Vedanta Limited (VEDL) is a major player in India’s mining, oil, and power sector. However, an 87-page investigative report by Viceroy Research presents a very different picture, one that many investors might not know about.
The report claims that the Vedanta group is set up like a “house of cards,” relying on risky loans, misleading financial practices, and internal money transfers that benefit the parent company rather than the shareholders.
This article simplifies the entire report so that anyone, even without a finance background, can understand what happens behind closed doors.
To grasp the entire situation, it’s important to understand the difference between the two companies: VEDL (Vedanta Limited) and VRL (Vedanta Resources Limited).
VEDL is the Indian company that runs all the operations, mines, oilfields, and power plants. In contrast, VRL is the London-based holding company owned by the Agarwal family. VRL doesn’t run any business itself; it entirely relies on VEDL for funding, as quoted by Viceroy
The main issue is that VRL is deep in debt and survives by extracting cash from VEDL. This means VEDL’s health is sacrificed to keep the parent company alive. VRL holds a 56.36% stake in the VEDL group.
Viceroy describes the relationship between VRL and VEDL as a parasite-host one. VRL has around $4.9 billion (Rs 41,650 crore) in debt, and, instead of paying it off with its own earnings, it takes money from VEDL.
To make this happen, VEDL is pressured to pay large dividends and take on new loans, regardless of whether it can afford them. Consequently, VEDL’s own debt is rising, its cash reserves are depleting fast, and there’s little left for real investments.
In three years, VEDL paid $8 billion (Rs 68,000 Crore) in dividends while only generating $2.4 billion (Rs 20,400 Crore) in cash during that period. So, where did the extra money come from? From taking on more debt. Since FY22, its net debt has jumped by $6.7 billion (Rs 57,000 Crore), creating a significant burden.
Meanwhile, VRL pays around $835 million (Rs 7,100 crore) each year as interest on its $4.9 billion (Rs 41,650 crore) debt. This is roughly 16% interest, far above the normal market rates of 9–11%. This suggests that either VRL has undisclosed loans or is borrowing money short-term at very high rates to survive. Either scenario raises alarms.
Tricks to Show Fake Profits
The report highlights that VEDL inflates its profits using misleading accounting methods. It misrepresents regular business expenses as “capital investments,” which helps boost profits, a practice often labelled as CAPEX fraud. Additionally, it overstates the value of non-performing assets and hides certain liabilities from its balance sheet.
Several subsidiaries display questionable financials. For instance, ESL Steel has recorded fines and penalties as assets, which is illogical. TSPL (Talwandi Sabo Power Ltd.) has unpaid dues and liabilities that are not properly disclosed.
Konkola Copper Mines, previously shut down, is listed as “revived” but continues to incur losses. Fujairah Gold in the UAE is suspected of involvement in gold laundering.
VRL takes money from VEDL through a “brand fee.” It charges its subsidiaries over $338 million (Rs 2,873 crore) annually just for using the “Vedanta” brand name. Ironically, most of these companies do not use the brand in any significant way. This is merely a clever way to transfer money from operational companies to the parent.
Even Hindustan Zinc Ltd (HZL), partly owned by the Indian government, is forced to pay these fees. This means that a private company is draining public funds without proper shareholder approval.
In 2020, VEDL provided a huge $956 million (Rs 8,126 crore) loan to VRL and its affiliates. VRL then used that money to buy more shares in VEDL, which is a clear case of using a company’s funds to purchase its own stock through a backdoor, an action that violates Indian corporate laws. Out of this, $122 million (Rs 1,037 crore) was completely written off, prompting serious legal and ethical issues.
Expansion Projects That Went Nowhere
Vedanta has made many big announcements about expansion projects in places like Jharsuguda, Ghogharpalli, Kuraloi, and Lanjigarh. However, most of these projects are either severely delayed or incomplete.
Why? Because the funds raised for these projects were instead used to pay off debts or distribute dividends. The report suggests these announcements were often made just to attract more funds rather than for genuine business growth.
The company is seeing a wave of departures among its top leaders. Over the past few years, multiple CEOs, CFOs, and board members have resigned. In terms of auditors, Vedanta selects firms that have been blacklisted or face serious credibility concerns. This indicates a troubling lack of internal checks and balances, along with growing instability at the top.
VEDL is also engaged in numerous lawsuits and regulatory actions, with over 100 cases currently active. In comparison, Tata Steel has just 8, and JSW Steel has 3. These issues range from environmental violations and tax disputes to broken contracts and criminal investigations into past deals. This paints a picture of a company perpetually in turmoil, always reacting, never improving.
To “fix” the situation, Vedanta has proposed splitting itself into five separate companies. However, according to the report, this is merely a distraction. The core problem, which is the massive debt and how VRL drains money, remains unaddressed. It’s like slicing a rotten apple into six pieces and hoping it suddenly becomes fresh.
However, Vedanta has said the report is a mix of public information and false claims meant to damage its reputation. It added that the report was released without any communication and appears timed to disrupt upcoming plans. Vedanta urged stakeholders to ignore such speculation and stay focused on facts.
What This Means for Retail Investors
Viceroy Research concludes by labelling Vedanta a “financial zombie.” The group does not serve the interests of shareholders, employees, or India’s development. Its sole aim seems to be keeping VRL alive by draining VEDL. If even one part of this shaky structure fails—such as a missed loan payment or a failed fundraising—the entire group might collapse.
As an investor, it’s time to look beyond annual reports or high dividend yields. Always conduct your own research and be concerned about companies that seem overly aggressive or too complex to understand. Sometimes, the truth is buried deep, and it’s far from pleasant.
It’s important to understand that Viceroy is a short seller — they make money by betting that a company’s stock will go down. So, their reports are often meant to highlight negative aspects of a company. This doesn’t mean everything in the report is false, but investors should be cautious and do their own research before making any decisions.
Written by Satyajeet Mukherjee
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