Firms ploughing back profits, stingy with dividend payouts

Firms ploughing back profits, stingy with dividend payouts

Mumbai: Indian firms don’t seem to be willing to reward their shareholders amid an economic boom, preferring rather to reinvest profits into expanding the business.

A study of Indian publicly traded companies’ dividend payout for 2006-07 by Mint shows that is not rising in line with net profit growth.

Some 1,100 companies have paid a total of Rs48,555 crore in dividends for the year ended March, an increase of 17.92% over the previous year’s dividend payout.

Meanwhile, the collective net profit of these same set of firms rose by 33.88%, from Rs1.44 trillion to Rs1.93 trillion, in that period.

“An increasing number of Indian corporations are looking to plough back their profits for expanding businesses, which will benefit its stakeholders in the long run," says Bandiram Prasad, a senior consultant with Dun & Bradstreet, a financial services research and information firm. “This is quite natural when the economy is growing at a fast pace."

It is also a question of sectors, says Amol Rao, an analyst with Financial Services Ltd, a brokerage, noting that a better way to look at it is to see if sectors, such as consumer goods where there is no significant capital expenditure, are also not paying out dividends in line with profit growth. Among the companies, public sector Oil & Natural Gas Corp. (ONGC) topped the list of dividend payers in 2006-07 with a total dividend payment of Rs6,630.51 crore. This is 3.33% higher than what it had paid in the previous year even as its net profit rose 8.4% to Rs15,642.92 crore.

ONGC is followed by National Thermal Power Corp. Ltd, whose dividend payout rose 14.29% to Rs2,638.50 crore while net profit showed a 17.95% increase over the previous year.

Another public sector outfit, Indian Oil Corp. Ltd (IOC), declared total dividends worth Rs2,250.89 crore, up 54.17% from the previous year. IOC’s net profit rose by 52.58% to Rs4,915.12 crore.

In the private sector, Reliance Industries Ltd is the highest dividend payer, some Rs1,440.44 crore. In percentage terms, its dividend payout for the year rose by 3.37% while its net profit rose by 31.69% to Rs11,943.40 crore.

Among the top 10 dividend paying companies in India, only three have shown a faster growth in their dividend payout last year compared with the growth in their net profits.

They are Steel Authority of India Ltd (SAIL) and two Tata group companies—Tata Consultancy Services Ltd (TCS) and Tata Steel Ltd. SAIL’s dividend payout rose by 55% to Rs1,282.42 crore while net profit grew by 54.56% to Rs6,202.29 crore. In case of TCS, the growth in dividend payout is much sharper than its profit growth. Its dividend payout grew by over 70% to Rs1,125.39 crore, while net profit growth was around 38% to Rs2,716.87 crore.