Size matters: Reliance should lead a dividend payout boom

The story of Reliance has been one of relentless growth, with large sums invested over time in diversification.
The story of Reliance has been one of relentless growth, with large sums invested over time in diversification.

Summary

  • The company’s size achievements stand out—its top-line crossed 10 trillion and annual pre-tax profit 1 trillion—but its small dividends are a reminder of the low yields of Indian equity in general. Could India’s biggest business help effect a big reversal?

The quarterly results of Reliance Industries Ltd have made news for a bottom-line dip, although its top-line rose. Its net profit for the final quarter of 2023-24 fell 1.8% from a year earlier to 18,951 crore, while revenues saw an 11% increase to over 2.4 trillion. Its core oil-to-chemicals business faced a few headwinds downstream, while a surge in offshore-gas output shored up hydrocarbons upstream, where oil was subject to global flux, even as Reliance Retail and telecom under Jio fared fairly well, turning in double- or near-double-digit growth on both counts. As far as numbers go, the annual results drew wider attention—as usual, for a whole new proportion of operations achieved over the year. In fiscal 2023-24, India’s single largest company took its revenues past the 10 trillion level and pre-tax profit above the 1 trillion mark. As no Indian enterprise has recorded so many digits ever before, this deserves applause in its own right. The rise of our economy has begun to show more prominently than ever in the magnitude of our top businesses, with trillions starting to take the place of billions. Even in India, we can look at the top league’s corporate sales as a slice of national output: Reliance’s figure is about 3.4% of our nominal GDP.

The story of Reliance has been one of relentless growth, with large sums invested over time in diversification. From synthetics, it went in for vertical integration upwards into oil-and-gas and downwards into polymers, while its horizontal extensions addressed the retail and telecom sectors, the latter setting the stage for a big digital play, even as it began investing heavily in clean energy. Impressively, its strategic pursuit of expansion has rarely got in the way of its financial performance. From here onwards, its prospects look stable. While oil volatility tends to impact a huge chunk of its finances, with input cost spikes often offset by gains in output value, both its retail and telecom operations look steady. As for capital allocations, investors have been tracking its energy-storage and green hydrogen ambitions, where it aims for a cost breakthrough, as well as its recent moves in the media space, where its assets are set to merge with Disney’s in India, giving the new combine an edge in the TV broadcast arena. As such new projects could secure a sustainable future for Reliance by reducing its dependence on hard-to-abate industries in a carbon context, they will surely hog resources.

Reliance’s investors, however, cannot be faulted for wondering why its annual dividends remain relatively low. On Monday, it proposed a payout of 10 per share, adding to the 9 it paid in August. Together, they spell a dividend yield of less than 1% (on a stock that closed above 2,919 on Tuesday). In general, firms that aren’t in mature markets are not expected to award too big a slice of profits to shareholders, as they can put the retained portion to good use. Yet, Indian blue chips are generally seen to pay less than those in markets where shareholder pressure plays a bigger role. More generous payouts would remind investors of the basic rationale of investing—to get a part of enlarging profits. A dividend boom across India Inc would not only enthuse more Indians, it can also amplify a key message: As stock ownership is open to all, wealth creation has a sharing mechanism that everyone is welcome to join. Those who buy into this idea shouldn’t need to offload shares to reap its rewards. As India’s largest company, Reliance is best placed to lead such a campaign.

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