Return gift: PSUs lead in dividend payments

Feb 28, 2007
Ashish Rukhaiyar
MUMBAI

PUBLIC sector undertakings (PSU) have been in the line of fire of the finance minister, who has slammed the entities for sitting on huge cash reserves and being stingy when it comes to paying dividend to the exchequer. However, the fact is, traditionally, PSUs have been paying higher dividend compared to the other listed entities.

In the last six fiscals (1999-2000 to 2005-06), on an average, PSUs have paid a dividend of 31.21% of their total net profit, which is higher than the overall average of 29.84%. In 2005-06, PSUs distributed nearly 34% of their net profit as dividends while for the rest of the companies, this was pegged at less than 29%.

Earlier, in 2003-04 and 2004-05, other listed companies paid dividends of 27.98% and 28.25% respectively of their net profit. PSUs, on the other hand, paid dividends amounting to 31.87% and 33.66% in 2003-04 and 2004-05, respectively.

The Navratna PSUs have been all the more liberal in paying dividends to their shareholders, including the government. The mighty entities, on an average, have paid dividends of nearly 32% of their net profit in the last six fiscals.

In 2005-06, their dividend payout stood at Rs 12,656.25 crore, or nearly 37% of their total net profit. On a more important note, their dividend pay-out has been on a steady rise since 1999-2000. Only in 2003-04, it witnessed a marginal dip when the payout stood at 30.39% of the net profit.

Interestingly, market participants opine that the government should act as a prudent shareholder and not demand more than necessary dividends from the PSUs, including the cash-rich ones.

They further add that a higher demand on the PSUs will lead to other investors moving away from such companies which will, in turn, affect the government itself as there will no quality takers when a further dilution is being planned.

“It is true that the market will attach a premium to such high dividend paymasters. However, it will also discount the government and management relations wherein the former forces the latter to pay a higher dividend. Take the case of oil companies. The government wants to make money by getting more dividends but, at the same time, does not allow the companies to hike prices. Although the government may be able to rein in fiscal deficit by extracting higher dividends from PSUs, the affected entities will be left bleeding,” said a research head at a domestic brokerage on condition of anonymity.

If the government wants more dividends, a higher level of autonomy should also be granted, he added. In a similar context, KRIS director Arun Kejriwal says, “Traditionally, PSUs have been good dividend paymasters. It is not proper on the government’s part to ask for more and more dividend from the entities just to meet its fiscal expenditure.”