Should You Invest in Vedanta Ltd? Stock Review

Vedanta Ltd. is among India’s major players in the natural resources and technology space. It has been operating its business at 20 %+ ROE over the last three years.

Finology Research Desk has analysed the company this week, providing a clear verdict on whether Vedanta Ltd. is a good long-term stock or not. Find out in this article.

What makes the mining and metals industry special? 

India’s mining sector serves as a key pillar of the economy, supplying essential raw materials to core industries such as steel, power, cement, and aluminium. With over 2,000 active mines and production of 95 mineral types, including fuel minerals (like coal and lignite, etc.), metallic minerals (like iron ore, bauxite, copper, etc.), non-metallic minerals (like limestone, gypsum, etc.), atomic minerals (like uranium, thorium, etc.), and minor minerals (like granite, marble, etc.). This vast mineral diversity places India among the most resource-rich nations globally.

 

Source: Finology Research Desk

In FY24, the value of mineral production (excluding fuel, atomic, and minor minerals) rose to Rs 1,41,239 crore, representing a 14.83% growth over the previous year’s figure. Metallic minerals accounted for over 90.3% of the total production, underlining their dominance, while non-metallic minerals made up the remaining 9.7%. Odisha led with nearly 45% of the total production value, followed by Rajasthan, Chhattisgarh, and Karnataka.

Supporting this growth, the Indian base metal mining industry generated revenue of USD 13,432 million in 2023 and is expected to grow at a CAGR of 3.9%, reaching USD 17,613 million by 2030. This expansion reflects strong and sustained demand for base metals like copper, zinc, lead, and aluminium across infrastructure, manufacturing, and energy-related sectors.

Source: Grandview Research, Finology Research Desk

India’s aluminium market was valued at USD 11.28 billion in 2023 and is projected to grow at a CAGR of 7.6%, reaching  USD 18.84 billion by 2030.  As the world’s second-largest aluminium producer, India is also witnessing strong domestic demand, which is expected to rise by 7–9% by 2028. This surge is driven by increasing usage in power transmission, construction, electric vehicles, packaging, and renewable energy. These sectors are expanding rapidly in line with India’s infrastructural growth and clean energy ambitions.

Zinc production is also witnessing strong growth. India is the world’s fourth-largest producer of zinc, with rich reserves largely located in Rajasthan. Domestic demand is expected to double in the next 5–10 years, primarily due to its extensive use in galvanising steel for construction, rural electrification, and infrastructure development. Leading producers are expanding capacity to increase the national output by 2030.

Meanwhile, the copper market faces supply constraints. India has limited reserves and relies on imports to meet over 60% of its refined copper demand. However, new domestic smelters are being developed to reduce import dependence, with capacity expected to rise significantly in the coming years. Copper demand is projected to grow at 6–7% annually, driven by renewables, power grid expansion, and rising electric vehicle adoption.

Alongside strong demand for metals, India’s oil and gas sector plays a pivotal role in meeting the country’s rising energy needs. In FY24, India produced 29.4 million tonnes of crude oil and 36.2 billion cubic metres of natural gas, though over 85% of crude needs were met through imports.

We decided to look for key players, which have a diverse presence across natural resources. Natural resources are commodities and therefore, betting on any single commodity increases risk due to price volatility. Our search led us to one of India’s largest natural resources company: Vedanta Ltd.

Vedanta Ltd. Business Model:

Formed in 1965, Vedanta Ltd. is a subsidiary of Vedanta Resources Ltd., a global conglomerate focused on natural resources and technology. Vedanta Ltd. is engaged in the exploration, extraction, and processing of minerals and oil & gas, with a diverse portfolio spanning zinc, lead, silver, iron ore, nickel, ferro alloys, steel, aluminium, copper, and oil & gas.

The company has a global footprint with operations in India, South Africa, Namibia, and Liberia. In India, it is also active in power generation, steel production, and port operations.

