Detailed Rationale Crisil Ratings has assigned its ‘Crisil AA’ rating to the Rs.4500 crore non-convertible debentures of Vedanta Limited (Vedanta; part of the Vedanta group) and placed it on ‘Rating Watch with Developing Implications’. Further, Crisil Ratings has continued its rating on the long term bank facilities and existing non convertible debentures on ’Rating Watch with Developing Implications’ and has reaffirmed its rating on the short-term bank facilities and commercial paper programme at ‘Crisil A1+’.
Crisil Ratings has also withdrawn its rating on Rs 4,421.5 crores of bank loan facilities (see annexure: details of rating withdrawn) given that these have been fully repaid and on receipt of no dues certificate/balance confirmation from the lenders. This is in line with the withdrawal policy of Crisil Ratings.
The company’s consolidated Ebitda is increased to Rs. 43,541 crores during FY25, representing a ~19% increase on-year (in line with expectation of Rs 44,000-45,000 crore by the end of fiscal 2025; Rs 36,455 crore in fiscal 2024). The growth in earnings was supported by favourable prices and cost reduction through various initiatives, especially in the aluminium and zinc businesses. Ebitda is expected to improve further in fiscal 2026, despite moderation in prices by 5-10%, with expected completion of ongoing capital expenditure (capex) for capacity increase and operating efficiency improvement, especially in the aluminium business (with the expected commissioning of BALCO smelter by the first quarter of current fiscal). The expected increase in Ebitda will support the ongoing capex (expected to be ~Rs 19,000- 20,000 crore in fiscal 2026, including sustaining capex) as well as scheduled debt repayment over the medium term.
Crisil Ratings has also taken note of the promoter’s stated commitment towards continued debt reduction. This has also been reflected through various fundraising activities such as qualified institutional placement (QIP) and offer for sale (OFS) by Vedanta as well as stake sale by the parent, VRL, which has supported debt reduction this fiscal. The improvement in earnings along with the reduction in debt (net debt reducing to Rs 1.11 lakh crore in fiscal 2025, including VRL debt of ~Rs. 0.42 lakh crore) has led to reduction in consolidated net leverage to 2.55 times in fiscal 2025 (in line with expectations of below 2.6 times from 3.2 times in fiscal 2024). Further, in fiscal 2026, the expected increase in Ebitda, along with the reduction in debt (net debt reducing to less than Rs 1.1 lakh crore and further lower thereafter) should support reduction in consolidated net leverage to sustainably below 2.5 times in fiscal 2026 and thereafter.
The rating watch continues to factor in the impending demerger of Vedanta’s aluminium, oil and gas, power and iron and steel businesses into separate standalone listed entities, with base metal (zinc international and copper business) now being part of the residual entity. Crisil Ratings has taken note of the approval received from the shareholders and creditors (secured and unsecured) of the company on 18th February 2025, on the proposed demerger scheme, thereby increasing the likelihood of successful completion of the demerger. However, the demerger process is still awaiting final approval from the National Company Law Tribunal (NCLT) and other requisite approvals and could take a few more months, with the expected timeline set as September 2025. Further, Crisil Ratings still awaits final clarity on allocation of assets and liabilities across entities under the proposed demerger structure, along with the support philosophy for each entity by the group. This will be critical for evaluating the final credit profiles of the entities, including Vedanta, under the proposed structure and for resolution of the rating watch. However, based on the current understanding, Crisil Ratings does not expect material dilution in the credit profile and liquidity of separate entities after the demerger, as majority of the debt is likely to be supported by higher cash generating businesses. That said, Crisil Ratings will continue to monitor developments regarding the proposed organisational restructuring and final liability allocation.
The rating factors in the expected improvement in the consolidated operating profitability (earnings before interest, tax, depreciation and amortisation [Ebitda]) of Vedanta (despite expected moderation in prices by 5-10% in fiscal 2026), along with improved capital structure with reduction in debt and leverage to below rating thresholds. Furthermore, the rating factors in the overall improvement in the credit profile with better financial flexibility by increasing operating cash accrual and reducing debt, especially at Vedanta Resources Ltd (VRL; rated ‘B+/Stable‘ by S&P Global Ratings).
