Rating Rationale
July 02, 2018 | Mumbai
Vedanta Limited
'CRISIL AA/Positive' assigned to NCD
 
Rating Action
Total Bank Loan Facilities Rated Rs.40302.63 Crore (Enhanced from Rs.34302.63 Crore)
Long Term Rating CRISIL AA/Positive (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.1500 Crore Non Convertible Debentures CRISIL AA/Positive (Assigned)
Rs.300 Crore Non Convertible Debentures  CRISIL AA/Positive (Reaffirmed)
Rs.300 Crore Non Convertible Debentures  CRISIL AA/Positive (Reaffirmed)
Rs.1500 Crore Non Convertible Debentures  CRISIL AA/Positive (Reaffirmed)
Rs.1250 Crore Non Convertible Debentures  CRISIL AA/Positive (Reaffirmed)
Rs.100 Crore Non Convertible Debentures  CRISIL AA/Positive (Reaffirmed)
Rs.3500 Crore Non Convertible Debentures  CRISIL AA/Positive (Reaffirmed)
Rs.3600 Crore Non Convertible Debentures  CRISIL AA/Positive (Reaffirmed)
Rs.50 Crore Non Convertible Debentures CRISIL AA/Positive (Reaffirmed)
Rs.3010 Crore Preference Shares CRISIL AA/Positive (Reaffirmed)
Rs.15000 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AA/Positive' rating to the Rs.1500 crore non-convertible debentures of Vedanta Limited (Vedanta) while reaffirming its rating on the debt instruments and bank facilities at 'CRISIL AA/Positive/CRISIL A1+'.

The ratings continue to reflect Vedanta's diversified business risk profile and low cost position in the zinc and oil and gas businesses and its healthy financial risk profile. These credit strengths are partially offset by exposure to cyclicality in the metal and oil and gas segments, and susceptibility of its businesses to regulatory changes.

On March 12, 2018 CRISIL had revised its outlook on the long-term bank facilities and debt programmes of Vedanta to 'Positive' from 'Stable', while reaffirming the ratings at 'CRISIL AA/CRISIL A1+'.

The revision in outlook reflects CRISIL's expectation of a strengthening business profile driven by a structural improvement in aluminium profitability and expected volume ramp-up across businesses, both of which should support a greater resilience of Vedanta's profitability to a decline in commodity prices. The revision in outlook also reflects expectation of continued deleveraging over the medium term. 

The aluminium business is expected to benefit from higher production volumes of 2-2.2 mt over FY19/20 versus 1.675 mt in FY18 as Jharsuguda smelters ramp up to full capacity. Additionally, better coal and bauxite linkage should support a structural improvement in the aluminium cost of production. The zinc business should benefit from a ramp-up in domestic volumes to 1.2mt by FY20 as well as higher volumes from Zinc International post the expected commissioning of 250kt Gamsberg mine in mid-2018. Elevated zinc prices on favourable supply-demand fundamentals combined with relatively stable cost of production should support robust zinc profitability. The oil and gas segment should benefit from capex-driven improvement in volumes and stable crude realisations over the medium term.

Vedanta Limited, through its wholly owned subsidiary Vedanta Star Limited, has acquired management control of Electrosteel Steels Limited (by acquiring 90% of the paid up share capital) after winning the bid as the successful resolution applicant for a total consideration of Rs 5320 crore. CRISIL believes that owing to its relatively smaller size, the acquisition is unlikely to have a material bearing on the company's credit profile.

Further, on May 28, 2018, the Government of Tamil Nadu directed Tamil Nadu Pollution Control Board (TNPCB) to seal Vedanta's copper smelting plant at Thoothukkudi and to close it permanently. Also, the Madras High Court had put on hold the company's expansion plan and ordered Vedanta to cease construction and all other activities onsite for the proposed new copper smelter. The company is currently evaluating its further course of action. While its closure will affect the company's cash flow and business diversity, CRISIL believes Vedanta's credit risk profile remains unaffected given the small contribution of the business to profitability (around 5% of EBITDA in fiscal 2018).

