PSU DIVIDEND PAYOUT - NEEDS A CORRECTION

By Ruma Dubey

The Govt falls short of money? No problem. Arm twist the PSU companies, especially those with a healthy balance sheet to declare crazy, illogical percentage of dividends.

This is how it has always been. In FY15, the  Govt collected Rs.88,781 crore as dividend from its PSU companies. And the target for the current fiscal is Rs 1,00,651 crore – of which Rs.36,174 crore will come from PSU companies and balance Rs.64,477 crore from banks, financial institutions and RBI.

The rule is that all profit making PSUs HAVE to declare at least a minimum of 20% dividend on post-tax profit or minimum dividend on equity of 20% - whichever is higher. Not surprisingly, dividend income is the Govt’s largest contributor under the non-tax revenue.

What is bothersome is that the Govt almost always arm twists cash-PSUs to declare interim dividends, irrespective of whether they can afford it or not. There have always been a lot of voices of discontent, stating that diverting precious cash to pay off dividend would mean lesser money for future capex. Well, that might not be entirely true as many of these companies are sitting on cash piles, huge enough to pay the dividend and still carry on with capex plans. Like Coal India, which declared a hefty interim dividend of Rs.20.70/share for FY15. The total outgo from the company was Rs.13075 crore of which Government of India which held 79.65% (at that time) of company’s shares received Rs.10,414 crore. In addition, Govt also got dividend distribution tax of Rs.2526 crore from CIL and its subsidiaries, thus making the total inflow to the Govt at a jaw dropping Rs.12,940 crore. It is one of the highest contributors to the government ex-chequer in the country both - federal and state governments. Coal India paid a corporate tax of Rs.9572 crore to Govt in FY15,  one of the highest cash payouts among the Indian corporate sector. Coal India and its subsidiaries have also paid/adjusted Rs.21,482 crore towards Royalty, Cess, Sales Tax and other levies. But doesn’t this seriously dent that company’s cash balance, which stood at Rs.53,092 crore? Instead of the earlier plan of raking in money through a 10% divestment, it had to actually disburse money; it paid a price for the Govt’s fallacies. As such Coal India is facing severe coal linkage issues and has not been to scale up production at all. And if the Govt dips into the company like this, what is the future of this company?

Then there is BHEL. For FY15, it declared a dividend of Rs.0.62/share and an interim dividend of Rs.0.54/share, an outgo of Rs.284 crore. Thankfully, this is down from Rs.693 crore it had paid in FY14. And the dividend tax was at Rs.57 crore. This does not seem like a lot after Coal India but the fact is that in FY15, its net profit slipped 59% and cash balance was at Rs.9813 crore, down 17% (YoY). Given the consistently poor performance, payments not coming in from clients, fears of rising negative cash flows; was it prudent to strip BHEL of its precious cash? It is not about just these two PSUs – the story is the same for all cash-rich PSUs.

Thus under these circumstances, it was great to see RBI give the PSU banks at least a nudge – asking them to concentrate on their own capex instead of paying higher dividend to the Govt. That’s great advice but what about the Govt? Will it stop expecting more dividend payouts even when logically it makes no sense for the dividend paying PSUs? RBI is making the banks realise that they are independent organisations and they too need to follow what is right and what the Govt wants.

At this juncture, even the private sector is sitting tight on money as the environment is not conducive to new investments. Does that mean it will pander away the money earned? Surely in a year or two, when investment climate improves, these companies will use the cash to expand their asset base and expand. And it is in such growth that the future success of a company lies. Will the Govt take away that opportunity too? And frankly, if PSUs are run like personal empires, why should people like me and you invest at all in PSUs? If earlier the assurance was that it was a Govt owned company, today the very same reason has become a risk factor!