Vedanta Oil & Gas: Paid to Wait for Price Discovery

Our second special situation. We bought the valuation, not the forecast, ~1.5x FY28 EBITDA, net cash, a national policy tailwind.

Every special situation has two lives, and the whole discipline in playing special situations lies in knowing which one you are playing. The idea behind this framework came from one dear friend Dhruv Bajaj.

The first is the price-discovery life. A corporate action which might be a demerger, a spin-off, a holding-company simplification, temporarily diverges a security’s price from its value. Forced sellers, negligible research coverage, abnormal P&L numbers, index funds way of working etc: none of it is about the business, and all of it is about these technical factors. This is where the special situation actually lives. It has a beginning and an end. When the structure resolves and the market is finally able to see the asset for what it is, the gap closes.

The second life is the ordinary one that every share has: the fundamental life, the business compounding and its own economics.

The reason to be clear about the difference is that the two ask for opposite behaviour. If your edge is only the price-discovery gap, you size the position, you wait for the re-rating, and you leave once the gap has closed, the special situation is over, and there is no prize for overstaying a thesis you no longer hold.

If, on the other hand, the asset underneath is one you would happily own for years regardless, then price discovery is merely a cheap door into a long-term holding, and you stay. Both are legitimate. Confusing them is how investors give back the gains from a good special situation by clinging to a mediocre business or selling a genuinely wonderful one the day it stops being cheap. So before we commit to a special situation, we answer one question: which side of situation are we playing?

Religare, which we wrote about a few weeks ago, is largely the second kind, where the asset underneath is one we would be content to own well after the gap has closed. VOGL is the rarer case where both lives are live at once. We bought for an unusually wide price-discovery gap (first life), and the tier-one asset underneath is free optionality to convert into a long-term hold (second life).

Intro to Vedanta Oil & Gas, and its listing background

Vedanta Oil & Gas Limited (VOGL) is the upstream oil-and-gas business of the Vedanta group, the operation the market still knows as Cairn, anchored by the giant Rajasthan (Barmer) onshore oil block. On 15 June 2026 it was carved out of Vedanta Ltd in the group’s five-way demerger and listed on the NSE and BSE.

The asset itself is one of the best in Indian energy. The Scottish explorer Cairn Energy discovered the Mangala field in Rajasthan in 2004, the largest onshore oil find in India’s history, and listed Cairn India in 2007. In 2010–11 Vedanta paid roughly US$8.7 bn for a controlling ~59% stake, valuing the asset at about US$15 bn — around 8x EV/EBITDA, to move the metals group into long-life, high-margin hydrocarbon cash flow. Cairn India was merged into Vedanta Ltd in 2017 and has since run as its “Cairn Oil & Gas” division.

As of today, that division has become a listed company VOGL, carrying a 1.3 bn-barrel reserve base, 44 blocks across 11 basins and >47,000 sq km, the largest private upstream position in India, accounting for 25% of the country’s crude oil production.

Now the technicality: The listing vehicle is an old shell called Malco Energy Limited, the former Madras Aluminium Company, whose aluminium business had been wound into Vedanta years ago, leaving a clean entity to receive the oil-and-gas undertaking. Shareholders of Vedanta Ltd simply received one VOGL share for each share they held. And that is where the opportunity is manufactured, because a share you receive is very different from a share you choose to buy:

• Forced, price-insensitive selling: Index and passive funds that owned Vedanta Ltd received a small, off-benchmark oil-and-gas spin-off they are not allowed to hold and MSCI removed Vedanta Ltd from its Global Standard indices effective 22 June 2026. They must sell, mechanically, at any price.

• “T”-group friction: As a freshly demerged stock, VOGL trades on a trade-to-trade, no intraday netting, so the speculative bid that usually absorbs new-listing supply simply was not there.

• A negative optical P/E: FY26 carried a one-off, non-cash impairment of ~₹1,493 cr that dragged the reported entity to a headline loss. Screeners therefore show a negative P/E and book value and flash red, even though underlying EBITDA never dropped below ~US$0.5 bn. In the past also, we have written about how one should double check the screener numbers, this again reiterates the same.

Three unrelated forces, none of them about the fundamental oil upstream business, created the price-discovery gap.

Street concerns and Management’s game plan

The market’s fundamental worry is legitimate and worth stating plainly: gross output fell 16% in FY26, to ~87 kboepd, and the group’s FY29 target of 150 kboepd has slipped before. The market is pricing VOGL as a melting ice cube.

We think that is the wrong frame, for two reasons.

First, what caused the decline is understood and, in large part, self-inflicted timing. The core Rajasthan fields (Mangala, Bhagyam, Aishwarya) and the offshore Ravva field are mature and in natural decline; the base-decline rate had been running near 18%. On top of that, commissioning of the flagship enhanced-recovery project at Mangala slipped, so the barrels meant to offset the decline simply arrived late, and softer gas volumes compounded it.

Second, there is real, funded growth to offset it, and it does not need to fully land for the thesis to work, it only has to work partly:

• Decline management. Interventions have already pulled the base-decline rate from ~18% to ~13% over nine months; the target is <12% a year.

• Chemical enhanced oil recovery (ASP). The world’s largest single-field Alkaline-Surfactant-Polymer flood has begun injection at Mangala, targeting a lift in recovery from ~33% toward ~60%. (For the technically curious: this is chemical recovery, not steam/thermal.)

• Tight oil and new projects. Barmer-Hill infill drilling aims to take that stream from ~8 to ~15 kboepd, and the Ambe offshore gas project (production targeted Q4 FY27) is funded and under way.