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Vedanta; Hindustan Zinc Ltd (HZL; 'CRISIL AAA/Stable/CRISIL A1+); the group's zinc business in Namibia, South Africa, and Ireland (termed as Zinc International); Bharat Aluminium Company Ltd [Balco; 'CRISIL AA-/Positive/CRISIL A1+']  Talwandi Sabo Power Limited (TSPL; 'CRISIL AA(SO)/Positive/CRISIL A1+(SO)') and Copper Mines of Tasmania Pty Ltd (CMT). Being part of Vedanta Group, these entities derive significant operational and financial synergies from each other. CRISIL has included Vedanta Resources Plc's (Vedanta Resources; rated 'B+/Stable' by S&P Global Ratings) debt of about Rs.33,000 crore in the calculation of adjusted debt.

Key Rating Drivers & Detailed Description
Strengths
* Diversified business risk profile and low cost position in the zinc and oil and gas business: Vedanta has a diversified business risk profile spanning zinc, lead, silver, oil & gas, aluminium, iron ore and power. The domestic zinc, lead and silver business is supported by low cost of production and continued reserves and resources addition. The oil & gas business also enjoys high profitability due to a low operating cost. Cash flow in the oil & gas business would benefit from a slight recovery in oil prices and improved volume expectations, although extension of the production sharing contract along with the terms of the Government profit contribution would be a key monitorable. The aluminium business will benefit from higher volumes due to ramp up of smelters and reduced cost of production driven by lower power and alumina costs. The cancellation of the iron ore mining leases in Goa is a negative, but the EBITDA impact is not significant due to the lower profitability of the Goa operations compared to the Karnataka operations.

* Healthy financial profile: High market value of investments in both Vedanta and its subsidiary HZL aids Vedanta's financial flexibility. Further, Vedanta's financial profile is expected to sustainably improve over the medium term driven by management's focus towards continued deleveraging. Vedanta has declared an interim dividend of Rs. 7881 crore for fiscal 2018. Gross debt reduction through significant cash flow generation and moderate capex over the medium term should support the financial profile of the company.

Weaknesses
* Exposure to cyclicality in the metal, and oil and gas businesses: Though CRISIL expects commodity prices to remain stable in the near term, Vedanta's profitability is susceptible to volatility in metals and oil and gas prices, although the risk is partially mitigated by diversified businesses and improving cost efficiency. Sharp correction in commodity prices will remain a key monitorable.

* Large capital expenditure (capex) or acquisition and exposure to changes in regulations: CRISIL expects average capital expenditure of Rs 8,000-10,000 crore p.a. over the medium term. Any significantly larger than expected capex or acquisition, which negatively impacts the financial risk profile of the company will remain key rating monitorables. Furthermore, Vedanta businesses are vulnerable to changes in government policies.
Outlook: Positive

CRISIL believes that Vedanta's credit profile will benefit over the medium term supported by structural improvement in profitability of its aluminium business, expected volume ramp-up across businesses along with reduction in net financial leverage.

Upside scenario
* Improvement in the business profile driven by better-than-expected profitability of the aluminium business, volume ramp-up and continued deleveraging.

Downside scenario
* Lower-than-expected EBITDA because of high cost of production, slower ramp-up, or lower realisations
* Delay in meaningful correction in financial leverage with net debt-to EBITDA sustaining above 2.3 times
* Larger-than-expected, debt-funded capex or acquisition.

About the Company

The Vedanta group is owned majorly by Vedanta Resources, a metal, mining, power, and oil-and-gas company listed on the London Stock Exchange.

