By The dividend payouts from Hindustan Zinc (HZL) have created concern among brokerages, despite the boost it has given to government earnings and shareholder morale. HZL has distributed a colossal Rs 31,908 crore across four interim dividends, with the government, which holds a 29.5% stake in the company, set to receive Rs 9,422 crore. While the government’s plan to sell its remaining stake in HZL has been delayed, the nearly Rs 9,500 crore earned from the dividend payouts will help it reach its target of selling shares in state-run firms for the financial year ending March 31.
However, analysts worry about the company’s cash reserves and potential debt following the payouts. The latest announcement of the fourth interim dividend of Rs 26 per share amounts to Rs 10,985.83 crore, with Vedanta Ltd, which holds a 64.92% stake in HZL, receiving around Rs 7,132 crore. As of December 31, 2022, HZL’s consolidated gross investments and cash and cash equivalents were Rs 16,482 crore, down from Rs 17,807 crore at the end of September 2022. This has led brokerage firm CLSA to give the stock a sell rating, as the company will turn net debt from net cash following the fourth dividend.
Investec analysts, meanwhile, note that the company has already utilized 90% of its free reserves and may struggle to pay out any further dividends without internal accruals or contributions from general reserves to retained earnings. They have also set a sell rating on the stock with a target price of Rs 270.
Despite the concerns, the stock markets have responded positively to the dividend announcement, with the HZL share ending 2.37% or Rs 7.35 higher at Rs 317.80. However, some experts warn that the company could face difficulties if the commodities cycle turns around and debt increases. The Indian government is also planning to sell up to a 3.5% stake in aerospace and defence company Hindustan Aeronautics Ltd, which could fetch the government Rs 2,867 crore. The floor price for the HAL stake sale is set at Rs 2,450 apiece, at a discount of 6.7% to Wednesday’s close. The government currently owns a 75.15% stake in HAL.