Reliance Industries' dividend payout no bonanza for shareholders

Suman Layak

Reliance Industries board has recommended a dividend of 85 per cent on a share of Rs 10. That means every share earns Rs 8.50, for the year, the share having closed at Rs 731.45 on Friday, April 20, before the results were announced. The share had hit its yearly high exactly one year back on April 21, 2011 when it was at Rs 1044.00.

The company will pay out Rs 2,941 crore as dividend for the year 2011-12. The company has also bought back 36.63 lakh shares equity shares during the financial year. It would have paid a maximum of Rs 318 crore, but has definitely paid a lot less as average market price would have been lower than that. That means, in 2011-12, the company has paid its shareholders around Rs 3,200 crore.

RIL's net profit has dipped by 1.2 per cent this year. Even then, it has earned a net profit of Rs 20,040 crore for the financial year 2011-12. In 2010-11 it had earned Rs 20,286 crore. As a percentage of the net profit, the divided payout is only 14.4 per cent. The quarterly net profit of RIL has fallen 21 per cent this time. This is the second quarter that RIL's profits have declined - both when compared to the preceding quarter as well as the corresponding quarter of the earlier year.

Its total payout to shareholders including the buyback is only 15.9 per cent.

What is the cash that the company is sitting on? The statements show cash and bank balance and current investments add up to Rs 66,627 crore. This cash pile largely responsible for the company reporting 'other income' of Rs 2295 crore in the last quarter of 2011-12. The total other income for the year stands at Rs 6192 crore.

It seems RIL is not even paying out what it is earning out of its cash pile to its shareholders. It can right away double its payout without touching its profits generated out of operations.

Obviously, the company management continues to look at itself as a company banking on rapid growth and not a mature business that can provide good and steady dividend income for its shareholders. It has become clear that the share buyback was also planned as a stock price-management tool and not as a way of paying back something to the shareholders.

Therefore, RIL shareholders will have to continue to bank on the hope that the company's share price will provide its own reward.

*An earlier version of this article incorrectly said RIL's yearlyprofit had dipped by 17 per cent. The correct figure is 1.2 per cent.