Firms plough back profits, stingy with dividend payouts
Indian firms don't seem to be willing to reward their shareholders amid an economic boom, preferring rather to reinvest profits, reports Ashwin Ramarathinam.business Updated: Oct 03, 2007 22:27 IST
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
shows that is not rising in line with net profit growth. Some 1,100 companies have paid a total of Rs 48,555 crore in dividends for the year ended March, an increase of 17.92 per cent over the previous year's dividend payout. Meanwhile, the collective net profit of these same set of firms rose by 33.88 per cent, from Rs 1.44 trillion to Rs 1.93 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 Infinity.com 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 not 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 Rs 6,630.51 crore. This is 3.33 per cent higher than what it had paid in the previous year even as its net profit rose 8.4 per cent to Rs 15,642.92 crore.
ONGC is followed by National Thermal Power Corp Ltd, whose dividend payout rose 14.29 per cent to Rs 2,638.50 crore while net profit showed a 17.95 per cent increase over the previous year. Another public sector outfit, Indian Oil Corp Ltd (IOC), declared total dividends worth Rs 2,250.89 crore, up 54.17 per cent from the previous year. IOC's net profit rose by 52.58 per cent to Rs 4,915.12 crore. In the private sector, Reliance Industries Ltd is the highest dividend payer, some Rs 1,440.44 crore.
In percentage terms, its dividend payout for the year rose by 3.37 per cent while its net profit rose by 31.69 per cent to Rs 11,943.40 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 per cent to Rs 1,282.42 crore while net profit grew by 54.56 per cent to Rs 6,202.29 crore. In case of TCS, the growth in dividend payout is much sharper than its profit growth. Its dividend payout grew by over 70 per cent to Rs 1,125.39 crore while net profit growth was around 38 per cent to Rs 2,716.87 crore.