Vedanta's 62% Fall Explained: Brokerages Call It Value Shift, Not Loss

Shares of Vedanta plunged over 62% to ₹289.5 on the NSE on Thursday after trading ex-demerger, following a special pre-open session conducted by exchanges to determine the adjusted price. The stock had closed at ₹773.6 in the previous session, and the sharp fall reflects a technical recalibration rather than any fundamental erosion in value.

The adjustment comes ahead of the company's demerger, effective May 1, under which Vedanta will spin off its aluminium, power, oil & gas, and steel businesses into separate listed entities. Shareholders on record will receive one share in each of the four new companies for every share held, effectively redistributing the company's value across multiple verticals.

While the price movement may appear steep, brokerage firms and market experts have largely maintained that the decline is optical, driven by value separation rather than a deterioration in business performance.

Brokerages See Strong Operational Performance

Brokerage reports highlight that Vedanta entered the demerger phase on the back of a strong operational quarter. According to Antique Stock Broking, the company reported consolidated revenue of ₹528.5 billion in Q4FY26, marking a 30.6% year-on-year growth, supported by firm metal prices and strong zinc and power volumes. Consolidated EBITDA rose sharply by 58.8% year-on-year to ₹184.5 billion, slightly ahead of estimates, while adjusted profit after tax surged 92.3% year-on-year to ₹67 billion.

The performance was driven by higher base metal prices, improved premiums, lower aluminium production costs, and favourable forex movements, although some segments such as oil & gas remained under pressure. Importantly, the company also reduced its consolidated net debt by 12.2% sequentially to ₹532.5 billion, bringing its net debt-to-EBITDA ratio down to 0.95x from 1.2x in the previous quarter.

Nuvama Institutional Equities echoed similar views, noting that EBITDA growth of 22% quarter-on-quarter was supported by strong commodity prices and improved cost efficiencies, particularly in the zinc segment. The brokerage has raised its earnings estimates for FY27 and FY28, factoring in higher aluminium prices, and maintained a 'Buy' rating with a revised target price of ₹936 for the group.

Debt Allocation and Capital Structure in Focus

One of the key concerns for investors has been the allocation of debt across the newly created entities. Brokerages noted that Vedanta has undertaken a structured approach to distribute liabilities.

Post demerger, the aluminium business is expected to carry net debt of around $3.5 billion, the power business about $0.8 billion, and the iron & steel segment approximately $0.2 billion, while the oil & gas business will remain debt-free. The residual Vedanta entity will retain around $1 billion of net debt.

This calibrated allocation is seen as a positive step, as it aligns leverage levels with the cash flow profiles of each business, thereby improving financial discipline and reducing systemic risk.

Residual Vedanta to Be More Focused, But Less Diversified

Following the restructuring, the residual Vedanta will retain key assets such as its stake in Hindustan Zinc, Vedanta Zinc International, copper operations, ferrochrome and nickel businesses. While this creates a more focused structure, it also reduces diversification.

Market participants note that this shift will require a change in how the stock is valued going forward. The earlier conglomerate structure offered diversification benefits, whereas the new entity will be more exposed to specific commodity cycles.

Harshal Dasani, Business Head of INVasset PMS pointed out that investors should not interpret the lower stock price as an immediate buying opportunity. Instead, the focus should be on evaluating the intrinsic value of the residual business, factoring in debt levels, earnings visibility, and dividend prospects.

Price Discovery and Listing Timeline Key Triggers

With the demerger now effective, the next key trigger for the stock will be the listing of the new entities, which is expected by June 2026, subject to regulatory approvals.

The difference between the pre-demerger and adjusted stock price will effectively determine the implied valuation of the spun-off businesses. Brokerages have already begun valuing each vertical separately, with aluminium and zinc expected to contribute the most to overall value.

Nuvama's sum-of-the-parts analysis assigns significant value to aluminium (₹477 per share) and zinc/copper businesses (₹336 per share), with additional contributions from oil & gas, power, and steel segments.

While the demerger has been well received from a structural standpoint, analysts caution that the real test lies ahead.

Key factors to watch include the listing valuations of the new entities, execution of planned capex projects, commodity price trends, and the company's ability to maintain dividend payouts. Vedanta's guidance of targeting $5 billion EBITDA by FY30 for the residual entity also remains an important long-term milestone.

In the near term, price discovery across the demerged entities will play a crucial role in determining investor sentiment.