Shareholders shrug off Viceroy's allegations, repose confidence in Vedanta

Shareholders reposed their confidence in Vedanta Ltd (VEDL) during the company’s annual general meeting on Thursday, a day after a short-seller's report called the company a “dying host” for its London-based ”parasite" parent Vedanta Resources Ltd (VRL). 

The company’s shares settled 0.4% lower on the BSE at ₹438.95 apiece, mirroring the 0.41% fall in the benchmark Sensex. 

When one of the shareholders broke ranks to question the company’s brand fee payments to VRL, Anil Agarwal, the founder and chairman of the Vedanta Group, chose not to respond. He simply called the short-seller report “motivated,” before asking Deshnee Naidoo, the chief executive of VRL, who is not on the rolls of VEDL, to answer the question.

Also Read: Five big concerns flagged by Viceroy Research in its 87-page report on Vedanta

Naidoo said that there was no new information in the short-seller report, and that it was based on public information. “The authors have only compiled part information with gross inaccuracy which was discerned by the shareholders in the meeting,” she said. The management will stay focused on Vedanta’s upcoming demerger, diversification and deleveraging debt. 

Brand fee and governance charges

American short-seller Viceroy Research, which has also targeted Wirecard and Truecaller earlier, accused Vedanta Group of alleged financial misconduct and misrepresentation, making empty promises to shore up share prices, manipulating asset values, raising off-balance sheet loans, and corporate governance issues, Mint reported on Wednesday. 

Viceroy has accused VRL of draining cash from VEDL. One way is by charging branding fees even from subsidiaries like Hindustan Zinc, and ESL Steel that do not use the brand name. Except Vedanta Ltd, none of the companies paying brand fees make any meaningful use of the Vedanta brand name, but collectively they paid $361.3 million in brand fees in FY25. Vedanta Ltd has paid Vedanta Resources $1.16 billion in brand fees and strategic services over the past four years.

Mumbai-listed Vedanta had closed 3.38% lower on the BSE on Wednesday after crashing nearly 8% intraday, while Hindustan Zinc Ltd, fell 2.56%.

Brokerage view and investor mood

Analysts at JP Morgan on Thursday said that the firm remained comfortable with VEDL’s leverage and took comfort in the government’s oversight at Hindustan Zinc (HZL). The Indian government holds a 29.5% stake in the country’s largest zinc producer. 

The brokerage said that it considers VEDL’s shares to be priced cheaper within Asia and the emerging markets metals and mining space with healthy Ebitda generation. The key upside risks to the brokerage’s recommendations were continued strong commodity prices, further de-leveraging at Vedanta, and potential asset sales or equity raises, it added. 

Also Read: Vedanta AGM: These are the questions short seller Viceroy wants analysts to ask

The key downside risks included an over 10% downturn in commodity prices, fresh borrowing upwards of $500 million and a decline in the firm’s access to domestic bank funding leading to more expensive loans. 

Shareholders at the AGM said they were satisfied with the company’s statement on the short-seller report and continue to support them. They called these claims misleading with no substance and the company will overcome the situation shortly just like Adani did after another short-seller Hindenburg released a report on them. 

A shareholder from Kolkata called the timing of the short-seller report unique since it was a day before the AGM.

Demerger, tariffs and capex plans

The conversation shifted to Vedanta’s exposure to tariffs, capital expenditure plans and its upcoming demerger into five separately listed companies. 

“Only 2% of Vedanta’s revenues are exposed to US tariffs, although there is volatility in metal prices over the last 3-4 months, based on tariff news, because of robust margins the company sees benefit in the input costs because of the company’s raw material strategy and hence the margins have largely intact,” said Naidoo.

The company’s chief financial officer Ajay Goel shared the mining company’s capex for the current fiscal year to be $1.5-1.7 billion across the areas. The company allocates capital based on three basic principals- reward shareholders with dividends, investment for capital expenditure and maintaining the right level of debt leverage. 

The company is also preparing to demerge into five companies- Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Iron and Steel, and Vedanta Ltd, which will continue as the parent entity. 

Also Read: 'Vedanta has so many red flags, it will take people some time to digest'

Vedanta's chairman Agarwal expects the demerger to be completed by September this year and existing shareholders of the company will receive one share in each of the new companies, for each share they hold in Vedanta Ltd. 

Viceroy Research has a short position of undisclosed magnitude on the bonds of VRL, which it took in April. The short-seller has no exposure to the publicly traded shares of VDEL or HZL, as per Fraser Perring, the co-founder of Viceroy.

The short-seller is not done with Vedanta yet. Speaking to Mint over a call from London, Perring on Wednesday hinted at a series of reports on the natural resources conglomerate.