Vedanta Q3 FY26: Profit Plunges 59% Amid Commodity Headwinds and Rising Costs

With a market capitalisation of ₹2,95,332 crores, Vedanta's latest quarterly performance reflects the mounting pressure from weak commodity prices, elevated interest costs, and operational challenges across its diversified portfolio spanning zinc, aluminium, copper, iron ore, oil and gas, and power generation. The company's standalone net profit also fell 37.89% year-on-year to ₹3,480.00 crores, whilst net sales grew a modest 5.94% to ₹39,868.00 crores.

The divergence between top-line growth and bottom-line contraction underscores the structural challenges facing Vedanta. Whilst the company managed to grow revenues by nearly 6% year-on-year, profitability took a severe hit, with PAT margins compressing from 15.07% in Q3 FY25 to just 8.87% in the latest quarter. The sequential picture is equally concerning, with consolidated net profit declining 43.55% quarter-on-quarter from ₹3,185.00 crores in Q2 FY26.

Financial Performance: Revenue Growth Masks Profitability Crisis

Vedanta's Q3 FY26 revenue performance of ₹39,868.00 crores represented a 5.94% year-on-year increase and a 5.40% sequential uptick from ₹37,824.00 crores in Q2 FY26. However, this top-line resilience failed to translate into profitability, as the company grappled with elevated costs and subdued commodity realisations across its key business segments.

Operating profit (EBITDA) excluding other income stood at ₹11,397.00 crores in Q3 FY26, reflecting a healthy 29.06% operating margin, up from 26.44% in the corresponding quarter last year. This 262 basis point year-on-year margin expansion demonstrates operational efficiency gains, particularly in cost management and production optimisation. However, the gains were insufficient to offset the headwinds at the net profit level.

The company's interest burden remained elevated at ₹2,110.00 crores in Q3 FY26, marginally down from ₹2,667.00 crores in Q3 FY25 but up from ₹2,026.00 crores in the previous quarter. Depreciation charges stood at ₹2,868.00 crores, reflecting the capital-intensive nature of Vedanta's operations. The tax rate for the quarter was 29.67%, higher than the 26.60% recorded in Q3 FY25, further pressuring net profitability.

Operational Challenges: Commodity Price Weakness and Cost Pressures

Vedanta's diversified commodity portfolio, typically a strength during favourable market conditions, became a vulnerability in Q3 FY26 as weak global demand and subdued pricing across zinc, aluminium, copper, and iron ore weighed on realisations. The company's ability to maintain operating margin expansion despite these headwinds reflects prudent cost management and operational leverage, but the overall profitability picture remains concerning.

Return on equity (ROE) for the latest twelve months stood at 33.55%, down from the average ROE of 25.84% over the past few years, suggesting recent profitability has been volatile. Return on capital employed (ROCE) remained robust at 31.47%, demonstrating efficient capital utilisation despite the challenging operating environment. These metrics underscore Vedanta's underlying operational strength, though near-term profitability remains under pressure.

Employee costs remained relatively stable at ₹892.00 crores in Q3 FY26, up marginally from ₹861.00 crores in the year-ago quarter, reflecting headcount stability. Other income declined sharply to ₹596.00 crores from ₹1,300.00 crores in Q3 FY25, contributing to the profit decline. This 54.15% year-on-year drop in other income suggests reduced treasury gains and lower returns from non-core activities.

Balance Sheet Quality: Leverage Remains a Key Concern

Vedanta's balance sheet as of March 2025 reveals shareholder funds of ₹41,212.00 crores, up from ₹30,722.00 crores in the previous year, reflecting retained earnings despite significant dividend payouts. Fixed assets stood at ₹99,905.00 crores, underscoring the capital-intensive nature of the mining and metals business. Current assets of ₹51,765.00 crores provided adequate liquidity coverage against current liabilities of ₹73,575.00 crores, though the negative working capital position warrants monitoring.

The company's debt-to-EBITDA ratio averaged 1.81 times over recent years, which is manageable but elevated for a cyclical commodity business. With long-term debt exceeding ₹52,000 crores, Vedanta's ability to deleverage will depend heavily on sustained cash generation and disciplined capital allocation. The company generated operating cash flow of ₹39,562.00 crores in FY25, demonstrating robust cash generation capability, though a significant portion was consumed by capital expenditure and debt servicing.

Industry Leadership: How Vedanta Compares to Peers

Within the non-ferrous metals sector, Vedanta occupies the second position by market capitalisation behind Hindustan Zinc. The company's valuation multiples and profitability metrics offer an interesting comparison with industry peers, revealing both relative strengths and areas of concern.

Vedanta trades at a P/E multiple of 22.25 times, positioned between the lower valuations of Hindalco (12.85x) and National Aluminium (12.89x), and the premium commanded by Hindustan Zinc (25.66x). The company's price-to-book ratio of 7.46 times reflects market confidence in its asset base and future earnings potential, though it trades at a discount to Hindustan Zinc's 22.08 times P/BV.

