Mining conglomerate Vedanta has clarified the details of its complicated corporate reorg anisa ti on. The management shared its visionata recent investor meeting. The group has also outlined its plans to deleverage debtevenas it goes ahead with capital expenditure (capex) plans. Parent Vedanta Resources (OVRL) hasmanagedtocarryouta debt restructuring, raisingbonds in January 2024. As result, VRL'snet debt should reduce to $6.2 billion by the end of the current financial year (FY24) and according to management, debt should reduce to$3billion by FY27.The restructure has pushed the average maturityat VRLto2.5 years from theearlierlyear. Thishasresulted ina morebalanced riskstructure butthe cost of financingis higher. This residual debt would be servicedviabrandfeesand dividends from subsidiaries. The VRL cost of borrowing would be a keymonitorable inthe future. VRLs debtobligationsareabout $1.6-1.8billion in FY25and FY26. Listed Indian subsidiary Vedanta may pay a dividend pershare of340 inFY25and FY26,tohelp meet VRL’sdebtobligations. Vedanta willneed tomonetise thesteeland iron oreassets and this process, which is estimated toraise $2 billion, couldstartin Q1FY25.1In addition, the promoters can offload upto11.9 per centstake, retaining 50.1per centstake in Vedanta. Vedantaisundergoing major capex. Capex in the aluminium and zincbusinessesare scheduledtobe completed in FY25. Overall, Vedantais undertakinga $6 billion capex investment to increase capacitiesacross aluminium, zinc, ironore,oil and gas, steel,and ferrochrome. The group expectsto have apaybackonthetotal capex in about three yearswith an Ebitda potential of $2.5-3 billion per annumand incremental revenues of$6 billion per annum. Capex inaluminiumand zinc shouldresultin an incremental cash flow of $1 billion-plus per annumonce the plants ramp up fully, which could be in H2FY26. The guidance is for aluminiu Ebitda per tonne of $1,000 from end-FY26assumingan LME aluminium price of$2,350 per tonne. Overall, Vedanta’s FY25 Ebitdaistargeted to hit $5.6-5.7 billion, though conservative analysts may assume lower estimates. The existing company will be splitinto Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metalsand Vedanta tobe retained. The split intosixlisted vertical entities will be donebytheend-FY25assuming Sebi clearance. It’'s a proposed simplesplit, with investors receivinga single share ofeach of the five newentities foreveryshare heldin Vedanta. Thisreorganisation could unlockalotofvalue. In particular, it could enhance the power subsidiary’svaluations. Investors can focuson pure-play verticals and divest the businessestheyare notinterested in. The aluminium businesswillinclude the Lanjigarh refinery, Jharsugudasmelteranda SlpercentstakeinBalco.The power businessincludes 190mw TalwandiSabo Power, 600mw JharsugudaIPP, 1,000mw Meenakshi Energy and 1,200mw Athena. The Oiland Gasbusinessis theerstwhile Cairn Oil& Gas. The Steel&ferrous businessincludes SesalIron Ore, Sesa Coke, Liberia (ironore) and ESL Steel. The Base Metals vertical willhold Zinc International, Tuticorin Smelter, KCMand Fujairah Gold. Vedantawill continue tohold its 6492 per cent stakein listed Hindustan Zinc (HZL). The Aluminiumbusiness, HZL, and Cairn contribute around 67-70 per centofVedanta’s current revenue. Assteel capacity doubles, ESL’s revenue contribution should riseto 7 percentby FY26 (5percentin FY23). The debtrestructure, corporate reorganisation and capex plansalllook positive butthedebt overhang remains a cause for concern. According to Bloomberg, 5 of the10 analysts polled thisweek are bullish on the stock,3havea ‘reduce/sell’ rating, and one eachis ‘neutral’ and ‘not rated’. Their average one-year target priceis Rs299.44, indicatinga potential upside of about 14 per cent from current levels 0f 3262.80.
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