Leading global research firm, JP Morgan has said that it is not going to get distracted by third party concerns regarding financial management and governance practices at Vedanta Resources and its subsidiary, Vedanta Ltd. In a note, the firm said that it remains over weight on Vedanta Ltd with continued strong commodity prices, further de-leveraging and potential asset sales or equity raise.
“We have generally focussed on Vedanta Ltd’s cash flows and earnings excluding Hindustan Zinc to unravel the key drivers of the credit. VDL (ex-HZL) reported EBITDA of $3.1bn in FY25 and a net leverage of 2.2x. We struggle to see financial stress at VDL with these metrics. For HZL, net leverage was 0.1x. HZL has capex plans and we see net leverage going up to 0.5x,” the JP Morgan note said.
The JP Morgan report added that it considered Vedanta to be cheap within Asia and within the emerging markets’ metals and mining space with healthy EBITDA generation (~ $5bn run-rate), improving funding access with approximately $1bn bank loans raised by Vedanta Resources in FY26, and attractive yields (~8-10%).
Earlier this week, US short seller Viceroy Research alleged that Vedanta Resources is “systematically draining” Vedanta Ltd and Hindustan Zinc via dividend payouts, a charge which the group called as “selective misinformation and baseless” aimed at discrediting it.
On HZL, JP Morgan’s note said that the Indian government has retained and maintained three board seats at HZL since its divestment in the early 2000s. Further, there have bene instances when the government-nominated directors acted to prevent transactions that they consider will not be beneficial to HZL or its stakeholders. The government currently owns 27.92% stake in HZL while Vedanta Ltd owns 61.84%.
“We believe the GoI (government of India) retains oversight of major decisions, including capex plans,” the note added.
Talking about specific instances in the Viceroy note where HZL has not reported tax and other claims under litigation as liabilities, the JP Morgan note said that such claims and the related litigation are common in heavily regulated sectors like mining.
“HZL has reported tax and other claims of ~Rs 151.5 billion, which are under litigation. These are not recognized by the company as liabilities. JSW Steel too has reported Rs 150 billion of such claims under litigation. Neither company shows the amount as a liability on the balance sheet,” the note said.
On HZL’s call/put option, the report said that these options could be exercised within 90 days of the government becoming aware of a default on a particular condition related to the completion of a smelter plant in a specific location.
“The project was to be completed by 2007, but HZL completed the smelter at a different location after informing the government. We would be surprised if any breach had not been identified by the government over the past ~20 years,” it said.
Among the downside risks for Vedanta, JP Morgan said these are weaker than expected commodity prices, large mergers and acquisitions of over $500mn to $1 billion or capex plans of similar size, weak onshore banking access leading to high interest costs and regulatory investigations.
