In today’s Finshots, we decode Viceroy Research’s damning report on Vedanta and if it holds meat. That’s it!

But before we begin, just a heads up that this piece will be a bit longer than the usual Finshots Markets edition since we’re trying to summarise an 87-page report in a mere 1,900 words. And hey, this is just a brief summary to give you the gist of what’s going on. It’s not a replacement for reading the real thing. So if you want to form your own opinion, you can go through the actual documents here (Viceroy Research’s report and Vedanta’s response).

With that out of the way, let’s go!!!

The Story

Imagine standing in front of a packed auditorium and announcing the stage beneath everyone is about to collapse. That’s what a short seller does. They aren’t just betting a company’s stock will fall; they’re saying “this business isn’t what it seems, the books are cooked, something’s amiss.”

It’s gutsy. You risk lawsuits, don’t make friends and if wrong, you're toast. But if you’re right? You go down in history and make big bucks. Think Jim Chanos vs. Enron. Or more recently, Hindenburg vs. Adani.

Now, it’s Viceroy Research, the group that helped expose the Wirecard fraud in Germany and Steinhoff’s accounting mess in South Africa.

Their playbook is to dig through filings, spot the cracks, publish a bombshell report while shorting the stock. Sure, they’ve been wrong before. But they’ve also been right. And now they’ve trained their sights on one of India’s most complex corporate machines — Vedanta.

Their 87-page report makes a brutal claim:

VRL [Vedanta Resources Limited] 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].

They say the parent company of Vedanta, VRL, doesn’t own any mines, smelters or power plants. Its only job is to hold a 56% stake in VEDL — the Indian-listed company that runs actual businesses in zinc, oil, aluminium and steel. So, VRL survives by pulling money from VEDL through dividends, brand licensing fees and sometimes even loans.

Now, that’s not unheard of in conglomerates where subsidiaries often transfer funds to their parent company.

But Viceroy says this setup is dangerous since VRL has $4.9 billion in debt as of FY25. And since it doesn’t make any money itself, it needs VEDL to send it cash. And to do that, VEDL is borrowing more, draining reserves and paying out more than it earns.

That, they argue, is more like a self-cannibalising machine than a normal financial structure.

There’s even some big numbers to chew on.

• In the last three years, VEDL has paid out $5.6 billion more in dividends than it earned in free cash flow.
• Its net debt has jumped by $6.7 billion since FY22, almost doubling in just three years.
• Despite all this, it paid a fat dividend of ₹43.5/share in FY25 alone. Which means billions out the door.

So the parasite analogy? It’s dramatic. But you can see why it isn’t entirely baseless.

And it’s important to clarify one thing here. Viceroy’s short is not on VEDL. Their position is against the parent, VRL (it’s delisted from the London stock exchange now, but its debt is what Viceroy is shorting). So Indian investors holding VEDL aren’t directly being shorted, but if the host stumbles, the impact will trickle down.

And of course, not everyone is buying Viceroy’s story.

Vedanta, for one, has outright dismissed the report. They’ve called the report “selective misinformation”, accusing Viceroy of “baseless allegations”. Investors, they say, should ignore the noise.

So let’s take a look at the allegations to see whether they should.

Start with the dividend spiral.

VEDL’s free cash flow has consistently fallen short of what it’s paying out. In the last three years, it overshot cash earnings by $5.6 billion just to meet dividend obligations. It’s like earning ₹100 but giving away ₹140 by borrowing the extra ₹40. In FY25, it paid ₹16,798 crores in dividends. And all of that’s sure enough why net debt shot up to ₹66,000 crores. While the latest filings show some reduction (down to ₹53,250 crores by March 2025), the payouts remain aggressive.

What happens when it can’t borrow more? The dividend tap shuts and it hits both the parent and VEDL’s public shareholders.

Then there’s the inflated interest expense puzzle.

Viceroy highlights that VRL paid $835 million in interest in FY25 on $4.9 billion in gross debt. That’s a 15.8% effective interest rate… which is unusually high when their public bonds are priced around 9–11%. So, is there disguised borrowing? High cost emergency loans? Or is it from hidden off-balance sheet debt? Viceroy says it could be any or all of these.

