The year 2023 proved to be a challenging one for Vedanta Ltd., the mining giant controlled by billionaire Anil Agarwal. Issues around high debt levels, fluctuating dividend payouts, and plans for a corporate demerger combined to weigh on Vedanta’s share price over the past 12 months.
The stock ended the year down around 17% since the start of January. This followed a strong rally in 2021 that saw shares double in value. But elevated debt, especially at the parent company level, became a major overhang for investors. Vedanta Resources, which owns a majority stake in the listed Vedanta Ltd., faces huge bond repayments of nearly $3.6 billion in the next two years.
To boost its cash reserves, Vedanta’s promoter sold over 4% of its stake for more than Rs. 4,000 crores. However, debt reduction remains a work in progress. There is pressure to maintain generous dividend payouts from cash cow subsidiaries like Hindustan Zinc. But this year’s dividends of Rs. 11 per share from Vedanta were the lowest in three years. Hindustan Zinc’s payout was also decreased, affecting its balance sheet.
Another significant development was Vedanta’s announcement in September to split up into six separately listed entities based on their core businesses. The aim is to simplify structure and let units pursue growth independently. However, analysts doubt this “demerger” will create much value or address debt concerns. It adds further uncertainties as the complex process won’t complete until 2025.
Going forward, Anil Agarwal’s strategic vision and ability to navigate the debt load will decide Vedanta’s fate. The company owns valuable mining assets but also large liabilities. If global conditions improve, Vedanta’s high-quality resources and dividend potential could boost stock performance in 2024. But headwinds around leverage, fluctuating commodity demand and the demerger’s challenges may ensure the 3Ds of debt, dividends and demergers stay crucial for Vedanta shareholders.
Overall, 2023 highlighted that Vedanta Ltd. remains a complex, leverage-sensitive company with many moving parts. The coming year will be important to see if its strategic steps can alleviate debt pressures, restore stable cash flows across the group and regain investors’ confidence. Much will also depend on economic conditions worldwide that impact demand for metals and energy. Simplifying operations through strategic financing while maintaining its strong asset base could help boost Vedanta’s shares in the long run, but challenges remain in stabilizing the business through periodic volatility.
