Vedanta Demerger Stocks Rally: Oil, Power, and Iron Surge 5%
The recent demerger of the Vedanta Group has triggered a massive reshuffling in investor portfolios, with newly spun-off entities showing remarkable momentum. While Vedanta Oil & Gas, Power, and Iron & Steel hit their upper circuits, the group's flagship aluminium business saw a temporary pullback, creating a complex landscape for investors.
The Winning Streak: Oil, Power, and Iron & Steel
The demerged entities have demonstrated significant strength, with three stocks extending their winning streaks to six consecutive sessions. Vedanta Oil & Gas hit its 5% upper circuit at ₹36.40 on the BSE, while Vedanta Power also locked in at the 5% limit at ₹45.25. Leading the charge in terms of momentum is Vedanta Iron & Steel, which traded at its 5% upper circuit limit of ₹28.10.
The drivers for these gains vary across the sectors. Vedanta Oil & Gas, which houses the prominent Cairn Oil & Gas, is aggressively pursuing a production target of 300,000 to 500,000 barrels per day through a planned $5 billion investment. Meanwhile, Vedanta Power, which manages over 4 GW of installed capacity across states like Punjab and Odisha, aims to become one of India’s top three private thermal power producers by FY33.
Vedanta Aluminium: A Structural Compounder Amidst a Dip
Despite a 3.3% decline to ₹464, analysts remain bullish on Vedanta Aluminium Metal. Citi recently initiated coverage with a ‘Buy’ rating and a target price of ₹560, implying an upside potential of over 17%.
The bullish outlook is supported by a projected deficit in the global aluminium market, which could drive prices toward $4,000 per ton. Citi highlighted key growth drivers including the Balco expansion and improved cost structures through captive alumina and bauxite. Notably, the company is expected to reach a net cash position by FY28, making it a "structural compounder" compared to the more cyclical nature of the other demerged units.
Valuation Divergence and Block Deals
Investors face a fragmented valuation landscape, particularly in the power sector. Brokerage estimates for Vedanta Power vary significantly: Kotak Institutional Equities suggests a value of ₹60 per share, while CLSA estimates it at roughly ₹35.
Adding to the market volatility, the parent company, Vedanta, saw its shares fall 6% following reports of a massive block deal. Approximately 7.3 crore shares, valued at ₹2,149 crore, reportedly changed hands at ₹292 per share via the promoter entity, Twin Star Holdings. This transaction represents about 1.7% of the company's outstanding equity and has added a layer of caution to the overall group sentiment.
Key Takeaways
- Momentum vs. Value: While Oil, Power, and Iron & Steel are seeing immediate price surges and upper circuits, Aluminium is viewed by major brokerages like Citi as a long-term structural play with high upside potential.
- Sectoral Drivers: Vedanta Oil & Gas is focused on massive capacity expansion through $5 billion in investments, whereas the Power segment relies on long-term purchase agreements and capacity turnarounds.
- Investment Profiles: Analysts suggest that while Aluminium offers stable operating leverage, the other demerged entities like Iron & Steel should be treated as more tactical or cyclical investments due to higher commodity volatility.