Vedanta shares rise 2%; here’s why

Shares of Vedanta climbed up to 2% in intraday trade on Wednesday after the billionaire Anil Agarwal-led company received a royalty payment from its subsidiary Hindustan Zinc. The royalty payment is likely to help the mining major to pare some of its debt.

Vedanta shares opened higher at ₹279, against the previous closing price of ₹277.95 on the BSE. During the session, the mining heavyweight gained as much as 1.85% to ₹283.10. In comparison, Hindustan Zinc declined nearly 1% to hit an intraday low of ₹301.10 after opening higher at ₹306.70 as against Tuesday’s closing price of ₹303.7 on the BSE.

For the first time, Hindustan Zinc has paid a royalty of 1.7% of the annual revenue to Vedanta, which was reportedly transferred to the U.K.-based holding company Vedanta Resources Limited (VRL). Listed on the London Stock Exchange, VRL has annual debt maturities of around $3 billion each in fiscal year 2024 and 2025 with high near-term maturities of around $1.7 billion in the first quarter of fiscal 2024.

In the first quarter, India-listed Vedanta reportedly paid a higher royalty fee of 3% compared to previous year’s 2% of annual revenue to its parent VRL, which was used by the company to redeem $500 million, 7.125% bonds due on May 31.

Vedanta has pledged nearly all its shareholding in subsidiary Hindustan Zinc (HZL), as per data available with the stock exchanges. Last month, the metal and mining major pledged an additional 13.94 crore shares or 3.3% of the total equity on May 22 in favour of Axis Trustee Services Ltd. With this, the total encumbered equity share in its subsidiary stands at 64.51%. Vedanta owns a 64.92% stake in zinc mining firm, HZL.

Vedanta has pledged shares as collateral for loans taken by the company or the group. This is the third time this fiscal when the promoter has pledged its shares in HZL to take loans against it. On April 28, 2023, the Mumbai-headquartered firm pledged 80,538,415 or 1.91% shares to Axis Trustee Services, while on April 17, 2023, it pledged another 103,237,916 equity shares or 2.44% to Axis Trustees. Earlier on December 5, 2022, Vedanta had pledged 42,253,190 shares or 1% to SBICap Trustee Company.

Recently, Crisil Ratings downgraded the outlook for Vedanta to 'negative' from 'stable', citing increased cash outflow in the form of dividends towards large maturing debt obligations at its parent company, VRL. The rating agency said that continued assistance through dividend payout to the VRL to support its debt has resulted in significant cash outflow to minority shareholders.

Last month, Vedanta declared its first Interim dividend of ₹18.50 per equity share i.e. 1850% on the face value of ₹1 per share for the financial year 2023-24, amounting to ₹6,877 crore. The record date for the purpose of payment of dividend was May 30, 2023. In the financial year 2023, Vedanta declared a total dividend of ₹101.50 per share, which amounted to ₹37,730 crore, the highest ever by the company. The metal and mining bellwether declared five interim dividends in FY23- ₹31.50 in May, ₹19.50 in June, ₹17.50 in November, ₹12.50 in February, and ₹20.50 in March.

In March this year, Hindustan Zinc also declared its fourth interim dividend for its shareholders for the financial year 2022-23. The country’s largest zinc miner declared an interim dividend of ₹26 per equity share, amounting to ₹10,985.83 crore. The interim dividend is 1,300% of the face value of equity share of ₹2 each.

As per Crisil report, including the recent dividend announced by Hindustan Zinc, dividend payout by Vedanta for fiscal 2023 will be more than ₹40,000 crore (highest ever, including dividend payout by HZL to its minority shareholders). This is expected to result in a cash balance of less than ₹20,000 crore for March 2023 against more than ₹30,000 crore in March 2022.

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