Govt eyes dividend windfall from PSUs

  • Centre mops up 26,104 crore dividend from 23 PSUs in FY21
  • PSUs’ share of profits rose from 18% in FY18 to 28% in FY21, after consistently declining from 39% in FY11

Ashwin Ramarathinam
Updated17 Jun 2021, 07:24 AM IST
In the previous two years, dividends drawn by the government from these companies had fallen 42% in FY19 and slipped 22% in FY20.
In the previous two years, dividends drawn by the government from these companies had fallen 42% in FY19 and slipped 22% in FY20.(Photo: Reuters)

The government is set to see a dividend windfall thanks to its holdings in public sector undertakings, bringing welcome relief to a treasury that has taken a massive hit from two waves of the coronavirus pandemic.

Data from public sector units (PSUs) that have already announced their dividends for FY21 shows that not only have dividends increased to at least a five-year-high, but aggregate net profits of these state-owned companies have also risen.

The government has mopped up 26,104.37 crore as dividend from 23 listed PSUs in FY21 so far, a 123.63% increase over the previous fiscal year, data sourced from Capitaline showed. In the previous two years, dividends drawn by the government from these companies had fallen 42% in FY19 and slipped 22% in FY20.

Growing kitty

The data is for BSE 500 companies, which account for over 90% of India’s total market capitalization.

Bharat Petroleum Corp. Ltd (BPCL) leads the largest dividend-paying companies for fiscal year 2021 with a dividend of 8,759.71 crore to the government. BPCL is followed by Coal India Ltd ( 6,520.66 crore), Indian Oil Corp. ( 5,817.95 crore), State Bank of India ( 2,031.95 crore) and GAIL India ( 1,142.29 crore).

With a clutch of large PSUs such as Oil and Natural Gas Corp., PowerGrid Ltd and NTPC Ltd yet to announce their dividends, the government’s kitty is only set to grow.

This is welcome news for the government, as additional dividend income will help it manage its financial needs better in the pandemic, when the government’s tax revenue has seen a drop even as expenditure mounted to fight the virus.

India’s fiscal deficit for FY21 stood at 9.3% of the gross domestic product (GDP), while revenue deficit was 7.42%.

“Dividends from PSUs have been used by governments in successive years to raise revenues and bridge the fiscal gap that would have arisen due to various reasons including shortfall in divestment revenues. Although the kitty reduces year after year as the government keeps bringing down its stake in PSUs, in FY22, some PSUs including banks, oil companies and other commodity companies can operationally do well and continue to pay out handsome dividends to its shareholders including the government,” said Deepak Jasani, head of retail research, HDFC Securities.

According to Jasani, the guidelines issued by the department of investment and public asset management (Dipam) in 2016 that every PSU would pay a minimum annual dividend of 30% of profit after tax or 5% of the net worth, whichever is higher, will push PSUs to declare higher amounts as dividends.

“In FY22, the budgeted target of 50,000 crore through receipt of dividends from PSUs, though seeming difficult, may still be largely achieved by a combination of these factors,” Jasani said.

In 2016, Dipam also advised CPSEs to pay quarterly or at least half-yearly dividends, instead of paying all the dividends at the end of the financial year.

An analysis of the broader BSE 500 companies by JM Financial Institutional Securities indicates PSUs’ share of profits rose from 18% in FY18 to 28% in FY21, after consistently declining from 39% in FY11. The PSU index has outperformed the benchmark Nifty and Sensex indices over the past year.

Hence, despite the strong rebound over the past year, valuations of the PSU index are hovering at a 60% discount to the broader index, said Dhananjay Sinha, analyst, JM Financial Institutional Securities.

“Compared with valuations prior to FY20, current valuations are also considerably depressed. Reasons for the underperformance over the past three to four years are overhang from disinvestments, slated at 2.1/1.75 trillion for the last two years and continued extraction of dividends to fund fiscal requirements.,” Sinha said.

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First Published:17 Jun 2021, 07:24 AM IST
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