Vedanta Demerger Plan Faces Crucial Creditor Meeting Amid Stock Dip
Vedanta : On Tuesday, February 18, 2025, shares of the company, a prominent player in the metals and mining sector, experienced a decline of up to 2.4% during intraday trading. This downturn occurred ahead of a pivotal meeting involving the company’s shareholders and creditors, convened to deliberate on the proposed demerger strategy.
Scheduled Meeting Details
As per an exchange filing dated January 17, 2025, it announced the convening of virtual meetings for its equity shareholders, secured creditors, and unsecured creditors on February 18. These meetings are organized under the directives of the National Company Law Tribunal (NCLT), Mumbai Bench, as per the order dated November 21, 2024. The agenda centers on a Scheme of Arrangement involving Vedanta Limited and its subsidiaries: Vedanta Aluminium Metal Ltd, Talwandi Sabo Power Ltd, Malco Energy Ltd, Vedanta Base Metals Ltd, and Vedanta Iron and Steel Ltd.
Evolution of the Demerger Strategy
Initially, in 2023, the company unveiled plans to segregate its operations into six distinct entities: the company’s Aluminium, Oil & Gas, Power, Steel and Ferrous Materials, Base Metals, and the existing Vedanta Limited. However, by December 2024, the company revised this blueprint, opting to retain the base metals division within the primary organization. This decision was influenced by the assessment that the base metals segment required further maturation before functioning as an independent entity.
Stock Market Response
On the day of the meeting, Vedanta’s stock opened at ₹419.50 per share, slightly above the previous close of ₹415.10. However, the stock soon reversed gains, reaching an intraday low of ₹405.25. Despite this short-term volatility, over the past year, Vedanta’s share price has appreciated by 53%, elevating its market capitalization to ₹1.59 lakh crore.
Financial Performance Highlights
Vedanta’s financial trajectory has been notably influenced by fluctuations in global metal prices. In the third quarter ending December 2024, the company reported an EBITDA of ₹112.84 billion, surpassing analyst projections of ₹104.53 billion. This robust performance was primarily driven by a 58% increase in the aluminium segment and a 28% rise in the zinc business. The core profit margin expanded to 34% from 29% in the corresponding period the previous year.
The second quarter of FY2025 also showcased strong results, with a consolidated net profit of ₹43.52 billion, exceeding analyst expectations of ₹23.67 billion. This surge was largely attributed to elevated prices of aluminium, zinc, and copper. However, revenue from operations experienced a slight dip of 3.6% to ₹371.71 billion, influenced by subdued domestic demand due to above-average rainfall affecting key sectors like construction and automotive.
Key Financial Ratios
A review of Vedanta’s financial ratios offers deeper insights into its operational efficiency and financial health:
| Financial Ratio | FY2023 | FY2024 |
|---|---|---|
| Debt-Equity Ratio | 0.61 | 0.80 |
| Current Ratio | 0.67 | 0.58 |
| Inventory Turnover Ratio | 8.11 | 9.33 |
| Debtors Turnover Ratio | 33.85 | 39.77 |
| Interest Coverage Ratio | 6.17 | 2.53 |
| Operating Profit Margin (%) | 45.13 | 25.70 |
| Net Profit Margin (%) | 36.12 | 6.27 |
| Return on Net Worth (RONW) (%) | 33.35 | 6.56 |
Note: The above ratios are sourced from Capital Market’s financial data on Vedanta Limited.
Implications of the Demerger
The proposed demerger aims to streamline Vedanta’s diverse business verticals, potentially enhancing operational focus and unlocking shareholder value. For the demerger to proceed, it requires approval from a majority representing three-fourths in debt value of the creditors present at the meeting. If sanctioned, shareholders are expected to receive proportional shares in each of the newly formed entities corresponding to their existing holdings in Vedanta Limited.
Conclusion
As Vedanta stands at this critical juncture, the outcome of the February 18 meeting will significantly influence its strategic direction and market positioning. Stakeholders and market observers are keenly monitoring developments, anticipating that the demerger could reshape the company’s operational landscape and potentially enhance shareholder value in the long term.
Vedanta’s Financial Performance and Demerger Updates
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.