Vedanta, HZL shares unfazed as Viceroy mocks ‘legal opinion’ as PR stunt

Shares of Vedanta Ltd and Hindustan Zinc Ltd (HZL) were unfazed by the short-seller Viceroy Research's reply to the Anil Agarwal-controlled entity Vedanta, calling its recently commissioned legal opinion as an "embarrassing PR document". In a 12-page note on Monday, Viceroy Research said that HZL’s auditor, SR Batliboi, failed to investigate material concerns, relying entirely on management assertions while the company’s capital base deteriorated and governance collapsed. Vedanta Resources (VRL) led Vedanta held 61.84 per cent stake in HZL as on June 30.

"The legal opinion commissioned by VRL is an embarrassing PR document, not a defense. It does not refute a single allegation, fails to identify the actual securities we’re short, and relies entirely on attacking Viceroy’s character," Viceroy Research said.

The Anil Agarwal-led Vedanta had on July 18 informed stock exchanges that it has obtained an independent legal opinion from D.Y. Chandrachud, Former Chief Justice of India, in relation to the allegations made in the Viceroy Research report, concerning the group.

Viceroy Research called ICRA's reaffirmation on A1+ rating on HZL, the same day as the Q1 FY26 call, as "tone-deaf", adding that the “financial strength” of the company, is being pillaged by its promoter group. ICRA had said that it took into account the short-seller's report and, after independent evaluation, reaffirmed Vedanta’s ratings.

"HZL’s CEO Arun Misra credited offshore brand fees (paid in advance) as justifiable by past “risks” undertaken by Vedanta as a shareholder of HZL. This is preposterous. No mention was made of HZL’s Serentica investment, a 30-year, 0.0001% coupon instrument with no voting rights: a direct cash transfer to the promoter outside the reach of creditors," Viceroy Research said today.

On Monday, Hindustan Zinc shares were trading 1.64 per cent higher at Rs 442.75. Vedanta shares were up 2.18 per cent at Rs 455.40.

Viceroy Research said HZL’s exports of 93 per cent pure silver sand to Fujairah Gold were downplayed or denied, despite disclosures in HZL’s own annual report.

"High-purity, near-finished metal is being sent to a refinery with a questionable track record. Management promoted its R&D Venture, which spent just Rs 34 ($4m) crore on R&D over 3 years, less than 2 per cent of what it has paid in unjustifiable brand fees to its promoters over the same period," Viceroy Research said.

Viceory said HZL paid out far more in dividends than it earned, borrowing to cover the shortfall. It estimate HZL’s FCF shortfall in Q1 to be Rs 3,600 crore. It said CFO Sandeep Modi’s Rs 10,000 crore ($1.17 billion) free cash flow claim collapses under scrutiny.

"Cash flows are subsidized by debt. If HZL’s dividend remains the same as last year, we estimate HZL will incur an annual FCF shortfall of at least Rs 5,000 crore ($580m).

Disclosures suggest HZL incurred Rs 2,000 crore ($232m) of new debt in Q1 FY26, Viceroy said.

Earlier on July 18, Viceroy Research said a Vedanta Limited subsidiary, Vedanta Semiconductors Private Limited (VSPL), is a sham commodities trading operation designed to improperly avoid classification as a Non-Banking Financial Company (NBFC).