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Vedanta – HZL Earnings & Legal Opinions

Author: Published on: Published in: Vedanta (NSE:VEDL)

July 21, 2025 – This is not our first rodeo. Viceroy originally planned to release a report on another Agarwal-controlled entity actively stripping value from both VEDL and VRL stakeholders today. After reviewing HZL’s Q1 FY26 earnings, a “legal opinion” released by VEDL protecting its kleptocratic owners, and ICRA’s tone-deaf affirmation of HZL’s rating, we thought it was prudent to address these first.

HZL Q1 FY 26 Earnings

  • HZL paid out far more in dividends than it earned, borrowing to cover the shortfall. We estimate HZL’s FCF shortfall in Q1 to be ~ ₹3,600 crore ($371m).
    • CFO Sandeep Modi’s “₹10,000 crore ($1.17b) 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 ₹5,000 crore ($580m) and must be funded by more
    • Disclosures suggest HZL incurred ₹2,000 crore ($232m) of new debt in Q1 FY26.
  • 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.

Earnings Call

  • 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.
  • HZL’s exports of 93% 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 ₹34 ($4m) crore on R&D over 3 years, less than 2% of what it has paid in unjustifiable brand fees to its promoters over the same period.

ICRA & The Legal Opinion

  • ICRA reaffirmed HZL’s A1+ rating on the same day as the Q1 FY26 call, citing the “financial strength” of a company being pillaged by its Promoter group.
  • 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.
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