Vedanta might not distribute 30% of profit as dividend anymore
What's the story
Vedanta Ltd, one of India's leading mining companies, has announced a major change in its dividend policy. The company is moving away from a fixed minimum payout structure to a more flexible board-driven approach. This shift could affect investor sentiment as they have relied on the company's consistent returns for years. The decision was revealed by Vedanta's Chief Financial Officer Ajay Goel during an earnings call last week.
Policy transition
Goel explains principle-based approach
Goel explained that Vedanta's new dividend policy will be more "principle-based" than "prescriptive." Under the previous structure, the company was obligated to pay at least 30% of its profits as dividends. Now, the board has the discretion to decide on dividend payouts, whether that be 30% or another amount they deem fit. This change comes as Vedanta is in the process of splitting into five separate listed entities with similar but distinct dividend policies.
Clarification
Vedanta defends policy change
A Vedanta spokesperson clarified that the change in policy shouldn't be interpreted as a reduction in the dividend payout ratio. The company emphasized its Total Shareholder Return (TSR) of 93% in FY26, compared to 16% last year, as proof of effective capital deployment. However, analysts have expressed concerns that this new approach could introduce uncertainty and potential reductions in payouts.
Analyst reactions
Analysts weigh in on potential risks and benefits
Suman Kumar, a metals and mining analyst at Philip Capital, said the shift is significant as it removes the certainty of a 30% profit distribution. He added that while the board can increase payouts under this new policy, it also has the power to cut them if cash is needed elsewhere in business operations. Ritesh Shah from Investec wasn't surprised by this change but noted each of the five post-demerger entities will have its own policy.