Hindustan Zinc Ltd. (HZL), one of India’s leading mining companies, has announced that it will consider a second interim dividend at its upcoming board meeting on August 20. This development comes just months after the company declared its first interim dividend of ₹10 per share in May 2024. At that time, Vedanta Ltd., which holds a 64.92% stake in Hindustan Zinc, received a payout of ₹2,743 crore based on its shareholding.

Background on Dividends:
Hindustan Zinc has a strong history of rewarding its shareholders with generous dividend payouts. In the financial year 2023, the company made a record dividend payout of nearly ₹32,000 crore, marking a significant return of capital to its investors. Following this, the company continued its dividend policy in the financial year 2024, with a payout of ₹5,493 crore.

This consistent focus on shareholder returns has made Hindustan Zinc a preferred stock for investors, despite its low free float in the market. The company’s free float has historically been limited, primarily due to the significant stakes held by major shareholders. Vedanta Ltd. holds a 64.92% stake, the Government of India owns 29.54%, LIC holds 2.76%, and India’s mutual funds collectively own just 0.06%. Additionally, small shareholders, or those with an authorized share capital of less than ₹2 lakh, hold a mere 1.51% stake in the company. As of the June 2024 quarter, there are approximately 4.33 lakh such small shareholders.

Vedanta’s Stake Sale:
The discussion around the second interim dividend is taking place in the context of a major corporate development. On Tuesday, Hindustan Zinc’s promoter, Vedanta Ltd., announced plans to offload up to 11 crore shares of its subsidiary through an Offer for Sale (OFS). This proposed sale represents approximately 2.6% of the total equity in Hindustan Zinc.

If successful, the sale will result in a significant increase in Hindustan Zinc’s free float, potentially doubling it from the current level of 2.6%. This move is expected to enhance liquidity in the stock and may attract more investors, who have historically been deterred by the limited availability of shares in the market.

The specific details of the OFS, such as the pricing and timing, have not yet been disclosed. However, market analysts and investors are closely monitoring this development, as it could have far-reaching implications for both Hindustan Zinc and Vedanta.

Market Impact:
The news of the potential stake sale by Vedanta initially led to some volatility in Hindustan Zinc’s stock price. The shares of Hindustan Zinc, which had been trading lower during the day, managed to recover from the lows but still ended the session 1% lower at ₹574.4. Despite this correction, the stock remains up by 80% for the year 2024, a testament to its strong performance and investor confidence.

However, it is worth noting that the stock has corrected nearly 30% from its record high levels of ₹807.7, reflecting the broader market trends and specific company developments. The potential increase in free float due to Vedanta’s stake sale could provide a fresh catalyst for the stock, with some analysts predicting a positive impact on the stock’s liquidity and market participation.

Clarification on Dividend Speculation:
Earlier this week, Hindustan Zinc had issued a clarification in response to a report by the Economic Times, which speculated about an impending dividend announcement. The company stated that there was no such proposal on the table at that time, a statement that was made before the latest announcement regarding the consideration of a second interim dividend at the upcoming board meeting.

The timing of this clarification and the subsequent announcement has led to speculation among market participants about the company’s dividend policy and its potential impact on the stock price. The upcoming board meeting on August 20 will be closely watched by investors, as it will provide clarity on the company’s plans for returning capital to shareholders.

Implications for Vedanta:
For Vedanta, the decision to sell a portion of its stake in Hindustan Zinc is seen as a strategic move to unlock value from its investment and potentially raise funds for its corporate needs. Vedanta has been actively managing its portfolio and financial obligations, and this stake sale could provide the company with the necessary liquidity to meet its objectives.

The funds raised from the OFS could also be used to address Vedanta’s debt obligations, which have been a key focus for the company in recent years. By monetizing a portion of its stake in Hindustan Zinc, Vedanta may be able to strengthen its balance sheet and improve its financial position.

Investor Outlook:
As the market awaits further details on the Offer for Sale and the board’s decision on the second interim dividend, there is a sense of cautious optimism among investors. Hindustan Zinc’s strong dividend track record and Vedanta’s strategic maneuvers are seen as positive indicators for the company’s future prospects.

However, the potential dilution of Vedanta’s stake and the impact of increased free float on Hindustan Zinc’s stock price will be key factors to watch in the coming weeks. The outcome of the board meeting on August 20 will likely set the tone for the stock’s performance in the near term, with both retail and institutional investors closely monitoring the developments.

Conclusion:
Hindustan Zinc’s consideration of a second interim dividend at its upcoming board meeting, coupled with Vedanta’s plans to sell a significant stake in the company, marks a pivotal moment for both entities. The potential increase in free float and the strategic implications of Vedanta’s stake sale could have a lasting impact on Hindustan Zinc’s stock market dynamics.

As investors await further clarity on these developments, the market will likely continue to react to news flow around the Offer for Sale and the dividend announcement. The outcome of the August 20 board meeting will be crucial in shaping the future trajectory of Hindustan Zinc and its relationship with its major shareholders, particularly Vedanta Ltd.

Also Read : Vedanta to Sell 14 Crore Shares in Hindustan Zinc via OFS, Expected to Raise ₹8,064 Crore

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