EXPLAINER | Why did Vedanta, Hindustan Zinc shares tumble on July 9?

Shares of Vedanta Group companies were under pressure on Tuesday after a US-based research firm alleged that the entire group structure of the metals and mining giant was unsustainable and posed a severe risk to creditors. Vedanta has termed the report malicious and the allegations baseless.

Two years ago, short seller Hindenburg had taken on the Adani Group, accusing the ports-to-power conglomerate promoted by Gautam Adani of brazen stock manipulation and accounting fraud, leading to a rout in the shares of group companies.

Adani Group has since recovered, and Hindenburg has shut shop. But now another firm, Viceroy Research, which claims to be a Delaware, USA-registered investigative financial research group, is taking on another corporate titan in Anil Agarwal and his Vedanta Group.

Viceroy stated upfront that it has taken a short position against the debt of UK-based Vedanta Resources, which owns Vedanta Limited and Hindustan Zinc. 

Vedanta is currently undergoing a restructuring that will see the group demerged into five independent sector-specific entities, covering aluminium, oil and gas, power, iron and steel, and parent Vedanta Limited, which will house the semiconductor and zinc businesses. The deal has already received shareholder approval.

Allegations by Viceroy Research

Viceory alleged that the entire group structure was financially unsustainable, operationally compromised, and posed a severe, under-appreciated risk to creditors.

"The core of our investment thesis rests on a simple but critical dynamic: VRL (Vedanta Resources) is a parasite holding company with no significant operations of its own, propped up entirely by cash extracted from its dying host: VEDL (Vedanta Limited)," it said in its report.

Viceroy alleged that to service its own debt burden, VRL is systematically draining VEDL, forcing the operating company to take on ever-increasing leverage and deplete its cash reserves. This "looting" erodes the fundamental value of VEDL, which constitutes the primary collateral for VRL's own creditors, it said.

"Consequently, VRL's actions to meet its short-term obligations directly impair its creditors' long-term ability to recover their principal, a situation that resembles a ponzi scheme where VEDL stakeholders, which include VRL creditors, are the suckers," described Viceroy.

The short-seller further alleged that the entire group was on the "brink of insolvency" propped up only by a continuous cycle of new debt, "accounting tricks", and the deferral of "massive, undisclosed liabilities."

Vedanta Resources holds a 56.38 per cent stake in Vedanta Limited. Vedanta Limited held 63.42 per cent in Hindustan Zinc in the quarter ended March 2025.

Vedanta's demerger plan fails to address the fundamental cash crunch and will saddle the resultant companies with unsustainable debts from their inception, according to Viceroy.

A look into the financials of Vedanta

Vedanta Resources reported a revenue of $18.22 billion in the financial year 2025, an all-time high, while EBITDA (earnings before interest, taxes, depreciation and amortisation) was the second-highest ever at $5.45 billion. 

According to Vedanta Resources' presentation for FY2025, its standalone debt has declined to $4.9 billion as of March 2025, from $8.9 billion in March 2022. The group net debt/EBITDA ratio in FY2025 stood at 2 times, compared with 2.6 times in FY2024.

Shares hit due to allegations

Viceroy's allegations led to a drop in the shares of Vedanta Limited and Hindustan Zinc on the Dalal Street on Tuesday.

Vedanta tumbled 7.7 per cent in intra-day trading to a day's low of ₹421 on the BSE, before recovering to close at ₹440.80, still down 3.4 per cent. Hindustan Zinc declined 4.8 per cent intra-day to a day's low of ₹415.30, before closing at ₹425.05, down 2.6 per cent.

Vedanta calls report 'malicious'

The Viceroy Research report on Vedanta is a "malicious combination of selective misinformation and baseless allegations to discredit the group," it said.

The report has been issued without making any attempt to contact the company with the sole objective of "creating false propaganda."

Vedanta also stated that the report merely compiled information already in the public domain, but the authors had attempted to "sensationalise the context to profiteer from market reaction."

Vedanta also suspects the timing of the report, saying it "could be to undermine the forthcoming corporate initiatives."

"We remain focused on the business and growth, and request everyone to avoid speculation and unsubstantiated allegations," it said.

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