Sun. Jul 21st, 2024

Vedanta Limited, India’s largest diversified natural resources company with a significant global footprint announces its plan to demerge its business units into independent “pure play” companies to unlock value and attract big-ticket investment into the expansion and growth of each of the businesses. Vedanta is committed to best-in-class ESG practices and has a strong focus on metals critical for the transition to a green economy.

The announcement comes at a time when India is forecast to be the fastest-growing major economy for the next several years. More than ninety percent of Vedanta Ltd’s profits are derived in India. Demand for commodities is expected to rise exponentially as the country continues to build a world-class infrastructure and strives to achieve aggressive targets for the energy transition which is highly mineral intensive. The Government of India’s emphasis on self-reliance will provide avenues for rapid growth for Indian companies in the commodities space.

Vedanta has a unique portfolio of assets among Indian and global companies with metals and minerals – zinc, silver, lead, aluminum, chromium, copper, nickel; oil and gas; a traditional ferrous vertical including iron ore and steel; and power, including coal and renewable energy;  and is now foraying into manufacturing of semiconductors and display glass. Once demerged,  each independent entity will have greater freedom to grow to its potential and true value via independent management, capital allocation, and niche strategies for growth. It will also give global and Indian investors the potential to invest in their preferred vertical, broadening the investor base for Vedanta assets.

In pursuit of this goal, the Vedanta Limited Board approved a pure-play, asset-owner business  model that will ultimately result in six separate listed companies, namely:  • Vedanta Aluminium

  • Vedanta Oil & Gas
  • Vedanta Power
  • Vedanta Steel and Ferrous Materials
  • Vedanta Base Metals
  • Vedanta Limited

The de-merger is planned to be a simple vertical split, for every 1 share of Vedanta Limited,  the shareholders will additionally receive 1 share of each of the 5 newly listed companies.

In addition to this, we note today’s announcement from Hindustan Zinc Limited (HZL, a  subsidiary of Vedanta Limited), whereby their Board announced a comprehensive review of its corporate structure for unlocking potential value and intention to create separate legal entities for undertaking the Zinc & Lead, Silver and Recycling business of HZL.

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Rationale for Demerger:

  1. Simplifies Vedanta’s corporate structure with sector-focused independent businesses. 2. Provides opportunities to global investors, including sovereign wealth funds, retail investors, and strategic investors, with direct investment opportunities in dedicated pure-play companies linked to India’s remarkable growth story through Vedanta’s world-class assets.
  2. With listed equity and self-driven management teams, these demergers provide a platform for individual units to pursue strategic agendas more freely and better align with customers, investment cycles, and end markets.
  3. Enables to better highlight, and for the market to more easily value, the remarkable technological advances, environmental stewardship, and robust growth stories within Vedanta’s family of companies.

Anil Agarwal, Chairman of Vedanta, stated: 

“This is an exciting announcement for Vedanta and India. Our country is on an unprecedented growth trajectory which will make us the third largest economy in the world before the end of this decade. The demand for minerals, metals, oil and gas, and power is going to grow very rapidly and Vedanta’s businesses are uniquely positioned to service this rising demand and reduce reliance on imports. Vedanta is also foraying into semiconductors and display glass which are of great strategic significance to India.

By demerging our business units, we believe that will unlock value and potential for faster growth in each vertical. While they all come under the larger umbrella of natural resources,  each has its own market, demand, and supply trends, and potential to deploy technology to raise productivity.

In line with Vedanta’s ethos, each company will continue to retain a strong commitment to the well-being of our workforce, our communities, and our planet. Even as we move to new ways  of running our businesses, we will remain steadfast to transform for good.”

Vedanta values remain embedded in the new entities

Vedanta Limited ranks 6th among 216 global metal and mining companies in the S&P Global  Corporate Sustainability Assessment 2022. The Company aims to ensure that Vedanta DNA  and focus on ESG transformation remain embedded post the unbundling exercise. These  include:

  • The new companies will remain committed to achieving net-zero carbon emissions by 2050 and net water positivity by 2030 with the aims to spend $5 billion over the next 10 years to accelerate this transition. In the process of transitioning to net zero, we already secured 1.8 GW of Renewable Energy through power delivery agreement across our group companies.
  • Vedanta’s digital-first approach and keen focus on advanced technologies has resulted in improved processes, strengthened cybersecurity, and easy access to information for effective decision-making. Each of Vedanta’s businesses has embarked on its own transformational journey towards digitalization and innovation and these will continue.

