Business Today


India Inc. reined in dividend payouts in 2015/16, a consequence of subdued corporate results in the fiscal year
By Niti Kiran   Delhi     Print Edition: November 20, 2016
[Photo: Ajay Thakuri]

The year 2015/16 was challenging for India Inc. Poor monsoon for the second consecutive year and high interest costs had left Indian companies in the doldrums. Business sentiment took a hit as corporate results remained subdued in the fiscal. As a consequence, corporate India tightened its purse strings and stopped being generous in distributing dividends to shareholders.

This analysis was based on the basket of top 500 companies in terms of average market capitalisation between October 1, 2015 to September 30, 2016. The latest data was available for only 444 companies. The recent trend in dividend payout of this sample is disquieting. On an aggregate level, this basket of companies distributed dividend to the tune of Rs 1,48,484 crore in 2015/16 compared with Rs 1,46,117 crore in 2014/15. It registered a meagre single digit growth of 1.6 per cent - the lowest in five consecutive fiscal years.

The reason is evident. Dividends are usually a part of the profit that the company shares with its shareholders. And the profit of the sample size saw a contraction of around 5 per cent in 2015/16. Jimeet Modi, CEO of SAMCO Securities, doesn't see this as a worrying trend and attributes it to the normal crests and troughs of a business cycle.

Around 70 companies, nearly 16 per cent of the sample, bucked the trend and saw a consistent rise in their dividend payouts over five years. This list is largely dominated by the regular dividend payers - it includes companies such as ITC, ICICI Bank, Reliance Industries and NMDC. ITC distributed a dividend of Rs 6,840.1 crore in 2015/16 compared with Rs 5,009.7 crore in 2014/15. Over a five year period, the company saw a compounded annual growth rate (CAGR) of nearly 15 per cent in its dividends. Reliance Industries had a dividend payout of Rs 3,095 crore in 2015/16. It has a five year CAGR of 5.3 per cent. NMDC, a public sector entity, saw a significant 27.2 per cent growth in total dividend outgo over five years - the government alone received a dividend income of Rs 3,489 crore from it in the previous fiscal.

Meanwhile, promoters in the private sector, who make considerable wealth from dividends, witnessed erosion in their dividend incomes. The dividend income of private promoters and promoter groups in the sample fell around 25 per cent in March 2016 compared with March 2015. Private firms shied away from giving dividends and actually witnessed a fall of 2.2 per cent in their payouts. This was despite a cushion of around 13 per cent growth in their net profit in 2015/16. "Cautious outlook on account of consecutive droughts and global headwinds prompted the management of private sector companies to lower the payout ratios despite growth in profits," says Modi.

But the government of India, which is a major shareholder in public sector units, reaped dividend income of Rs 37,226 crore in the previous fiscal, clocking a growth of 10 per cent over 2014/15. The dividend payouts of public sector companies increased 9.3 per cent over the period. "Because of the general slowdown, the government had no other option but to milk PSUs to maintain fiscal targets," adds Modi. Indeed, the major contributor to the overall growth in dividends, albeit skimpy, in 2015/16 is the public sector.

Most sectors saw poor dividend payout on the back of the economic slowdown. Still, some sectors rewarded shareholders handsomely. Cement, retail and real estate - hit hard by subdued consumer demand - saw a significant fall in their dividend payouts in the previous financial year. On the other hand, decade-low commodity prices could have prompted companies in some sectors, such as FMCG and oil & gas, to pass on the benefits of reduced input costs to their shareholders. The dividend payouts grew by around 20 per cent and 10 per cent in FMCG and oil & gas sectors, respectively, in 2015/16.

This trend of meagre dividend payouts by companies is unlikely to change in the current fiscal, say analysts. "I think this trend might only improve from 2017/18 onwards - as the earnings growth in companies picks up and the managements see more certainty of cash flows," says Nikhil Khandelwal, Managing Director, Systematix Shares & Stocks.

Good dividend yielding companies are income generators but, clearly, for investors it is important to be patient and stay invested over the long term.


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