Vedanta Ltd. Revenue Mix:

Source: Annual Report FY24, Finology Research Desk

Vedanta Ltd. generates its revenue from a well-diversified portfolio spanning metals, oil & gas, and power segments. In FY24, the company reported a consolidated revenue of Rs 1,41,793 crore, with the segment-wise contribution detailed as follows:

Metals segment: Vedanta generated 81% of its total revenue from the metals segment. This includes:

• Aluminium products: The aluminium segment contributed the largest share, accounting for 33.1% of Vedanta's total revenue in FY24. The company is India's largest primary aluminium producer, holding a 46% domestic market share, backed by fully integrated operations spanning mining, refining, and smelting.
• Zinc, lead and silver: The zinc, lead, and silver segments collectively accounted for around 22.5% of Vedanta’s total revenue. Vedanta holds about 63%) stake in Hindustan Zinc Limited (HZL), which is India’s only primary zinc producer, commanding a market share of 75% as of FY24. 
• Copper products: Alongside aluminium and zinc, the copper segment also remains a strong contributor, accounting for 13.6% of Vedanta’s total revenue. The company holds one of the largest copper production capacities in India, underscoring its diversified presence in the non-ferrous metals space.
• Iron and steel: The iron ore, pig iron, steel products, and ferro alloys segments collectively contributed  11.8% to Vedanta’s total revenue. Vedanta is the largest merchant iron ore miner in India, with operations primarily in Goa and Karnataka. 

Oil & gas: The oil and gas segment contributed approximately 12.5% to Vedanta’s total revenue in FY24. Through its division, Cairn Oil & Gas, the largest private oil and gas exploration and production company in India, Vedanta accounts for nearly 25% of the country’s annual oil and gas output.

Power and others: The power segment contributed 3.2% to the total revenue, while miscellaneous income accounted for the remaining 3.3% of the revenue.

Source: Annual Report FY24, Finology Research Desk

From a geographical perspective, Vedanta maintained a strong domestic footprint, with India accounting for 64.3% of its total revenue. The remaining 35.7% came from international markets, with key contributions from Europe (6%), China (3.7%), the United States (1.7% ), and Mexico (1.1%). Additionally, 23.2% of the revenue came from other countries, reflecting Vedanta’s wide export reach. 

Vedanta Ltd. Unit Economics:

Source: Annual Report FY24, Finology Research Desk

Cost of goods sold, a major component of Vedanta’s operating expenses, fell 9.5% YoY to Rs 67,954 crore in FY24, from Rs 75,100 crore in FY23, primarily due to a decline in prices of key raw materials like alumina and zinc and lower production volumes in certain segments. COGS as a percentage of total income also declined to 46.5% in FY24 from 50% in FY23. 

Finance costs surged 52% YoY to Rs 9,465 crore in FY24 from Rs 6,225 crore in FY23. This sharp increase was likely driven by the higher cost of debt servicing and increased borrowings over the years.

Depreciation and amortisation expenses increased slightly by 1.6% to Rs 10,723 crore in FY24 compared to Rs 10,555 crore in FY23, due to increased capex in the Aluminium business and higher ore production. These expenses have remained stable over the years, ranging around 7–8% of the total income.

Other expenses (adjusted for exceptional gains/losses) were broadly flat at Rs 34,472 crore in FY24 versus Rs 34,905 crore in FY23, comprising roughly 25–26% of total income. This category includes employee expenses, royalties, logistics, mining operations, maintenance, and power/fuel costs.

Tax expense more than doubled to Rs 12,826 crore in FY24 from Rs 5,770 crore in FY23, significantly impacting net profits. The effective tax rate spiked due to changes in profit mix, meaning a larger portion of profits came from segments subject to higher tax rates and the reversal of deferred tax assets.

Vedanta's net profit margin fell to 5.2% in FY24, down from 9.7% in FY23. The declining margin trend since FY22 signals increasing pressures and deteriorating bottom-line efficiency. 

Overall, Vedanta’s cost structure shows volatility over the five-year period, especially in material, finance, and tax expenses. While some segments are relatively stable, the rising debt and tax liabilities highlight operational and financial challenges that may require strategic interventions to restore margin stability.

Porter's Five Forces Analysis of Vedanta Ltd.

Source: Finology Research Desk

1. Moderate Bargaining Power of Buyers: Vedanta’s customer base consists of large industrial players in sectors like power, automotive, and infrastructure. These buyers not only place bulk orders but also enjoy easy access to both domestic and global suppliers, which tilts the bargaining power in their favour. Since metals are largely commoditised, purchasing decisions are primarily driven by price and delivery terms, making it easy for buyers to switch suppliers, leaving Vedanta with limited pricing power.

