restructuring aligns with the global model where large resource companies typically operate as focused entities, allowing for dedicated management, independent capital allocation, and clearer strategic mandates.

Financial Blueprint: Debt Allocation and Capital Strategy

A key concern for investors has been Vedanta's consolidated debt. The demerger plan addresses this by outlining a clear strategy for debt allocation. The company's net debt of approximately Rs 48,000 crore will be distributed among the five new entities. Crucially, this allocation will not be an equal split but will be based on the respective cash flows and balance sheet capacity of each new company. This tailored approach is designed to ensure that each entity has a sustainable capital structure from the outset.

Each demerged company will have an independent board and professional management. Agarwal has confirmed that aggressive capital expenditure plans and regular dividend payouts—a hallmark of Vedanta's shareholder return policy—will continue post-demerger.

Analyst Outlook and Market Reaction

The NCLT's approval has been met with optimism from market analysts, many of whom have upgraded their ratings and price targets for Vedanta. The move is seen as a catalyst for significant value unlocking.

Nuvama Institutional Equities noted that the demerger could enhance Vedanta's fair value by Rs 84 per share. Similarly, Kotak Institutional Equities upgraded the stock to 'Buy', citing the demerger approval and a favorable outlook for commodity prices. Global rating agencies S&P and Moody's also revised their outlook on the parent company, Vedanta Resources, to 'positive', reflecting anticipated improvements in earnings and cost structures.

Implications for Investors

For investors, the demerger presents both opportunities and a new set of considerations. The central proposition is that the combined market capitalization of the five separate entities will exceed the current valuation of the single conglomerate. The split offers strategic flexibility, allowing investors to choose specific commodity exposures—such as aluminium, oil and gas, or zinc—without being tied to the entire portfolio.

This could lead to a significant re-rating of individual businesses, particularly those that analysts believe are currently undervalued within the larger structure. However, post-demerger, investors will need to conduct due diligence on each of the five companies, evaluating their individual fundamentals, debt levels, management strategies, and corporate governance.

Conclusion

The NCLT's approval is a pivotal moment for Vedanta, clearing a major hurdle for its ambitious restructuring. The plan to create five independent, listed companies is designed to sharpen strategic focus, improve capital allocation, and ultimately unlock significant shareholder value. While the final implementation involves complex operational and financial separation, the company is now on a clear path to complete the process by its March 2026 target. For investors, this marks the beginning of a new chapter where the true value of Vedanta's world-class assets may finally be realized.