Vedanta shares: 57% upside on value unlocking? Demerger next big catalyst, says Emkay

The Q2 results by Vedanta Ltd beat the consensus estimates in terms of Ebitda by 11 per cent, mainly led by better cost control. Divisionally, aluminium, zinc, and oil & gas delivered a beat on earnings, while iron ore, power, and copper were softer. Analysts noted that FY25 volume guidance has been trimmed by Vedanta for alumina, oil & gas and ferrochrome, but the capex guidance remained unchanged.

The Vedanta management has indicated that the demerger process is on track and in its final stages – with the completion expected by March 2025. It also indicated that to-be-demerged companies could break away from the group and list at different times, as and when respective approvals are secured.

Emkay Global said it arrived at a SOTP equity valuation of Rs 2.8 lakh crore for Vedanta, which implies 57 per cent upside on potential value unlocking following the demerger.

The domestic brokerage said the indicative timelines on backward integration in captive bauxite (9 mtpa potential), alumina (5mtpa) and coal (over 30mtpa) in FY26 could be transformative, if the demerger materialises.

For now the brokerage has reiterated its 'Buy' on the stock with a target price of Rs 600.

Emkay Global said it has raised its near-term commodity price forecasts, essentially marking-to-market for the increase in metal prices. It sees a healthy aluminium and zinc pricing backdrop in the medium term.

"Incorporating the Q2 results and marking-to-market for higher commodity prices results in modest upgrades to our estimates, to the tune of 1-4 per cent for FY25E-27E," it said.

The Anil Agarwal-led company on Friday reported a net profit of Rs 5,603 crore for the September quarter compared with a loss of Rs 915 crore in the same quarter last year. Revenue rose 10 per cent to Rs 37,171 crore against Rs 33,738 crore YoY.

Vedanta said the demerger process is on track and in its final stages, with shareholder and creditor meetings scheduled in the coming months.

Vedanta recently raised $1.4 billion through a $1 billion QIP and a $400 million Hindustan Zinc (HZL) offer for sale (OFS). At the same time, with the $1.2 billion VRL bond issuance and ongoing deleveraging, the Vedanta management said it has reduced the holding company's debt to $4.8 billion, the lowest level in a decade.

"This positions us well to generate lasting value for our stakeholders, both now and in the years to come,” it said.

Vedanta secured 60 per cent of its external alumina at LME-linked prices with long-term supply contracts, and is therefore partially insulated from the recent alumina price spike.

It commissioned train 1 of Lanjigarh alumina refinery expansion, with train 2 to be commissioned in Q3FY25, thus taking total capacity to 5mtpa.

The management pointed to a 4 mtpa alumina production run-rate in FY26.