Bharti Airtel, Adani Ports among 21 lossmaking companies to pay dividend

Despite making losses in FY23, some companies have recommended paying dividends, a matter that is subject to approval from shareholders. The promoter holding in these companies ranges from 33 percent to 75 percent, which means they will be the major beneficiaries of the dividend payments.

At least 21 companies that posted a net loss on a standalone basis in FY23 have declared dividend payments, a Moneycontrol analysis showed. Some of these companies have made a profit on a consolidated level because their subsidiaries posted positive earnings.

According to Makarand Joshi, founding partner of MMJC & Associates, a corporate compliance firm, dividends must be paid based on a company’s standalone profits

Among the lossmaking companies are Bharti Airtel, which announced a dividend of 100 percent on the face value of each Rs 5 share, and Adani Ports and Special Economic Zone, which declared a dividend of 250 percent on the face value of its Rs 2 share.

Sunteck Realty and Bombay Burmah Trading Corp plan to pay dividends of 150 percent and 60 percent, respectively. Other companies announced dividend payments ranging from 5 percent to 250 percent.

Airtel, Adani promoters

In absolute terms, Bharti Airtel and Adani Ports & SEZ announced a total dividend pay-out of about Rs 2,984 crore and Rs 1,080 crore, respectively.

In Bharti Airtel, the promoters hold a 55-percent stake and they will get Rs 1,642 crore. The Adani Ports & SEZ promoters, with a 61.03-percent stake, stand to receive Rs 659.16 crore as dividend.

Emails sent to Bharti Airtel and Adani Ports & SEZ remained unanswered.

Sunteck Realty and Bombay Burmah Trading announced a total dividend of Rs 22 crore and Rs 8.4 crore, and their promoters will get Rs 14.77 crore and Rs 5.52 crore, respectively.

RHI Magnesita India and Entertainment Network India have announced a total dividend of Rs 47 crore and 4.77 crore, and their promoters will get Rs 28.25 crore and Rs 3.4 crore, respectively.

Joshi said paying a dividend is a way of returning profit to the shareholders. The Companies Act allows payment of dividend from free reserves even if the company has made a loss. Such payments are subject to restrictions on the amount that can be distributed as dividend.

Companies can also pay dividends from the profit of previous years and from general reserves. If companies pay a dividend from a previous year’s profit, there is no limit on the amount.

If a dividend is paid out of general reserves, there are restrictions on the amount as well as the rate of dividend. In both cases, depreciation must be provided for and losses, if any in the current or previous years, must be adjusted before distributing dividend.

Prior approval

Prior approval of shareholders is mandatory if dividend is declared out of general reserves, but dividend out of a previous year’s profit can be declared by the board on its own as interim dividend, Joshi added.

The decision to pay dividends must be taken after considering factors including the company’s expansion plans. The regulator has mandated the top 1,000 listed companies to frame a dividend distribution policy to bring certainty in dividend payments. Proxy advisors have raised concerns when there is inconsistency in dividend distribution.

“It is being seen that a dividend is declared by certain companies to provide income for cash-strapped promoters or group companies. Also, this shows inconsistency in quantum and timing of dividend. It needs to be highlighted here that excessive dividend distribution might eventually lead to erosion of net worth,” Joshi said.