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Vedanta – ESL Was Bankrupt Before, & Will Be Bankrupt Again

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

September 26, 2025 – ESL Steel, acquired out of bankruptcy by VEDL in 2018, remains an unviable asset with ongoing losses, negative free cash flow, and no path to profitability. Its operating losses, regulatory liabilities, mining compliance penalties and failed divestment increase the risk of cash leakage and trapped capital, directly threatening VRL’s ability to service its debt.

  • Despite management’s claims of expansion and recovery, ESL’s capital expenditure has been overwhelmingly directed toward environmental penalties, not operational growth.
  • ESL has posted negative normalized FCF in 5 of the past 7 years, including ₹(356) crore in FY25, despite one-off PPE proceeds.
  • The Company has consistently underinvested in core productive assets, with gross capex (excluding afforestation) falling below depreciation in 5 of the past 7 years.
  • The Company lacks the regulatory approvals it needs to operate legally, including Environmental Clearance (EC) and Consent to Operate (CTO), both of which remain unresolved due to violations.
  • ESL has multiple structures that drag on its earnings power and distort its financial performance.
    • To obtain its EC, ESL must provide to the Forest Department 5x the land occupied by its steel plant and identify, acquire and afforest a further 455 ha of land.
    • Instead of recognizing these expenses, ESL carries ₹688 crore ($81m) of afforestation-related land as ROU assets despite producing no returns. This mischaracterization of penalties as capex inflates ESL’s asset base and profitability and hides the true extent of its cash burn.
    • In FY25 ESL incurred ₹1,568 crore ($183m) in royalty, bid premium, and mining fees. These expenses are fixed, volume-linked outflows. Instead of COGS these are recognized as other expenses.
    • ESL failed to meet its mine production requirements in FY23 and FY25, triggering a ₹1,708 crore ($200m) penalty (now under reassessment) and a 1.8 million tonne dispatch shortfall, exposing it to further fines.
  • ESL has carried a formal “Material Uncertainty Related to Going Concern” audit opinion since FY19, triggered by regulatory non-compliance and later financial instability.
  • VEDL’s well-publicized effort to divest ESL failed, despite multiple high-profile statements and bids. This reinforces that ESL is commercially and legally stranded.
  • The original acquisition of ESL was facilitated through a loophole in Section 29A of the IBC, allowing Vedanta to acquire the asset despite a criminal conviction against its affiliate.

Every rupee spent keeping ESL alive is a rupee that cannot be upstreamed to VRL’s bondholders. 7 years after exiting bankruptcy, ESL seems positioned to re-enter it.

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