It alleged that Minova Runaya Pvt. Ltd (MRPL), a 49% promoter-owned entity, has an exclusive contract with HZL for the supply of products including resin capsules, rock bolting systems and wire mesh. Used in mining, these products are typically commoditized and low-margin, but MRPL was selling them at a 30% mark-up to HZL, the short-seller alleged, adding that the company does little manufacturing itself. HZL was MRPL's only customer, Viceroy added.
"This company (MRPL) has only one purpose, to buy commoditized products, slap a 30% markup on them, and then sell them to a captured HZL," the short-seller said in its note, adding that there was "more to come."
Between FY21 and FY24, Minova Runaya made an aggregate revenue of ₹553 crore with a profit of ₹92 crore, the short-seller disclosed citing the company's regulatory filings.
Vedanta, HZL deny charges
Vedanta has denied all allegations. "The said short sellers have consistently shared extremely ill-informed 'reports' with misleading information," a Hindustan Zinc spokesperson said. The latest allegations disregard the "stringent" governance protocols followed by Hindustan Zinc, the spokesperson said.
Viceroy Research has published nine notes on Vedanta in the last fortnight. It has a short position of undisclosed size on the debt of London-based group holding company Vedanta Resources.
Hindustan Zinc's shares gained 0.82% to close at ₹446.9 apiece on the BSE on Wednesday. Vedanta Ltd's shares settled 1.12% higher at ₹455.6 apiece. The benchmark Sensex closed 0.66% higher.
The two companies' stocks had fallen following the publication of Viceroy's first report on 9 July, but have since recovered and not reacted to its subsequent eight reports.
MRPL's ownership, contract terms
While the Vedanta Group holds a 49% stake in MRPL, the remaining 51% stake in the company is held by Minova Minetek, which is a Hyderabad-based manufacturer of mining, quarrying and construction equipment, as per private company data platform Tracxn.
"MRPL has a long-term sales contract with HZL, which provides it with strong revenue visibility," Crisil Ratings noted in November 2024, when it rated HZL's long-term debt as A- with a stable outlook.
"As per the contract, HZL must procure its entire ground support product requirement from MRPL. This ensures healthy utilisation for the manufacturing capacities of MRPL," the rating agency had noted.
MRPL was onboarded by Hindustan Zinc as a reliable supplier for ground support after undergoing due screening processes and approvals from the Audit Committee and Board, as per the company spokesperson. The company has developed solutions that meet the unique specifications and standards of Hindustan Zinc's underground mines, they said. Transactions with MRPL were supported by benchmarking by independent firms, they said.
Red flags in MRPL's books
Regarding the lack of MRPL's manufacturing capabilities, Viceroy noted that the company's accounts acknowledge that it manufactured nothing until at least FY24.
"Even then, the only product it manufactured was wire mesh, a product so simple and cheap that a fully automated line can be set up for under ₹1 crore," the short-seller said.
Viceroy also pointed to some discrepancies in the financial statements of MRPL. For instance, income from HZL accounted for 114% of MRPL's revenue in FY24. The same year, MRPL declared ₹216 crore of tangible asset sales while only carrying ₹66 crore of tangible assets on its balance sheet. These discrepancies were persistently observed in preceding years too.