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Further information on the proposed new Entities:

Vedanta Aluminium

The Company’s Jharsuguda facility is the largest single-location aluminum smelting facility outside of China, and recently saw its capacity ramp up to 1.8 MTPA. It is accompanied by  Bharat Aluminium Company Ltd. (BALCO, a 51% owned subsidiary of Vedanta Limited, taking total Group capacity to 2.4 MTPA).

In the most recent financial year ending – 31st March 2023, Vedanta Aluminium achieved its highest ever aluminum production of 2,291 kt, maintaining its place as the country’s largest supplier with c.41% market share in India among primary aluminum producers.

Vedanta Aluminium is on a path to grow production to 3 MTPA, whilst simultaneously improving its cost position to 1st quartile globally through full backward integration.  Importantly, the business is growing production of green aluminum under the Restora and  Restora Ultra brands and ranked 2nd in the Dow Jones sustainability index in 2022.

Vedanta Aluminium will be run by John Slaven, formerly of Alcoa and BHP.

Aluminium Business Financial Highlights FY 2023 FY 2022 Consolidated Revenue (INR Crore) 52,618 50,809 Consolidated EBITDA (INR Crore) 5,775 17,337 Consolidated Operating Profit (EBIT) (INR Crore) 3,257 15,066

Vedanta Oil & Gas

Vedanta’s Oil & Gas is the largest private oil, gas, and sweet crude exploration and production company in India, accounting for more than a quarter of India’s domestic crude oil production.  It is ideally suited to capitalize from India’s growing demand (c.50% growth anticipated by  2030). More broadly, the vision is to eventually contribute 50% to India’s total Oil and Gas production through diversifying its reserve and resources portfolio. The company’s footprint covers a total acreage of 65,000 square kilometers, with gross 2P and 2C resources in excess of 1.1 bn boe.

During FY 2023, the Company reported an average gross operated production of 143 kboepd. Vedanta Oil & Gas will be run by Steve Moore.

Oil & Gas Business Financial Highlights FY 2023 FY 2022 Consolidated Revenue (INR Crore) 15,038 12,430 Consolidated EBITDA (INR Crore) 7,782 5,992 Consolidated Operating Profit (EBIT) (INR Crore) 5,205 4,359

Vedanta Power

Vedanta Power will house the Independent Power Plants at Vedanta. Anchored by Talwandi  Sabo Power Limited (TSPL, a wholly-owned subsidiary of Vedanta Limited), a 1980 MW plant  based in Punjab, India, the business will also include the 600 MW Jharsugada power plant, the

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Recently acquired the 1200 MW Athena plant and the 1000 MW Meenakshi plant which is in the process of being acquired. Total capacity will therefore near 5GW post-completion.

Vedanta Power is one of the largest private independent power players in India and is backed by one of the world’s fastest-growing power markets and a favourable political climate.

Vedanta Power will be run by Vibhav Agarwal, currently CEO of TSPL.

Power Business Financial Highlights FY 2023 FY 2022 Consolidated Revenue (INR Crore) 6,724 5,501 Consolidated EBITDA (INR Crore) 913 1,082 Consolidated Operating Profit (EBIT) (INR Crore) 294 470

Vedanta Steel and Ferrous Materials 

Vedanta’s Iron Ore Business includes Iron Ore in Goa, Iron Ore Karnataka, and Liberia as well as VAB  (Value Added Business). The company has aspirations to more than double annual iron ore production, from assets in India and Liberia to 13Mt by 2025.

This vertical will also include ESL Steel Limited (ESL, a 95.49% owned subsidiary of Vedanta  Limited), an Integrated Steel Producer, that was incorporated in 2006 as a Public Limited Company with operations in Bokaro, Jharkhand, India. The company has set up a green field integrated manufacturing facility, which is currently commissioned at a capacity of 1.5 MT per annum,  albeit with expansion to 3 MT per annum of hot metal capacity in progress (by mid-2024).

Vedanta Steel and Ferrous Materials will be run by Navin Jaju, currently CEO of Iron Ore.

Steel and Ferrous Materials Business Financial Highlights FY 2023 FY 2022 Consolidated Revenue (INR Crore) 13,882 12,707 Consolidated EBITDA (INR Crore) 1,302 2,981 Consolidated Operating Profit (EBIT) (INR Crore) 770 2,585

Vedanta Base Metals

The proposed Vedanta Base Metals unit will contain a mix of strong international base metal production assets, growth projects, and downstream businesses that feed directly into the supply chain for metals critical to the global energy transition.

