VEDANTA LIMITED: STRATEGIC RESTRUCTURING TO TACKLE
CONGLOMERATE DISCOUNT CASE STUDY SOLUTION
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SYNOPSIS
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Vedanta Limited (VEDL), an Indian conglomerate, operated in natural resources business segments,
including aluminum, power, steel, oil and gas, and base metals segments such as copper, zinc, lead, silver.
In September 2023, the company’s market value was approximately half of its intrinsic value, as its
individual business segments were estimated to be worth significantly more operating independently.
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The chair of VEDL, Anil Agarwal, needed to take the necessary steps to enhance shareholder value by
unlocking conglomerate discounts. The combined segments were perceived to generate negative synergies
for the conglomerate, as indicated by the trading multiples of comparable companies. In looking for viable
ways to eliminate the discount, he had to choose among the following options: (1) a share repurchase, (2)
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divestiture, (3) a spinoff of one or more segments, or (4) a spinoff of all segments.
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OBJECTIVES
• Identify the conglomerate discount through the sum-of-the-parts valuation method.
• Evaluate the rationales for various strategies to address a conglomerate discount.
• Explain the strategic position of a company’s business segments using the Boston Consulting Group
(BCG) matrix.
• Analyze a company’s valuation using the discounted cash flow (DCF) modelling technique.
• Evaluate a company’s position based on an analysis of its strengths, weaknesses, opportunities, and
threats (SWOT).
The Case Solution Starts From page 7
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ASSIGNMENT QUESTIONS
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Strategy
1. As the chair of VEDL, would you consider a spinoff to be a viable strategic option based on the BCG
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matrix analysis?
2. What is the strategic position of VEDL’s business in the industry?
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3. If the company decides to undertake a spinoff, how will this help it gain strategic synergy?
4. How can VEDL strategically bolster the engagement of its stakeholders and enhance their interest in
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the company?
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Finance
5. Is there evidence of a conglomerate discount in VEDL?
6. What advice would you give Agarwal regarding the company’s next steps? What would you do if you
were in the chair’s position?
7. Based on historical and estimated figures, compute the DCF valuation of VEDL.
The Case Solution Starts From page 7
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ANALYSIS
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1. As the chair of VEDL, would you consider a spinoff to be a viable strategic option based on the
BCG matrix analysis?
A decision to go for a spinoff is likely to be affected by market growth and the market share held by VEDL.
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As chairman of VEDL, Agarwal can use the BCG matrix to determine which segments are contributing to
Vedanta’s overall growth and which are simply wasting money (see Exhibit -1). The cow and dog
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segments have the lowest market growth; while the dog segment has a smaller market share, the cow
segment has a larger market share. Holding a large market share in a low-growth market has a detrimental
effect on VEDL’s overall profitability and growth. While products under the cow segment have a
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considerable stake, VEDL should harvest funds from these sectors by divesting from the dog segment.
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The two categories with the highest market growth are the star and question mark segments. The star segment
The Case Solution Starts From page 7
,7. Based on historical and estimated figures, compute the discounted cash flow valuation of VEDL.
The valuation is computed using DCF modelling. The purpose of this model is to get to an intrinsic value
of shares based on the forecasted free cash flows of the enterprise. Students need to start by computing the
weighted average cost of capital (WACC).
Computation of WACC of VEDL
Since VEDL has a capital structure that combines equity and debt, WACC is the appropriate cut-off rate; it
is computed using the following formula:
WACC = Wd × kd + We × ke
Where, Wd and We are weights of debt and weights of equity, respectively, kd is cost of debt, and ke is cost
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So
The Case Solution Starts From page 7
, EXHIBIT -1: BCG MATRIX FOR VEDANTA LIMITED
BCG Matrix
Copper
Question
Star Mark
Market Growth
Power
Steel & Ferrous Aluminium Zinc
Oil & Gas
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Co Dog
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Relative Market Share
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EXHIBIT -2: SWOT ANALYSIS FOR VEDANTA LIMITED
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The Case Solution Starts From page 7
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EXHIBIT -6: FREE CASH FLOWS AND DCF VALUATION
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(in ₹ millions)
Particulars Mar-23A Mar-24F Mar-25F Mar-26F Mar-27F Mar-28F
EBIT 585,550.0 599,766.0 614,327.0 629,241.0 644,518.0 660,165.0
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Tax rate 30% 30% 30% 30% 30% 30%
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EBIT (1 − t) or NOPAT 409,885.0 419,836.0 430,029.0 440,469.0 451,162.0 462,116.0
Depreciation and
amortization 105,970.0 112,917.4 120,320.2 128,208.3 136,613.6 145,570.0
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Net capital expenditure 136,540.0 152,315.7 169,914.1 189,545.8 211,445.7 235,876.0
Change in working capital 45,990.0 55,761.7 67,609.8 81,975.2 99,392.9 120,511.4
Free cash flow to firm
So
The Case Solution Starts From page 7
CONGLOMERATE DISCOUNT CASE STUDY SOLUTION
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SYNOPSIS
m
Sa
Vedanta Limited (VEDL), an Indian conglomerate, operated in natural resources business segments,
including aluminum, power, steel, oil and gas, and base metals segments such as copper, zinc, lead, silver.
