In a scathing new report, US-based Viceroy Research LLC has launched a three-pronged attack on Hindustan Zinc Ltd (HZL), Vedanta group’s strategic metal subsidiary, raising red flags over its the company's first quarter (Q1) of FY25-26 earnings, ICRA’s reaffirmation of an A1+ rating, and a legal opinion commissioned to defend the promoter group, which Viceroy described as 'a public relations stunt dressed in legalese'.
The report accuses HZL of borrowing heavily to pay unsustainable dividends, warns of deteriorating fundamentals masked by misleading cash flow claims, and slams both the statutory auditor and rating agency ICRA for failing to raise alarms. The investigative financial research group further argues that a legal opinion obtained by Vedanta to challenge earlier Viceroy claims offers no factual rebuttal, instead attacking the messenger while ignoring the substance of the allegations.
Earnings: A Free Cash-flow Mirage?
At the heart of the report is a sharp critique of HZL’s Q1FY25-26 financials, where Viceroy estimates a free cash flow (FCF) shortfall of Rs3,600 crore (US$371mn-million), despite the company paying out Rs4,225 crore in dividends during the same period. Viceroy alleges that these dividends were funded not by earnings but through increased debt.
Viceroy also took aim at HZL's chief financial officer (CFO) Sandeep Modi, who claimed the company had Rs10,000 crore in free cash-flow. “This figure collapses under scrutiny,” says the report, adding that it ignores rising interest obligations, capex commitments, and the structural debt required to maintain payouts.
ICRA’s A1+ Rating: ‘A Dangerous Endorsement’
Adding to investor concerns is ICRA’s reaffirmation of HZL’s A1+ commercial paper rating—issued on the very day of the earnings call. Viceroy calls the rating 'tone-deaf' and 'detached from financial reality', pointing to rising debt, falling equity and erosion in book value as evidence of a weakening financial position.
Viceroy compares ICRA’s affirmation to its past failures in identifying collapses early, referencing cases like IL&FS, DHFL, and Yes Bank. “ICRA isn’t a rating agency,” the report says. “It’s a financial archaeologist—always arriving after the wreckage.”
Legal Opinion: 'PR Dressed in Legal Robes'
In his legal opinion, former chief justice Dr DY Chandrachud stated, "Vedanta Ltd, the Querist, as a listed entity, operates under a robust and multi-layered regulatory framework, with no adverse findings from any regulator or credit rating agency to date. The Querist has stated that its disclosures to regulatory authorities are made in compliance with applicable laws and regulatory filing requirements. Given the absence of verified evidence and the fact that much of the information in the (Viceroy) Report is drawn from public disclosures, it does not, on its face, disclose any credible basis for regulatory action, including investigations."
"The elements required to establish defamation - both civil and criminal - are satisfied in this case, given that Viceroy has published public, reputationally damaging statements directly targeting the Querist. The report contains serious imputations such as "Ponzi scheme" and "parasite," which have caused harm to the Querist's business and reputation. In these circumstances, the Querist would be well placed to seek legal remedies, particularly in light of the Ebix Order of the Delhi High Court involving similar facts," the former chief justice says.
The investigative financial research group took sharp aim at a legal opinion commissioned by Vedanta, authored by the former chief justice, which sought to discredit Viceroy Research's allegations.
“The opinion doesn’t refute a single finding, doesn’t engage in any financial analysis, and appears to have confused the basic nature of our short position,” Viceroy says.
While Vedanta claimed the legal opinion validated its practices, Viceroy argues it merely distracts from serious governance failures, citing poor disclosures, non-transparent brand fees and controversial related-party dealings. The opinion, according to Viceroy, focuses on attacking the firm’s nationality, character, and past cases, rather than addressing the substance of its financial allegations.
Brand Fees and Related-party Deals
A central concern in the report is the 3% 'brand fee' paid by HZL to Vedanta Resources Ltd (VRL), the promoter entity. Viceroy claims these fees—totalling over Rs1,500 crore in the last three years—are unjustified, with no corresponding service delivery or value creation.
Meanwhile, HZL’s R&D spend during the same period stood at just Rs34 crore, barely 2% of the brand fees paid.
Auditor Inaction and Fujairah Gold Controversy
Viceroy also questioned the role of HZL’s statutory auditor, SR Batliboi & Co LLP, for not probing several high-risk transactions, including:
• Exports of 93% pure silver sand to Fujairah Gold, a UAE-based refiner with a controversial reputation.
• HZL’s Rs2,500 crore investment in Serentica Renewables, a promoter-owned entity structured to escape creditor scrutiny via a 30-year, near-zero coupon instrument.
CEO Arun Misra allegedly denied the Fujairah transactions during the earnings call—despite clear disclosures in HZL’s own annual report, Viceroy says.
Viceroy ends its report with a direct appeal to the government of India (GoI) which holds a significant equity stake in HZL. “This is not the first time the GoI has had to intervene. In 2022, GoI blocked Vedanta’s attempt to offload its worthless International Zinc assets to HZL for an absurd US$2.98bn, a related-party transaction that would have destroyed massive public value.”
The research firm urges the GoI to use its powers under the shareholder agreement—including appointing independent directors—to protect public value and strategic interests. “The GoI holds significant powers under the Shareholders’ Agreement, including the right to appoint five directors (a right it has not thus far exercised fully). Nearly every non-GoI board member is a VEDL affiliate and under the Companies Act must recuse themselves from voting on related-party transactions. This leaves the GoI as not just a shareholder, but the only credible steward of HZL’s value.”
According to Viceroy Research, Hindustan Zinc is not just another promoter-controlled company, it is a strategic asset, a major employer across India, and a business in which the GoI retains a significant equity stake on behalf of the public. "That public trust is being eroded."
"At every level: capital allocation, disclosure, governance, and accountability, HZL is being run as a vehicle for upstream extraction, not long-term success. Earnings are diverted, not reinvested. Disclosures obscure more than they reveal. And when challenged, the company responds not with transparency, but with distraction. If this is how a strategic asset is managed in public view, one must ask what’s happening behind closed doors," it says.
“HZL is not just another company—it is a national asset being drained to prop up the promoter group’s balance sheet,” the report warns.
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* HZL paid ?4,225 crore in dividends in Q1 FY26—despite a ?3,600 crore free cash flow shortfall.
* Dividend was funded by new debt, not profits.
* ?2,000 crore in new borrowings were taken just to keep the payouts going.
* Brand fees were paid to the parent company in advance, justified by vague “risk” claims.
* No mention of HZL’s questionable investment in Serentica, a 30-year, near-zero coupon instrument with no voting rights.
* Exports of high-purity silver to a low-transparency refinery were downplayed.
* R&D spending was just ?34 crore over 3 years, which was less than 2% of what was paid in brand fees.
Above remain unanswered. And regulators really need to step in and act to address these issues and concerns that investors have.