A US research firm, Viceroy Research, claims that Hindustan Zinc Ltd (HZL) has been paying out more in dividends than it earns, allegedly relying on debt to cover the difference.
Serious Allegations from Viceroy Research
Viceroy Research, a US-based firm, has raised concerns about Hindustan Zinc (HZL), a company under the Vedanta group. They allege that HZL has consistently distributed dividends exceeding its earnings, possibly resorting to borrowing to bridge the gap.
The firm estimates a significant shortfall in HZL’s free cash flow (FCF). For the quarter ending June 2025, they project an FCF deficit of around Rs 3,600 crore. Viceroy also challenges HZL CFO Sandeep Modi’s claim of Rs 10,000 crore in FCF, stating that cash flows are “subsidized by debt.”
According to Viceroy, if HZL maintains its previous year’s dividend payout, it could face an annual FCF shortfall of at least Rs 5,000 crore, requiring further debt financing.
Hindustan Zinc Responds to Claims
Hindustan Zinc has strongly refuted Viceroy’s report, dismissing it as “a combination of selective misinformation and baseless allegations.” An HZL spokesperson stated that all company resolutions undergo rigorous due diligence and are approved by its Board.
HZL highlighted its impressive growth, noting that its zinc production capacity has quadrupled and silver production increased twentyfold over the past two decades. The company emphasized its “stringent governance framework,” ensuring all proposals follow due process.
They also pointed out that HZL has generated immense stakeholder value, with its market capitalization growing over 500 times. HZL contributes nearly 35 percent of its declared dividend to the government treasury, including direct dividends and tax deductions.
Understanding the Free Cash Flow Dispute
Free Cash Flow (FCF) is the cash a business generates after covering its operating expenses and investments in assets like equipment or property. It represents the actual cash available to a company after all necessary expenditures.
Viceroy alleges that HZL has not generated Rs 10,000 crore in FCF since 2023, claiming FCF has fallen sequentially. They project an annualized FCF of Rs 7,000 crore for HZL. In FY23, despite generating Rs 12,000 crore FCF, HZL paid Rs 31,000 crore in dividends, leading to a substantial deficit.
This situation, Viceroy claims, has sharply increased HZL’s leverage, with its debt-equity ratio rising from 0.8x to 1.2x.
Allegations of Auditor Oversight and Brand Fees
Viceroy further claims that HZL incurred Rs 2,000 crore in new debt during the June quarter of FY26. They also allege that HZL’s auditor, SR Batliboi, failed to adequately investigate material concerns, relying solely on management assertions while the company’s financial base deteriorated.
Another point of contention is the “brand fee” paid by HZL. Viceroy questioned HZL CEO Arun Misra’s justification of the 3 percent brand fee, paid to Vedanta Resources (VRL). They described this as an “uncommercial contract” and questioned the services provided by VRL to justify such payments.
HZL defended the brand fee, explaining that “Vedanta” is a registered global brand used by HZL and other group companies under a Board-approved license agreement. They stated this is a standard intercompany licensing model, compliant with Indian and international regulations.
- Viceroy Research alleges Hindustan Zinc is paying dividends from debt, not earnings.
- HZL refutes claims, citing strong governance, growth, and contribution to the government.
- Dispute centers on Free Cash Flow (FCF) calculations and the justification for “brand fees.”
This ongoing debate highlights a significant difference in financial interpretation between the research firm and Hindustan Zinc regarding the company’s fiscal health and operational transparency.