Vedanta Resources holds 50.1% stake in Vedanta. The group's copper, iron ore, aluminium assets at Jharsuguda and Lanjigarh in Odisha and power divisions (2400-MW and 1215-MW captive power plants for the aluminium business), are in Vedanta. The group also has aluminium operations through Balco. A part of the power business (1980 MW) is conducted through wholly owned subsidiary, Talwandi Sabo Power Ltd. The oil and gas business has now been merged with Vedanta, and the group operates the zinc business through HZL and Zinc international in South Africa & Namibia. The copper business comprises mining and smelting operations in Zambia. Vedanta has, through its wholly owned subsidiary - Cairn India Holdings Limited (CIHL), acquired slightly over 51% equity stake in glass substrate manufacturer AvanStrate Inc. (ASI) in December 2017. 

Key Financial Indicators
Particulars  Unit 2018 2017
Revenue Rs. Cr. 91,866  73,092
Profit After Tax (PAT) Rs. Cr. 15,879 11,187
PAT Margins % 17.3 15.3
Adjusted Debt/Adjusted Net worth Times 1.26 1.64
Interest coverage Times 5.02 4.40
Note:These reflect CRISIL adjusted consolidated financials

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Rating Assigned with Outlook
INE268A07152 Debentures 4-Jul-13 9.17% 4-Jul-23 750 CRISIL AA/Positive
INE268A07160 Debentures 5-Jul-13 9.17% 5-Jul-23 450 CRISIL AA/Positive
INE205A07030 Debentures 17-Aug-15 9.45% 17-Aug-20 2000 CRISIL AA/Positive
INE205A07048 Debentures 30-Sep-16 8.70% 20-Apr-20 600 CRISIL AA/Positive
INE205A07055 Debentures 30-Sep-16 8.65% 27-Sep-19 150 CRISIL AA/Positive
INE205A07063 Debentures 7-Oct-16 8.75% 15-Apr-21 250 CRISIL AA/Positive
INE205A07071 Debentures 7-Oct-16 8.75% 15-Sep-21 250 CRISIL AA/Positive
INE205A07089 Debentures 28-Oct-16 8.25% 28-Oct-19 300 CRISIL AA/Positive
INE205A07097 Debentures 22-Nov-16 7.95% 22-Apr-20 300 CRISIL AA/Positive
INE205A07105 Debentures 30-Nov-16 7.50% 29-Nov-19 200 CRISIL AA/Positive
INE205A07113 Debentures 31-May-17 7.60% 31-May-19 350 CRISIL AA/Positive
INE205A07121 Debentures 20-Dec-17 7.80% 20-Dec-20 500 CRISIL AA/Positive
INE205A07139 Debentures 5-Apr-18 8.50% 5-Apr-21 2350 CRISIL AA/Positive
INE205A07147 Debentures 5-Apr-18 8.50% 15-Jun-21 1650 CRISIL AA/Positive
NA Debentures% NA NA NA 2000 CRISIL AA/Positive
INE205A04011 Preference Share 28-Apr-17 7.5% 31-Oct-18 3010 CRISIL AA/Positive
NA Commercial paper NA NA 7-365 days 15000 CRISIL A1+
NA Fund-based facilities** NA NA NA 6665 CRISIL AA/Positive
NA Non-fund-based limit* NA NA NA 19787.93 CRISIL A1+
NA Non-fund-based limit## NA NA NA 500.0 CRISIL AA/Positive
NA Term loan 1 21-Apr-14 NA 30-Sep-20 711.55 CRISIL AA/Positive
NA Term loan 2 25-Apr-14 NA 31-Dec-20 681.91 CRISIL AA/Positive
NA Term loan 4 25-Jul-14 NA 31-Mar-22 3937.5 CRISIL AA/Positive
NA Term loan 5 22-Apr-14 NA 31-Dec-20 268.75 CRISIL AA/Positive
NA Term loan 6 30-Dec-15 NA 31-Mar-25 1250.0 CRISIL AA/Positive
NA Term loan 7$ NA NA NA 3000.0 CRISIL AA/Positive
NA Proposed Long Term Bank Loan Facility NA NA NA 3499.99 CRISIL AA/Positive
