Why are Vedanta, ITC shares trading higher today

Shares of Vedanta and ITC witnessed a surge in buying on Tuesday as stocks of both companies traded ex-dividend today. Both companies, having a strong track record of paying dividends to their shareholders, have set May 30 as the record date for dividend payout. In the financial year 2023, metal and mining major Vedanta declared a total dividend of ₹101.50 per share, while cigarette-to-hotel conglomerate ITC’s total dividend for the last fiscal stood at ₹15.50.

Earlier today, billionaire Anil Agarwal-led Vedanta shares opened 0.6% higher at ₹283.60 against the previous closing price of ₹281.85 on the BSE. During the first two hours of trade so far, the largecap gained as much as 2.3% to hit an intraday high of ₹288.30, while the market capitalisation rose to ₹1.06 lakh crore. At the current share price, the dividend yield stood at 30.87%.

In a similar trend, ITC shares opened a tad higher at ₹440.25 compared to Monday’s closing price of ₹439.60 on the BSE. Extending opening gains, the blue chip stock jumped 2% to hit an intraday high of ₹448.40, while the market capitalisation climbed to ₹5.55 lakh crore. At the current share price, ITC’s dividend yield was at 3.48%.

Last month, ITC released its fourth quarter earnings also recommended a final dividend of ₹6.75 and special dividend of ₹2.75 per equity share for FY23. Together with the interim dividend of ₹6 per share paid in February this year, the total dividend for the last fiscal stood at ₹15.50.

Meanwhile, 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 firm 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.

CRISIL in a recent report said dividend payout by Vedanta, including that by its subsidiary Hindustan Zinc (HZL), 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.

In March this year, HZL 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.

Crisil Ratings also 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). The rating agency said continued assistance through dividend payout to the VRL to support its debt has resulted in significant cash outflow to minority shareholders.

Crisil 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 was 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 released in March this year.

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. The rating agency said that the company is in discussion with lenders for refinancing upcoming maturities of the first quarter of fiscal 2024 and the same is expected to be completed by end of March 2023 or early April 2023.

The agency, however, said that the progress on the refinancing plans have been slower than expected, thereby resulting in increased dividend payout by Vedanta and reduced cash and cash equivalents during the fiscal.

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