S&P Global Ratings has revised its outlook on Vedanta Resources to positive from stable, while reaffirming its B+ rating, citing improved earnings visibility, cost-reduction efforts, and favorable commodity prices.
Key Drivers of the Outlook Revision
- Cost Optimization and Integration:
Vedanta has been lowering costs, especially in aluminium, supported by the commissioning of a new 1.5 mtpa alumina refinery at Lanjigarh. Full ramp-up over the next six months is expected to bring cost savings of about $50 per ton of aluminium. Further bauxite integration over the next 12–18 months should reduce production costs further. - Focus on Value-Added Products:
A rising share of premium products in aluminium and zinc is set to improve realizations above London Metal Exchange prices. - Stronger Earnings and Credit Metrics:
S&P forecasts a 10% rise in EBITDA in FY2026 and FY2027, potentially lifting the FFO-to-debt ratio above 30% from an estimated 24% in FY2026. - Manageable Debt Profile:
Annual holding-company debt maturities of $500–600 million over the next three years are expected to be covered by brand fees (~$350 million) and dividends from Vedanta Ltd. (~$600–700 million). Refinancing high-cost debt and repaying intercompany loans will lower borrowing costs.
Risks and Conditions for an Upgrade
- Integration Delays: Any slowdown in planned project ramp-ups could strain credit metrics.
- Debt-Fueled Expansion: Vedanta’s history of acquisitions and large investments (e.g., in semiconductors or critical minerals) remains a risk.
- Dividend Dependency: The holding company still relies heavily on dividends to service debt.
Upgrade Triggers
A rating upgrade could occur if Vedanta:
- Consistently reduces holding-company debt
- Maintains FFO-to-debt above 30%
- Successfully ramps up integration projects
- Reduces dividend dependence by strengthening its funding profile
Market Reaction
Shares of Vedanta Ltd. settled 1.29% higher at ₹532.80 on Monday and are up 20% year-to-date in 2025.