BofA Remains Positive On Vedanta On Improving Credit Profile, Attractive Valuation

Bank of America Global Research has maintained a positive recommendation on securities issued by Vedanta Resources Ltd and its subsidiary, citing reduced holding company liquidity risk, cheaper debt, and lower reliance on dividends in the future.

The firm's report follows allegations by a US-based short seller Viceroy Research of Vedanta Resources' structural subordination, reliance on brand fees/dividends to service debt and frequent changes in senior management.

Vedanta Group has strongly rejected the allegations.

"Even so, the holding company's liquidity risk has been reduced with a reduction in its debt to $5.3 billion by end of financial year (fiscal 2025), driven by dividends and brand fees from its majority-owned Vedanta Ltd, and a 12% stake sale in the latter (ownership reduced to 56.4% as of Fiscal 2025), and lower repayments ($450-650 million per annum) over the next three years with recent refinancing," the firm said.

It also noted the moderation in interest cost at Vedanta Resources to 11% in fiscal 2026, compared to 14% in the last financial year (fiscal 2025).

BofA estimates that there will be a reduction in Vedanta Resources Ltd's debt servicing needs.

"We estimate the holding company's fiscal 2026 debt service need will reduce to $1.1 billion, compared to $1.8 billion in fiscal 2025 but its dependence on brand fees and dividends will continue."

While the brand fees will stay $400 million as 2-3% of revenue from certain operating companies, the dividends requirement can be lower at $800-900 million in fiscal 2026 ($1.1 billion in fiscal 25, post-$1.1-billion stake sale).

On the short seller questioning the rationale and level of brand fees, BofA said the fee is in line with India's legal framework.

Vedanta Resources had raised $485 million by selling 2.63% in Vedanta Ltd during fiscal 2025.

While Vedanta Resources continues to focus on deleveraging, free cash flow at its subsidiary Vedanta Ltd is also expected to improve. BofA expects Vedanta Ltd's higher free cash flow to reduce dependence on debt and stake sales.

"The higher free cash flow will be led by fiscal 2026's earnings before interest,taxes, depreciation and amortisation of $5.5 billion, up by $0.5 billion YoY on higher volumes, and an increase in aluminium/silver price, partly negated by lower zinc/ oil price, per our estimates," the brokerage said, adding that any reduction in production cost will be further cash accretive for the company.

As a result, BofA has said the yield curve on securities issued by Vedanta Resources/its subsidiaries looks attractive.

Vedanta Resources Finance II PLC curve looks to us attractive compared to regional and emerging market peers.