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Limited impact on Vedanta operations due to coronavirus lockdown: Crisil

Disruption in the supply chain and decrease in sales volume on account of the prolonged global pandemic will be key monitorables

COVID-19-induced lockdown, Vedanta, CRISIL, Decline in domestic demand, Zinc, Oil and gas, Steel, Aluminium, Supply chain, Alumina cost, Coal and bauxite

The COVID-19-induced lockdown has had a limited impact on the operations of Vedanta, rating agency Crisil has said.

Also, increase in export offset decline in domestic demand during the lockdown, supported by its low cost position in key businesses, it said.

"The COVID-19-led lockdown has had a limited impact on its (Vedanta Ltd) operations as it produces essential commodities (zinc, oil and gas, and steel) or falls under continuous process industries (aluminium)," Crisil said.

However, disruption in the supply chain and decrease in sales volume on account of the prolonged global pandemic will be key monitorables, it added.

The company is expected to undertake cash preservation measures such as reduced capital expenditure (capex) and limited dividend payout in FY21, which shall support liquidity.

Additionally, to preserve liquidity, Vedanta has availed moratorium on its term debt obligation as per RBI guidelines after approval from respective banks. The rating agency has reaffirmed its ratings on the debt instruments and bank facilities of Vedanta at 'Crisil AA/ negative/ Crisil A1+'.

Reaffirmation of the ratings reflects expectation of sustained operating profitability in FY21 despite the weaker outlook for commodity prices, it said.

This is mainly led by expected improvement in earnings in the aluminium segment, aided by lower alumina cost and increased coal and bauxite linkages, and volume growth in the zinc and oil and gas businesses.

The negative rating outlook reflects the risk of lower-than-expected volume or significantly lower commodity prices, especially of brent crude, zinc, and aluminium, being sustained in fiscal 2021 in the wake of the pandemic, it said.

Operating profitability in the ongoing fiscal could therefore be lower than expected, resulting in net leverage sustaining at above 2.8 times. "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," it said.

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June 2020
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