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. According to reports from Upstox, 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.
The resolution of the Rating Watch with Developing Implications results from the completion of Vedanta Limited's (VDL) demerger into five entities, providing clarity on debt allocation and allowing assessment of linkages among the newly formed standalone entities. As reported by Upstox, Ind-Ra 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.
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. According to reports from Upstox, 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. The company's EBITDA has improved over FY26-1QFY27 due to favourable commodity prices and a lower COP, leading to improved standalone and consolidated credit metrics.
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. As reported by Upstox, 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 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. According to reports from Upstox, 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 and improves the group's financial flexibility with the option to monetise stake at individual asset, if required.