Return on equity of 25.84% positions Vedanta favourably against most peers except Hindustan Zinc's exceptional 72.70%, demonstrating superior capital efficiency. The company's 3.00% dividend yield is the highest amongst major peers, reflecting a shareholder-friendly capital allocation policy, though the dividend payout ratio of 113.48% raises sustainability concerns. Vedanta's higher debt-to-equity ratio of 1.57 contrasts sharply with the near-debt-free balance sheets of Hindustan Zinc and National Aluminium, underscoring the leverage challenge.

Valuation Analysis: Attractive Entry Point Amid Near-Term Weakness

At the current market price of ₹766.10, Vedanta trades at a P/E multiple of 22.25 times trailing twelve-month earnings, representing a discount to the sector average P/E of 26 times. The company's EV/EBITDA multiple of 8.27 times and EV/EBIT of 11.15 times suggest reasonable valuation relative to earnings and cash generation potential. The PEG ratio of 0.66 indicates the stock may be undervalued relative to its long-term growth prospects, with five-year sales growth of 15.00% and EBIT growth of 19.45%.

The price-to-book ratio of 7.46 times reflects a significant premium to book value of ₹105.40 per share, justified by the company's high return on equity and substantial asset base. With the stock trading just 0.51% below its 52-week high of ₹770.00 and 111.51% above its 52-week low of ₹362.20, recent momentum has been strong despite the weak quarterly results.

The company's valuation grade has fluctuated between "Very Attractive" and "Attractive" over recent months, currently sitting at "Very Attractive" as of December 18, 2024. This assessment reflects the market's recognition of Vedanta's long-term value proposition despite near-term earnings volatility. The generous dividend yield of 3.00% provides downside support, though the elevated payout ratio of 113.48% suggests potential dividend sustainability concerns if earnings remain under pressure.

Shareholding: Stable Promoter Base, Institutional Interest Building

Vedanta's shareholding pattern reveals a stable promoter holding of 56.38% across the last five quarters, with no change in promoter stake. The promoter group, led by Twin Star Holdings Ltd. (40.02%) and Vedanta Holdings Mauritius II Limited (12.60%), maintains firm control. However, the near-complete pledging of promoter shares (99.99%) remains a significant red flag, limiting financial flexibility and raising concerns about potential forced selling in adverse scenarios.

Foreign institutional investors (FIIs) increased their stake to 12.15% in December 2025 from 11.08% in the previous quarter, signalling renewed confidence from global investors. This 1.07 percentage point sequential increase represents meaningful institutional buying despite the weak quarterly results. Conversely, mutual fund holdings declined marginally to 8.43% from 8.83%, whilst insurance holdings dropped more significantly to 5.89% from 6.54%, suggesting some domestic institutional caution.

The total institutional holding of 27.51% provides a stable investor base, with 788 FII entities and 42 mutual funds holding positions. The recent uptick in FII interest, coupled with stable promoter holding, suggests institutional investors may be positioning for a recovery in commodity prices and operational performance in coming quarters.

Stock Performance: Stellar Returns Mask Recent Volatility

Vedanta's stock has delivered exceptional returns across multiple timeframes, significantly outperforming the Sensex benchmark. The counter surged 77.91% over the past year, compared to the Sensex's 7.88% gain, generating alpha of 70.03 percentage points. Over three years, the stock has returned 139.52%, whilst the Sensex gained 39.16%, underscoring Vedanta's strong re-rating during the commodity upcycle.

Recent momentum has been particularly strong, with the stock gaining 12.91% in the past week, 29.11% over one month, and 48.33% over three months. This rally reflects growing optimism about commodity price stabilisation and Vedanta's operational improvements. The stock trades above all key moving averages—5-day (₹696.47), 20-day (₹647.68), 50-day (₹583.22), 100-day (₹529.70), and 200-day (₹483.26)—indicating strong technical momentum.

The stock's beta of 1.42 classifies it as a high-beta counter, exhibiting greater volatility than the broader market. With annualised volatility of 30.42%, Vedanta offers a risk-adjusted return of 2.56, significantly higher than the Sensex's 0.70, positioning it as a "medium risk, high return" investment. The stock's outperformance of the non-ferrous metals sector by 4.43 percentage points over one year demonstrates relative strength within its peer group.

Investment Thesis: Cyclical Recovery Play with Execution Risks

Vedanta's investment case rests on its position as a diversified natural resources conglomerate with exposure to multiple commodity cycles, strong operational efficiency, and improving cash generation. The company's proprietary Mojo Score of 58/100 reflects a "HOLD" rating, downgraded from "STRONG BUY" on January 13, 2026, following the weak quarterly results and negative financial trend.

The Mojo 4 Dots Analysis reveals mixed signals: whilst quality fundamentals remain "Good" and technical indicators are "Bullish," the quarterly financial trend has turned "Negative," and valuation has become "Expensive." This combination suggests caution for fresh investors, though existing holders may continue to hold for a potential cyclical recovery.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

Vedanta's near-term outlook hinges critically on commodity price movements and the company's ability to sustain operational efficiency gains. Management's focus on deleveraging, improving asset utilisation, and optimising the product mix will be key monitorables. The company's diversified portfolio provides some insulation from single-commodity shocks, but the overall earnings trajectory remains tied to global commodity cycles.