TCS set to overtake ONGC in dividend payout

Tech major’s shareholders will receive total dividend of Rs 15,474 crore in FY15

Tata Consultancy Services (TCS), India’s most valuable company, is set to overtake Oil & Natural Gas Corporation (ONGC) as the country’s second-largest dividend-paying company. For FY15, TCS plans to reward its shareholders with dividend of Rs 15,474 crore (Rs 154.74 billion), nearly two and a half times more than its payout a year ago. By comparison, ONGC distributed total dividend of Rs 8,127.7 crore (Rs 81.28 billion) to its shareholders in FY14, unchanged from its payout in the previous year.

To maintain its lead over TCS, the energy major might have to almost double its payout in FY15, which seems challenging, given the recent fall in crude oil prices and its negative impact on ONGC’s revenue and profitability. For the first nine months of FY15, ONGC’s net profit was down 5.7 per cent year-on-year.

In FY14, Coal India Ltd (CIL) was India’s biggest dividend payer, distributing Rs 18,317.5 crore (Rs 183.17 billion) among its shareholders. The coal miner has already paid an interim dividend of Rs 20 a share for FY15, amounting to Rs 12,632.7 crore (Rs 126.33 billion). The company might top the charts again this year if it declares a final dividend of at least Rs 5 a share.

Historically, ONGC has been the biggest dividend payer in India, with an overall payout of Rs 39,141.2 crore (Rs 391.41 billion) in the past five financial years. CIL follows, with a cumulative payout of Rs 38,150 crore (Rs 381.5 billion) for the five financial years ended FY14, excluding its interim payout in FY15. TCS’ payout is growing the fastest, with five-year compounded annual growth of 31.6 per cent; for ONGC, it increased 3.6 per cent.

Tata Sons, which owns 73.9 per cent stake in TCS, will be the single-largest beneficiary of the dividend bonanza from its crown jewel. It will earn Rs 11,435 crore (Rs 114.35 billion) as divided income from TCS, helping it fund the growth plans of other group companies.

“Tata group is in a unique position. While the bulk of the group’s incremental capex and investment is in manufacturing companies such as Tata Steel, Tata Motors, Tata Power and Tata Chemicals, it is TCS that is generating the bulk of the group’s free cash flow. Given this, dividend income from TCS plays a major role in Tata Sons’ funding plans for various listed and unlisted group companies,” said an analyst on condition of anonymity.

Tata Motors has just launched an Rs 7,500-crore (Rs 75 billion) rights issue. Tata Sons’ share in this is Rs 1,924 crore (Rs 19.24 billion), based on its 25.66 per cent stake in the automaker. It could be higher if other shareholders fail to subscribe to their part of the issue and the promoters decide to pick up that part, as was the case during the company’s 2008 rights issue.

Last year, Tata Power raised Rs 2,000 crore (Rs 20 billion) through a rights issue. Of this, Rs 607 crore (Rs 6.07 billion) came from Tata Sons, based on its 29.8 per cent stake in the company on the eve of the issue. Prior to that, Tata Steel and Indian Hotels raised equity capital, either through a rights issue or preferential allotments of warrants and shares to promoters.

Besides aiding the listed companies, Tata Sons is also funding various loss-making or cash-hungry unlisted companies in emerging sectors such as telecom (Tata Tele Services) retail (Infiniti Retail), financial services (Tata Capital), broadcasting (Tata Sky) and real estate (Tata Housing).

Cumulatively, Tata Sons has invested about Rs 16,000 crore in various Tata Group companies during the five years ended March 2014. About three quarters of the incremental investment came from Tata Sons’ own earnings, while only a quarter was funded through fresh borrowings. In the past five years, dividend income from TCS accounted for 55-60 per cent of Tata Sons’ revenue.

At the end of March 2014, Tata Sons had investments in 14 listed and 35 unlisted companies, with total investment of about Rs 42,500 crore (Rs 425 billion), against Rs 26,500 crore (Rs 265 billion) at the end of FY09. Tata Sons’ portfolio of businesses would grow further if TCS maintains its financial performance and remains generous in terms of dividend.