Cash hoarding has plagued corporate India for long. Therefore, SEBI’s decision to mandate India’s top 500 to formulate and disclose a dividend policy has compelled corporate India to have a more considered capital allocation policy. Corporate India has responded well: 91 of the top 100 companies have a publicly available dividend distribution policy. Of these, 15 companies are likely to distribute a higher share of their profits as dividend.
Indian companies have been hoarding cash. The cash (including liquid investments) on S&P BSE 500 companies’ balance sheets on 31-March-2016 aggregated Rs. 16.7 trillion. These companies, in FY16 announced aggregate dividends of Rs.1.8 trillion. IiAS’ February 2017 analysis showed that despite this, conservatively, 88 of these companies could, in aggregate, pay out over Rs.250 bn more in dividends. Some of these companies returned cash to shareholders via buybacks in FY17 – the largest of these were undertaken by state-owned enterprises and TCS.
With a view to compelling companies to make discerning capital allocation decisions, SEBI modified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, making it mandatory for the top 500 listed companies to formulate and disclose a dividend distribution policy with effect from July 2016. IiAS visited the websites of the Nifty 100 companies: 91 of the top 100 companies have a published dividend distribution policy.
As a good practice, IiAS advocates that companies must specify a dividend payout ratio, or a range of expected dividend payout (or buybacks). 49 of India’s top 100 companies now have a disclosed target payout ratio. Of these, 20 listed state-owned enterprises are required to follow the Government of India’s (GoI) guidelines on dividend payouts. Of the remaining 29 companies (non-public-sector), companies have disclosed a targeted payout ratio in terms of either the company’s profits, cash flows, or networth.
Of the 49 companies that have specified a target payout ratio, our analysis shows that 15 companies are likely to distribute a larger share of their profits as dividend going forward. 3 companies – Bajaj Finserv Limited,ICICI Prudential Life Insurance Company Limited (ICICI PruLife), and Tata Motors Limited - appear to have rationalized their dividend payout ratios.
IiAS believes that corporate India has come a long way in recognizing the need to have a structured dividend policy. In doing so, investors stand to benefit. That almost half of the top 100 companies have specified a payout ratio shows not only corporate India’s willing embrace of regulations, but also confidence in its ability to perform.
For details on dividend policies and their impact on the NIFTY100 companies, please refer to our full report here.