Vedanta stock dips after critical short-seller report: JP Morgan unfazed; remains overweight
Viceroy Research, a US-based short-seller released a report alleging Vedanta's England-based parent firm, Vedanta Resources, is like a "parasite" which was running a "Ponzi scheme" which succeeded in pushing the entire group controlled by Anil Agarwal towards bankruptcy.
Kolkata: After US-based short-seller Viceroy Research published a report labelling Vedanta Resources, the parent firm of Vedanta a parasite that was draining the group and pushing it towards bankruptcy, shares of the metals-minerals giant fell in the stock markets this week. Around 1:30 pm today (June 11), the Vedanta share was trading at Rs 443.70, up Rs 4.50 (or 1.02%). On the basis of data of this week, it showed a dip of Rs 14.15 (or 3.09%). However, JP Morgan, the US-based financial services and research giant, has come to the rescue of Vedanta and said that it remains unfazed even as the critical report unfolded.
It further said that it remains over weight on Anil Agarwal's company, attributing it to strong commodity prices, further de-leveraging and potential asset sales or equity raise. "We have generally focussed on Vedanta Ltd’s cash flows and earnings excluding Hindustan Zinc to unravel the key drivers of the credit. VDL (ex-HZL) reported EBITDA of $3.1bn in FY25 and a net leverage of 2.2x. We struggle to see financial stress at VDL with these metrics. For HZL, net leverage was 0.1x. HZL has capex plans and we see net leverage going up to 0.5x,” JP Morgan mentioned in the note.
JP Morgan also mentioned report added that it thinks Vedanta is cheap in Asia in the emerging markets’ metals and mining. It also said Vedanta has healthy EBITDA generation (~ $5bn run-rate), improving funding access with approximately $1bn bank loans raised by Vedanta Resources in FY26, and attractive yields (~8-10%).
On the topic of Hindustan Zinc (HZL), JP Morgan mentioned how the Indian government retained three board seats in the company despite its divestment 25 years ago. "Further, there have been instances when the government-nominated directors acted to prevent transactions that they consider will not be beneficial to HZL or its stakeholders. The government currently owns 27.92% stake in HZL while Vedanta Ltd owns 61.84%," said JP Morgan in a statement. "We believe the GoI (government of India) retains oversight of major decisions, including capex plans,” JP Morgan wrote in its note.
JP Morgan also pointed out that HZL has not reported tax and other claims under litigation as liabilities, which Viceroy mentioned in its note, and said that "such claims and the related litigation are common in heavily regulated sectors like mining".
"HZL has reported tax and other claims of ~Rs 151.5 billion, which are under litigation. These are not recognized by the company as liabilities. JSW Steel too has reported Rs 150 billion of such claims under litigation. Neither company shows the amount as a liability on the balance sheet,” the note from JP Morgan said.
JP Morgan also mentioned that the downside risks for Vedanta are outweighed by expected commodity prices. The firm also mentioned large mergers and acquisitions of over $500mn to $1 billion or capex plans of similar size acting in Vedanta's favour.
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