The incremental dividend from these companies could aggregate to about Rs 36,000 crore after taxes almost twice the amount these companies actually paid out in FY13.
The advisory firm identified individual firms that could pay higher dividend. For instance, MRF Ltd, Oracle Financial Services Software and Shree Cement Ltd can pay over Rs 100 to shareholders, while the likes of Bosch, Eicher Motors and Maruti Suzuki India could pay between Rs 50.1 and Rs 100. IiAS further observed that companies such as Whirlpool India, Jubilant Foodworks, Gujarat Pipavav, Oracle Financial Services Software and Just Dial paid no dividends in 2013, despite being profitable.
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Indian companies tend to be controlled about dividend payments, and hold the purse strings tightly. The excess cash is usually invested in bank deposits and debt mutual funds. As these cash holdings increase in a companys books, its return ratios generally deteriorate. Additionally, there is enough anecdotal evidence that this excess cash leads to sub-optimal capital allocation decisions, said the report.
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According to IiAS, foreign parents that take royalty are less sensitive to the amount of dividend declared by the Indian business. For example, Maruti Suzukis dividend payout at 12% was low in comparison to the S&P BSE Sensexs median payout at 27%.
In absolute amounts, it paid Rs 282.8 crore as dividends, of which 56% went to its foreign promoter, Suzuki Motor Corporation. In contrast the company paid Rs 2,453.8 crore as royalties to Suzuki.
Making a case for a transparent mechanism to dole out dividends and retaining earnings accrued in a given financial year, IiAS recommends that companies articulate a dividend policy as well as a retention approval as part of their charter documents and enclose timelines for cash utilisation in the company's annual filings.
The advisory firm believes that companies should dividend-out their excess earnings on a yearly basis, post their forecasted capital expenditure, incremental working capital requirements and debt repayments.
Accumulating excess cash and non-core investments on companies books typically lead to lower return ratios and companies with high cash balances tend to have lower balance sheet discipline, said IiAS.
IiAS said the new Companies Act must encourage companies to declare a dividend policy.
Companies should spell out the minimum dividend they will pay-out as a percentage of its earnings, said the IiAS report.
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