Even VEDL’s interest cost spiked (by about $200 million per year) and doubled since 2022.

Next there’s suspicious brand fees and related party transfers.

VEDL paid $338 million to VRL in FY24 as “brand fees.” But… this is Vedanta paying Vedanta to use the name “Vedanta”?! Also, there's little clarity on how the fee is calculated or justified.

What’s even worse is that Viceroy alleges VEDL’s subsidiaries loaned $122 million to VRL, which was later written off without payment. If true, this is bad governance. You can’t use corporate funds to help promoters consolidate power.

Then there’s some accounting gymnastics. At ESL Steel, a loss-making subsidiary, Viceroy alleges that Vedanta booked environmental penalties as “right-of-use” assets, instead of expenses. That of course has inflated the company’s assets.

And lastly, the list of Zombie subsidiaries.

Fujairah Gold in Dubai allegedly sold refined gold for less than input costs, often undocumented. Talwandi Sabo Power (TSPL) hid $150 million in liabilities during demerger filings. Konkola Copper Mines has been placed into liquidation since 2019 but still sits in Vedanta’s books at $1.6 billion. And a failed smelter project at Hindustan Zinc could activate a forced buy/sell clause by the Government of India, costing the group billions.

So, Viceroy claims Vedanta has overvalued billions in assets to bolster its books and alleges that promoters have been “overly promotional” by playing up growth narratives while quietly restructuring behind the scenes.

So far, so good. That’s Viceroy’s take.

But does it all make sense?

Viceroy believes that after the planned demerger, which will split VEDL into six listed entities, the cash-generating assets will be stripped out, leaving little value for minority shareholders. And it’s not the first time Vedanta’s promoters tried to consolidate control. In 2020, they launched a delisting offer at ₹87/share (when Covid had tanked valuations). That attempt failed. Now it’s a demerger. And some see a pattern.

Analysts, however, still see value.

Despite the bombshell report, many credit rating agencies and research houses remain bullish saying that Vedanta is trading at under 5x EV/EBITDA (see it as the price tag on the business compared to its core earning ability) which is a sharp discount to global peers. And they argue that once demerged, standalone companies will be easier to value, fund and grow and thereby unlock value in the process.

We even went through Vedanta’s annual report. And some of the concerns are traceable in the notes. Loans to related parties? They’re in there, under vague line items. Risks at HZL? A call option clause is disclosed. Auditor notes on going concern risks? Present for ESL and TSPL both.

But the other side to it is that VRL has reduced debt. From about $9 billion in FY22 to $5 billion in FY25. Promoters say they want to cut another $3 billion. Their average coupon rate has dropped by 250 basis points, and debt maturities have been stretched. All this sounds good but it’s also done by selling assets, shrinking cash buffers and tightening working capital. That could be a nice way to duct-tape the cracks rather than deleveraging.

But here’s the thing. This report hasn’t landed in a vacuum. It comes as Vedanta is preparing to do big things. Like we mentioned earlier, it’s in the middle of a massive restructuring and wants to unlock shareholder value. Plus, it’s gearing up capex across businesses.

But raising capital needs trust and that’s what a short seller’s report can erode.

Ask Adani.

In January 2023, Hindenburg dropped a report accusing the group of irregularities and the group denied everything. But markets reacted. Adani stocks lost $100+ billion in market cap in the weeks that followed. Even today, a couple of them are trading below pre-report levels. The group has since cut off debt and roped in big partners. But the trust deficit still lingers.

And we’re not saying Vedanta will have a similar reaction either. The scale, timing and allegations differ. But perception is a powerful thing. And if the market starts to believe even a part of Viceroy’s thesis, funding, valuations and even regulator interest could shift quickly.

But let’s look at this one last time from another angle. Let’s say you never read the Viceroy report. Would Vedanta still make you pause?

