Home >Markets >Mark To Market >HZL’s dividend payout keeps Vedanta shareholders’ hopes alive

Hindustan Zinc Ltd’s (HZL) second-quarter numbers show that the zinc cycle may be turning up. The company’s high dividend payout of 21.30 per share is further keeping its shareholders in high spirits. At the current price, the dividend yield of about 9% is good. That drove the HZL stock up 4.6% on Wednesday.

HZL shareholders have been looking forward to a good dividend payout; so, the recent dividend has not disappointed.

With the firm’s dividend payout of 16.5 per share in May, the total dividend payout this year works out to 37.80.

Vedanta Ltd holds about 65% stake in HZL and its shareholders will also be looking forward to this dividend being passed on.

“Both are interim dividends and not special dividends, implying that parent Vedanta Ltd should redistribute them as per its dividend distribution policy," said Emkay Global Financial Services in a note to clients.

That should provide some consolation to Vedanta’s shareholders after the recent delisting failure.

Coming back to the results, HZL’s Q2 revenue growth was in sync with what the Street pencilled in. Revenues grew by about 25% year-on-year (y-o-y), which showed a good recovery from the 20% y-o-y drop in Q1.

One positive is zinc demand is now back to pre-covid levels, while global demand is also improving. In fact, zinc prices have rallied about 36% from the bottom in the international market.

Prices are likely to remain upbeat as output has been weak, while global inventories are low.

The rise in Chinese demand is also likely to keep prices buoyant for now, unless of course, zinc supply increases in the coming quarters.

Besides, the company is likely to sustain some cost savings post the pandemic.

“However, it has refrained from lowering its cost guidance for H2FY21 as it expects higher mine development expenses to prepare the mines for further volume growth and it also expects to encounter ore bodies with lesser silver content in H2FY21," noted analysts at Emkay.

HZL’s capacity expansion costing about 10,000 crore would require leveraging its balance sheet. While the expansion could fuel volume growth post FY23, debt would begin to increase for the company.

But the high cash generation should be comfortable in servicing the debt. Analysts also note that the dividend yield of about 9% may act as a support for valuations, which is at about 13.5 times FY21 earnings.

Of course, the Street will be eyeing Vedanta’s dividend pay-out as well to improve the overall valuations of the group.

“Promoter Vedanta Ltd pledging part of its shareholding in HZL is an additional overhang on the stock," said analysts at Motilal Oswal Financial Services Ltd in a client note.

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