CONSERVING CASH AMID SLOWDOWN

Wary India Inc to Cut Payouts

Some cos have trimmed interim dividends post Q3 to protect bottom line

Keen to conserve cash in an economic slowdown, Indian corporates are likely to slash interim dividends further this year. Interim dividends are the payouts to shareholders announced in the period between two annual results.
An ETIG analysis of interim dividends paid by Indian corporates over the last eight quarters shows that after increasing dividend payouts through 2012, companies started cutting them after the December 2012 quarter results. Although state-owned companies reported higher payouts, many private firms trimmed them, as focus on protecting corporate bottom lines increased.
The number of private companies that announced interim dividends in the January to March quarter declined to 94, compared with 116 for the same period last year. The aggregate of interim dividends declared during the period was . 2,852. The aggregate number was down by 23% when compared with . 3,704 crore ayear ago. This is in stark contrast to the trend in the period from June to December 2012, when the total interim dividends paid out by private sector firms rose 36.6% to . 8,235 crore year on year.
The analysis is based on data of 1,593 listed companies, which have announced at least one dividend in the last eight quarters. Analysts Expect Further Fall in Interim Dividends 
The dividend announced along with the year-end results is considered the final dividend; any other dividend is treated as interim dividend.
Analysts expect further fall in the amount of interim dividends. “An improvement in dividend payouts is unlikely in the near term unless there is a significant improvement in the liquidity situation,” Vikram Dhawan of Equentis, an investment company, said. Reduced interim dividend is a direct fallout of the economic slowdown, he said. “Overall, the EPS growth and EBIDTA margins of Indian corporates have been subdued and, due to very tight liquidity, there is a tendency towards shoring up balance sheets. Cash is king for now.”
The analysis shows 50 companies did away with interim dividends during the period, including Sesa Goa, United Phosphorous, Polaris Financial Technologies and Torrent Power; all these companies had paid an interim dividend a year ago. Against this, 26 companies such as Aurobindo Pharma, JM Financials, DCM Shriram Consolidated, OCL, India Glycols and Eros International announced interim dividends for the first time during the period.
State-owned companies raised their interim dividends by over 25% to . 18,298 crore after the December 2012 results from . 14,580 crore a year ago. This may have been to help the dominant shareholder — the government, which is struggling to contain its fiscal deficit — boost its non-tax revenues. In the June-December 2012 period, the interim dividends paid by these companies had fallen 9.7% from a year ago to . 5,732 crore.
Does this make PSU stocks more attractive for retail investors? “Not necessarily,” says G Chokkalingam, executive director, Centrum Wealth Management. “Investors shouldn’t buy them for the sake of higher dividend payout alone. They have to be selective in terms of the future prospects of such dividend yields,” he says. The BSE PSU index has lost over 13% so far in 2013, against the 3.6% drop in the BSE Sensex.
According to Chokkalingam, a secular reduction in interest rates will significantly help improve corporate profits from the third quarter of FY14 onwards. “A base effect, along with lower global growth in 2013, which will bring down commodity prices, will help moderate headline inflation. The risk could be any possible failure of the monsoon,” he said.