Ravi Sud wins in sustained wealth creation large companies category
Kushan Mitra July 5, 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
"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.
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.