Commercial Bank Management

Prof. Balachandran R
Project report on

Credit analysis of Vedanta Ltd.

Prepared by
Group 4

Hemen Chauhan MBA/09/016

Vikas Singh MBA/09/051
Saurabh Shukla MBA/09/043
Akash Patel MBA/09/004
Yash Poddar MBA/09/052
Sriman Agarwal MBA/09/200
Aquib Akhter MBA/09/061
Executive Summery
Vedanta Ltd is a global natural resources conglomerate engaged in the extraction, processing,
and sale of minerals such as nickel, zinc, lead, aluminum, iron ore, copper, silver, and oil and
gas, with operations in India, Malaysia, China, South Africa, and the UAE. The company
benefits from the "Make in India" initiative and infrastructure development, leveraging its
strengths in cost competitiveness and large-scale operations despite operating in a cyclical
industry characterized by price volatility, resource scarcity, and stringent environmental
regulations. Key executives, including the CEOs of its Zinc, Aluminum, and Oil & Gas
businesses, have driven significant production achievements. Financially, Vedanta has
maintained robust gross and EBITDA margins but faces challenges with increasing debt levels
and fluctuating liquidity and profitability ratios. The company's risk rating score of 49 on
scale of 1-90 highlights areas for improvement in leverage, coverage ratios, and liquidity,
resulting in a C+ rating.
About Vedanta
Vedanta Ltd is a diversified natural resource conglomerate engaged in extraction, processing
and selling of minerals such as nickel, zinc, lead, aluminium, iron ore, copper, silver, oil and
gas. It has it’s significant operations in India, Malaysia, China, South Africa and UAE.
Management Analysis
1. Mr. Sunil Duggal (CEO & Whole-Time Director): Sunil Duggal became CEO of
Vedanta Limited, after being the CEO of Hindustan Zinc Limited (HZL) from 2015 to
2020. With over 37 years of experience, Duggal is known for his leadership in
navigating challenges, enhancing efficiency, and promoting innovative, eco-friendly
technologies in mining. A graduate of Thapar Institute of Engineering & Technology,
he also attended IMD, Lausanne, and IIM Calcutta Duggal holds key positions in
several industry associations, including Vice Chairman of the International Zinc
Association and President of the Indian Lead Zinc Development Association. He also
chairs multiple committees related to mining and non-ferrous metals.
2. Ms. Sonal Shrivastava (CFO) : Sonal Shrivastava was appointed Chief Financial
Officer at Vedanta in June 2023. With over 26 years of financial leadership experience,
she previously worked as CFO for Holcim Group's Asia Pacific, Middle East & Africa
operations. At Vedanta, she will oversee financial strategy, accounting, tax, treasury,
investor relations, financial planning, analytics, and drive digitalisation and
profitability. Sonal holds a Bachelor's degree in Chemical Engineering from BIT Sindri
and a Master's degree in Business Administration from the Jamnalal Bajaj Institute of
Management Studies.
3. Prerna Halwasiya (Company Secretary/ Deputy Head Investor Relation) : Prerna
Halwasiya has been the Company Secretary and Compliance Officer for Vedanta since
July 2018, ensuring high standards of corporate governance. In April 2023, she also
became Deputy Head of Investor Relations, collaborating with finance leadership to
enhance investor engagement and communicate the company's vision and performance.
With over 15 years of experience in shareholder engagement and secretarial functions,
 Prerna has been with Vedanta since August 2007. She is a qualified Company Secretary
from the Institute of Company Secretaries of India (ICSI).
Independent Directors and other key Executive members
1. Mr. Arun Misra ( CEO, Zinc Business ) : Led Hindustan Zinc Limited (HZL) to
achieve record production levels, enhancing the company's status as one of the world's
largest integrated producers of zinc
2. Mr. Rahul Sharma (CEO, Aluminium Business ) : Spearheaded the ramp-up of the
Jharsuguda aluminium smelter, making it one of the largest single-location aluminium
smelters in the world.
3. Mr. Steve Moore (CEO, Cairn Oil & Gas): Played a crucial role in the development
and production increase of the Rajasthan block, significantly contributing to India's
domestic crude oil production.
4. Anil Agarwal (Non-Executive Chairman): Founded Vedanta Resources and
transformed it into a global diversified natural resources company, securing major
assets in India and internationally.
5. Navin Agarwal (Executive Vice Chairman): Instrumental in the acquisition of Cairn
India, which added significant oil and gas assets to Vedanta's portfolio, further
diversifying the company's operations.
Industry Analysis
Its key challenges are that it operates in a very cyclical industry that has changed due to
commodity prices, resource scarcity, and price volatility. It also faces issues like environmental
regulations and intense competition.
The company is benefiting from the growing Make in India trend and Indian Infrastructure
push. Its key strength is cost competitiveness, large-scale operations, and high market share in
most of its products.
Porter 5 forces analysis
Competitive rivalry

• There are several players in the mineral extraction industry with fragmented market
share.
• Commodity prices change which makes competition in price wars.
• All the major players are constantly adding to their capacity which further intensifies
the rivalry.
Threat of New Entry

• The extraction of natural resources requires substantial capital.

• Obtaining licenses, permits and mineral rights for these resources are complex and are
difficult for new players.
Bargaining power of Supplier

• Suppliers provide essential raw materials for production.