The ratings also factor in material reduction in refinancing risk at VRL, with reduced external debt (reduced to ~$4.9 billion in March 2025 from $6 billion as of March 2024) as well as lower annual maturities (to be less than $1 billion per annum) and reducing annual interest obligation. This has also been supported by recent bond refinancing activities by VRL (refinanced bonds of $3.1 billion post September 2024 with reduced rate of interest). The said reduction in interest cost and annual maturities of VRL is expected to result in significantly lower dividends from fiscal 2026 onwards. This, along with higher operating profitability, will aid Vedanta’s free operating cash flow (post dividend and capex) as well as liquidity to increase materially from this fiscal onwards and will remain a key monitorable.
Furthermore, the ratings have factored in reduced borrowing costs for Vedanta for incremental debt raised during the current fiscal from the levels seen in the second half of fiscal 2024, and is likely to witness further reduction, going forward, with the company’s ongoing fund-raising plans. The expected reduction in the cost of borrowing, along with continued fundraising by Vedanta in a timely manner, will be monitorable.
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, aluminium and oil and gas businesses, and improving capital structure. These strengths are partially offset by large debt repayment, substantial capex and dividend payouts, and susceptibility to volatility in commodity prices and regulatory risk.
Crisil Ratings has taken note of the recent NCLT order dated March 04, 2025, wherein the NCLT had rejected the application of scheme of demerger of Talwandi Sabo Power Limited (TSPL) from Vedanta, mainly due to lack of disclosure of material facts in the scheme. Based on Vedanta Ltd’s disclosure to the exchange, as well as discussion with the management, Crisil Ratings understands that the said order is only applicable to the demerger of TSPL (i.e power business) from Vedanta Ltd and is not expected to impact the demerger proceedings of other businesses from Vedanta. Further, the company had challenged the order in National Company Law Appellate Tribunal (NCLAT), who on 29th May 2025y, granted an interim stay on the previous ruling by NCLT that had dismissed the demerger scheme of TSPL. As per the ruling, the Vedanta is required to provide a bank guarantee of Rs. 1,245 crores, within two weeks from 29th May 2025, and the matter is listed for further hearing on 4th August 2025. Crisil Ratings will continue to monitor the developments on the said front and the overall demerger scheme of Vedanta Ltd and its subsidiaries.
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Analytical Approach Crisil Ratings has combined the business and financial risk profiles of Vedanta and its subsidiaries, collectively known as the Vedanta group, considering their operational and financial linkages. Key subsidiaries include Hindustan Zinc Ltd (HZL, ‘Crisil AAA/Stable/Crisil A1+’); the group's zinc business in Namibia and South Africa (termed zinc international); Bharat Aluminium Company Ltd (Balco; 'Crisil AA/Stable/Crisil A1+); Talwandi Sabo Power Ltd (‘Crisil AA (CE)/Watch with Developing Implications/Crisil A1+(CE)'); and ESL Steel Ltd (‘Crisil AA/Watch with Developing Implications/Crisil A1+’).
Crisil Ratings has included debt of VRL, which is estimated at $4.9 billion (excluding outstanding intercompany loans [ICL] of $417 million) or Rs 41,829 crore as on March 31, 2025, to calculate the adjusted debt. This is because despite no legal recourse of VRL’s debt holders to Vedanta, debt servicing by the parent will depend on the dividend outflow from Vedanta or refinancing, based on the implicit strength of the investments held by VRL, primarily Vedanta.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Expectation of strong increase in consolidated operating profitability Vedanta’s consolidated operating profitability (Ebitda, excluding brand and management fees to VRL) has increased to Rs 43,541 crore in fiscal 2025, (Rs 36,500 crore in fiscal 2024) supported by volume growth in the aluminium segment, as well as improved cost efficiencies in zinc and aluminium; and healthy metal prices. While strong metal demand and increasing capacities supported volume growth, metal prices also improved in fiscal 2025, supported by improving global demand, especially from China. While the aluminium prices increased by 15% year on year, zinc prices also increased by 16% year on year. The average quarterly Ebitda rate improved to more than Rs. 11,500 crores in the fourth quarter of fiscal 2025 (against expectation of Rs 12,000 crore or more). However, the prices have moderated during the current fiscal after the announcement of tariffs by the US in April, which could affect the earnings in the first quarter of fiscal 2026. That said, the ratings factor the moderation in prices in fiscal 2026, wherein a decline of 5-10% from fiscal 2025 is expected.
