According to Crisil analysis, the COVID-19 induced lockdown has had a little impact on Vedanta’s operations. An increase in exports during the lockdown, supported by the company’s low-cost position in key businesses, has offset the sluggish domestic demand, showed Crisil.
However, disruptions in supply chain and decrease in sales volume that Vedanta has faced on account of the prolonged global pandemic shall be monitored, added Crisil.
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According to the report, Vedanta is expected to adopt cash preservation measures by reducing capital expenditure (CAPEX) and limiting dividend payout in the financial year 2021 to address liquidity concerns.
The company has also reportedly availed moratorium on its term debt obligation as per RBI guidelines after approval from respective banks to preserve liquidity. The rating agency has reaffirmed ratings on the debt instruments of Vedanta at Crisil AA- and bank facilities at Crisil A1+.
Reaffirmation of the positive rating on Vedanta’s bank facilities indicates the possibility of sustained operating profitability in FY21 despite the weaker outlook for commodity prices, said Crisil.
This expectation could be primarily driven by the estimated improvement in earnings in the aluminium segment, supported by lower alumina cost and increased coal and bauxite linkages, and volume growth in the zinc, and oil and gas businesses.
The negative rating, on the other hand, reflects the risk of lower-than-expected volume or significantly lower commodity prices being sustained in FY21 in the wake of the COVID-19 pandemic.
"The negative outlook also reflects the risk of weakening of Vedanta's financial risk profile following the completion of VRL's (Vedanta Resources) proposed debt-funded privatisation of Vedanta," according to Crisil.
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