Vedanta, HZL shares fall up to 8% after short-seller alleges 'material discrepancies' in financials

Shares of Anil Agarwal-owned mining conglomerate Vedanta Ltd. and its subsidiary Hindustan Zinc Ltd. fell as much as 7% on Wednesday, July 9, after a short-seller, by the name of Viceroy Research has alleged material discrepancies in the group's financials.

Shares of Vedanta fell as much as 7.4% before recouping some of those losses, while those of Hindustan Zinc are down 2.8%.

Viceroy has written in its note that it is short on the debt stack of Vedanta Resources, the parent company of Vedanta Ltd.

"The entire group structure is financially unsustainable, operationally compromised and poses a severe, under-appreciated risk to creditors," Viceroy's note said.

Vedanta's interest expenses vastly exceed its reported note rates, ad continues to increase despite paydowns and restructuring, according to the Viceroy note, which further stated that expenses across operating subsidiaries are systematically capitalised, artificially inflating profits and asset values. "This is a material misrepresentation," the note said.

Some other points that Viceroy Research highlights in its 87-page note:

"The report is a malicious combination of selective misinformation and baseless allegations to discredit the Group. It has been issued without making any attempt to contact us with the sole objective of creating false propaganda. It only contains compilation of various information - which is already in the public domain, but the authors have tried to sensationalise the context to profiteer from market reaction," a Vedanta Group spokesperson told CNBC-TV18.

"The timing of the Report is suspect and could be to undermine the forthcoming corporate initiatives. Our stakeholders are discerning enough to understand such tactics. In fact, to avoid any responsibility – authors of the report have added various disclaimers that the Report has been prepared for educational purposes only and expresses their opinions and are not statements of fact (page 7)," the spokesperson added.

Vedanta is currently undergoing a demerger of the existing listed company into five different entities and shareholders will be entitled to receive one share of every demerged entity for every one share of the currently listed company they own.

During a recent hearing at the Company Law Tribunal, the Petroleum Ministry sought more time to share its observations with regards to the ongoing demerger process. The demerger has already received a no-objection certificate from the NSE. NCLT will resume hearing the matter on August 20.

The management intends to complete the demerger process by September-end, after having extended its deadline once before from March 2025.

Shares of Vedanta are currently trading 4.4% lower at ₹436.35, while those of Hindustan Zinc are trading 2.7% lower at ₹424.55.