Further, the company has strong asset base along with prudent capital allocation, and is undertaking growth and efficiency improvement capex in multiple segments, especially in aluminium and zinc. This will further support margin profile and Ebitda levels over the medium term. The expected increase in annual Ebitda will support increased cash accrual necessary to support ongoing capex and debt reduction. Given the volatile nature of commodity prices, sustenance of continued ramp up in Ebitda to expected annual levels will be a key rating sensitivity factor.
Significantly reduced refinancing risk at VRL VRL has witnessed significant reduction in debt over the past two fiscals, to ~$4.9 billion as on March 31, 2025, from $9.2 billion as on March 2022. This has been supported by large dividend payout by Vedanta over the past 2-3 fiscals, as well as fund raise through stake sale of Vedanta by VRL. Furthermore, post the liability management exercise in January 2024, VRL has witnessed elongation of its debt tenure. VRL also undertook timely refinancing of its obligations during the previous fiscal, wherein ~$3.1 billion bonds were refinanced, with tenures of 5-7 years, along with reduced cost of borrowings. Henceforth, VRL’s annual principal debt maturities are expected to be $900-950 million during fiscal 2026 (of which $ 600 million is due in Q1FY26), and $ 300-720 million per annum over fiscals 2027 and 2028. To note, out of the $ 600 million of VRL’s principal debt obligation due in the first quarter fiscal 2026, ~$300 million has already been repaid. Moreover, annual interest expense is expected to be $550-575 million per annum (at current cost). Crisil Ratings expects the said annual interest expense and debt maturities hereon to be largely managed by annual brand and management fee and materially reduced annual dividend outflow by Vedanta. In case of any open refinancing risk at VRL, Crisil Ratings expects it to be materially low and should be refinanced in a timely manner.
Furthermore, VRL’s demonstrated ability to raise funds by stake sale during the current fiscal, along with its existing shareholding in Vedanta being comfortably higher than 50% (currently at ~56%), and the group’s track record of successful refinancing provide comfort and flexibility towards VRL’s refinancing requirement. That said, timely closure (more than 6 months in advance) of any refinancing risk either at VRL or Vedanta will remain key monitorable.
Reducing debt levels to support deleveraging and improve financial flexibility The promoters and group management have been articulating about increased focus on deleveraging balance sheets at VRL as well as at operating levels. This commitment has been reflected in recent fundraising events such as QIP and OFS by Vedanta and stake sale by VRL, which have resulted in cumulative fundraising of $1.9 billion by the group during April-August 2024. This has supported reduction in debt levels at VRL (already reduced to $4.9 billion as of March 2025 from $5.7 billion in March 2024 and $9.1 billion in March 2022) as well as at the operating company levels. Resultantly, consolidated net debt has reduced to Rs 1.1 lakh crore as of March 2025, which had increased by more than Rs 20,000 crore during the past two fiscals to reach net debt of Rs 1.18 lakh crore as of March 2024. Crisil Ratings expects net debt to continue to decline further in fiscal 2026 as well. Expected reduction in debt levels will be a key monitorable as, along with improved Ebitda levels, it is expected to sustainably reduce net leverage to below 2.5 times.
Diversified business risk profile The Vedanta group operates across various businesses spanning zinc, lead, silver, aluminium, oil and gas, iron ore, power and steel. The group is among the largest producers in all these segments, thus commanding a strong position in the domestic market. A well-diversified business risk profile cushions the group against commodity-specific risks and cyclicality.
Low-cost position of key businesses The domestic zinc, lead and silver businesses are supported by low cost of production, large reserves and continued resource addition. Profitability in the oil and gas business is aided by low operating cost and a business model that ensures recovery of capex. Furthermore, the aluminium business has witnessed improvement in profitability since the last fiscal and is currently operating in the top quartile of global cost curves for primary aluminium producers. The cash flow will be driven by capex-led growth in volume as well as cost efficiencies over the medium term.
