Crisil upgrades Vedanta's credit rating; outlook revised to stable

Crisil on Friday said it has upgraded its rating on the long-term bank facilities and debt instruments of Vedanta Ltd to 'AA'.

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. 

Such instruments carry very low credit risk.

"Crisil Ratings has upgraded its rating on the long-term bank facilities and debt instruments of Vedanta Ltd ...To 'CRISIL AA' from 'CRISIL AA-', and has revised the outlook to 'Stable' from 'Positive'," it said in a statement.

"The short-term rating on bank facilities and commercial paper has been reaffirmed at 'CRISIL A1+'," it said.

The rating action factors in stronger-than-expected operating profitability, driven by elevated commodity prices during fiscal 2022, volume growth across businesses, and sustained cost efficiency, especially in the aluminium business.

While commodity prices are likely to moderate in fiscal 2023, from current spot levels, prices are expected to remain healthy.

"EBITDA is thus, likely to be higher than expected, at over Rs 44,000 crore in fiscal 2022 (vis-à-vis around Rs 27,500 crore in fiscal 2021), and over Rs 40,000 crore in fiscal 2023, and aid improvement in free cash flow and return on capital employed over the medium term," it said.

Further, the management is expected to utilise the cash accruals to reduce the outstanding consolidated debt, and improve resilience to a decline in commodity prices.

"The upgrade in credit rating to AA/stable demonstrates superlative financial performance, improvement in corporate structure along with a sound capital allocation and balance sheet; the company remains well positioned towards sustainable value creation," Ajay Goel, Acting CFO, Vedanta said.