1:6 Split Soon: Metal Giant Vedanta Makes Big Demerger Update; Dividend King Stock To Pay Rs 4/Sh Reward; BUY?

Metal giant Vedanta Ltd is in focus after it made a big demerger update. The demerger which is in the ratio of 1:6 where Vedanta will be divided into six new entities, takes a step closer to reality as it received 75% creditors approval. Also, stock exchanges BSE and NSE have given a green signal to the demerger plan.

Apart from this, Vedanta is also set to reward investors with a second interim dividend payout of Rs 4 per share. Vedanta is the highest dividend-paying metal stock, and the top 5 in the large basket, making it among the dividend king stocks.

Vedanta is also seeing an increase in appetite for mutual funds as it was among top picked stocks by the fund houses in June month.

Following this, there is a BUY recommendation on Vedanta with the share price having the potential to surge above the Rs 600 mark as well.

Vedanta Share Price:

The stock price stood at Rs 451 apiece after market hours of July 31, with a valuation of Rs 1,76,358.50 crore. The stock is near its 52-week high and low of Rs 506.85 apiece and Rs 207.85 apiece respectively.

YTD, the stock zoomed by nearly 17%.

Vedanta 1:6 Demerger Update:

Apart from stock exchanges BSE and NSE approval, Vedanta announced that it has received a go-ahead from 75% of its secured creditors for obtaining clearance from stock exchange(s) and subsequently filing its demerger scheme with the National Company Law Tribunal (NCLT) for its proposed demerger.

Further, as an organization dedicated to supporting the dream of an Atmanirbhar Bharat in natural resources, Vedanta's demerger will create sector-focused entities, aligned with India's global leadership goals in critical minerals, energy security as well as renewables and technology sectors, Vedanta said.

Also, Vedanta believes that the demerger will help simplify Vedanta's corporate structure by creating independent businesses and will offer global investors direct investment opportunities in pure-play companies linked to India's impressive growth.

Anil Agarwal, Chairman, Vedanta Ltd. had said, "Demerger of our businesses will lead to the creation of 6 strong companies, each a Vedanta in its own right. This will unlock massive value. Each demerged entity will chart its own course but will follow Vedanta's core values, its enterprising spirit and global leadership.

As part of the demerger plan, Vedanta's existing businesses will be structured in the following six independent companies --- Vedanta Aluminium; Vedanta Oil & Gas; Vedanta Power; Vedanta Steel and Ferrous Materials; Vedanta Base Metals; and Vedanta Limited.

Under the demerger, for every 1 share of Vedanta Limited, the shareholders will additionally receive 1 share of each of the 5 newly listed companies.

Vedanta Dividend:

Further, the company highlighted that Vedanta has a track record of giving strong returns to its shareholders. As of 30 June'24, Vedanta's total shareholder return over 5 years stood at 276%, while the 5-year average accumulated dividend yield at 65%, delivering significant value for shareholders.

Going ahead, Vedanta is set to pay a Second Interim Dividend of Rs 4/- per equity share on the face value of Rs 1/- per equity share for the Financial Year 2024-25 amounting to c. Rs 1,564 crore. The record date for payment of the dividend shall be Saturday, August 03, 2024, and the interim dividend shall be duly paid within the stipulated timelines as prescribed under
law.

Currently, Vedanta has a dividend yield of 6.54%, among the top 5 highest dividend yield stocks.

BUY/SELL Vedanta Share Price?

Brokerage Nuvama Institutional Equities raised its BUY target on Vedanta stock while setting a target price of Rs 644 per share. Nuvama has further retained its positive outlook on the company owing to its move on reducing cost, and volume growth in businesses like aluminium and zinc, while demerger of business ahead. The brokerage is expecting Vedanta's 1:6 demerger to be completed by FY25-end.

Further, brokerage Phillip Capital has also recommended BUY for a target price of Rs 552. The brokerage believes that out of all the businesses, aluminium has the most potential for EBITDA improvement due to improving backward integration into coal and bauxite mining.

At present, VEDL has an aluminium capacity of 2.4mn tonnes, backed by 2mn tpa of captive alumina production. It is on its way to increase its aluminium capacity to 3.1mn tpa, backed by 6mn tpa captive alumina, the brokerage cited.

Phillip Capital believes that even at conservative estimates, VEDL's aluminium divisions' EBITDA will exceed HZL in FY26, considering higher levels of backward integration and significant cost savings.

For its subsidiary Hindustan Zinc, brokerage Phillip Capital said that the company has a total metals capacity of 1.12mn tonnes (913Kt zinc and 210Kt lead, 800 tonnes of silver). It ended FY24 with 1,033Kt of refined metal and 746 tonnes of silver production. Though it has sufficient ore-mining capacity to reach 1.25mn tonnes of metal, lack of smelting is a bottleneck and thus it maintained its guidance for FY25 at 1,075-1,100Kt of metal. However, HZL is undergoing de-bottlenecking/expansion in existing smelters to increase its total capacity to 1.25mn tonnes by FY25.

Overall, the stance on Vedanta is positive with demerger being one of the contributing factors.

Vedanta is scheduled to declare its June 2024 quarterly earnings on August 6, 2024, for FY25.