A study by proxy advisory firm, IiAS has identified 75 companies with large cash holdings which can return Rs 1.1 lakh crore to shareholders in the form of dividends or buybacks.
A study by proxy advisory firm, Institutional Investor Advisory Services (IiAS) has identified 75 companies with large cash holdings which can return Rs 1.1 lakh crore to shareholders in the form of dividends or buybacks.
Based on FY18 financial statements of the BSE 500 companies, the study has identified 75 companies that can distribute about half of their on-balance-sheet cash (including cash equivalents) to shareholders, as dividends or buybacks. The cash available for distribution approximates one year’s profit after tax for these companies.
The Rs 1.1 lakh crore equals the aggregate post-tax profits reported by these companies and is in addition to the Rs 62,100 crore paid out as FY18 dividend by these companies last year.
The study poses a question on how much cash is enough as the excessive cash on balance sheets resulted in markets regulator, Sebi mandating the top 500 companies to formally declare a dividend policy. As per FY18 financials, the value of on-balance-sheet cash and cash equivalents of BSE 500 companies aggregated Rs 8.3 lakh crore.
The study says that the excess cash, if distributed by these 75 companies, translates to a median dividend yield to 5.2%, significantly higher than the current 1.4%. There are five companies where the excess cash translates into an additional dividend yield of more than 15%. These include Indian Energy Exchange, MOIL, Multi Commodity Exchange, Bharat Heavy Electricals and Godfrey Philips.
The 75 companies can return a median of 49% of their total cash and cash equivalents to their shareholders. There are nine companies that can distribute over 75% of their March 2018 on-balance-sheet cash: These include Abbott India, Symphony, Lal Pathlabs, Bajaj Consumer Care, Godfrey Phillips, Honeywell Automation, Bata India, Pfizer and Hindustan Zinc.
Of the 75 companies, just five companies aggregate over 50% of the total incremental distributable cash of Rs 1.1 lakh crore. These are Hindustan Zinc, ITC, Wipro, TCS and Bajaj Auto, according to the IiAS study.