CRISIL Ratings has also assigned its ‘CRISIL AA-/Watch Developing’ rating to the Rs.1000 crore non-convertible debentures of Vedanta.

CRISIL stated that the ratings continue to factor in the healthy operating performance of Vedanta during the first nine months of fiscal 2024, reduced dependence on large dividend payouts over the medium term due to lower maturities at the parent, Vedanta Resources (VRL; post the liability management exercise) and the expectations of CRISIL Ratings of improvement in liquidity and financial flexibility of Vedanta in the near term.

That said, despite reduction, VRL’s annual debt maturities and interest obligation remain meaningful for fiscals 2025 and 2026 and will require refinancing. This is because the expected dividend payout through operating cash accrual and brand and management fees by Vedanta may fall short against VRL’s annual debt obligation. However, more-than-expected dividend distribution, impacting liquidity at Vedanta, will remain a key rating sensitivity factor.

The developing watch continues to factor in the corporate announcement by Vedanta that it will demerge its aluminium, oil and gas, power, base metal (zinc international and copper business) and iron and steel businesses into separate standalone listed entities. However, the deal will need requisite approvals, including from shareholders and lenders, and could take 3-4 quarters for completion. Also, clarity on allocation of assets and liabilities across entities under the proposed structure, along with group/parent support philosophy for each entity, is yet to emerge. CRISIL Ratings will continue to monitor developments regarding the proposed organisational restructuring.

The ratings also factor in expected improvement in financial flexibility of Vedanta due to the reduced refinancing risk at VRL after it successfully completed the liability management exercise earlier this quarter. CRISIL Ratings understands that Vedanta is in the process of raising funds with reduced cost of borrowing, which had increased recently. Lower-than-expected reduction in the cost of borrowing for any incremental fundraising by the company will be a key rating sensitivity factor.

The ratings continue to factor in the strong business risk profile of Vedanta, driven by its presence across commodities, cost-efficient operations in the domestic zinc and oil and gas businesses, and improving profitability in the aluminium business. These strengths are partially offset by high debt level, large capex and dividend payouts, and susceptibility to volatility in commodity prices and regulatory risk.

Vedanta has diversified operations across metals, mining, power, and oil and gas segments. Vedanta Resources holds 61.95% stake in Vedanta as on 31 December 2023.

During the first nine months of fiscal 2024, Vedanta reported revenue from operations of Rs 1,06,856 crore and profit after tax (PAT) of Rs 5,264 crore as compared with Rs 1,08,179 crore and Rs 11,374 crore for the corresponding period last year, respectively.

The scrip shed 0.35% to currently trade at Rs 269.95 on the BSE.