Business Today

The cup runneth over

Kushan Mitra | Print Edition: July 24, 2011

The shelf above Ravi Sud's desk is crammed with awards, "I even took some home, because there isn't enough space here," he says with a laugh. The reason for the plethora of awards is Sud's aversion to debt. He proudly points out that his company, Hero Honda Motors, has been debt-free for more than a decade. It is also a BSE Sensex and NSE Nifty company that has steadily paid the highest dividends to shareholders over the same period, he adds.

Sud has a simple explanation for why Hero Honda is able to pay out large dividends: "I'm fortunate to be in a company that operates in a sector where we don't need to invest a lot in capital expenditure."

WATCH:Ravi Sud talking about Hero Honda's investment norms

With its motorcycles in constant demand, and sales climbing every year, Hero Honda generates a large amount of cash. Sud says he needs to maintain the company's return on capital employed at a reasonable level, and the best way to do that is to pay the shareholder. "I'm not an aggressive investor," he says, explaining his attitude towards treasury operations.

"The best returns I can generate on that cash, therefore, are nine or 10 per cent. So why not give the money back to the people it belongs to - the shareholders." For the financial year 2009/10, Hero Honda paid a dividend of 5,500 per cent on each share, which included a special 4,000 per cent "Silver Jubilee" payout. Given that the company's shares have a face value of Rs 2, this worked out to Rs 110 per share. The company's net profits that year were Rs 2,231.83 crore. This translated into earnings per share, or EPS, of Rs 111.77, which meant that almost the entire EPS was distributed as dividend.

Ravi Sud
57, Senior Vice President & CFO
My best practice: Openness and transparency. Be as open as possible to all stakeholders. Do not make anybody an insider
What gets my goat: Rumours and rumour-mongers
How I unwind: On weekends, I sit at home and relax
Global CFO/CEO I admire: Why go abroad? The CFO that I admire the most, and call 'guru', is T.V. Mohandas Pai (former CFO of Infosys)
Despite such extraordinary payouts, the company still has a healthy amount of cash on its balance sheet. Even after factoring in the dividend for the financial year 2010/11, this amount is close to Rs 4,000 crore. "Luckily, it doesn't cost much to set up a motorcycle factory," says Sud. "A plant with a capacity of 750,000 costs around Rs 500-550 crore. So for most major expenses, we have the money. And we can always raise more if we want to."

But all this is not to say that Sud does not have his share of problems. "I hate rumours," he says. Things got tough at the end of last year, when the rumours flew for days, as the Munjal family, which controls the Hero group, decided to part ways with Honda Motor of Japan, the co-promoter of Hero Honda. "We could not speak because things were not yet in the public domain, and that was a bit frustrating," says Sud. "But one must remember that this was an issue between the promoters, not an issue for the company."

When Sud was finally able to speak about the issue, he went to great lengths to set the record straight. "I believe in openness and transparency. So I clarified to every person I could, for example, that royalty rates would never exceed three per cent, contrary to the rumours of eight or nine per cent.

Hopefully, now all that has stopped." Does he expect things to get tougher as the promoters are splitting up? "No, not at all," he answers nonchalantly.

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