Higher integration to support profitability in the aluminium business over the medium term The company is undertaking sizeable capex in the aluminium segment to increase the smelter capacity (from 2.4 million tonne per annum [MTPA] to 3 MTPA), higher share of value-added products (from 1.4 MTPA to 2.6 MTPA), and increased level of backward integration through alumina refinery expansion and commissioning of captive coal and bauxite mines. While smelter capacity expansion will increase the overall volume base, increase in value-added product share will support higher product premium over London Metal Exchange (LME) prices of aluminium, thereby supporting the margin. Furthermore, increasing integration levels will support sustained decline in cost of production, providing improved resilience to Ebitda per tonne in the aluminium segment to sustain above $700-800 per tonne. Ebitda per tonne increased to $872 in fiscal 2025 ($494 in fiscal 2024, and $322 in fiscal 2023). This was mainly driven by higher aluminium LME, reduction in power cost due to improved materialisation of linkage coal and fall in coal prices as well as benefits of increase in alumina refinery capacity to 3.5 MTPA from 2 MTPA (plan to expand refinery capacity to 5 MTPA).
However, the capex has already witnessed multiple time overruns and is currently expected to be completed over the next 3-4 quarters. Timely commissioning of the ongoing capex without any further time and cost overruns will be monitorable to support sustained profitability increase in the aluminium segment.
Strong volume growth expected with capital allocation towards the zinc, aluminium and iron ore businesses Increased mined metal capacity in domestic zinc, along with ramp-up of Gamsberg’s (South Africa) operations in zinc international, will support the scale-up in volume. Furthermore, Vedanta is undertaking brownfield expansion of its aluminium smelter capacity (by 435 kilo tonne per annum in Balco) and increasing its level of integration by expanding its refinery, commissioning of captive coal mines and increasing the share of value-added products. All these projects are expected to be commissioned in a phased manner by fiscal 2026. In addition, Crisil Ratings understands that the company will be increasing its iron ore capacities (domestic as well as overseas) over the next 1-2 years, which would further support volume growth. While the company had been looking to divest its steel business in the past to support deleveraging, Crisil Ratings understands that no binding sale agreement has been executed, which will be monitorable.
Weaknesses: High outstanding debt (including VRL); though expected to improve fiscal 2025 onwards Vedanta has had high debt levels over the past few fiscals on account of large debt of its parent. This has increased even more on account of continued assistance through dividend payout to the parent to support the latter’s debt servicing. Consequently, net leverage continued to remain high at 3.2 times as of March 2024 and 3.4 times in March 2023. That said, with the recent fundraising by the group through stake sale by VRL, QIP and OFS by Vedanta, deleveraging at VRL and increase in operating profitability, consolidated net leverage has reduced to ~ 2.55 times as of March 2025 and will improve sustainably below 2.5 times in fiscal 2026 and thereafter, with net debt expected to reduce to below Rs 1.1 lakh crore.
Also, repayment of high-cost borrowings is expected to result in reduced interest expense which, along with expected material reduction in annual dividend outflow (as VRL’s debt servicing requirements reduce from fiscal 2026), will improve operating cash accrual and, in turn, support reduction in net leverage to sustainably below 2.5 times and improvement in other debt coverage metrics from fiscal 2026 and thereafter. Thus, expected reduction in consolidated gross and net debt (including debt at VRL) should support the financial flexibility of both Vedanta and VRL over the medium term, and will be monitorable. Any change or delay in these expectations will be a key rating sensitivity factor.
Sizeable planned annual capital outlay The company has been incurring sizeable capex over the past fiscals (Rs 16,000 crore in fiscal 2023, ~ Rs 11,000 crore in fiscal 2024, Rs. 17,746 crores in fiscal 2025 and expected at Rs 19,000-20,000 crore in 2026 (including sustianing capex), it is likely to be funded through a mix of debt and internal accrual. The said capex is mainly towards capacity expansion as well as efficiency and product mix improvement across multiple businesses. Once completed, the same is expected to materially improve the operating earnings base from next fiscal, especially with expected commissioning of smelter and refinery capacities in the aluminium business by the first quarter of fiscal 2026. That said, profitability remains susceptible to volatility in the prices of metals and oil and gas. Any further delay in ramp-up of annual Ebitda against expectations, material acquisition or higher-than-expected cash outflow to support VRL will remain monitorable.
Crisil Ratings also understands that the proposed capex for the semi-conductor and display production businesses (after calling off the joint venture with Foxconn) will now be executed under Vedanta. However, the management has articulated that the project is at a nascent stage and there will be no immediate capital outlay towards it. Progress in the semiconductor business will depend on identification of a new technology partner and various regulatory approvals, including the production-linked incentive scheme, which are monitorable. Crisil Ratings understands that there is no major capex requirement for the Konkola Copper Mines Plc (KCM) business over the medium term and the same is not to be undertaken at Vedanta level. Further developments in this regard will remain monitorable.
