JP Morgan backs Vedanta after Viceroy report, says "not getting distracted"

After US-based short-seller Viceroy Research alleged that the Anil Agarwal-led Vedanta Group is "financially unsustainable and operationally compromised," global brokerage JP Morgan has backed the mining giant saying that it is not distracted by the claims and maintains its 'Overweight' rating on Vedanta and its bonds.

 

The brokerage said that it remains comfortable with Vedanta's leverage and the government's oversight of Hindustan Zinc. 

 

Analysts at JP Morgan believe Vedanta is cheap within the Asian and emerging market (EM) metals and mining space, supported by healthy Ebitda generation ($5 billion run-rate), improved funding access (with $1 billion in bank loans raised by Vedanta Resources in FY26), and attractive yields of 8–10 per cent.  On Wednesday, Viceroy Research issued an 87-page report on Vedanta's parent firm, Vedanta Resources, saying the group is "financially unsustainable, operationally compromised and resembles a Ponzi scheme". However, Vedanta denied the allegations, calling the report "a malicious combination of selective misinformation and baseless allegations".  

Last checked, shares of Vedanta were trading at ₹443.35, up 0.94 per cent compared to the Thursday's close of ₹439.2 on the NSE. In comparison, the benchmark NSE Nifty50 index was trading lower by 91.55 points or 0.36 per cent at 25,263.70 levels. In the last two sessions, the stock slipped over 3.6 per cent after the Viceroy report was released.  CATCH STOCK MARKET LIVE UPDATES TODAY 

According to JP Morgan, they have generally focused on Vedanta’s cash flows and earnings, excluding Hindustan Zinc, to unravel the key drivers of the credit. "Vedanta (ex-Hindustan Zinc) reported Ebitda of $3.1 billion in FY25 and a net leverage of 2.2x. We struggle to see financial stress at Vedanta with these metrics. For Hindustan Zinc, net leverage was 0.1x. The company has capex plans and we see net leverage going up to 0.5x," the brokerage said.

 

According to the company's disclosures in the past, the government of India (GoI) had call/put options requiring Vedanta to purchase/sell the government's or its stake at a 50 per cent premium/discount to the market price of Hindustan Zinc shares. 

 

"These options could be exercised within 90 days of the government becoming aware of a default on a particular condition related to the completion of a smelter plant in a specific location. The project was to be completed by 2007, but Hindustan Zinc completed the smelter at a different location after informing the government. We would be surprised if any breach had not been identified by the GoI over the past 20 years," the brokerage said.

 

In addition, the brokerage highlighted some key upside risks to its recommendations, including continued strong commodity prices, further deleveraging and potential asset sales or equity raise. 

 

Key downside risks include commodity prices falling below expectations, large mergers & acquisitions (M&A) or capex plans, weak onshore banking access leading to high interest costs and refinancing pressure and regulatory investigations or scrutiny.