Vedanta Demerger Approved: NCLT Clears Path for 5 Listed Firms by 2026

NCLT Sanctions Vedanta's Ambitious Restructuring

The National Company Law Tribunal (NCLT) in Mumbai has officially approved Vedanta Ltd's plan to demerge its diversified operations into five distinct, publicly listed companies. This decision, pronounced on Tuesday, marks the removal of the final significant regulatory hurdle for one of India's most substantial corporate restructurings. The oil-to-metals conglomerate can now proceed with its strategy to create focused, sector-specific entities, a move aimed at unlocking shareholder value and streamlining operations. The company has set a target to complete the entire demerger process by March 2026.

The New Structure: Five Pure-Play Entities

The approved scheme of arrangement will transform Vedanta from a complex conglomerate into a group of specialized businesses. The restructuring will result in the formation of five independently managed and listed companies. For every single share held in the current Vedanta Ltd, shareholders will receive one share in each of the four newly created entities, while retaining their original share in the parent company. This move is designed to eliminate the typical 'conglomerate discount' applied by markets to diversified firms, allowing investors to value each business based on its individual merits and performance.

Strategic Rationale and Chairman's Vision

Vedanta's Chairman, Anil Agarwal, has championed the demerger as a crucial step to unlock the full growth potential of each business vertical. He stated that the global standard for large resource companies is to operate as pure-play entities, and this restructuring aligns Vedanta with that model. Agarwal's vision is for each of the demerged companies to eventually grow to the scale of the current parent entity. "Effectively, we are creating five more Vedantas, which will make shareholders the happiest," he remarked. The primary goal is to allow each business to pursue its own growth strategy, attract targeted investments, and improve operational efficiency in response to rising demand, particularly within India.

Managing Debt and Financial Implications

A key aspect of the demerger involves the allocation of the company's existing debt. Vedanta Ltd currently has a debt of approximately Rs 48,000 crore on its books. This liability will not be divided equally among the new entities. Instead, the debt will be apportioned based on the specific cash flows and balance sheet capacity of each demerged business. This tailored approach is intended to ensure that each new company has a sustainable capital structure from the outset, allowing it to fund its own growth and capital expenditure programs without being burdened by disproportionate liabilities.

Governance and Management Post-Demerger

The restructuring plan emphasizes independent governance for each new company. Each of the five entities will have its own independent board and professional management team. The promoter group, led by Anil Agarwal, will hold approximately a 50% stake in each company through a holding structure but will not be involved in the day-to-day operations. Agarwal clarified that his role would not necessarily be to chair all the demerged companies, citing the successful independent leadership at Hindustan Zinc as a model. This structure is designed to empower professional management and incentivize performance through schemes like management shareholding.

Ambitious Growth Targets for Each Vertical

Vedanta has outlined aggressive growth plans for each of the new entities. In the metals space, the company aims to become one of the world's largest zinc producers and increase silver output from 700 tonnes to 3,000 tonnes. The aluminium business plans to double its capacity from the current 3 million tonnes. In the energy sector, the oil and gas business is targeting an increase in production to 300,000 barrels per day in the short term, with a long-term goal of 1 million barrels per day. The iron ore and steel business will focus on green steel production with a proposed capacity of 10-15 million tonnes, while the power business aims for a capacity of 20,000 MW.

The Path to Approval

The journey to NCLT approval involved addressing concerns from various regulatory bodies. The Ministry of Petroleum and Natural Gas had previously raised issues regarding the financial profile of the post-demerger oil and gas business and sought greater disclosure on liabilities. The Securities and Exchange Board of India (SEBI) also had disclosure-related queries. Vedanta maintained that it had complied with all requirements and had satisfactorily addressed the objections, leading to the final sanction from the tribunal. The company had also resolved a contractual dispute with SEPCO concerning its subsidiary, Talwandi Sabo Power Limited, clearing another hurdle.

Market Reaction and Future Outlook

The market responded positively to the NCLT's decision, with Vedanta's shares touching a 52-week high following the announcement. The group's market valuation saw a significant increase, reflecting strong investor confidence in the restructuring plan. With the final regulatory approval in place, Vedanta will now proceed with the necessary steps to implement the demerger. The completion by March 2026 is expected to reshape the company's presence in India's metals, mining, and energy sectors, creating a new structure of focused, independent, and growth-oriented companies.