The government is keeping an eye on HZL’s dividends, a senior official had told ET last month, adding it would raise a red flag when it feels the company is using its borrowing proceeds to extend dividend to parent Vedanta and other shareholders.
In an interview to ET, Misra also made it clear that HZL doesn’t intend to revive its now-lapsed January proposal to buy parent Vedanta’s global zinc business. The $2.98-billion cash deal proposal had rattled the government, the most important minority shareholder in HZL with a 29.54% stake. The Centre had also questioned the deal valuation.
“The LME (London Metal Exchange) prices for metals are low and let’s first figure out ways to protect profitability. We have distributed dividends and our cash positions have to be much healthier if we have to (plan to) buy it (Vedanta’s global zinc assets) again,” Misra said.
Dividend payouts
Refuting criticism that HZL has been extending large dividends to bail out parent Vedanta at the expense of its own interest, Misra said the payouts have benefitted all stakeholders, including minority ones.Moreover, HZL’s current financial strength remains robust enough to fund any growth strategy or acquisition plans, he said, adding the company is on the look-out for new mine auctions.HZL has announced dividends five times since July 2022 totalling Rs 34,859 crore. Billionaire Anil Agarwal-controlled Vedanta, given its 64.92% holding in HZL, has received about Rs 22,630 crore, while the government has raked in Rs 10,297 crore.
“As far as HZL is concerned, in the worst possible scenario of $2,400 per tonne (zinc price on the LME) and the cost of $1,200, we still have a 50% EBITA (earnings before interest, taxes, and amortization) margin. So if we do a $4-billion business a year, we will at least get $2 billion in EBITA,” he said.
“Our cash and cash equivalents are roughly the same as the debt. So, practically speaking, we are a zero-debt company. And any company of our size can go to at least 1:2 (equity-to-debt ratio). So, the balance sheet is strong,” Misra said.
As of June 30, HZL’s consolidated gross investments and cash & cash equivalents stood at Rs 9,709 crore, against total outstanding borrowings of Rs 9,330 crore. The investment and cash & cash equivalents, however, were to the tune of Rs 24,254 crore as of June 2022.
On whether the company would borrow to keep extending dividends, Misra said: “As the CEO, I am not in favour of it, nor are the directors on our board in favour of it.”
