Hindustan Zinc Declares Highest Interim Dividend in 12 Years

Case Code: CLFIN024
Case Length: 5 Pages
Period: 2020
Pub Date: 2021
Teaching Note: Available

Price: Rs.200
Organization : Hindustan Zinc Limited
Industry :Metals & Mining
Countries : India
Themes: -

Abstract

The case study discusses Indian mining major Hindustan Zinc Limited’s announcement of its highest ever interim dividend in 12 years since 2007. The case study helps to understand factors that should be evaluated by the board while considering a dividend payment. It also helps to understand various concepts of dividends including ex-date, record date, dividend yield, and dividend payout ratio, among others.

Issues

To understand the corporate policy concerning dividends.
To understand how to estimate dividend yield with the help of real data.
To understand how to estimate dividend payout ratio with the help of real data.

Introduction

On October 20, 2020, Hindustan Zinc Limited (HZL) announced its second quarter (ended on September 30, 2020) results and a 1065% interim dividend on a face value of Rs. 2 per share. The company had reported a 25% jump in revenue Year over Year (YoY) and a 42% increase compared to the previous quarter. EBITDA (earnings before interest, taxes, depreciation, and amortization) had also increased 39% YoY and 85% Quarter over Quarter (QoQ). However, Profit after Tax (PAT) had fallen by 7% from Rs. 20.81 billion in Q2FY20 to Rs. 19.40 billion in Q2FY21 due to a higher depreciation amount, financial cost, and high tax rate. The fall in PAT had resulted in a 7% drop in Earnings Per Share (EPS) which had gone down from Rs. 4.93 per share in Q2FY20 to Rs. 4.59 per share in Q2FY21 (Refer to Exhibit I for the quarterly performance of HZL).

Experts stated that to compensate for the fall in EPS, HZL had announced the interim dividend of Rs. 21.30 per equity share. This was the highest ever interim dividend in 12 years since 2007. Before this, HZL had given a dividend of Rs. 16.50 in May 2020 (Refer to Exhibit II for interim dividend issued by HZL). The ex-date and the record date for the dividend were October 27, 2020, and October 28, 2020, respectively. The total dividend amount was around Rs. 90 billion, which was about 50% of the cash balance.

Keywords

"Interim Dividend; Dividend; Dividend Policy; Dividend yield; Dividend payout; Retained earnings; Ex-date; Record date

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