NCLT approval removes regulatory overhang, but execution and capital discipline now drive Vedanta’s re-rating
The National Company Law Tribunal’s approval of Vedanta Ltd’s long-awaited demerger has cleared a key regulatory hurdle, setting the stage for the creation of five listed entities and bringing long-standing structural issues back into sharp investor focus. While the clearance removes uncertainty around timing, analysts largely agree that the move does not, by itself, alter the fundamental investment thesis. Instead, attention is shifting decisively toward cash-flow visibility, debt allocation, and post-demerger capital discipline across the group’s metals, power, and allied businesses.
For months, Vedanta’s stock had been weighed down by the complexity of its conglomerate structure and limited transparency on capital allocation. Most brokerages had already factored in the eventual split, with regulatory approval seen as a matter of “when” rather than “if.” With that overhang now gone, markets are reassessing how quickly the individual businesses can translate EBITDA into sustainable free cash flows once listed independently.
Conglomerate discount narrows as valuation clarity improves
Analysts across brokerages such as Nuvama, Investec, Systematix, and ICICIDirect have consistently highlighted that Vedanta was trading at a meaningful discount to its sum-of-the-parts valuation. Estimates suggest the stock was priced at a discount of around 10 to 15 percent, largely due to structural complexity, lack of pure-play exposure, and opacity around capital deployment.
The demerger is expected to improve benchmarking of each business against sector peers, enabling a more transparent valuation framework. Kotak Institutional Equities upgraded Vedanta to a ‘Buy’ from ‘Add’ following the NCLT nod and raised its target price to ₹650, implying upside potential from current levels. The brokerage cited supportive commodity prices, commissioning of key aluminium and power assets, and easing concerns around promoter-level debt.
Forecasts from Kotak point to healthy growth momentum, with EBITDA and earnings per share expected to grow at a strong pace over the medium term, driven by higher volumes and favourable pricing across core metals.
Metals businesses anchor cash flows and valuation support
Vedanta’s metals portfolio remains central to the investment narrative. Hindustan Zinc Ltd, the group’s majority-owned subsidiary, contributes more than a third of consolidated EBITDA and continues to provide stable cash flows that support dividends and deleveraging. Brokerages have revised EBITDA estimates for Hindustan Zinc upward, reflecting stronger operating performance and rising contribution from silver.
Jefferies initiated coverage on Hindustan Zinc with a ‘Buy’ rating, highlighting robust cash generation and long-term visibility. While analysts do not expect immediate value unlocking from the demerger, independent capital structures are seen as giving management greater flexibility to pursue selective equity infusions, which could support balance-sheet strength and enhance valuations over time.
Aluminium, meanwhile, accounts for nearly half of consolidated EBITDA, supported by firm global prices, improving alumina cost dynamics, and higher captive integration. According to Nuvama, aluminium continues to be a key driver of earnings resilience and free cash flow generation.
Debt reduction remains critical to investor confidence
Vedanta’s balance sheet remains a core area of scrutiny. As of FY25, total debt stood at approximately ₹73,853 crore, with cash and liquid investments of about ₹20,749 crore, translating into net debt of roughly ₹53,000 crore. Importantly, net debt-to-EBITDA has improved to the range of 1.35–1.40 times, aided by strong earnings from zinc and aluminium.
Since FY22, the company has generated cumulative operating cash flows exceeding ₹30,000 crore, enabling gradual deleveraging despite ongoing capital expenditure and dividend payouts. Analysts believe this trend provides comfort, but stress that clarity on how debt is allocated among the five resulting entities will be a key determinant of post-demerger valuations.
A forward dividend yield estimated at 5–6 percent offers interim support to the stock while investors await greater balance-sheet transparency.
Power segment recovery adds optionality, but risks remain
Vedanta’s merchant power business has moved past its most challenging phase, supported by the commissioning of the Athena and Meenakshi plants, which have taken total merchant capacity beyond 4 GW. Current power realisations compare favourably with generation costs, improving EBITDA visibility.
However, analysts caution that cash flows from power are likely to lag earnings in the near term as utilisation levels stabilise and fixed costs are absorbed. Questions remain over whether the standalone power entity can comfortably service debt in its early years, making this segment one to watch closely post-demerger.
Execution and transparency will define the next phase
While the NCLT’s sanction marks a significant milestone, it comes with conditions related to the release of asset charges and provision of corporate guarantees. The pace at which these requirements are met will influence timelines and investor confidence around equity value allocation.
Vedanta’s corporate history of complex restructurings has made analysts cautious, reinforcing the importance of transparency and disciplined capital allocation in this phase. The demerger may have set the stage, but sustained cash flows, prudent debt management, and clear governance will ultimately determine whether Vedanta can unlock long-term shareholder value.
