Vedanta secures S&P Global’s 'BB' upgrade as aluminium integration boosts margins

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S&P Global Ratings has upgraded Vedanta Resources to ‘BB’ with a stable outlook, reinforced by improvement in operating performance, firmer liquidity and consistent deleveraging across the group. S&P highlighted Vedanta’s expanding backward integration in alumina and bauxite, coupled with favourable commodity prices, as driving the strengthening of Vedanta’s earnings profile. Additionally, Odisha’s Lanjigarh alumina refinery ramp-up is expected to raw material security and lower aluminium production costs and improve profitability over the next two fiscal years.  

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Vedanta’s captive alumina production is projected by S&P to rise from about 60 per cent in FY26 to add another 1 million tonnes, exceeding 75 per cent in FY27. This would help reduce aluminium production costs by around USD 50 per tonne. The gradual expansion of captive bauxite mining operations over the next 12 to 18 months is also expected to improve cost efficiency further.

S&P Global also noted that a growing share of value-added products in Vedanta’s aluminium and zinc businesses is likely to enhance sales premiums over London Metal Exchange prices and strengthen earnings resilience.

Vedanta’s EBITDA forecast shows it remaining around USD 7 billion annually during FY27 and FY28. Supported by stronger operating cash flow and lower dividend payouts, the agency expects adjusted debt to decline by USD 500 million in FY27 and by another USD 1 billion in FY28.

As per the S&P viewpoint, “improving backward integration amid a strong pricing environment should shield the company’s earnings from such volatility and result in a sustainable improvement in its credit profile.”

The report also highlighted Vedanta’s improving liquidity position. Since the beginning of 2026, the company has secured over USD 2 billion in long-term banking lines, while maintaining cash reserves exceeding USD 3 billion. S&P now expects liquidity sources to comfortably exceed liquidity requirements over the 12 months ending March 2027.

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The agency observed that Vedanta has regained access to diversified funding channels after its debt restructuring phase in 2023. The company has raised more than USD 3.5 billion through bond issuances since September 2024 and secured over USD 3 billion in syndicated term loans during FY26.

S&P viewed the recent demerger of Vedanta Limited into five listed entities as broadly neutral from a credit perspective, stating that the restructuring would not affect the holding company’s access to subsidiary cash flows. However, the agency cautioned that due to the new structure, the demerged entities may have varied funding allocations, which, in turn, would create balance sheet pressures.

The ratings firm also pointed out the risks of Vedanta’s complex corporate structure. Over 30 per cent of consolidated debt remains at the holding company level despite contributing only around 5 per cent of group earnings, while Hindustan Zinc Limited and Bharat Aluminium Corporate Limited jointly account for 6 per cent of consolidated debt and over 30 per cent of earnings.

Under its base-case forecast, S&P expects Vedanta’s aluminium sales volumes to increase from 2.456 million tonnes in FY26 to 2.65 million tonnes in FY28, while aluminium production costs are projected to decline from USD 1,752 per tonne to around USD 1,700 per tonne over the same period.

With the stable outlook, S&P expects a continued deleveraging by Vedanta Limited while maintaining the ratio of funds from operations (FFO) to debt above 30 per cent over the next 12 to 24 months. S&P has indicated that sustained improvement in leverage metrics, stronger cash flow generation and continued reduction in holding company debt could support future rating upgrades.

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