Vedanta Demerged Stocks Rally: Is It Time to Buy Oil, Power, or Iron?

The recent demerger within the Vedanta Group has triggered a massive divergence in stock performance, with spun-off entities seeing explosive gains while the flagship aluminium business faces a temporary pullback. As investors navigate this structural shift, understanding the distinct valuation drivers for each vertical is crucial for informed decision-making.

The Winning Streak: Oil, Power, and Iron Surge

Following the recent demerger, three Vedanta entities have demonstrated significant momentum, marking six consecutive sessions of gains. Vedanta Oil & Gas and Vedanta Power both hit their 5% upper circuit limits, trading at Rs 36.40 and Rs 45.25 respectively. Vedanta Iron & Steel has emerged as the top performer among the spun-off businesses, also closing at its 5% upper circuit limit of Rs 28.10.

The growth in Vedanta Oil & Gas is underpinned by its position as India's leading private-sector upstream player via Cairn Oil & Gas. The company is targeting a production capacity of 300,000 to 500,000 barrels per day, backed by a planned $5 billion investment. Analysts at SBI Securities have set a fair value for the stock at Rs 42 per share.

Divergent Views on Vedanta Power and Iron & Steel

While the momentum for Vedanta Power is strong, brokerages remain divided on its intrinsic value. Estimates vary significantly: Kotak Institutional Equities pegs the value at Rs 60 per share, while CLSA offers a much more conservative estimate of Rs 35. The company, which holds over 4 GW of installed capacity, aims to become one of India's top three private thermal power producers by FY33.

Vedanta Iron & Steel, despite its six-day rally, is viewed by experts like Sunny Agrawal of SBI Securities as a cyclical play. While it offers upside, it carries higher execution and commodity risks compared to the group's more stable assets.

The Aluminium Contradiction: A "Buy" Amidst a Sell-off?

In a sharp contrast to the rally in the demerged units, Vedanta Aluminium Metal declined by 3.3% to Rs 464. However, institutional sentiment remains aggressively bullish. Citi recently initiated coverage with a ‘Buy’ rating and a target price of Rs 560, implying an upside potential of over 17%.

Citi’s optimistic outlook is driven by a projected aluminium market deficit, with expectations that prices could rise to $4,000 per ton. The brokerage highlighted key growth drivers such as the Balco expansion and the company's path toward a net cash position by FY28. Interestingly, while the demerged stocks are seen as tactical plays, Aluminium is viewed as a "structural compounder."

Key Takeaways

  • Performance Divergence: Vedanta’s demerged entities (Oil & Gas, Power, and Iron) are seeing high momentum with 5% daily gains, whereas Aluminium is experiencing a temporary price correction.
  • Valuation Gaps: There is significant disagreement among brokerages regarding Vedanta Power, with valuations ranging from Rs 35 to Rs 60 per share.
  • Strategic Outlook: While Oil and Iron are viewed as cyclical or tactical investments, Vedanta Aluminium is positioned by major brokerages like Citi as a long-term structural growth play.