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We attended the analyst day meet at Vedanta Ltd held on the 27th of February 2024. The analyst meet focused on the demerger story and potential value unlocking from the same. The meet also laid out the expansion plans under different verticals for the company. At the CMP, the company currently trades at 5.01x EV/EBITDA at FY24E as per Bloomberg estimates.

Demerger aimed to unlock potential value

On 29th September 2023, the Vedanta board approved a pure-play, asset-owner business model that will ultimately result in six separate listed companies. We see this move to benefit the company in value unlocking by – Firstly, it makes the complex business structure simpler with sector focused operations. Secondly, the demerger makes it easier for the investors to value businesses individually and invest in more value accretive sectors that would down the line be the compounders of wealth. Thirdly, majority of the capex is being put into minerals-based sectors – zinc, aluminium, and copper. The growth of the use of the base metals is expected from the upcoming sustainability goals for the company and the economy in general which could see these businesses to become the next cash-cows for the group.

Capex plans to focus on the non-ferrous space especially Aluminium

Vedanta operates in the non-ferrous space and has majorly been known for its cash cow business in Hindustan Zinc which has been providing great sustainable margins and has operated on being in the first quartile of the cost curves. However, we are seeing the company’s focus also shift towards other verticals – with the Aluminium business expected to see a huge focus in the upcoming years. As per the company’s guidance, over the next couple of years, the aluminium capacities are expected to go up from the current levels of 2.30 mtpa to 2.80 mtpa along with backward integration projects as well thereby aiming to keep the upstream business in the first quartile of the global cost curves. With the expected increase for Aluminium demand in the upcoming years driven by EVs, green power and sustainability programs, we see that with this move the company aims to capture the uptick in demand of the metal.

Aggressive debt reduction plans for both Vedanta Resources (VRL) and Vedanta Limited (VDL)

Vedanta has been in focus due the large amount of debt on its books as well as meeting the short-term bond repayments. The company has outlaid a plan on securing funding through internal accruals, asset monetization, and potential refinancing to meet its debt requirements. During the analyst meet the company was focused on showcasing the plans of setting targets for deleveraging for both VRL and VDL. VRL has $1.1bn of debt obligations to be met in FY25 and expects to generate an EBITDA of $6bn during the same period. The company maintained that the debt figure will be partially addressed through internal accrual and partly by other key strategic actions such as asset monetization. On the VDL front, the $1.5bn of debt is to mature in FY25. The company expects to garner pre-capex cash flows of ~$3.5-4.0bn during the same period which would be sufficient to meet the maturity amount in addition to having a refinance option. Additionally, the gross debt amount can also see an uptick for their project capex which is to be funded through debt and surplus internal accruals.

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