2. Moderate Bargaining Power of Suppliers: Vedanta secures many of its raw materials through its own mines, especially zinc and aluminium, but still depends on external suppliers for coal, copper concentrate, and energy. The supplier base for high-quality resources is limited, and input prices are influenced by global commodity markets. These factors give suppliers moderate bargaining power.

3. High Competition in the Market: The metals and mining sector is highly competitive and cyclical. Vedanta faces strong domestic competition from companies like Hindalco and National Aluminium Company and global rivals such as Glencore, BHP, and Rio Tinto. High fixed operating costs, excess supply in some segments, and global demand fluctuations often lead to aggressive price competition. Companies strive to reduce costs, enhance efficiency, and expand capacity to maintain profitability, which fuels intense industry rivalry.

4. Low Threat of Substitutes: Metals remain fundamental to industries such as construction, power, transportation, and electronics. However, they are facing emerging substitution threats. New materials like polymers, carbon composites, and plastics are replacing metals in specific applications. Additionally, recycled metals, particularly aluminium and copper are gaining market share due to cost and environmental advantages. While the use of alternatives is rising, they cannot fully replace primary metals, which remain essential across most sectors. Thus, the threat of substitutes is low.

5. Low Threat of New Entrants: Entering the mining sector requires massive capital investment,  compliance with strict environmental and regulatory standards and takes years to start production. Vedanta’s large operational scale and established long-term contracts create strong entry barriers, making it difficult for new entrants to compete effectively.

What led us to reject Vedanta Ltd. for Finology 30?

1. Extremely high promoter pledging - Promoter share pledging in Vedanta has risen to an extremely high level, with 99.99% of their holding pledged as of March 2025. Such excessive pledging is concerning as it increases financial risk, stock price volatility, and poses potential corporate governance issues. This level of pledging suggests deep promoter-level financial stress and raises questions about the long-term financial stability of the company. 

Source: Finology Ticker

2. Elevated debt burden - Vedanta Ltd.’s long-term debt stood at Rs 52,712 crore as of FY25, rising ~2x from FY18 levels. The debt-to-equity ratio has also deteriorated from ~0.92x in FY18 to 2.2x in FY25. While part of the worsening of the debt-to-equity ratio has been from an increase in debt levels to fund its capital-intensive operations, a substantial contributor has been its aggressive dividend payouts. In FY24 alone, Vedanta declared Rs 10,959  crore in dividends - 1.45 times its net profit, despite pressure on earnings and internal cash flows. Excessive dividend payments have led the company’s reserves to decline from ~Rs 62,940 crore in FY18 to Rs 40,821 crore in FY25.

These payouts are reportedly routed to Vedanta Resources Ltd., the parent company, which remains under significant financial stress due to elevated debt obligations and restricted access to refinancing. As a result, Vedanta Ltd. is often compelled to raise fresh borrowings for its own operational and capital requirements, creating a circular debt cycle that raises concerns over financial discipline and long-term stability. 

3. Susceptibility to regulatory risks - Vedanta's operations have faced repeated setbacks due to regulatory actions across key business segments. The copper smelting plant in Thoothukkudi has remained shut since May 2018 following a directive from the Tamil Nadu Pollution Control Board due to repeated pollution violations. Suspension of iron ore mining in Goa and Karnataka in earlier years has also adversely impacted the iron ore segment. Furthermore, a 2021 Delhi High Court ruling on the profit-sharing contract (PSC) extension ruled against the company, resulting in reduced profit margins for the oil and gas business. These recurring issues raise serious concerns over regulatory exposure, operational continuity, and the long-term viability of the business.

The Bottom Line

Vedanta Ltd., among India’s major players in the natural resources and technology space, has been operating its business at 20 %+ ROE over the last 3 years, delivering ~30%+ CAGR returns.

However, we found concerns around its financial position, especially around elevated debt levels, high promoter pledging and regulatory risks.

For Finology 30, our ideology has been to focus on strong business models backed by a strong management team driven to create long-term shareholder value. For now, Vedanta Ltd. failed to pass our investment checklist. So, for now, we decided not to go ahead with Vedanta Ltd.

However, there are very few stocks that made it to the Finology 30. Check them out here.