In September 2023, the company’s market value was approximately half of its intrinsic value, as its
individual business segments were estimated to be worth significantly more operating independently.
n
tio
The chair of VEDL, Anil Agarwal, needed to take the necessary steps to enhance shareholder value by
unlocking conglomerate discounts. The combined segments were perceived to generate negative synergies
for the conglomerate, as indicated by the trading multiples of comparable companies. In looking for viable
ways to eliminate the discount, he had to choose among the following options: (1) a share repurchase, (2)
lu
divestiture, (3) a spinoff of one or more segments, or (4) a spinoff of all segments.
So
OBJECTIVES
• Identify the conglomerate discount through the sum-of-the-parts valuation method.
• Evaluate the rationales for various strategies to address a conglomerate discount.
• Explain the strategic position of a company’s business segments using the Boston Consulting Group
(BCG) matrix.
• Analyze a company’s valuation using the discounted cash flow (DCF) modelling technique.
• Evaluate a company’s position based on an analysis of its strengths, weaknesses, opportunities, and
threats (SWOT).
The Case Solution Starts From page 7
, e
pl
ASSIGNMENT QUESTIONS
m
Sa
Strategy
1. As the chair of VEDL, would you consider a spinoff to be a viable strategic option based on the BCG
n
matrix analysis?
2. What is the strategic position of VEDL’s business in the industry?
tio
3. If the company decides to undertake a spinoff, how will this help it gain strategic synergy?
4. How can VEDL strategically bolster the engagement of its stakeholders and enhance their interest in
lu
the company?
So
Finance
5. Is there evidence of a conglomerate discount in VEDL?
6. What advice would you give Agarwal regarding the company’s next steps? What would you do if you
were in the chair’s position?
7. Based on historical and estimated figures, compute the DCF valuation of VEDL.
The Case Solution Starts From page 7
, e
pl
ANALYSIS
m
Sa
1. As the chair of VEDL, would you consider a spinoff to be a viable strategic option based on the
BCG matrix analysis?
A decision to go for a spinoff is likely to be affected by market growth and the market share held by VEDL.
n
As chairman of VEDL, Agarwal can use the BCG matrix to determine which segments are contributing to
Vedanta’s overall growth and which are simply wasting money (see Exhibit -1). The cow and dog
tio
segments have the lowest market growth; while the dog segment has a smaller market share, the cow
segment has a larger market share. Holding a large market share in a low-growth market has a detrimental
effect on VEDL’s overall profitability and growth. While products under the cow segment have a
lu
considerable stake, VEDL should harvest funds from these sectors by divesting from the dog segment.
So
The two categories with the highest market growth are the star and question mark segments. The star segment
The Case Solution Starts From page 7
,7. Based on historical and estimated figures, compute the discounted cash flow valuation of VEDL.
The valuation is computed using DCF modelling. The purpose of this model is to get to an intrinsic value
of shares based on the forecasted free cash flows of the enterprise. Students need to start by computing the
weighted average cost of capital (WACC).
Computation of WACC of VEDL
Since VEDL has a capital structure that combines equity and debt, WACC is the appropriate cut-off rate; it
is computed using the following formula:
WACC = Wd × kd + We × ke
Where, Wd and We are weights of debt and weights of equity, respectively, kd is cost of debt, and ke is cost
e
pl
m
Sa
n
tio
lu
So
The Case Solution Starts From page 7
, EXHIBIT -1: BCG MATRIX FOR VEDANTA LIMITED
BCG Matrix
Copper
Question
Star Mark
Market Growth
Power
Steel & Ferrous Aluminium Zinc
Oil & Gas
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Co Dog
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Relative Market Share
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Sa
EXHIBIT -2: SWOT ANALYSIS FOR VEDANTA LIMITED
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So
The Case Solution Starts From page 7
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EXHIBIT -6: FREE CASH FLOWS AND DCF VALUATION
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(in ₹ millions)
Particulars Mar-23A Mar-24F Mar-25F Mar-26F Mar-27F Mar-28F
EBIT 585,550.0 599,766.0 614,327.0 629,241.0 644,518.0 660,165.0
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Tax rate 30% 30% 30% 30% 30% 30%
tio
EBIT (1 − t) or NOPAT 409,885.0 419,836.0 430,029.0 440,469.0 451,162.0 462,116.0
Depreciation and
amortization 105,970.0 112,917.4 120,320.2 128,208.3 136,613.6 145,570.0
lu
Net capital expenditure 136,540.0 152,315.7 169,914.1 189,545.8 211,445.7 235,876.0
Change in working capital 45,990.0 55,761.7 67,609.8 81,975.2 99,392.9 120,511.4
Free cash flow to firm
So
The Case Solution Starts From page 7
