There are 60 companies among the S&P BSE 500 group that can return Rs 88,600 crore of surplus cash in their balance-sheet to shareholders based on conservative estimates, which is just about one-third of their aggregate on-balance-sheet cash on March 31, 2019, reveals the latest study by governance firm Institutional Investor Advisory Services (IiAS). The estimates are based on numbers for financial year 2018-19 (FY19).
The 60 companies, of which nearly a third are multi-national companies (MNCs) can return a median of 52 per cent of their total cash to shareholders. There are ten companies that can distribute over 75 per cent of their March 31, 2019 on-balance-sheet cash, the IiAS report says. The prominent MNCs includes Hindustan Unilever (HUL), ACC, Abbot India, Nestle, Pfizer and Glaxosmithkline Consumer Healthcare.
IT firms top charts
Of the Rs 88,600 crore, five companies alone can pay out nearly Rs 46,300 crore to shareholders, the study suggests. Information technology (IT) heavyweights Infosys tops this list with the capability of paying Rs 15, 570 crore, followed by Wipro and Tata Consultancy Services (TCS). The other two include fast moving consumer goods (FMCG) major ITC Limited and SBI Life Insurance.
The consolidated profit ater tax (PAT) for these 60 companies increased by 13.4 per cent in FY19 on a year-on-year (y-o-y) basis, while the PAT for the BSE 500 companies in aggregate increased by 0.3 per cent, the report says.
“While the 60 companies have outperformed the index (based on profitability), almost half of these companies reported a decline in the FY19 return on equity (ROE), compared to the previous year. This should compel their boards to review capital allocation and return some of the excess cash to the shareholders,” IiAS arugues.
In a similar study in 2018, IiAS had compiled a list of 92 companies that could have paid incremental dividends of Rs 34,000 crore. After the study, over a dozen companies, mainly IT firms including TCS and Infosys, returned Rs 37,200 crore to shareholders through buybacks.
Tax on dividends
The recent budget proposals changed the incidence of taxation as regards dividends – abolishing it for companies and levied it on the recipients / shareholders at their applicable rate, which can be as high as 43 per cent for the ultra-rich.
However, analysts at Morgan Stanley do not believe that the companies will be in a rush and resort to rewarding the shareholders by way of a higher dividend payout.
“The government cut corporate tax rates in September 2019, which was an estimated boost to corporate saving of Rs 1.45 trillion. About Rs 650 billion is being collected as DDT in FY20. We think most companies will not raise dividends proportionate to the tax reduction and could save the bulk of the tax break. A lot of high-dividend-paying companies may not have the growth in earnings to accommodate higher dividends,” wrote Ridham Desai, head of India research and India equity strategist at Morgan Stanley, in a post-Budget note with Sheela Rathi.