Despite making losses in fiscal 2022, several firms have recommended paying dividends. The payment of dividend is subject to approval from shareholders.
The promoters’ stake in these firms are between 38 per cent and 73 percent, which means that promoters are the major beneficiaries of the payouts.
At least 11 companies that posted net losses in fiscal 2022 on a standalone basis have declared dividends, a Moneycontrol analysis shows. Some of these firms, though, made a profit on the consolidated levels as some of their subsidiaries posted positive earnings.
Even though the Companies Act mandates that listed firms report consolidated earnings, for paying dividends it directs that standalone results be to considered. The Companies Act allows firms to pay dividends either out of the current year’s profit or out of previous years’ profits that are on the books, said Makarand Joshi, founding partner, MMJC and Associates, a corporate compliance firm.
Loss-making companies can pay dividends out of profits that are carried forward to reserves. However, there are certain restrictions. For instance, it states that the dividend should not be more than the last three years’ average and also stipulates how much it can draw from reserves, etc, Joshi said.
Among the loss-making firms, Bharti Airtel announced a dividend of 60 percent per share of Rs 5 face value, and Lupin a dividend of 200 percent per share of Rs 2 face value. Raymond and Indian Hotels plan to pay dividends of 30 percent and 40 percent, while the rest announced dividends between 1 percent and 200 percent.
In absolute terms, Bharti Airtel and Lupin announced a total dividend payout of Rs 1,765 crore and Rs 182 crore, respectively. Promoters hold a 56 percent stake in Bharti Airtel. So out of Rs 1,765 crore, promoters will get Rs 987 crore. Lupin’s promoters, with around 47 percent ownership, will get Rs 85 crore out of the total dividend.
Emails sent to Bharti Airtel, Lupin and Indian Hotels remained unanswered.
Raymond and Indian Hotels announced total dividend payouts of Rs 20 crore and Rs 57 crore, where the promoters will get Rs 10 crore and Rs 22 crore, respectively.
Novartis India and JMC Projects India planned dividends of Rs 25 crore and Rs 17 crore, of which the promoters will get Rs 18 crore and Rs 12 crore, respectively. Other firms have planned dividend payouts between Rs 3 lakh and Rs 13 crore.
According to the Companies Act, if a company pays dividend out of previous years’ profits which are in the profit and loss account or if a company pays dividend out of profits transferred to general reserves subject to conditions no -party approval is required, all it takes is for the board of directors to okay the proposal.
If a company wants to pay out of capital, it can do so with the approval of the National Company Law Tribunal, the act says.
Such provisions are made to put a curb on how much a loss-making firm can award dividends to its shareholders, Joshi added.
As of fiscal year 2021, Bharti Airtel’s consolidated reserves and surplus stood at Rs 56,119 crore, Lupin’s at Rs 13,523 crore, Indian Hotels’ at Rs 3,530 crore and Raymond’s at Rs 2,030 crore.
These 11 firms also have elevated levels of debt. Bharti Airtel had consolidated debt of over Rs 1.7 lakh crore as of March 2022 and Lupin Rs 4,158.38 crore. Indian Hotels had debt of Rs 3,888 crore while Raymond’s debt was at Rs 2,327 crore, according to Bloomberg.
