hindustan zinc: Hindustan Zinc eyes a return to net surplus position this year

Hindustan Zinc (HZL) is confident that it can generate enough cash flows to return to a position of net surplus this financial year, but analysts are circumspect as they believe that the company may continue paying high dividends to its parent, India listed Vedanta.

Hindustan Zinc repor ted its highest ever sales, operating profit and profit in FY23. A dividend payout of Rs 31,910 crore during the year, though, used up all the company’s cash surplus, putting it in a net debt position of nearly Rs 1,800 crore as on March-end.

“HZ has depleted all its surplus cash balance by paying higher dividends in FY2023 and the future capital structure remains uncertain,” analysts at Kotak Institutional Equities said, maintaining a ‘sell’ rating for the shares. The company’s gross debt as on Marchend was Rs 11,841 crore.

In an interaction with analysts after its quarterly earnings, chief financial officer Sandeep Modi said that the Hindustan Zinc will generate more than Rs 10,000 crore of cash flow this year. “The borrowing is smaller and compared to the borrowing, our quarter one cash flow should be basically recouping whatever negative we are having,” he said. Responding to a question on whether the company plans to pay higher dividends this year like it did in FY23, Modi said that the board would take a decision on it, and it would depend on the financial management.

“…even if something happens from the dividend point of view, you will always have an investment against those whatever the borrowings ar e there…so that retained earnings, whatever is there, we won’t be able to give the dividends beyond that retain ed earnings,” he said. Dividends are generally paid out of either profits or retained earnings, and Hindustan Zinc had retained earnings of Rs 1,700 crore, and general reserves of Rs 10,384 crore.