Vedanta Aluminium shares slip 2% in weak market; India Ratings upgrades NCDs to IND AA+

India Ratings and Research (Ind-Ra) on Thursday, August 13, upgraded Vedanta Aluminium Metal Limited’s (VAML) non-convertible debentures (NCDs) to ‘IND AA+’ from ‘IND AA-’ with a Stable Outlook while resolving the Rating Watch with Developing Implications.

What are NCDs?

Non-Convertible Debentures (NCDs) are debt instruments through which companies borrow money from investors for a fixed period. When an investor buys an NCD, they are essentially lending money to the company, which pays a fixed rate of interest during the tenure and repays the principal amount on maturity.

Unlike convertible debentures, NCDs cannot be converted into equity shares, making them a fixed-income investment. Companies typically issue NCDs to raise funds for expansion, refinancing existing debt, or meeting other business requirements.

Key details to know

In its press release, Ind-Ra said it continues to fully consolidate VAML and its group companies - Vedanta Limited (VDL), Vedanta Power Limited, Vedanta Oil and Gas Limited, and Vedanta Iron and Steel Limited- to arrive at the rating, due to common promoters and likely cash fungibility among the entities.

The agency has also consolidated the debt of the parent company, Vedanta Resources Limited (VRL), because VRL relies on cash upstreamed from these operating companies for its debt servicing and investments, and provides support to them. The entities have been collectively referred to as the Vedanta Group.

Detailed rationale of the rating action

The rating agency said that the resolution of the "Rating Watch with Developing Implications" results from the completion of VDL’s demerger into five entities, providing clarity on debt allocation and allowing assessment of linkages among the newly formed standalone entities.

"Ind-Ra believes the demerger has enhanced VDL’s corporate structure by providing clarity on investments and debt at the individual company level, rather than consolidating them within a single entity. This change prevents strong cash-generating companies from extending support to weaker entities. Furthermore, the new structure improves the group’s financial flexibility with the option to monetise stake at individual asset, if required," it added.

The upgrade reflects VAML’s strong business profile backed by its strong market position, low cost of production (COP) in the aluminium industry, and high product and geographic diversification. This is complimented by vertical integration and an increased share of value-added products, as reflected in a higher EBITDA/tonne (t) in FY26, likely sustaining over FY27-FY28.

VAML completed its capex for setting up a refinery and expanding its smelter in FY26 to ramp-up production and maintain high-capacity utilisation in FY27.

"Furthermore, VAML is likely to complete its capex towards a mine development in the next few quarters, subject to clearances, to increase backward integration and reduce COP. VAML’s EBITDA has improved over FY26-1QFY27 due to favourable commodity prices and a lower COP, leading to improved standalone and consolidated credit metrics," Ind-RA said.

The rating also factors in the group’s enhanced financial flexibility, led by a lower debt refinancing risk at VRL, following significant debt refinancing and average maturity extension.

The group’s adjusted consolidated leverage (net debt/operating EBITDA; including VRL's debt) improved over FY25-FY26 to below 2.0x (FY24: around 3.5x), due to the improved EBITDA, mainly led by higher commodity prices and cost improvements, primarily in VAML and VDL (the holding company of Hindustan Zinc Limited).

The rating is, however, constrained by the group’s EBITDA remaining exposed to volatility in commodity prices, regulatory risk, likely high capex, and dividend payouts, which may increase the group’s leverage ratio, Ind-RA added.

How shares are performing

Shares were trading lower amid weak market. The stock slipped as much as 2.34% to ₹440.10 on the NSE.