1:6 Split Soon: At 34% Yield, Vedanta Stock Hits New High On Fundraising Plan, Demerger, Rising Metal Prices

Billionaire Anil Agarwal-backed Vedanta Limited is the highest dividend yield stock on the Indian market. This top dividend payer is mulling to raise funds via non-convertible debentures (NCDs) on a private placement basis. While also shares of Vedanta picked up momentum due to rising metal prices, and its path to unlocking value via demerger. Vedanta is set to split into 6 entities. Vedanta stock hits a new 52-week high of Rs 301.55 ahead of the proposal.

Vedanta shares gained as much as 5% on BSE during the trading session to hit a new 52-week high of Rs 301.55 apiece. This is a new record high by Vedanta.

Meanwhile, shares of Vedanta Limited hit a 52-week high of Rs 301.95 (NSE) during the trading session on April 02 on the back of the proposed demerger, rally in the global metal prices and the deleveraging steps at the conglomerate. Vedanta's stock gained more than 4.5%, closing at Rs 300.85 (NSE) creating a nearly 10% gain since March 26.

The rally comes after Vedanta announced its proposal for fundraising through market-related instruments. In its regulatory filing on April 1, Vedanta said, "We would like to inform you that the Company proposes to hold a meeting of its duly constituted Committee of Directors on Thursday, April 04, 2024, to consider the proposal for issuance of Non-Convertible Debentures on a private placement basis as part of its routine financing and refinancing that is undertaken in the ordinary course of business."

NCDs are issued by corporations to raise funds from the public and offer a fixed return. This is done through a public issue and subsequently traded either over the counter (OTC) or on exchanges. Ratings of NCDs issued reflect the position of the issuer in servicing its financial obligations i.e. to pay interest when due and also about the payment of the maturity proceeds on time, as per ICICI Direct.

Also, Vedanta's rally is in line with the strength in global metal prices that are soaring due to multiple factors. Strong industrial data from China indicated an expansion in manufacturing activity for the first time in six months. As China is the largest consumer of multiple metals, the strong economic data has led to a rally in metal stocks including Vedanta, a leading producer and supplier of iron ore, steel, copper and aluminium.

The rally is a reflection of the overall business potential and EBITDA projections of the company. Vedanta is expected to clock nearly $5 billion of EBIDTA in FY24 (April 2023 to March 2024). Similarly, the Vedanta Group is eyeing an EBITDA of $6 billion in the next financial year (FY 25) and scaling it to $7-7.5 billion in the following year on the back of operational efficiencies across businesses.

Also, the company is on track for the demerger of its key businesses, including aluminium, into separate listed companies and allocation of debt across the demerged entities that would be done in proportion to their assets, sources had said to GoodReturns.In.

Vedanta Limited ("Vedanta"), a subsidiary of Vedanta Resources Limited, is one of the world's leading natural resources companies spanning across India, South Africa, Namibia, Liberia, UAE, Korea, Taiwan and Japan with significant operations in Oil & Gas, Zinc, Lead, Silver, Copper, Iron Ore, Steel, Nickel, Aluminium, Power & Glass Substrate and foraying into semiconductors and display glass.

Vedanta's management has recently highlighted ambitious targets on volume growth and COP reduction across key businesses, to achieve VDL level EBITDA of ~US$5.6bn (up 35% YoY) in FY25 and US$7.1bn in the medium term.

In its research note, IIFL Securities said, "VDL's management expects FY25 to be a transformative year with 35% YoY Ebitda growth to ~US$5.6bn (on adjusted FY24 base), US$3.5-4bn FCF (pre-growth capex), and group ND/Ebitda of

Further, IIFL's note stated that management highlighted intent to achieve further deleveraging of US$3bn at VRL (vs US$6.2bn FY24E) through brand royalty (US$1.5bn over three years, can be higher as well) payments by VDL to VRL and cumulative dividend payout of US$4.5bn (VRL share of ~US$2.5bn) by VDL. It expects VDL debt to not increase from ~Rs620bn level despite annual capex of over ~US$1.6bn. Key to this would be delivery on volume expansion and reduction in CoP.

Vedanta had earlier said that it plans to deleverage debt by $3 bn over 3 years and that its promoter entity - Vedanta Resources - does not foresee a rollover of its debt.

"Deleveraging is our priority. We would be deleveraging the debt of Vedanta Resources by $3 billion over the next three years. VEDL's cash flow pre-growth capex is estimated to be $3.5-4 billion for the financial year 2025, sufficient for secured debt maturities of $1.5 billion,'' said Navin Agarwal, Vice Chairman, VEDL and member of Promoter Group at a recently concluded analysts' meet, according to analysts who attended the meeting.

Coming to the demerger, Vedanta's shareholders are in for a treat. For every share of Vedanta, shareholders will receive one share of each of the five newly listed companies. After the demerger, the businesses of Hindustan Zinc as well as the electronics business will remain with Vedanta Limited.

Last year, in September, Vedanta announced the creation of a demerger of metals, power, aluminium, and oil and gas businesses to unlock potential value. After the exercise, six independent verticals - Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Limited - will be created.

Currently, Vedanta is the highest dividend yield stock to the tune of 34.22% on the latest price level. In 2023 alone, Vedanta paid hefty dividends of up to Rs 62.5 per share or 6,250%.