A 1,300% dividend may not guarantee a 'buy' rating; Citi maintains 'sell' on Hindustan Zinc

Hindustan Zinc Ltd (HZL) share price: Citi maintained a 'sell' rating on Vedanta subsidiary Hindustan Zinc Ltd (HZL), even after the zinc major announced a 1,300 per cent interim dividend. After market hours on Tuesday, the board of HZL gave nod to a dividend of Rs 26 per equity share of face value of Rs 2, translating to a 1,300 per cent payout. Citi kept its target for Hindustan Zinc at Rs 260 a share — implying a potential downside of around 16 per cent from Tuesday's closing price.

What does Citi think of Hindustan Zinc? 

According to Citi, Hindustan Zinc will turn net debt from net cash following the payout of the fourth interim dividend.

Citi pointed out that Hindustan Zinc's latest dividend implies cash outflow of Rs 10,990 crore ($1.3 billion), taking its total dividends to Rs 75.5 per share for the year ending March 2023 with a cash outflow of $3.9 billion.

The brokerage values HZL shares at an embedded value-to-EBITDA multiple of 6.7 times its one-year forward estimates, as against an average 6.5 times since the year ended March 2016. The EV/EBITDA ratio determines a company's value including its debt to its earnings excluding non-cash expenses. 

Hindustan Zinc share price

Hindustan Zinc shares jumped by as much as Rs 14.8  — or 4.8 per cent — to Rs 325.3 apiece on BSE on Wednesday.  

ALSO READ: Hindustan Zinc Dividend: Board approves 1300% interim dividend — Check record date

Hindustan Zinc dividend: Record date

The Hindustan Zinc board earlier fixed March 29 as the record date for the payment of the dividend.

What is a record date?

A record date determines the shareholders eligible to benefit from corporate action such as a dividend. 

ALSO READ: Should you buy, sell or hold Hindustan Zinc, SBI Life, Bajaj Finance, other stocks in focus today?

Hindustan Zinc share price: Historical performance

HZL shares have grown about two per cent in the past one year, a period in which the headline Nifty index has declined one per cent. 

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