Indian corporates paying record dividends

The story: India Inc. paid record dividends in FY21 despite the tough Covid times, due to recovery in earnings, cashflows and improved balance sheets

Indian corporates paying record dividends

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• The story: India Inc. paid record dividends in FY21 despite the tough Covid times, due to recovery in earnings, cashflows and improved balance sheets due to low-interest rates. Equity dividends paid by the top 155 of NSE 200 companies jumped 38 per cent or Rs 61,000 crore in FY21 compared with FY20.
• More dividends: The dividend payouts are at an all-time high as companies made record profits. With the pent-up demand following the Covid-led lockdown last year, companies’ profitability growth has been high. Companies have been reporting good profit numbers since the September 2020 quarter, which was replicated in the December 2020 and March 2021 quarters too.

1. PSUs like BPCL, Indian Oil, NTPC, SBI, HPCL, Coal India and SAIL contributed the maximum to the dividend kitty in FY21. Among private companies Hindustan Unilever, Infosys, Ambuja Cement, Britannia, Tech Mahindra and L&T significantly increased dividends for the period.
2. Cost-cutting efforts and tightening working capital requirements helped firms, especially the large ones, to report better earnings. While the drop in interest rates has benefited the companies’ bottom line, the larger conglomerates have cornered a better market share. This drove strong profitability, enabling better dividend payouts. While the bigger companies managed costs, it was clearly tough for smaller companies.

• Big profits: For the Nifty 500 companies, profitability in the December 2020 quarter stood at Rs 2.20 lakh crore and will be even higher in the March quarter. State-owned oil marketing company Bharat Petroleum declared a record Rs 17,137 crore dividend in FY21 compared with Rs 3,245 crore paid in FY20. The firm received Rs 9,876 crore from the sale of its 61.5 per cent stake in Numaligarh Refinery in Assam. Consumer major Hindustan Unilever, whose net profits have risen 18 per cent in FY21 to Rs 7,995 crore, distributed Rs 9,518 crore compared with Rs 5,400 crore it paid in FY20. IT bellwether Infosys paid Rs 27 per share in FY21 compared with Rs 17.50 in FY21; there is a 54 per cent increase in terms of the amount paid — from Rs 7,452 crore to Rs 11,502 crore.
• Investment cycle is dead: Companies see no reason to save money for capital expenditure in an economy starved of demand. With the economy slowing down, there is no re-investment cycle. With the fixed income yield coming down from 7-8 per cent to 3-4 per cent, it’s better to reward the shareholders through dividends. Several PSUs increased their payout ratio to fund the government’s fiscal situation. NTPC increased its payout ratio from 31 per cent to 40 per cent, Coal India raised its payout ratio from 66 per cent to 78 per cent while Indian Oil, HPCL, PowerGrid and NMDC, among others, increased their payout ratios drastically.
• Other observations: Indian markets showed resilience and scaled new highs amid encouraging corporate earnings in March 2021 quarter led by the upswing in key commodities prices and strong underlying demand prospects. Companies expect economic activity to bounce back by December 2021. GST collection of Rs 1.02 lakh crore for May 2021 (eighth consecutive month of more than Rs 1 lakh crore) was a testimony to robust domestic macroeconomics.
• Steep tax: To strengthen corporate governance practices and disclosure requirements, market regulator Sebi has notified new rules, including that top 1,000 listed firms will have to formulate a dividend distribution policy. However, shareholders are not too happy with raining dividends as the dividend income is taxable up to 43 per cent in the hands of the recipient, effective from April 2020. Budget 2020 had abolished dividend distribution tax on dividends paid by corporates and transferred the tax burden to the recipient. Earlier, an individual taxpayer was required to pay 10 per cent tax only if the dividend received from Indian companies was more than Rs 10 lakh. Also, no tax was payable on dividends received from mutual funds. As per the new rules, recipients of dividends would be liable to pay income tax according to their tax slabs.

 

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