Susceptibility to changes in regulations The businesses are vulnerable to regulatory risk. The copper smelting plant at Thoothukkudi in Tamil Nadu has been shut since May 2018 following a directive from the Tamil Nadu Pollution Control Board. Suspension of the iron ore mining operations in Goa and Karnataka in the past have adversely impacted the iron ore business. Furthermore, the March 2021 order of the Delhi High Court on profit sharing contract (PSC) extension, ruling against the company, has reduced profit margin for the oil and gas business.
Vedanta is also exposed to the recent ruling by the Supreme Court of India in August 2024, wherein the court upheld the state government’s right to tax mineral rights and mineral bearing lands on the retrospective basis, from April 2005. However, payments will be spread over 12 years, starting from April 1, 2026. Additionally, interest and penalties on demands for the period before July 25, 2024, will be waived. Crisil Ratings understands from the management discussion that the current contingent liabilities for Vedanta and its subsidiaries, basis the demands raised so far, is limited and not material. However, the states are yet to come out with their final decision on imposition of such retrospective tax. Crisil Ratings will monitor the developments on this matter and will assess the final implication as and when final clarity emerges. |
Liquidity: Strong Liquidity is supported by cash accrual before dividend payout projected above Rs 32,000 crore in fiscal 2026, against Vedanta’s term debt obligation of ~Rs 15,155 crore for fiscal 2026. Cash balance of Rs 20,602 crore (net of ICL to VRL, but including proceeds from QIP) as on March 31, 2025, unutilised bank limit (around Rs 10,200 crore as on March 31, 2025), flexibility regarding capex, and company’s ability to refinance further support the liquidity of Vedanta. Crisil Ratings understands that the company is in the process of refinancing a significant portion of its principal debt obligation in fiscal 2026, based on its track record and strong banking relationships.
The parent continues to depend on Vedanta for its debt servicing, including annual interest expense of Rs 5,000-5,300 crore ($600-650 million) towards its outstanding debt, as VRL does not have any operations. VRL services it mainly through dividend received from Vedanta and partly through management and brand fees. While dividend outflow from Vedanta is expected to materially reduce over the medium term, Crisil Ratings expects brand and management fee and routine dividends to cover majority of the debt obligation of VRL from the next fiscal, as VRL’s debt obligation reduces with reducing debt and refinancing at lower rate of interest, leaving limited risk of refinancing. However, Crisil Ratings expects VRL to refinance it in a timely manner as the financial flexibility of the company has improved with improved earnings outlook for operating companies. Any delay in expected timelines for required refinancing (more than 6 months in advance) or future debt servicing will be a key rating sensitivity factor.
Environment, social and governance (ESG) profile Vedanta has a dominant position in the metals and mining sector and has diversified its business risk profile with presence across multiple commodities such as zinc, aluminium, oil and gas, and iron ore. However, for the ESG assessment, Crisil Ratings has evaluated Vedanta’s top three business segments (zinc, aluminium, and oil and gas) which, on a combined basis, contribute more than 90% to the consolidated operating profit.
The ESG profile supports the existing credit risk profile of Vedanta. The metal and mining sector has a significant impact on the environment owing to high greenhouse gas (GHG) emissions, waste generation and water consumption. This is because of the energy-intensive manufacturing process and its high dependence on natural resources such as coal. The sector also has a significant social impact because of its large workforce across its operations and value chain partners, and as its operations affect the local community and involve health hazards.
Key highlights
There is growing importance of ESG among investors and lenders. The commitment of Vedanta to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowing in its overall debt and access to both domestic and foreign capital markets (mainly by VRL). |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company VRL holds 56.3% stake in Vedanta and has diversified operations across the metals, mining, power, and oil and gas segments.
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Key Financial Indicators*
*Crisil Ratings-adjusted numbers **based on the abridged financial statements of the company |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Fund-based limit are completely interchangeable with non-fund-based limit |
Annexure - List of Entities Consolidated
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#Non-fund-based limit of Rs 2,000 crore is interchangeable with fund-based limit
*Capex letter of credit limit is interchangeable with operational non-fund-based limit
**Interchangeable between fund-based (all categories, including intra-day overdraft) and non-fund-based
&capex letter of credit
##ECB of USD 200 million, at an exchange rate of 1 USD= Rs.85
Criteria Details
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