 "Vedanta")
Shares of Vedanta hit a 52-week low of Rs 232.50, down 2 per cent on the BSE in Monday’s intra-day trade on growth concerns. The stock of diversified metal company fell below its previous low of Rs 237.10 touched on August 7. In past one month, it declined 19 per cent, as compared to 1.6 per cent fall in the S&P BSE Sensex.
On August 3, Twin Star Holdings, the promoter group of Vedanta, had sold 4.14 per cent stake in the company via open market. The promoter entity sold 222 million shares representing 5.97 per cent of total equity of Vedanta on the stock exchange, according to the company’s statement.
Earlier this month, S&P Global Ratings also revised the credit outlook for Vedanta Resources Ltd (VRL) to negative, citing increased funding risks. The agency has affirmed the 'B-' rating for the company. It indicates a relatively higher credit risk.
On March 28, 2023, CRISIL Ratings had revised its outlook to ‘Negative’ from ‘Stable’ due to possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to 1-year maturities for fiscals 2023 and 2024. This is due to increased cash outflow from Vedanta, in the form of dividends, towards large maturing debt obligations at its parent company viz. VRL.
This is owing to increased refinancing risk at VRL and moderating operating profitability (Ebitda [earnings before interest, tax, depreciation, and amortisation]) of Vedanta, the rating agency said in rationale.
The ratings continue to reflect the expectation that increased operating profitability should support planned capital expenditure (capex), dividend outlay to support part debt repayment for VRL, and is expected to result in net leverage reducing to below 2.6-2.7 times in fiscal 2024 and sustainably below 2.5 times thereafter while improving liquidity from current levels, in the base case.
However, slower-than-expected ramp up in Ebitda or delayed/lower-than-expected refinancing by VRL resulting in higher-than-expected dividend outlay during fiscal 2024, could further reduce cash balance as well as net leverage sustaining above 2.6-2.7 times. This will be a key rating sensitivity factor, CRISIL Ratings had said.
Motilal Oswal Financial Services has a ‘neutral’ rating on Vedanta. Globally, the commodity market is facing multiple headwinds, such as inflationary pressure, weak macroeconomic scenario, recessionary fears across Europe, high interest rates, muted demand pick-up from China and a slowdown in the Chinese real estate sector.
Any delay in repayment or failure to raise further capital at HoldCo will adversely impact Vedanta. Almost 100 per cent of the promoter holding is pledged and any negative scenario will have an adverse impact on the company.
In order to meet debt repayment commitments at HoldCo., Vedanta declared a record dividend of Rs 101.5 per share for the financial year 2023. The brokerage firm believes Vedanta will follow a similar strategy to adhere to future debt commitments. To meet its debt repayment commitments, Vedanta Resources relies heavily on dividend payouts by Vedanta, which in turn relies on Hindustan Zinc.
