On Friday, Crisil announced that it has upgraded Vedanta Ltd's long-term bank facilities and debt instruments to a 'AA' rating. Instruments with this rating are thought to have a high level of safety when it comes to meeting financial obligations on schedule. The credit risk associated with such instruments is extremely low.
'Crisil Ratings has increased its rating on Vedanta Ltd's long-term bank facilities and debt instruments to 'CRISIL AA' from 'CRISIL AA-,' and altered the outlook to 'Stable' from 'Positive,' according to a statement. "The 'CRISIL A1+' short-term rating on bank facilities and commercial paper has been reaffirmed," it stated.
Stronger-than-expected operating profitability, driven by higher commodity prices in fiscal 2022, volume growth across businesses, and sustained cost efficiency, particularly in the aluminium business, are all factors in the rating action.
While commodity prices are predicted to decline in fiscal 2023, they are expected to remain healthy at current spot levels. "EBITDA is thus likely to be higher than expected, at over Rs 44,000 crore in fiscal 2022 (versus around Rs 27,500 crore in fiscal 2021), and over Rs 40,000 crore in fiscal 2023," it said, adding that this would help improve free cash flow and return on capital employed over the medium term.
Further, the management is expected to deploy the cash accruals to reduce the outstanding consolidated debt, and strengthen resilience to a decline in commodities prices.