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· Favorable domestic demand scenario to support volume growth for Vedanta: ICRA.
· Operationalization of coal/bauxite blocks in next 2-3 years will make Vedanta better placed to withstand shocks in cyclical downturns.
Chandigarh, May 24, 2024: Credit rating agency ICRA Limited has assigned a long term rating of ICRA AA- and short term rating of ICRA A1+ on Vedanta Limited (VDL) citing multiple positives on the operational and financial front. “The assigned ratings factor in the strong business risk profile of Vedanta driven by its diversified product portfolio, large scale of operations with a healthy market share in the domestic aluminium and zinc businesses” ICRA said in its rating rationale.
Noting the strengths in the aluminium business, ICRA has stated that Vedanta is in the process of enhancing the capacity of its alumina refineries. Along with the expected commencement of the captive coal/bauxite blocks over the next 2-3 quarters, this would impart cost efficiency and is likely to partially hedge the profits against the volatility in raw material prices, ICRA said. Vedanta would be better placed to withstand shocks during the cyclical downturns after operationalization of these blocks.
The credit rating agency has also noted the steadiness in Vedanta’s operating margin on the back of improved cost of production and range-bound movements in metal prices. “In FY2025, the expected improvement in the cost structure, primarily in the aluminium business, driven by backward-integration projects is likely to further support the overall operating profits,” ICRA said. The sales volume is expected to improve in the aluminium, zinc international and iron ore segments, it added.
Vedanta has a diversified metals portfolio spanning multiple metals, oil and gas, and power IPP projects. Among other things, ICRA expects large scale of Vedanta’s operations coupled with its cost-efficient operations in the domestic zinc and oil and gas segments to strengthen the mining major’s operating profile.
Similar to ICRA, other credit rating agencies have also factored in multiple positives while rating Vedanta. CRISIL and India Ratings have assigned long term rating of AA- and A+, and short term ratings of A1+ and A1, respectively to Vedanta.
The company delivered its second highest ever annual revenue of Rs 1,41,793 crores and EBITDA of INR 36,455 crores with an EBITDA margin of 30% during FY24 despite a moderate commodity cycle. Its Aluminium business delivered highest ever annual production of 2.37 million tons, with impressive cost reduction of 23% from the previous year.
The mining major has proposed a vertical split of the businesses and will list five entities on the stock exchanges, which is expected by the end of this year. As per the plan, it will be a simple vertical split, where for every one share of Vedanta Limited, the existing shareholders will additionally receive one share of the five newly listed companies.
