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Vedanta's total dividend outgo for FY23 stands 1.5 times the FY22 net profit

Vedanta Resources, Anil Agarwal-led holding company, has about $7.7 billion of net debt burden. In March, Moody's downgraded Vedanta Resources' rating, on the back of increasing refinancing risks

March 29, 2023 / 03:02 PM IST
Vedanta group Chairman Anil Agarwal

Vedanta group Chairman Anil Agarwal

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Vedanta Limited is known for paying handsome dividends to its shareholders. Last year, it topped the chart for the stock with highest dividend yield in India. For FY23, the company has announced five interim dividends amounting to Rs 101.5 per share.

The five dividends together cost the company about Rs 37,700 crore in FY23 alone. In contrast, Vedanta Limited's net profit stood at Rs 23,710 crore in FY22 - up from Rs 15,032 crore a year back. Its cash and cash equivalents stood at Rs 23,474 crore as of December 2022 end.

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As a minority shareholder, the hefty dividend payout might be great news. At 2:30 pm, the stock was quoting at Rs 281.30 on the NSE, higher by 2.5 percent.

However, the bigger picture tells a different story. "We can see that the parent company, Vedanta Resources, benefits greatly because it owns 69.7 percent of Vedanta Limited," said Dinesh Saney, research analyst, Invest4Edu.

Vedanta Resources, billionaire Anil Agarwal-led holding company, has about $7.7 billion of net debt burden. In March, Moody's downgraded it on back of increasing refinancing risks.

“Ongoing delays in the holding company’s refinancing efforts and its continued dependence on dividend receipts are depleting liquidity at its operating subsidiaries," Kaustubh Chaubal, Moody's Senior Vice-President, said in a report.

CRISIL, on the other hand, has lowered the rating for Vedanta Limited, citing that all cash outflow from the company is going in the form of dividends towards large maturing debt obligations at its parent company.

Vicious cycle

As of December 2022 end, Vedanta Limited itself had a gross debt of Rs 61,550 crore and a net debt of Rs 38,076 crore. Hindustan Zinc, in which it holds 64.92 percent, is partly financing this debt.

Total dividend announced by Hindustan Zinc for FY23 stands at Rs 75.5 per share, implying a cash outflow of close to Rs 32,000 crore.

As on December 31, 2022, Hindustan Zinc's gross investments and cash and cash equivalents were Rs 16,482 crore, as against Rs 17,807 crore at the end of September 2022. "Following the fourth dividend, Hindustan Zinc will turn net debt from net cash," CLSA had said in a note.

When the dividend and debt game is being played out, Vedanta Limited has seen its acting chief financial officer Ajay Goel step down. A successor has not been announced as yet.

Shailaja Mohapatra Senior sub-editor, Moneycontrol
first published: Mar 29, 2023 02:52 pm