On paper, Vedanta owns world-class assets in zinc, oil, aluminium through its subsidiaries like Hindustan Zinc, BALCO, Cairn and Vedanta Aluminium. But these are capex-heavy, price-sensitive businesses. Its governance history is shaky. Debt is high. Interest costs are rising. And dividend payouts, while generous, are coming at a cost. Aluminium is the biggest contributor but margins are volatile. Zinc is stagnating due to a flat production outlook. And the structure is complex. VEDL is just one piece. The real decisions are made at VRL. That opacity makes it hard to truly understand the financial health of the group.

That said, Vedanta isn’t a fantasy. It generates cash and owns real assets with operating history and strong market positions. So don’t be surprised if aluminium or crude prices turn and earnings see a bounce. And if the demerger unlocks value and allows independent capital raises, some parts could thrive.

So if you’re a short-term trader, a lot hinges on how the market digests Viceroy’s claims. A sharp drop could trigger value buying, but also regulatory overhang. But if you’re looking at it as a long-term bet, you’ll need a high-risk appetite, faith in the promoter group and their execution with a tolerance for corporate complexity. VEDL has over 20 lakh retail shareholders, who have enjoyed impressive dividends. But if the tap shuts, they’ll feel the pain, and that’s the trade-off.

Besides, you’d also ask why bet on Vedanta when cleaner, simpler plays exist in India’s metal and energy space?

See, while Vedanta isn’t uninvestable, it’s far from a no-brainer.

Let me explain that with a story…

In the late 1980s, engineers at the Chernobyl nuclear plant had already seen warning signs at Reactor No. 4. Safety systems were routinely disabled during tests, design flaws in the reactor were well known, and protocols were often overlooked. But the plant had world-class engineers, it had never failed before, and the belief was that while there were a few cracks, everything was under control.

Then, on April 26, 1986, Reactor 4 exploded.

The disaster wasn’t caused by a single catastrophic failure. It was the cumulative effect of ignored warnings, structural stress and an overconfident system. The safeguards worked… until they didn’t.

Vedanta isn’t Chernobyl. But the architecture of financial trust works in similar ways, layer by layer. Cash flows support dividends. Dividends support valuations. Valuations support funding. And everything rides on the assumption that cracks will stay small.

Until someone like Viceroy walks in and says: “Are you sure that crack doesn’t run deeper?”

We don’t know whether it leads to collapse or gets patched up in time. But even a small crack can rattle the foundation.

That’s the cost of opacity. That’s why these cracks matter.

Until then, Vedanta keeps building. Viceroy says it’s preparing for another report on the group. And investors, well, they’ll keep watching. It’s still a developing story after all with massive implications for the stock market ecosystem. So if you are a shareholder on the fence shuffling between “buy/sell” decisions, we urge you to take this story with a pinch of salt.

And if this story helped you understand the Viceroy-Vedanta saga better, share it with your friends as well as strangers on WhatsApp, LinkedIn or X!

🚨 ATTENTION: FINSHOTS FAMILY

Missed our Insurance Masterclass Series last time? Here’s your chance to secure your family’s financial future! We’re bringing back our FREE two-part webinar series.

Registering will give you access to both Masterclasses:

1️⃣ Life Insurance Masterclass for Family Financial Security
📅 Date: Saturday, 12th July ⏰ Time: 4:00 PM - 5:00 PM

You'll learn:
✔️ How to secure your family's financial future without overspending
✔️ Why mixing insurance and investments can be costly
✔️ Term, ULIP or Endowment — which plan suits you best?
✔️ How starting life insurance early helps you save significantly

2️⃣ Health Insurance Masterclass for Family Wellness
📅 Date: Sunday, 13th July ⏰ Time: 11:00 AM - 12:00 noon

You'll discover:
✔️ How to choose health insurance that fully protects your family
✔️ Essential tips for managing medical expenses efficiently
✔️ Mistakes to avoid when selecting health insurance
✔️ Strategies to get the most value from your health insurance planLive Q&A - Get Your Questions Answered by an Expert in both webinars.

LIMITED SLOTS AVAILABLE! Click here to reserve your spot now — only 300 seats for the series!