The Zinc International assets continued to ramp up production at the Gamsberg mine in South  Africa and achieved a record production of 208kt in 2023. Black Mountain, also in South Africa,  delivered significant production growth in FY23, generating 65kt on higher lead head grades and recoveries. Significant production growth is anticipated as Gamsberg Phase 2 ramps.

Vedanta’s copper business is capable of producing more than a third of India’s copper,  Vedanta Copper’s assets in India consist of a custom smelter, a refinery, a phosphoric acid plant,  a sulphuric acid plant, and a copper rod plant. The Company forecasts a resumption of production in 2024.

Vedanta Base Metals will be run by Chris Griffith, former CEO of Gold Fields and previously at  Anglo American.

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Base Metals Business Financial Highlights FY 2023 FY 2022 Consolidated Revenue (INR Crore) 22,700 19,635 Consolidated EBITDA (INR Crore) 1,930 1,418 Consolidated Operating Profit (EBIT) (INR Crore) 1,243 697

Vedanta Limited

Vedanta Limited will remain as an exciting incubator for new businesses including Vedanta’s technology verticals buttressed by the strong financial earnings of the Tier-one Hindustan Zinc assets.

The company will provide investors with the opportunity to invest in some of the world’s leading zinc production assets with a clear capital allocation policy while benefiting from these nascent technology companies until they too are ready to be released as independent,  globally significant businesses. These include Vedanta’s interests in Semiconductors and  Display (offering exposure to India’s fast-growing $140bn electronics market) and Stainless  Steel (Ferrochrome and Nickel). For Display manufacturing, Vedanta has finalized a  technology partnership with Taiwanese firm Innolux and is also close to finalize partnership for Semiconductor manufacturing.

Hindustan Zinc Limited (HZL, a subsidiary of Vedanta Limited) is the world’s 2nd largest integrated zinc producer with a 1st quartile cost position and R&R of 460MT and mine life of  25+ years. It is also the 5th largest silver producer globally.

In HZL’s journey to achieving 1.25 mtpa MIC expansion, the final project of RD Beneficiation plant revamp is under execution at RD Mines and is on track. For the further phase of expansion of Mines and Smelters, studies are under progress and results are expected in FY24.

There is a steadily growing demand for Zinc and lead in industrial usage; Silver is a metal of the future with extensive use in emerging technologies like solar panels and electric vehicles.  Recycling of metals is key to meet the future demand. In a world committed to combating climate change, the demand for recycled ‘green’ metal will grow exponentially.

Vedanta Limited will be run by Arun Misra, currently CEO of HZL.

Residual Vedanta Limited (including HZL) Financial Highlights FY 2023 FY 2022 Consolidated Revenue (INR Crore) 34,442 30,110 Consolidated EBITDA (INR Crore) 17,539 16,509 Consolidated Operating Profit (EBIT) (INR Crore) 13,917 13,247

Transaction Structure and Advisors

Demergers will be conducted through a scheme process. Following today’s meeting, Board approval to proceed has already been obtained. Filing with stock exchanges for SEBI approval is expected in October 2023. The Company will follow the customary process as per Indian law.

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Anagram Partners acted as the legal advisor and Arpwood Capital acted as the Transaction and M&A advisor.

BDO (Registered Valuer) was appointed as valuers.

ICICI Securities. were financial advisor solely for the purpose of providing a fairness opinion on the valuation done by the valuer for the proposed Transaction.

Presentation

Further details on the strategic plan including proposed transaction structure, business overviews, and investment thesis by vertical can be found in the investor presentation.

Investor & Media Call 

The Company will hold an analyst/investor call on the proposed demerger at 5.30 pm IST on  29th September 2023. Please find below the details for the call:

Event Telephone Number
Conference call on  September 29, 2023, from  5:30 – 6:30 PM (IST) Universal Dial-In +91 22 6280 1114
+91 22 7115 8015
India National Toll-Free 1 800 120 1221
International Toll Free* Canada 01180014243444
Hong Kong 800964448
Japan 00531161110
Netherlands 08000229808
Singapore 8001012045
UK 08081011573
USA 18667462133
Online Registration Link Click Here – Registration Link
Call Recording Will be available on the website on September 30, 2023

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