Vedanta: JP Morgan remains ‘overweight', says don't get distracted, sees no major credit red flags

Mint

11-07-2025

Global brokerage house JP Morgan has reaffirmed its Overweight rating on Vedanta Resources Ltd (VRL), the parent company of Vedanta and its associated bonds, despite recent concerns raised by a third-party report regarding the company's governance and financial management.
The brokerage said that while questions have been raised around the structure and practices of Vedanta Ltd (VDL) and its subsidiaries, its own analysis points to sound leverage metrics and robust government oversight, particularly concerning Hindustan Zinc Ltd (HZL).
JP Morgan noted that the third-party report expressed apprehensions about governance and financial practices at VRL, VDL, and their subsidiaries. However, the brokerage said it continues to remain comfortable with VDL's financial profile.
It highlighted that the operating company's net leverage, excluding its stake in HZL, remains healthy. 'VDL (ex-HZL) reported EBITDA of USD 3.1 billion in FY25 and net leverage of 2.2x, which does not suggest financial stress,' JP Morgan said in its latest report. It added that for HZL alone, net leverage is extremely low at 0.1x and could rise only moderately to 0.5x in the near term due to planned capital expenditure.
Regarding government oversight, JP Morgan said the Government of India continues to maintain an active presence on HZL's board with three directors since its divestment in the early 2000s. 'These government-nominated directors have previously intervened in transactions not aligned with HZL's interests. Hence, we believe government oversight continues to be effective, especially concerning capex planning,' JP Morgan added.
On the subject of tax disputes, JP Morgan pointed out that HZL has tax and other claims totaling around ₹ 15,150 crore currently under litigation, but these are not recognized as liabilities. 'Such litigation is fairly common in highly regulated sectors like mining, and other peers such as JSW Steel have reported similar disputes,' JP Morgan noted, implying that these legal proceedings are not unique or alarming in isolation.
Addressing past disclosures about a put/call option between the Government of India and VDL, JP Morgan stated that these were contingent on the completion of a specific smelter project by 2007. Although the plant was completed at a different location, JP Morgan believes the government has been adequately informed. 'We would be surprised if any breach had gone unnoticed over the past 20 years,' it said, suggesting the issue is likely behind the company.
JP Morgan also said it continues to see Vedanta's international bonds (VEDLN) as attractively priced within the Asian and emerging market metals and mining segments. It highlighted healthy EBITDA generation (~USD 5 billion run-rate), improved funding access (including USD 1 billion raised via bank loans in FY26), and attractive yields in the 8–10 percent range. 'We prefer VEDLN '29s and '31s along the curve but remain Neutral on '33s,' the brokerage noted. VEDLN '29s were offered at 102.3 with a 10 percent yield-to-worst (YTW), while '31s were at 103.4 with a 10.2 percent YTW.
JP Morgan identified key upside triggers, including sustained strength in commodity prices, further deleveraging efforts, and potential asset sales or equity raises. However, it also listed risks such as a greater-than-expected decline in commodity prices, large-scale M&A or capex exceeding USD 500 million–1 billion, tightening domestic banking conditions leading to higher interest expenses, and possible regulatory investigations or scrutiny.
American short-seller Viceroy Research has accused the Vedanta Group of financial misconduct and governance lapses, according to a Mint report. Viceroy alleged that Vedanta Resources siphoned cash from its listed arm, Vedanta Ltd, through unjustified brand fees—even from subsidiaries like Hindustan Zinc and ESL Steel that barely use the Vedanta brand.
In FY25 alone, non-core subsidiaries paid $361.3 million in brand fees, the report said. Over the past four years, Vedanta Ltd has paid a total of $1.16 billion to Vedanta Resources under branding and strategic services, Viceroy claimed.
Vedanta called the short-seller's report a malicious combination of selective misinformation and baseless allegations to discredit the group.
The stock lost over 3 percent in the last 1 year. Moreover, it has been flat, down a little over a percent in 2025 YTD giving positive returns in just 3 of the 7 months so far. It has lost 5 percent in July till now after an around 6 percent rise in June and 4 percent in May.
It had hit its 52-week high of ₹ 527 in December 2024 and its 52-week low of ₹ 362.20 in April 2025.
Despite external concerns, JP Morgan remains confident in Vedanta's core credit profile and operational leverage. While acknowledging risks tied to governance and potential litigation, the brokerage believes current bond valuations already factor in these headwinds, presenting investors with an appealing risk-reward proposition. It continues to maintain an Overweight stance on VEDLN '28s, '29s, '30s, and '31s, underlining Vedanta's resilience amid sector volatility and financial scrutiny.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.