ICRA Boosts Vedanta’s Credit Rating to AA

Vedanta

The rating upgrade reflects improvement in credit metrics, financial flexibility, and a calibrated approach toward capital deployment.

The company has Rs 22,000 crore+ ($2.61 billion) war chest arising from cash reserves, dividends, and stake sales from its subsidiary.

INDIA: ICRA has upgraded Vedanta Limited’s long-term credit rating to [ICRA]AA from [ICRA]AA-, reflecting the company’s strengthened credit profile. The short-term rating has also been reaffirmed at [ICRA]A1+.

This upgrade comes amidst significant developments at Vedanta Group that focus on long-term strategic growth and financial strength. Vedanta Ltd. has built a war chest exceeding Rs 22,000 crore, comprising mainly of existing cash reserves, stake sales, and dividends from its subsidiary Hindustan Zinc Limited (HZL). Over the past few quarters, Vedanta has deleveraged its balance sheet resulting in an improvement in the net debt to EBITDA ratio from 1.9X in Q1FY24 to 1.5X currently. Similarly, the mining major’s UK parent – Vedanta Resources Limited – has seen an improvement in the current group net debt to EBITDA 3.3X in FY20 to a current 2.2X.

VRL is also actively pursuing to refinance a substantial portion of its outstanding bonds, aiming to lower the consolidated entity’s interest costs further. All the deleveraging efforts are also expected to improve the overall financial flexibility of the Group. Notably, in July 2024, S&P Global upgraded the VRL’s credit rating to B-/stable from CCC+.

The Vedanta Group has some of the world’s largest mines in various categories. As per its annual report, it has the world’s largest underground zinc-lead mine in India’s western state of Rajasthan. Vedanta’s subsidiary – HZL – is the third largest producer of silver in the world, while its oil and gas unit operates the world’s longest continuously heated pipeline.

Vedanta has recently gone through fundraising initiatives such as a Qualified Institutional Placement (QIP) worth approximately $1 billion and an additional ~ $400 million from the sale of Hindustan Zinc Limited (HZL) shares. Furthermore, around $500 million raised by Vedanta Resources Limited (VRL) through a stake sale in VEDL in June 2024 will also aid in reducing the Group’s overall debt burden. This move is expected to improve the group’s leverage and lower its interest expenses, signaling a robust financial strategy focused on long-term stability and growth.

In addition to these financial improvements, Vedanta’s operational performance has also been a key driver. The company has reported solid results, especially in its aluminum and zinc businesses, where improved realizations and cost efficiencies have led to strong operational performance. They together contributed over 80% to consolidated OPBITDA in FY2024 and Q1 FY2025. The company recorded the highest-ever alumina production at Lanjigarh and mined metal products at the Zinc India unit. It brought down the overall cost of production by 20 percent YoY due to structural changes and other initiatives. Lanjigarh has a capacity of 3.5 MTPA, which is one of the largest refineries in the world.

Strategically, Vedanta continues to focus on strengthening its diverse portfolio. A key aspect of its strategy has been increasing the share of value-added products, particularly in the aluminum segment, which is expected to boost profitability and support long-term growth. The company’s efforts to streamline costs and focus on vertical integration will further contribute to improved margins and operational efficiency. The company’s investment in expanding its capacities and reducing operational costs ensures it is well-placed to maintain its market leadership.

The company is on track with its demerger after receiving a no-objection certificate from secured lenders and the stock exchanges. It has already filed the scheme with the National Company Law Tribunal (NCLT).

The de-merger, which is planned to be a simple vertical split, will enable value unlocking and attracting big-ticket investment into the expansion and growth of each of its demerged businesses. By further simplifying its corporate structure, the demerger will create sector-focused independent businesses that will provide investment opportunities to Indian and global investors, including sovereign wealth funds and strategic investors.

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