Centre’s ‘reluctance’ puts a spoke in Vedanta’s spin-off wheel for Hindustan Zinc

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Vedanta’s demerger plan is staring at a roadblock after it was reported that Hindustan Zinc could put on hold a proposal to create two separate entities due to Centre’s reluctance.

The government owns a 29.54% stake in the miner.

Credit Sights, a FitchSolutions Company, earlier this month had stated that it will be a challenge for Hindustan Zinc, a Vedanta Group company, to proceed with its proposed demerger as the company will be “unsuccessful” in getting the required approval.

HZL, according to an Economic Times report, has decided to stay off the demerger course for now. The report further said that the firm would keep Centre on board while adopting such a plan.

Anil Agarwal-controlled Vedanta holds 64.92% in HZL. Past instances of Centre objecting to Vedanta’s corporate actions include one last January, where Vedanta’s board approved a sale of its Zinc International assets to Hindustan Zinc for $2.98 billion. The deal later fell through after Centre resisted.

HZL’s board had pushed for a rejig in September last year, to create three separate legal entities for zinc and lead, silver, and recycling business to unlock shareholder value.

Yes Securites in another report said the demerger would make the complex business structure simpler with sector focused operations. It said the demerger makes it easier for the investors to value businesses individually and invest in more value accretive sectors that would down the line be the compounders of wealth.

At the current market price, the company currently trades at 5.01 times enterprise value/Ebitda at FY24E as per Bloomberg estimates.

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