Vedanta FY25 dividend payout rises to ₹16,798 cr; will this ease group’s debt refinancing risk?

Extending losses for the third straight session, shares of Vedanta dropped 0.8% to ₹509.35 per share in opening trade on Tuesday after metal and mining heavyweight announced fourth interim dividend for the financial year 2024-25. The board of billionaire Anil Agarwal-led company has approved the interim dividend of ₹8.5 per equity share, amounting to ₹3,324 crore. The record date for dividend payment is December 24, 2024.

So far this fiscal, the company has declared total interim dividend of ₹43.5 per share amounting to ₹16,798 crore as compared to ₹29.5 apiece worth ₹10,966 crore in FY24.

The company has a strong track record of paying dividend to its shareholders, and its dividend yield stands at around 9%, which is the highest among the largecap stocks. Hindustan Zinc, a subsidiary of Vedanta, is second on the chart with a dividend yield of 6%. It has paid total dividend of ₹29 per share in the past 12 months.

Earlier in May this year, Vedanta had paid interim dividend of ₹11 per equity share (₹4,089 crore), followed by ₹4 apiece (₹1,564 crore) in August, and ₹20 (₹7,821 crore) in September to its shareholders. As per the exchange data, promoters entities own 56.38% stake in the company, which were 100% pledged with lenders as of the March quarter of FY24.

The steady flow of dividends and appreciation in capital for investors has helped in generating a five-year total shareholding return and dividend yield of 276% and 65%, respectively (as on June 30, 2024), as per Vedanta's investor presentation.

In a separate development, India Ratings and Research (Ind-Ra) has upgraded Vedanta’s debt instruments to ‘AA-’ and upgraded rating watch to developing implications from positive implications. The agency, however, has withdrawn the rating on commercial paper as it remained unutilised in the last six months.

The rating watch with developing implications reflects the impending demerger of Vedanta’s existing business into six separate listed standalone entities. Ind-Ra opines that the demerger process could take another two-to-three quarters for completion and has been admitted under the National Company Law Tribunal (NCLT).

The rating agency, in its report, says the upgrade reflects an improvement in Vedanta’s financial flexibility due to a material reduction in the refinancing risk of U.S.-dollar denominated bonds at its U.K.-based parent, Vedanta Resources (VRL), which is likely to alleviate the liquidity risks at the company. 

Will dividend payout ease debt refinancing risk?

As per Ind-Ra report, the recent improvement in financial flexibility of Vedanta and liquidity supported by recent refinancing exercise by its parent, VRL, reduces refinancing risk for the group. The agency expects VRL to refinance the balance debt in a timely manner, which will remain a key monitorable. 

“VRL's recent efforts to refinance the high-cost bonds mitigates the groups’ refinancing risk to certain extent; however, the annual consolidated debt maturities, including interest obligations, remain sizable,” it said in the report.

Vedanta has a repayment obligation along with interest payment of $3-3.5 billion each in FY26 and FY27, while VRL has a repayment obligation along with interest payment of $1.4-1.7 billion each in FY26 and FY27 (which will reduce to less than $1 billion over FY28-FY29). This will mainly be serviced through dividends, and management and brand fee received from Vedanta.

Ind-Ra believes VRL would continue to depend on the dividend upstreaming from Vedanta for its debt servicing. However, the need for large dividend payouts could be lower during FY26-FY27 compared to historical levels, given the deleveraging from stake sale and extension of maturities under the recent bond financing.

Adding to it, the ability of Vedanta and its parent to access debt markets at lower interest rates and improved EBITDA contribution from the aluminium business in the near-to-medium term provide improved visibility of a sustained reduction in consolidated financial leverage post FY27. 

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)