Besides the above company specific factors, one broad theme is India Gov plan to reduce the 85–88% crude import dependence. The policy initiatives: the 2025 Oilfields (Regulation & Development) Amendment Act, the OALP acreage rounds, amended PNG rules and royalty revisions, is actively pulling private capital upstream, and a live Strait-of-Hormuz premium (roughly a fifth of the world’s oil flows through it) only sharpens the urgency. VOGL is the cleanest listed way to own that thesis. This is the part we would be happy to hold long after the price-discovery gap has closed.

Scenarios: what crude does to the EBITDA

In commodities companies, building different price assumptions and their impact on profitability is the most important thing considering the price of underlying commodity is what swings a commodity producer from profit to loss or vice-versa. Oil is cyclical, and we (or anyone else) can’t predict its prices, what we can do is to assess the scenario of different crude oil prices and see the impact on EBITDA.

So rather than picking a number, we stress the business across a range of Brent, and we do it off the company’s own disclosed sensitivity rather than our imagination: a 10% (≈US$7/bbl) move in oil changes EBITDA by about US$38 m at FY26 scale, which we then scale up to each year’s larger working-interest volume (given in the ppt).

In rupee terms, a US$1/bbl move in Brent is worth roughly ₹60 cr of EBITDA in FY27, rising toward ~₹90 cr by FY29 as volumes grow. We ran this calculation for different scenarios as given below:

Source: Company PPT, Excerpt from Nine One Capital Report on Vedanta Oil & Gas (Price of Rs 33)

The single most important line here is the stress case. Even at a sustained US$50 Brent, VOGL still throws off ~₹6,800 cr of EBITDA, because its operating cost is only ~US$14–16 a barrel, and its balance sheet is net cash. There is a subtle point to notice: under the production-sharing fiscal terms, the government's profit share rises with the oil price, so VOGL's margin is mildly counter-cyclical.

Even under the stress scenarios, basis the production guidance given by the VOGL, at the time of buying, we were paying only ~2x EV/EBITDA while PSU upstream get 4-5x EV/EBITDA.

What it is worth

We anchor on FY28 EBITDA, the first clean year and apply a range of EV/EBITDA multiples, add the projected net cash, and divide by the share count. For context, PSU upstream companies trade at roughly 4–5x EV/EBITDA. VOGL, at the time of buying, was trading at about 1.5x to 2x FY28. This margin of safety was the core investment thesis for us.

Source: Nine One Capital

As shown above, even in the stress case and lower multiples than the PSU upstream players, there was enough upside and no downside which attracted us to VOGL. While we hope for our base case to pan out, we took comfort from the bear case which does not lose us money (actually makes money).

That is the whole point of the scenario work. We do not need oil to cooperate, and we do not need every well to come in on time. We need the entry multiple to be so low that the range of outcomes in the stress case do not lose us money.

At the cost of repetition across all our writings, we want to survive first and then thrive. Our single biggest consideration behind any investment is that we want the probability of losing money to be very low in the bear case while base and bull case ensure a good investment outcome.

Note: We built the scenarios above at a price of ₹33. As we publish, the forced selling appears to be thinning, and the price discovery we described may well have begun. We would rather say that plainly than pretend you are reading this at the bottom. But look again at the tables given above and you will get the context of the bigger picture.

Ending Words

We size Vedanta Oil & Gas decent enough to matter when the re-rating comes, while deliberately capped for the things we cannot know from the outside. Key unknowns are: the parent, Vedanta Resources, is levered and could seek to draw cash up from a debt-free subsidiary; the Cambay block’s licence extension has been rejected and is in court; the Rajasthan profit-petroleum and royalty disputes are open (though arbitration so far has run in Vedanta’s favour, and any award is ring-fenced to VOGL).

Investing is, in the end, taking a bet with limited information and finding your comfort in the valuation rather than in the forecast. At ~1.5x FY28 EBITDA, net cash, with a national policy tailwind and a funded growth plan, VOGL clears that bar. We are buying the valuation and being paid to wait for the operations to catch up to the asset and, because the asset underneath is genuinely good, we have the option, once price discovery has done its work, to stop treating this as a special situation and simply keep owning a tier-one oil producer. That optionality, a re-rating we can sell into, or a compounder we can hold, is exactly what the “two lives” framing is meant to capture (discussed above).

At Nine One Capital, we spend a significant amount of time building the analytical foundation behind every idea before we act on it — the full internal work behind this note runs to a detailed investment committee memo and a scenario model. If you would like to understand our research process in more depth, or explore how our advisory services can put you on the right side of these situations, you can reach us at gaurav.a@nineonecapital.in or fill in the form here (link).

Important Note and Disclaimer: Nine One Capital is a SEBI-Registered Investment Adviser (Registration No. INA000018814). This article is not a buy/sell recommendation. We are simply highlighting a potentially mispriced opportunity based on publicly available data and our own internal estimates, which may be wrong; investors must do their own due diligence before taking any position. Scenario and valuation figures are illustrative model outputs, not forecasts or guarantees, and depend on assumptions (a re-rating toward peer multiples, oil prices, execution of the growth plan, and retention of projected net cash) that may not hold. VOGL is a newly-demerged, single-asset-concentrated, lightly-covered stock with elevated governance, regulatory and liquidity risk. We and our advisory clients hold a position in Vedanta Oil & Gas Ltd and may transact in it. Past performance is not indicative of future returns. Investments in the securities market are subject to market risks; read all related documents carefully before investing. Registration granted by SEBI and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns.