Most analysts that track Anil Agarwal's Vedanta Ltd. have maintained their bearish stance on the stock despite the company announcing a vertical split of its businesses into six different entities.

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While some have upgraded the stock from the lowest rating, there are no significant price target hikes as the Street continues to worry over the leverage concerns regarding the parent company, Vedanta Resources Ltd.

Here's what you should know about the demerger as a Vedanta shareholder.

Kotak Institutional Equities, which recently cut its price target on Vedanta to Rs 200 has maintained its sell recommendation on the stock. It believes that the move will reduce cash flows across businesses and increase earnings volatility, which will concern lenders.

The brokerage further said that the move reverses Vedanta's efforts of consolidating businesses and also contradicts the rationale of past corporate actions.

The brokerage does not expect the demerger to unlock any significant value by itself and added that the funding gap for upcoming bond maturities remains a key overhang for the stock.

Kotak also said that the divestment of non-core assets is the need of the hour for Vedanta.

"We reckon Vedanta's objective is to reduce the conglomerate discount to potentially help a stake sale by the promoter," brokerage firm Citi said in its note.

Analysts at Citi remain unsure whether the demerger would help the stock's multiples given the leverage concerns at both the parent company and the listed entity.

Citi has also maintained its sell rating on Vedanta with a price target of Rs 225.

Another brokerage that has maintained its sell rating on Vedanta is Investec with a price target of Rs 180. Calling the move a smart one, Investec said this will eventually pave the way for the promoter to tap the easier option of monetising/delisting the entities.

However, it has cited risks of inter-group restructuring, carbon-heavy assets, and cash flow burn among new ventures. It also awaits clarity on debt profiles.

Investec also has a sell recommendation on Hindustan Zinc with a price target of Rs 240. Its price target on Vedanta is the lowest on the street for the company.

One of the brokerages that has upgraded Vedanta is CLSA. It now has an outperform rating on the stock compared to its earlier one of underperform. However, it has also cut its price target to Rs 230 from Rs 255 earlier.

CLSA stated in its note that the move will not change anything operationally in the near term but it will enable the parent company to bring in strategic investors, thereby easing debt.

"For a sustained re-rating of Vedanta Ltd. the focus needs to shift back to operational improvements," the note said.

Out of the 14 analysts that track Vedanta Ltd., five have a buy and sell rating on the stock, while four have a hold recommendation. On Friday, the stock had its best single-day gain in 2023, when it ended 7 percent higher. However, that was in reaction to Hindustan Zinc approving a proposal to explore restructuring plans. The demerger announcement came post-market hours.

(Edited by : Amrita)

First Published:Oct 3, 2023 8:12 AM IST