Vedanta shares in focus after parent outlook revised higher by S&P Global Ratings

S&P Global has revised its outlook on Vedanta Resources to positive from stable while reaffirming the company’s rating at B+.

The upgrade comes on the back of stronger earnings visibility, steady cost reduction, and favourable metal prices that together are expected to lift the company’s cash flows.

Vedanta has been tightening its cost structure, particularly in the aluminium division. The company recently commissioned a 1.5 mtpa alumina refinery at Lanjigarh, taking total capacity to 5 mtpa.

S&P expects this additional capacity to scale up over the next six months and deliver cost savings of about $50 per ton of aluminium.

Alongside alumina, Vedanta is also working on improving its bauxite integration. A gradual ramp-up of mining operations over the next year to year and a half is expected to bring the cost of production down even further.

The company is also focusing on value-added products in both aluminium and zinc. A rising share of these higher premium offerings should help Vedanta earn more over prevailing London Metal Exchange prices.

With lower production costs and higher aluminium output, S&P believes Vedanta’s earnings will get a meaningful boost.

Stronger earnings are also expected to improve the company’s credit metrics.

S&P now forecasts a 10% rise in EBITDA in both fiscal 2026 and 2027. This performance could lift Vedanta’s FFO-to-debt ratio slightly above the upside threshold of 30%, compared with an estimated 24% in fiscal 2026. The positive outlook reflects this expectation.

The agency acknowledges that Vedanta’s credit profile has historically swung with commodity cycles. But deeper backward integration is likely to soften that volatility and support a more stable credit picture.

Even so, any delay in the expected ramp-up could strain the positive outlook, given the limited buffer in the company’s FFO-to-debt ratio.

Vedanta’s debt obligations at the holding company are also becoming more manageable. It faces repayments of $500 million to $600 million annually over the next three fiscal years.

S&P believes these commitments can be met through brand fees of $350 million and dividends of $600 million to $700 million from Vedanta Ltd. This is lower than the $800 million dividend dependency projected for fiscal 2026.

Recent refinancing of high-cost private credit and the planned repayment of intercompany loans should further bring down borrowing costs.

S&P expects average interest expenses of around $450 million over the next two years, most of which can be covered by brand fees. That leaves a large part of the dividends available for debt reduction.

The agency now sees holding company debt falling by $500 million annually in fiscal 2027 and 2028.

This deleveraging has strengthened Vedanta’s capital structure, though the company still relies heavily on dividends to service debt.

S&P notes that Vedanta’s long-term financial health would depend on limiting this dependence and meeting obligations with a more self-sustaining structure.

The agency also points out that growth plans and acquisitions continue to pose risks.

Vedanta has a history of debt-fuelled acquisitions and ambitious expansion plans.

While its recent $2 billion bid for Jaiprakash Associates fell through, S&P says the possibility of future debt-funded deals cannot be ruled out. Large investments in new areas like semiconductors or critical minerals could also push leverage above base case assumptions.

The positive outlook reflects the possibility of an upgrade if Vedanta continues to cut debt at the holding company, maintains lower leverage and strengthens its cost structure through deeper integration.

In S&P’s base case, the company’s FFO-to-debt ratio could improve to around 30% over the next year to year and a half.

However, the outlook could return to stable if there is a delay in key integration projects or if Vedanta takes on aggressive debt for new expansion, especially if this coincides with weaker operating cash flow. A sustained FFO-to-debt ratio below 30% would signal such pressure.

S&P says a rating upgrade is likely if Vedanta consistently reduces debt at the holding company and keeps FFO-to-debt above 30%, successfully ramps up integration projects, improves its capital structure and maturity profile, and reduces its dependence on dividends from Vedanta Ltd. by lowering its debt servicing needs or strengthening its funding access.

Shares of Vedanta Ltd. settled 1.29% higher on Monday at ₹

532.80. The stock has risen 20% so far in 2025.