Higher royalties, lower dividends

Updated: Dec 08, 2014 2:58 PM

Companies listed on the Indian bourses that pay hefty amounts of royalty to their parent entities, pay comparatively much lesser...

Companies listed on the Indian bourses that pay hefty amounts of royalty to their parent entities, pay comparatively much lesser by way of dividend to shareholders other than the promoters, a recent report by proxy advisory firm Institutional Investor Advisory Services (IIAS) shows.

“We believe that as the foreign parent takes money by way of royalty, they are less sensitive to the amount of dividend declared by the Indian business,” the report states. For instance, Maruti Suzuki’s dividend payout is 12% of its net profit, which is less than half of the median payout ratio of 27% for the 30 companies listed on the S&P BSE Sensex combined. In contrast, the royalty paid by India’s largest car maker to its Japanese parent stood at 103% of its net profit.

The report also states that at least 77 companies, which are a part of the S&P BSE 500, have the ability to pay higher dividends than what they pay now. “The incremental dividend from these companies alone could aggregate almost R36,000 crore,” the report states, adding this was almost twice the amount these companies actually paid in FY13.

Money

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