**Fund-based limit completely interchangeable with non-fund-based limit
*Non-fund-based limit of Rs 2000 crore interchangeable with fund-based limit
##Capex LC limit, interchangeable with operational Non Fund based Limits
%Yet to be placed
$Yet to be availed
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  15000.00  CRISIL A1+  20-06-18  CRISIL A1+  19-12-17  CRISIL A1+    --    --  -- 
        30-05-18  CRISIL A1+               
        12-04-18  CRISIL A1+               
        23-03-18  CRISIL A1+               
        15-03-18  CRISIL A1+               
        12-03-18  CRISIL A1+               
        05-01-18  CRISIL A1+               
Non Convertible Debentures  LT  10100.00
02-07-18 
CRISIL AA/Positive  20-06-18  CRISIL AA/Positive  19-12-17  CRISIL AA/Stable  29-11-16  CRISIL AA-/Stable  10-08-15  CRISIL AA/Stable  CRISIL AA+/Stable 
        30-05-18  CRISIL AA/Positive  14-12-17  CRISIL AA/Stable  21-11-16  CRISIL AA-/Stable  06-08-15  CRISIL AA/Stable   
        12-04-18  CRISIL AA/Positive  18-09-17  CRISIL AA/Stable  26-10-16  CRISIL AA-/Stable  16-06-15  CRISIL AA+/Negative   
        23-03-18  CRISIL AA/Positive  18-07-17  CRISIL AA/Stable  21-10-16  CRISIL AA-/Stable  20-01-15  CRISIL AA+/Negative   
        15-03-18  CRISIL AA/Positive  26-05-17  CRISIL AA/Stable  12-10-16  CRISIL AA-/Stable       
        12-03-18  CRISIL AA/Positive  28-04-17  CRISIL AA/Stable  28-09-16  CRISIL AA-/Stable       
        05-01-18  CRISIL AA/Stable  22-03-17  CRISIL AA-/Positive  13-09-16  CRISIL AA-/Stable       
            28-02-17  CRISIL AA-/Positive  27-01-16  CRISIL AA-/Negative       
Preference Shares  LT  3010.00
02-07-18 
CRISIL AA/Positive  20-06-18  CRISIL AA/Positive  19-12-17  CRISIL AA/Stable    --    --  -- 
        30-05-18  CRISIL AA/Positive  14-12-17  CRISIL AA/Stable           
        12-04-18  CRISIL AA/Positive  18-09-17  CRISIL AA/Stable           
        23-03-18  CRISIL AA/Positive  18-07-17  CRISIL AA/Stable           
        15-03-18  CRISIL AA/Positive  26-05-17  CRISIL AA/Stable           
        12-03-18  CRISIL AA/Positive  28-04-17  CRISIL AA/Stable           
        05-01-18  CRISIL AA/Stable               
Short Term Debt  ST              13-09-16  CRISIL A1+  10-08-15  CRISIL A1+  CRISIL A1+ 
                27-01-16  CRISIL A1+  06-08-15  CRISIL A1+   
                    16-06-15  CRISIL A1+   
                    20-01-15  CRISIL A1+   
Short Term Debt (Including Commercial Paper)  ST          14-12-17  CRISIL A1+  29-11-16  CRISIL A1+    --  -- 
            18-09-17  CRISIL A1+  21-11-16  CRISIL A1+       
            18-07-17  CRISIL A1+  26-10-16  CRISIL A1+       
            26-05-17  CRISIL A1+  21-10-16  CRISIL A1+       
            28-04-17  CRISIL A1+  12-10-16  CRISIL A1+       
            22-03-17  CRISIL A1+  28-09-16  CRISIL A1+       
            28-02-17  CRISIL A1+           
