High dividend yield stock in focus after decides to demerge its business into 4 parts

A major company engaged in steel manufacturing has revised its earlier proposed demerger scheme, deciding to retain its base metals business within the parent company. This decision, which follows discussions with stakeholders and lenders, was approved by the Board on December 20, 2024. 

Price Variation 

During Monday’s trading session, the Vedanta Ltd share price surged slightly by 0.3 percent, reaching an intra-day high of Rs.484.50 per share, up 1.5 percent from its previous close of Rs.477.25 apiece. 

The price has since retreated and is currently trading at Rs.480.40 per share. Vedanta Ltd has a dividend yield of 9.81 percent and a high dividend payout ratio of 259 percent. 

What happened 

Vedanta Ltd has revised its previously proposed demerger scheme, opting to retain its base metals business within the parent company. Initially, the company planned to demerge five key segments—Vedanta Aluminium Metal Ltd (VAML), Talwandi Sabo Power Limited (TSPL), Malco Energy Ltd (MEL), Vedanta Base Metals Ltd (VBML), and Vedanta Iron and Steel Ltd (VISL)—to unlock value. 

However, after discussions with lenders and considering the current status of the base metals business, the company decided not to pursue the demerger of VBML at this time. 

Despite this change, Vedanta assured that shareholders would still benefit from value creation in the base metals sector under the parent company and would receive equivalent shares in the newly formed entities. 

Additionally, Vedanta is exploring options to restart its copper operations in Thoothukudi, Tamil Nadu, which are integral to the base metals division. The revisions do not impact other segments of the demerger, such as Aluminium, Merchant Power, Oil and Gas, and Iron Ore, and the share entitlement ratio remains unchanged. 

Management Guidance 

Vedanta Ltd is confident in achieving its production targets for FY ’25, which include reaching 11 million tons per annum from its iron ore business. The company is making steady progress towards these goals, with its subsidiary, Hindustan Zinc, reporting strong results in the second quarter, producing 256,000 tons of mined metal and 262,000 tons of refined metal. 

Beyond its iron ore operations, Vedanta is focused on expanding its BALCO smelter and increasing aluminum production. The company aims to reach a capacity of 3.1 million tons per annum, with 90 percent of production derived from value-added products by FY ’26. These initiatives are part of Vedanta’s broader strategy to enhance its standing in the metals and mining industry.

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Business Segments and Presence 

Vedanta operates in diverse sectors, primarily focusing on metals such as aluminum, copper, zinc, lead, and iron ore. The company is also involved in oil and gas exploration and production, as well as commercial power generation. 

In addition to its core operations, Vedanta manufactures pig iron and metallurgical coke and offers shipping and port services. The company has a strong presence in India and across various global regions, including the US, Asia-Pacific, Europe, the Middle East, and Africa. 

Financial Performance 

In its recent financial update for the quarter ending September 2024, Vedanta Ltd reported revenue from operations of Rs.37,634 crore, reflecting a 3.3 percent decline from Rs.38,945 crore in Q2 FY24. Moreover, net profits increased significantly to Rs.5,603 crore from net loss of Rs.915 crore in the same period. 

Shareholding Pattern 

As per the September 2024 shareholding pattern, the promoters of Vedanta Ltd hold a 56.38 percent stake, while Foreign Institutional Investors hold an 11.45 percent stake. Domestic Institutional Investors and Retail investors hold a stake of 16.29 percent and 15.64 percent, respectively in the company. 

Company Overview 

Vedanta Ltd is an Indian multinational based in Mumbai, involved in mining and natural resources, including metals, oil and gas, and power generation. Originally established as Sterlite Industries in the 1980s, it changed its name after merging with Sesa Goa in 2015. 

The company has a global presence and is pursuing growth through significant investments to enhance its operations across various sectors. 

Written by – Siddesh S Raskar 

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