Vedanta’s Debt on Balance Sheet: Concern for Lenders?

Lenders are concerned about the rising debt pattern of Vedanta Ltd. The company’s major lenders include prominent institutions such as the State Bank of India, Axis Bank, Canara Bank, Punjab National Bank, Indian Bank, IDBI Bank, ICICI Bank, Bank of Baroda, and Union Bank of India, among others.

When analysing the consolidated balance sheet, it becomes evident that the company’s debt has increased significantly over the past year. As of June 30, 2023, the total debt stands at Rs 59,192 Crore, which is more than double the amount reported in the same quarter of the previous year, which was Rs 26,798 Crore. It is important to note that the net debt figure is used, which takes into account the cash balance deducted from the gross debt to arrive at the final debt value.

Comparing the sequential figures, we observe a notable increase in debt from the previous quarter. Specifically, the debt has risen by Rs 13,932 Crore, climbing from Rs 45,260 Crore in the March quarter of FY23 to Rs 59,192 Crore on June 30.

Looking at the company’s standalone financials, out of the total debt of Rs 59,192 Crore, a substantial portion of Rs 42,878 Crore is attributed solely to Vedanta Ltd, accounting for approximately 72.5% of the overall debt. In comparison to the same quarter of the preceding year, this standalone debt for Vedanta Ltd was Rs 40,272 Crore, indicating an increase of approximately 24% on a sequential basis.

On March 28, Crisil Ratings made a significant revision to its outlook on Vedanta, changing it from stable to negative. The decision was based on concerns over the company’s higher-than-expected financial leverage and reduced flexibility.

Some lenders expressed caution regarding Vedanta, although lending decisions ultimately remain with individual banks. They expressed confusion over the reasons for the negative outlook, as Indian businesses are generally considered strong cash generators, leading to questions about why Vedanta is facing such stress.

Following is the debt structure of Vedanta as per the latest information available:

In response to the concerns raised, Vedanta’s Chief Financial Officer, Sonal Shrivastava, reassured stakeholders that the company’s balance sheet concerns were unfounded. She attributed the difficulties Vedanta is currently facing to the impact of sagging metal prices but expressed confidence that this situation is temporary and not expected to last.

Shrivastava also disclosed that Vedanta Resources, the parent entity, has plans underway for deleveraging, which will be announced in due course. She emphasized the company’s track record of meeting its commitments in the past and expressed confidence that it will continue to do so.

Furthermore, she highlighted the company’s investments in capacity expansion and cost reduction, which are expected to improve operations going forward. Additionally, any upswing in London Metal Exchange prices would also benefit Vedanta’s financial position.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.