A massive dividend announced by India's second largest software firm Tata Consultancy Services (TCS) for fiscal year ending March 2015 seems to give much needed financial cushion for the parent company, Tata Sons.
The record dividend payment will help Tata Group chairman Cyrus Mistry to fulfil financial obligations in cash-strapped units of the $103-billion conglomerate.
The Mumbai-based software major TCS handed out a dividend of ₹15,474 crore to its shareholders last fiscal year, replacing state-owned miner Coal India as the highest dividend payer in the country.
Coal India, which has been the top dividend payer for many years in the past, slipped to second place doling out ₹13,075 crore dividend in the fiscal year 2014-15.
Last fiscal year, Tata Sons, which has a stake of 74% stake TCS, was given a dividend ₹11,450 crore, more than twice it earned in the previous fiscal year, 2013-14. The dividend was also slightly more than revenues earned by pharma giant Cipla in FY15.
"A significant part of the dividend income earned by Tata Sons gets re-invested in group companies," a Tata executive told The Economic Times.
The dividend payout is expected to give the much-needed financial boost to Tata Sons, as its big units such as Tata Motors and Indian Hotels Company (IHCL) struggle with losses and fail to pay any dividends.
Consolidated debt of Tata Motors stood at ₹73,610 crore last fiscal year, the highest among the group companies. Tata Steel has a debt of ₹69,000 crore followed Tata Teleservices with ₹35,000 crore.
"Then there are other financial commitments to make, like in Tata Teleservices and Tata Singapore Airlines," the Tata executive added.
With the help of TCS' dividend, Tata Sons will be able to acquire Docomo's share in Tata Teleservices. Tata Sons, which is currently embroiled in legal tussle with Japanese Docomo, may require fresh funds worth about ₹12,000 crore to accomplish business needs in the telecom unit.
Tata's new domestic airline Vistara, formed as a result of joint venture between Tata Sons and Singapore Airlines, is yet to make an impact and it also needs funds to better position itself in the intensifying competition in the aviation industry.
"Although TCS has been the cash cow for Tata Sons, such high dividend (Rs 79 per share) which includes special dividend (of Rs 40) may not come every year," said Jagannadham Thunuguntla, head (fundamental research), Karvy Stock Broking.