 • There are often limited and big suppliers for these raw materials
Bargaining power of Buyer

• There are often large pools of buyers seeking the products for their production
requirements, also there are multiple sellers for the commodities.
Threat of Substitution

• The development of alternative materials, such as composites, plastics, and advanced

alloys, can reduce the demand for metals
• The increasing focus on sustainability and the circular economy is leading to higher
rates of metal recycling which can reduce the demand for newly mined materials.
Company Analysis
Pedigree of Auditor: Vedanta’s financial statements are audited by S.R. Batliboi & Co., which
is a prominent professional services firm in India, specializing in audit, tax, and advisory
services. It is associated with Ernst & Young (EY) Global Limited, a leading global network
of professional services firms. S.R. Batliboi & Co. is known for its expertise in auditing and
accounting and offers a wide range of services including statutory audits, internal audits, tax
advisory, and consultancy. Through its affiliation with EY, the firm leverages global resources
and best practices to deliver high-quality services to clients across various sectors.

Mar-20 Mar-21 Mar-22 Mar-23 Mar-24

Gross Margin 39.58% 44.39% 46.17% 35.26% 38.56%
EBITDA Margin 24.56% 31.04% 33.77% 23.37% 24.57%
EBIT Margin 13.80% 22.36% 27.07% 16.21% 17.11%
EBT Margin 7.90% 16.44% 23.45% 11.98% 10.52%
Net Profit Margin 12.07% 13.96% 16.48% 8.07% 1.60%

Debt to EBIDTA 2.85 2.11 1.20 2.33 2.48

Current Ratio 0.70 0.73 0.81 0.50 0.39

Quick Ratio 0.40 0.49 0.48 0.24 0.15

Interest Coverage
0.56 0.51 4.56 1.91 0.24
Ratio
Debt coverage
1.59 1.43 2.65 0.95 0.98
ratio

Payable Days 289 264 206 173 177

Inventory Days 49 41 39 37 33
Debtor Days 11.65707 14.47626 13.60102 9.945896 9.160109
 • The decreasing current ratio suggests that the company's short-term assets are shrinking
relative to its short-term liabilities. This can indicate potential liquidity problems.
• The company may have less working capital available to fund day-to-day operations.
• A decrease in quick ratio indicates that the company's most liquid assets (cash,
marketable securities, and receivables) are insufficient to cover its short-term liabilities.
• The company might face challenges in generating enough cash quickly to meet its short-
term obligations.
• A higher interest coverage ratio is ideal. It means the company is financially stable. The
ideal interest coverage ratio is 3 and above. Whereas 1.5 is the minimum acceptable
ratio. A ratio of 0.24 means that the company's EBIT is only 24% of its interest expense
and the company earns only Rs. .24 for every Rupee of interest it needs to pay. Such a
low ratio indicates severe financial distress and suggests that the company is struggling
to generate enough earnings to cover its interest payments. With such limited ability to
cover interest expenses, the company is at high risk of defaulting on its debt obligations.
• A Debt coverage ratio of 0.98 indicates that the company's net operating income is just
slightly less than its total debt service requirements. This ratio suggests very tight
margins and a precarious financial situation. Even a slight decrease in income or
increase in debt service could push the company into a default position.
• Decreasing payable days, debtor days and inventory days are all indicating
improvement in working capital management.

Risk Rating matrix

Risk Rating Matrix Score Reason

Qualitative Factors
Management Quality 7 Top Class Management
Quality of Financial Statement 6 Auditor pedigree is good but not so good numbers
Spread of Suppliers and Customers 8 More than 7800 supplier
Industry Benchmarking 7 14% share in industry revenue
Quantitative Factors
Leverage 4 Increasing over past 3 years
Coverage Ratios 2 Ratios Far Less than acceptable limit
Liquidity 4 Ratios are around 0.5
Profitability 3 Decreasing ratios
Age of Business 8 More than 50 years old established company
Total Score 49

Total Score Rating Rating

80-90 1 A+
70-79 2 A
60-69 3 B+
50-59 4 B
40-49 5 C+
30-39 6 C
20-29 7 D
<20 8 F
 Vedanta Ltd 49

Conclusion :
Given the comprehensive analysis and the risk rating score of 49, which corresponds to a C+
rating, we have determined that Vedanta Ltd presents a high-risk investment. The major
concerns include:

• Decreasing liquidity ratios and low coverage ratios highlight potential difficulties in
meeting short-term and long-term financial obligations.
• Vedanta Ltd operates in a highly volatile and capital-intensive industry. These sectors
are subject to drastic commodity price fluctuations, leading to unstable revenues and
profitability.
• Stringent environmental and regulatory requirements impose high compliance costs
and operational restrictions, further straining financial resources. The high capital
intensity of these industries necessitates substantial investments with long payback
periods, increasing the risk of financial strain and leverage.
Collectively, the industry challenges create a challenging environment for Vedanta Ltd to
navigate and maintain financial stability.
Decision
Given the high-risk profile and financial instability indicated by the C+ rating, we have decided
not to extend credit to Vedanta Ltd. This decision aligns with our risk management framework
and lending criteria, ensuring that we maintain a prudent approach to credit risk.

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