Synopsis:
Leading brokerage JP Morgan said don’t get distracted and to remain long on Vedanta as it didn’t find any reason to worry about the mining major.
The shares of Vedanta Limited are in focus after JP Morgan maintained its positive outlook for the company and its bonds. In this article, we will dive more into the details of this.
With a market capitalisation of Rs 1,74,912 crore, the shares of Vedanta Ltd are currently trading at Rs 447 per share, down by 15 percent from its 52-week high of Rs 526.95 per share. Over the past five years, the stock has delivered a return of 311 percent.
So what was the issue?
Viceroy Research, a US-based short-seller, raised significant concerns about Vedanta Group’s finances and its governance in a report on July 9. It stated that Vedanta’s parent company, Vedanta Resources (VRL), has no real business and only survives by taking money from its listed company, Vedanta Ltd (VEDL).
Viceroy warned that VRL is forcing VEDL to take on more debt, which could harm its future. It also claimed that Vedanta is hiding some of its real expenses and debts and described the entire situation as risky; it even compared it to a Ponzi scheme. The report mentioned that Vedanta’s plan to split its businesses will not solve the problem but will simply transfer the debt to the new companies.
What does JP Morgan have to say about it?
In response to the concerns raised by Viceroy Research, JP Morgan defended Vedanta. It said that investors should not get distracted by the noise. The firm kept an ‘Overweight’ rating on Vedanta Ltd. and mentioned that there are no significant credit issues.
JP Morgan pointed out that Vedanta’s main businesses are generating strong cash flows. Vedanta Ltd. (excluding Hindustan Zinc) reported $3.1 billion in EBITDA in FY25 and is maintaining a healthy level of debt.
Hindustan Zinc, which has very low leverage, is under close government oversight. Three government-nominated directors are overseeing decisions. Regarding tax claims, JP Morgan explained that such legal matters are common in the mining industry.
Similar companies do not list them as liabilities. The firm also noted that the company has dealt with past regulatory issues, like the 2007 smelter project, through proper government notifications. In summary, JP Morgan believes Vedanta’s bonds and its financials are fundamentally sound, and that there is no need to panic.
Written by Satyajeet Mukherjee
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