Vedanta has not publicly published a single “official” valuation model for splitting itself into six verticals, but brokerages and analysts broadly use a sum‑of‑parts framework built on sector‑specific multiples, debt allocation and cash‑flow profiles for each business. The goal is to remove the conglomerate discount by valuing aluminium, oil & gas, power, steel/ferrous and base metals as standalone entities rather than as one blended commodity conglomerate.
Big picture: how the Vedanta split is valued
Analysts treat the demerger as a vertical split of enterprise value, not just a cosmetic share shuffle. In practice, they:
- Start from Vedanta’s consolidated EV and equity value and then carve it into separate business “pockets” (aluminium, oil & gas, power, steel & ferrous materials, base metals, and residual Vedanta).
- Apply different valuation multiples (mainly EV/EBITDA and P/E) to each vertical based on global peers in that specific industry.
This process reflects the idea that an aluminium business should trade on aluminium‑peer multiples, an oil & gas business on E&P multiples, and so on, instead of one averaged multiple across the whole group.
Step 1 – Segmenting EBITDA, capex and cash flows
Brokerage models first attribute Vedanta’s historical and projected EBITDA, capex and free cash flow to each vertical using segment reporting and management guidance. For example:
- Vedanta Aluminium gets the aluminium smelting and alumina EBITDA plus planned capacity expansion (BALCO, alumina projects, etc.).
- Vedanta Oil & Gas gets Cairn India‑style upstream EBITDA and reserves/production profile.
- Vedanta Power, Steel & Ferrous, and Base Metals each receive their respective segment EBITDA and capex pipelines.
The valuation base year is typically FY24 or FY25e, with 1–2 years of forward EBITDA estimates so that sector multiples can be applied on a “normalized” earnings base, not just a single cyclically strong or weak year.
Step 2 – EV/EBITDA and P/E: sector‑specific multiples
Once segment EBITDA is isolated, analysts apply peer‑based multiples:
- Aluminium vertical: valued on EV/EBITDA using global aluminium producers and local peers; growth and operating leverage justify mid‑ to high‑single‑digit multiples.
- Oil & gas vertical: valued vs listed upstream E&P companies, sometimes with a small discount for fiscal‑regime risk and asset concentration.
- Power: compared to Indian IPPs/utility peers, often with lower multiples due to regulatory and ESG headwinds.
- Steel & ferrous materials: valued using steel and iron ore producer multiples, adjusted for cyclicality.
- Base metals: copper and zinc international operations valued relative to global diversified miners and smelters.
Several research notes suggest Vedanta combined trades at sub‑5x EV/EBITDA, whereas demerged entities could command 6–7x (or more for stronger verticals) if governance and leverage concerns ease. This “multiple re‑rating” is a core argument for value unlocking.
Step 3 – Debt and cash allocation across verticals post Vedanta demerger
A crucial part of the methodology is how debt is split between the new entities, because leverage will drive both risk and valuation. One detailed brokerage model (Axis Direct) explicitly assumes a debt allocation matrix such as:
- ~70% of Vedanta Limited standalone debt pushed into the Aluminium entity
- ~10% allocated to Oil & Gas
- ~3% to Steel & Ferrous
- ~2% to Power
- Remaining ~15% retained at residual Vedanta Limited
Cash and cash equivalents are also allocated (for example, 20% to Aluminium, 10% to Oil & Gas, 3% to Steel & Ferrous, etc.), so that each vertical ends up with its own net debt number and implied net‑debt‑to‑EBITDA ratio. After this, enterprise value for each vertical is:
EVvertical=(chosen multiple)×segment EBITDA
and equity value is EVvertical−net debt (allocated).
This EV/net‑debt bridge is where analyst views can differ significantly; more debt assigned to a vertical lowers its equity value and potential re‑rating.
Step 4 – Sum‑of‑parts and implied “unlock”
After valuing each vertical separately, analysts sum the equity values to get an implied “post‑demerger group equity value” and compare it with Vedanta’s current market capitalisation. Some estimates suggest:
- Combined demerged companies could be worth around ₹3 lakh crore versus a then‑current Vedanta market cap closer to ₹2 lakh crore, implying roughly 50% potential value unlock if markets fully rerate each arm.
- Other notes argue that at current prices the market is “only valuing Vedanta + Vedanta Aluminium,” and effectively pricing the smaller verticals (oil & gas, ferrous, copper, power) close to zero, implying upside if those re‑rate even modestly.
This sum‑of‑parts output is then cross‑checked using DCF or NAV style models for resource assets (especially for oil & gas and base metals), though EV/EBITDA dominates in most street research because of its simplicity and comparability.
Step 5 – Scenario analysis and discounts after Vedanta demerger
Given commodity cyclicality and governance concerns, most models overlay scenario analysis and holding‑company discounts:
- Bull/base/bear cases tweak commodity prices, utilisation, and cost curves, which alter EBITDA, cash flows, and thus EV.
- Some analysts apply an additional “governance/holding discount” to the residual Vedanta Limited, reflecting promoter‑level leverage and capital‑allocation risk.
- ESG and regulatory risks, especially for power and some mining operations, can lead to lower multiples or explicit valuation haircuts.
The result is a range of fair‑value estimates for each vertical, not a single point, which is why you see widely varying target prices even though the basic methodology (sum‑of‑parts on sector multiples) is similar across houses.
How to think about it as an investor post Vedanta split
From a shareholder’s perspective, the valuation methodology behind the demerger boils down to three levers: (1) segment EBITDA assumptions, (2) sector‑specific multiples, and (3) how debt is carved up. If you are evaluating the split yourself:
- Focus on each vertical’s standalone EBITDA quality and leverage rather than just the combined number.
- Compare the implied multiples with pure‑play peers to see if the model is realistic or aggressive.
- Pay special attention to the debt allocation schedule in the final scheme, because that will heavily influence which entities become “winners” or “value traps” post listing.
In essence, the Street is trying to move Vedanta from a single, heavily discounted conglomerate valuation to a sum‑of‑parts story where stronger verticals can be valued like their global peers, even if weaker ones stay cheap.
