US-based Viceroy Research has alleged that Hindustan Zinc Ltd (HZL), belonging to the Vedanta group led by Anil Agarwal, has paid out far more in dividends than it earned, purportedly borrowing to make up the shortfall.
The research house has estimated a shortfall in free cash flow (FCF) of HZL — once a public sector firm — in the first quarter ended June 2025 to be around Rs 3,600 crore ($371m). “HZL CFO Sandeep Modi’s “Rs 10,000 crore ($1.17b) free cash flow” claim collapses under scrutiny. Cash flows are subsidized by debt. If HZL’s dividend remains the same as last year, we estimate HZL will incur an annual FCF shortfall of at least Rs 5,000 crore ($580m) and must be funded by more debt,” it said.
When contacted, HZL spokesperson said. “the Viceroy report is a combination of selective misinformation and baseless allegations. All resolutions are detailed and part of Board undertakings which are taken to them after rigorous due diligence. In the past 20 years the company’s zinc production capacity has grown more than 4 times and silver by 20 times.”
“Hindustan Zinc is steered through a stringent governance framework wherein all matters are taken to the Board and this process is followed for all proposals,” HZL said.
Viceroy alleged that HZL has not generated Rs 10,000 crore in FCF since 2023, at which point FCF has fallen sequentially. On an annualized run rate: we expect HZL FCF at Rs 7,000 crore. In FY 23, during a short commodities rally post covid, HZL generated Rs 12,000 crore FCF, and paid Rs 31,000 crore in dividends, accruing an enormous deficit. Leverage increased sharply vs Q1 2024, with the debt-equity ratio rising from 0.8x to 1.2x.
FCF represents the amount of cash a business generates after accounting for capital expenditures needed to maintain or expand its asset base. In simpler terms, it’s the cash left over after a company pays for its operating expenses and investments in equipment, property, or other assets.
Vedanta acquired HZL from the government in 2002.
Disclosures suggest HZL incurred Rs 2,000 crore ($232m) of new debt in the June quarter of FY26. HZL’s auditor, SR Batliboi, failed to investigate material concerns, relying entirely on management assertions while the company’s capital base deteriorated and governance collapsed, Viceroy alleged.
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HZL spokesperson said it has become the world’s largest integrated zinc producer and is amongst the top 5 primary silver producers. “It has created immense stakeholder value through increase in market cap by more than 500 times, in addition to dividends to shareholders and exchequer contribution. HZL contributes nearly 35 percent of the declared dividend to the government treasury, including dividend to government and tax deducted at source (TDS),” he said.
According to HZL, this quarter amidst commodity headwinds the company delivered beyond market expectations and registered record high first quarter mined metal production and lowest cost of production. In FY25, the company clocked its second-best profit, up 33% YoY. Hindustan Zinc’s bank facilities and debt programmes are Crisil AAA rated highlighting our efficient & integrated operations, and strong financial risk profile. And this consistent performance reflects the growing trust of our stakeholders, HZL said.
The research firm also questioned the brand fees paid out by HZL. In the earnings call, HZL’s CEO Arun Misra “credited offshore brand fees (paid in advance) as justifiable by past “risks” undertaken by Vedanta as a shareholder of HZL. This is preposterous,” the research firm said.
“HZL CEO Arun Misra’s defense of the controversial 3 per cent brand fee, a fee that results in hundreds of crores in annual payments to VRL (Vedanta Resources), was the centrepiece of his narrative during the Q1FY26 Earnings Call,” the US firm said.
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“We reiterate our belief that this “brand fee” is an uncommercial contract with VEDL (Vedanta Ltd), who does not appear to provide any brand, management, or other auxiliary services to HZL. There are no employees or substantial operations at VRL to justify brand fee payments,” Viceroy said.
“Vedanta’s shares in HZL bear the same risk as every other equity holder, including the government of India. If anything, it is the non-promoter shareholders that have borne the outsized risk of HZL taking outsized loans to bail out promoters,” it alleged.
HZL said “Vedanta” is a prominent global brand in the natural resources sector and the brand is a registered intellectual property of Vedanta Resources. “HZL and other group companies use the brand under a brand license/sub-license agreement and pay a Board-approved brand and strategic services fee for its usage. This structure reflects a standard intercompany licensing model used globally by diversified groups and is fully compliant with Indian accounting, tax and governance regulations, and follows internationally accepted practices,” HZL spokesperson said.
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