Rating Rationale
March 05, 2025 | Mumbai
Sesa Resources Limited
Rating continues on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities RatedRs.25 Crore
Short Term RatingCrisil A1+/Watch Developing (Continues on ‘Rating Watch with Developing Implications’)
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings rating on the short-term bank facilities of Sesa Resources Ltd (Sesa Resources, part of Vedanta Group) continues on ‘Rating Watch with Developing Implications’.

 

The continuation of rating watch is in line with the continuation of rating watch for the bank facilities and debt instruments of the parent company, Vedanta Ltd (Vedanta). The parent’s ratings are on watch as reorganisation-cum-demerger exercise is still underway (approval from shareholders and lenders for the demerger scheme was received on 18th February, 2025) and will need requisite approvals including the NCLT (National Company Law Tribunal) and other requisite approvals. Crisil Ratings understands that final demerger process could take a few more months for completion.

 

The ratings of the parent continue to factor in the expected improvement in the consolidated operating profitability (earnings before interest, tax, depreciation and amortisation [Ebitda]), along with improved capital structure with reduction in debt and leverage to below rating thresholds. Furthermore, the rating factors the improvement in the overall credit profile of Vedanta with better financial flexibility by increasing operating cash accrual and reducing debt, especially at Vedanta Resources Ltd (VRL; rated ‘B+/Stable‘ by S&P Global Ratings).

 

Further, the rating reflects the significant support from Vedanta, on which Sesa Resources is dependent after its mining activities were suspended in March 2018.

Analytical Approach

Crisil Ratings has applied its parent notch-up framework to factor in the support from the parent.

 

Crisil Ratings understands that Vedanta is evaluating options to monetise some assets, including the iron ore business in Sesa Resources. However, Vedanta will extend need-based support to Sesa Resources in the interim, which has been factored in the parent notch-up.

Key Rating Drivers & Detailed Description

Strength:

  • Support from the parent: Although currently non-operational, Sesa Resources remains strategically important to the iron ore business of Vedanta. As on March 31, 2024, Sesa Resources held around 42% of Vedanta’s iron ore reserves and resources. The company is a 100% subsidiary of Vedanta and all members on its board are from the Vedanta group. Vedanta provides need-based funding support to Sesa Resources.

 

  • Considering Vedanta’s focus on deleveraging its balance sheet, the parent is exploring divestment of some of its assets, including divesting its shareholding in Sesa Resources. However, no option has been finalised and the same is in the evaluation stage. According to Vedanta’s management, it is committed to extend need-based support to Sesa Resources in the interim. Change in support from the parent will be a key rating sensitivity factor.

 

Weaknesses:

  • Suspension of operations from March 2018: The Supreme Court order dated February 7, 2018, cancelled mining leases granted to all miners in Goa, including Sesa Resources. Mining operations came to a halt with effect from March 16, 2018, until fresh leases and environmental clearances are granted. The company recognised impairment of assets of Rs 426 crore in fiscal 2018. Subsequently, mining operations in Goa were reinstated and the ban was lifted in 2024; however, the Goa mines now operate directly under Vedanta. Sesa Resources continues to have no operations.

Liquidity: Strong

With mining activities being suspended, the company is dependent on the parent to cover its fixed cost. The parent has strong liquidity and Sesa Resources does not have any external debt on its balance sheet.

Rating sensitivity factors

Upward factors:

  •       Change in the credit risk profile of the parent resulting in an upgrade in rating by one notch
  •       Substantial improvement in financial and operating performance on back of healthy ramp-up.
     

Downward factors:

  • Weakening of credit risk profile of the parent resulting in a rating downgrade of one or more notches
  • Change in ownership and support philosophy of Vedanta towards Sesa Resources

About the Company

Sesa Resources (formerly, VS Dempo & Company Ltd) was acquired by Vedanta in June 2009. The company had 11 mining leases and extracted iron ore from 980 hectares in Goa. Operations were concentrated in Bicholim and Surla in north Goa.

 

However, as mining leases granted to all miners in Goa, including Sesa Resources, were cancelled, all mining operations remained suspended since March 2018. Subsequently, the ban was lifted in 2024, and the Goa mines have become operational. However, these mines are now directly held by the parent.

Key Financial Indicators*

Particulars

Unit

2024

2023

Revenue#

Rs crore

23

94

Profit after tax (PAT)

Rs crore

-60

58

PAT margin

%

-260.8

61.7

Adjusted debt / adjusted networth

Times

3.5

-

Interest coverage

Times

-16

20

*As per analytical adjustments by Crisil Ratings

#Entire revenue comes from Vedanta Ltd and mainly in the form of trade of goods and services

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

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Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Complexity Levels Rating Outstanding with Outlook
NA Non-Fund Based Limit NA NA NA 25.00 NA Crisil A1+/Watch Developing

 

Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non-Fund Based Facilities ST 25.0 Crisil A1+/Watch Developing   -- 05-12-24 Crisil A1+/Watch Developing 26-12-23 Crisil A1/Watch Developing 25-02-22 Crisil A1+ Crisil A1
      --   -- 10-09-24 Crisil A1/Watch Positive 17-11-23 Crisil A1/Watch Developing   -- --
      --   -- 20-06-24 Crisil A1/Watch Developing 04-10-23 Crisil A1+/Watch Negative   -- --
      --   -- 22-03-24 Crisil A1/Watch Developing 28-03-23 Crisil A1+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Non-Fund Based Limit 25 Crisil A1+/Watch Developing
Criteria Details
Links to related criteria
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)
Criteria for factoring parent/ group/government linkages

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