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Vedanta’s ESL Unit 'Bleeding Cash, Heading Back to Insolvency': Viceroy Research Warns
Moneylife Digital Team 26 September 2025
Economy & Nation
Investigative financial research firm Viceroy Research has warned that Vedanta Ltd’s steel subsidiary, Electrosteel Steels Ltd (ESL), is on the verge of bankruptcy once again, seven years after Vedanta acquired it out of insolvency. In a report titled 'Vedanta – ESL Was Bankrupt Before, & Will Be Bankrupt Again', Viceroy described ESL as a 'regulatory and financial dead weight' on Vedanta’s balance sheet, bleeding cash, blocking upstreaming to its parent Vedanta Resources Ltd (VRL) and heading back into insolvency.
 
According to the report, ESL has posted negative free cash flow in five of the past seven years, including a loss of Rs356 crore in FY24-25 despite a one-off asset sale. Much of ESL’s capital expenditure has been spent on environmental penalties rather than business growth. Viceroy notes that ESL’s gross capital expenditure, excluding afforestation-related spending, has consistently fallen below depreciation, indicating chronic underinvestment in productive assets.
 
The report also highlights that ESL continues to operate without environmental clearance (EC) and consent to operate (CTO) due to long-standing violations. It faces a tangle of regulatory penalties, including Rs1,568 crore in royalty, bid premium, and mining fees in FY24-25, and a Rs1,708 crore penalty in FY22-23 for failing to meet mining dispatch targets. Another shortfall in FY24-25 exposed the company to further fines, it added.
 
ESL has carried a formal 'material uncertainty related to going concern' audit opinion since FY18-19, triggered first by regulatory non-compliance and later by financial instability. “Every rupee spent keeping ESL alive is a rupee that cannot be upstreamed to VRL’s bondholders,” the report warns.
 
Viceroy also criticised Vedanta’s failed attempt to divest ESL, arguing that the company is 'commercially and legally stranded'. Despite public claims of a strategic review and multiple statements about a potential sale, no buyer has emerged, which Viceroy says underscores ESL’s unsaleable nature.
 
The report goes further, alleging that ESL’s acquisition in 2018 was facilitated through a loophole in Section 29A of the Insolvency and Bankruptcy Code (IBC). Rival bidder Renaissance Steel had challenged Vedanta’s eligibility, pointing to a criminal conviction against Vedanta affiliate Konkola Copper Mines (KCM) in Zambia. While the case involved an offence punishable by more than two years’ imprisonment, the national company law appellate tribunal (NCLAT) allowed Vedanta’s bid to proceed because the penalty imposed on KCM was a fine rather than imprisonment.
 
Financially, ESL’s performance has remained weak, Viceroy says, adding, "Reported EBIT margins have been negative or near zero in recent years, with profitability propped up by the amortisation of non-cash afforestation penalties." 
 
Viceroy accused the company of misrepresenting these costs by capitalising them as 'right-of-use assets', which artificially inflates ESL’s asset base and EBIT.
 
The report also connects Vedanta’s current Rs17,000 crore bid for bankrupt Jaiprakash Associates Ltd (JAL) with ESL, calling it a repeat of the same 'playbook' of acquiring distressed assets that may ultimately prove to be financial burdens. Following Viceroy’s earlier reporting on JAL, creditors have asked Vedanta and other bidders to explain how they intend to fund their bids, signalling growing concerns about the group’s solvency.
 
Viceroy concludes that ESL is trapped in a cycle of regulatory non-compliance, cash burn, and unmanageable mining obligations. It argues that ESL will likely return to insolvency, just seven years after Vedanta rescued it from bankruptcy.
 
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