Why Vedanta's upcoming dividend is no cause for celebration

Vedanta has sent a response to the following article. We have appended it to this page. Profits may fluctuate, but dividends won't. That's an unspoken vow of Vedanta to its shareholders. True to form, the dividend aristocrat will consider an interim dividend, the fourth this financial year, on October 8, 2024. Investors are delighted. The stock is up nearly 7 per cent in two days since the announcement on September 25, 2024. In the last two years, Vedanta shelled out Rs 48,531 crore in dividends against its free cash flow of Rs 38,508 crore. So naturally, it's been depleting its cash reserves to make these payments. They have nearly halved to Rs 30,137 crore over FY22-24. Buzzkill alert: using cash reserves to give dividends is nothing out of the ordinary. Large, stable businesses almost always do. But for Vedanta, this is no good news. A cash cow, but for promoters Vedanta's dividend payments are less a cause of celebration and more of concern for two reasons: 1. The money is actually being routed to its UK parent Vedanta Resources as dividend, given it's the largest shareholder in the Indian miner, with a stake of 56 per cent. So, more than half the dividend payouts get bankrolled to the parent to help lessen the massive debt of $9.7 billion (around Rs 81,000 crore) that it took on a few years back. 2. Vedanta itself is saddled with a large debt pile and has significant capex to fulfil. Its dividend payment spree is diminishing its ability to stay afloat and keep growth plans on track. Cracking the numbers Simply put, Vedanta is biting off more than it can chew. Let's first take note of its expected profit kitty. It is optimistic about delivering annual EBITDA (earnings before interest, taxes, depreciation, and amorti