Shares of natural resources conglomerate Vedanta climbed over 2% in early trades on Thursday as the mining stock turned ex-dividend today. The company, owned by billionaire Anil Agarwal, has fixed April 7 as the record date for the purpose of payment of the dividend to eligible shareholders.

Vedanta shares opened higher at ₹266.80 against the previous closing price of ₹265.85 on the BSE. In the first two hours of trade so far, the mining heavyweight rose as much as 2.5% to ₹272.50, while the market capitalisation surged to ₹1,00,364 crore. The stock has fallen nearly 38% in a year and around 8% in the past six months. On the year-to-date (YTD) basis, the counter has lost 15%, while it dropped nearly 6% in a month. It touched a 52-week high and low of ₹440.75 and ₹206.10, respectively, on April 11, 2022, and July 1, 2022, respectively.  

Vedanta has a strong track record of paying hefty dividends to its shareholders. It has paid 39 dividends since July 23, 2001, while it declared an equity dividend amounting to ₹101.5 per share in the past 12 months, as per Trendlyne data. At the current share price of ₹271, this results in a dividend yield of 37.45%.

On March 28, the board of the mining company declared the fifth interim dividend for the financial year ending March 31. The company will pay a dividend of ₹20.50 per equity share, or at 2,050% of the face value of ₹1 per share, which will amount to ₹7,621 crore. Earlier this year, the metal and mining major declared a total interim dividend of ₹81 per share in four pay-outs - ₹31.50 in May, ₹19.50 in June, ₹17.50 in November, and ₹12.50 in February. With the fifth dividend, Vedanta’s total outgo will be ₹101.5 per share, which will amount to ₹37,730 crore, the highest ever by the company.

As per the latest shareholding pattern available on the BSE, the Agarwal family's Vedanta Resources holds a 69.69% stake in Vedanta, while retail and other investors own 11.4% shares in the company. Besides, domestic institutions and foreign institutions hold 9.82% and 7.9% stake in the mining major, while the remaining 1.19% stocks are owned by mutual funds. It is notable that Vedanta promoters have pledged 99.9% of its holding in the company to raise the money.

The metal and mining company, which operates iron ore, gold, and aluminium mines in Goa, Karnataka, Rajasthan, and Odisha, intends to use the dividend proceeds to repay its debt. The company had a consolidated debt of ₹53,581 crore and cash and cash equivalent of ₹32,612 crore for FY22.

Crisil, India Ratings cut outlook on high-dividend payout  

Following the fifth dividend announcement, domestic rating agencies Crisil and India 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, Vedanta Resources (VRL). 

Crisil has revised its rating outlook on the non-convertible debentures (NCDs) and long-term bank facilities of Vedanta to ‘negative’ from ‘stable’, while reaffirmed the rating at ‘CRISIL AA’. The rating on the commercial paper and short-term bank facilities has been reaffirmed at ‘CRISIL A1+’. “The revision in outlook reflects possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to 1-year maturities for fiscals 2023 and 2024. This is due to increased cash outflow from Vedanta, in the form of dividends, towards large maturing debt obligations at its parent company viz. Vedanta Resources. This is owing to increased refinancing risk at VRL and moderating operating profitability (Ebitda) of Vedanta,” the agency said in a report.

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. As per the rating agency, including the recent dividend announced by Hindustan Zinc (HZL), the subsidiary of Vedanta, 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.

India Ratings and Research (Ind-Ra) has also revised Vedanta’s outlook to negative from stable while affirming its long-term issuer rating at ‘IND AA’. The outlook revision reflects the elevated risk of refinancing at an increased cost of borrowing with scheduled material debt repayments at Vedanta and VRL in FY24 and FY25. It also reflects a likely deterioration in the company’s liquidity profile on account of a higher-than-expected dividend outflow in FY24-FY25 to support VRL’s large debt maturities along with a significant capex over FY24-FY25, resulting in lower-than-expected cash accruals, thus, reducing its liquidity cover, it said.

Last week, Hindustan Zinc, the subsidiary of Vedanta, 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. With this, it has declared its highest-ever dividend of ₹32,000 crore for FY23.

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