Fund-based Bank Facilities  LT/ST  20014.70  CRISIL AA/Positive  20-06-18  CRISIL AA/Positive  19-12-17  CRISIL AA/Stable  29-11-16  CRISIL AA-/Stable  10-08-15  CRISIL AA/Stable/ CRISIL A1+  CRISIL AA+/Stable/ CRISIL A1+ 
        30-05-18  CRISIL AA/Positive  14-12-17  CRISIL AA/Stable  21-11-16  CRISIL AA-/Stable  06-08-15  CRISIL AA/Stable/ CRISIL A1+   
        12-04-18  CRISIL AA/Positive  18-09-17  CRISIL AA/Stable  26-10-16  CRISIL AA-/Stable  16-06-15  CRISIL AA+/Negative/ CRISIL A1+   
        23-03-18  CRISIL AA/Positive  18-07-17  CRISIL AA/Stable  21-10-16  CRISIL AA-/Stable  20-01-15  CRISIL AA+/Negative/ CRISIL A1+   
        15-03-18  CRISIL AA/Positive  26-05-17  CRISIL AA/Stable  12-10-16  CRISIL AA-/Stable       
        12-03-18  CRISIL AA/Positive  28-04-17  CRISIL AA/Stable  28-09-16  CRISIL AA-/Stable       
        05-01-18  CRISIL AA/Stable  22-03-17  CRISIL AA-/Positive  13-09-16  CRISIL AA-/Stable       
            28-02-17  CRISIL AA-/Positive  27-01-16  CRISIL AA-/Negative       
Non Fund-based Bank Facilities  LT/ST  20287.93  CRISIL AA/Positive/ CRISIL A1+  20-06-18  CRISIL AA/Positive/ CRISIL A1+  19-12-17  CRISIL AA/Stable/ CRISIL A1+  29-11-16  CRISIL A1+  10-08-15  CRISIL AA/Stable/ CRISIL A1+  CRISIL AA+/Stable/ CRISIL A1+ 
        30-05-18  CRISIL AA/Positive/ CRISIL A1+  14-12-17  CRISIL AA/Stable/ CRISIL A1+  21-11-16  CRISIL A1+  06-08-15  CRISIL AA/Stable/ CRISIL A1+   
        12-04-18  CRISIL AA/Positive/ CRISIL A1+  18-09-17  CRISIL AA/Stable/ CRISIL A1+  26-10-16  CRISIL A1+  16-06-15  CRISIL AA+/Negative/ CRISIL A1+   
        23-03-18  CRISIL AA/Positive/ CRISIL A1+  18-07-17  CRISIL AA/Stable/ CRISIL A1+  21-10-16  CRISIL A1+  20-01-15  CRISIL AA+/Negative/ CRISIL A1+   
        15-03-18  CRISIL AA/Positive/ CRISIL A1+  26-05-17  CRISIL AA/Stable/ CRISIL A1+  12-10-16  CRISIL A1+       
        12-03-18  CRISIL AA/Positive/ CRISIL A1+  28-04-17  CRISIL AA/Stable/ CRISIL A1+  28-09-16  CRISIL A1+       
        05-01-18  CRISIL AA/Stable/ CRISIL A1+  22-03-17  CRISIL AA-/Positive/ CRISIL A1+  13-09-16  CRISIL A1+       
            28-02-17  CRISIL A1+  27-01-16  CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities** 6665 CRISIL AA/Positive Fund-Based Facilities** 6665 CRISIL AA/Positive
Non-Fund Based Limit* 19787.93 CRISIL A1+ Non-Fund Based Limit* 19787.93 CRISIL A1+
Non-Fund Based Limit## 500 CRISIL AA/Positive Non-Fund Based Limit## 500 CRISIL AA/Positive
Proposed Long Term Bank Loan Facility 3499.99 CRISIL AA/Positive Proposed Long Term Bank Loan Facility 499.99 CRISIL AA/Positive
Term Loan 9849.71 CRISIL AA/Positive Term Loan 6849.71 CRISIL AA/Positive
Total 40302.63 -- Total 34302.63 --
**Fund-based limit completely interchangeable with non-fund-based limit
*Non-fund-based limit of Rs 2000 crore interchangeable with fund-based limit
##Capex letter of credit limit, interchangeable with operational non-fund based limits
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Mining Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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