Hindustan Zinc turns into a net debt firm for first time in 20 years

The improvement in the balance sheet of Vedanta Resources, the holding company of Vedanta Group, seems to be happening at the expense of its key operating firms such as Hindustan Zinc (HZL).

HZL has turned from a debt-free company to an indebted one (on a net basis) in FY23 for the first time in more than 20 years. The metal producer gave all its accumulated cash reserves through a special dividend last financial year and was forced to borrow additionally to fund its capex plans.

The country’s top zinc and silver producer ended FY23 with a net debt of Rs 1,780 crore as against a negative net debt of Rs 17,821 crore at the end of March 2022.

This is the first since 1998-99 that the company has reported a net debt on its books. Recently Vedanta Resources said it had cut its gross debt by $1 billion, or around Rs 8,200 crore, in April.

HZL paid a record equity dividend of Rs 31,901 crore to its shareholders in FY23. That’s against Rs 7,605 crore in FY22. The dividend payout in FY23 was more than three times higher than its annual net profit of Rs 10,511 crore.

The company’s net profit was up 9.2 per cent year-on-year last financial year from Rs 9,629 crore in FY22. It dipped into its cash and bank balances and liquidated its investment in bond and mutual fund units to fund its record dividend payout.

HZL was sitting on cash and equivalents worth Rs 20,665 crore at the end of FY22.

Nearly two-thirds of this equity dividend worth Rs 20,700 crore went to Vedanta Ltd, the promoter of HZL. Vedanta Ltd holds a 6.92 per cent stake in Hindustan Zinc and the government of India holds another 29.54 per cent.

Vedanta Ltd in turn paid its dividend income from HZL and some more to its shareholders, including its promoter Vedanta Resources, the main holding company of the group. Vedanta Resources used this cash to repay a part of its large debt and thus improve its balance sheet.

Early this week, Vedanta Resources announced it had paid all its maturing loans and bonds due in April and has cut its gross debt by a further $1 billion. The company claimed it had cut its debt by $3 billion (around Rs 24,600 crore) since it announced in February 2022 its intention to reduce its debt by $4 billion within three years.

Vedanta Ltd paid an all-time high equity dividend of Rs 30,109 crore in FY23, up nearly 80 per cent from Rs 16,740 crore in FY22. The promoters own 68.11 per cent in Vedanta Ltd.

HZL has been the cash cow of Vedanta Group for more than a decade. The company has cumulatively paid an equity dividend worth Rs 95,000 crore in the last 10 years. Of that Rs 61,500 crore went to Vedanta.