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Drop in profits was no barrier to dividend payments by companies last year.
India Ratings & Research (Ind-Ra) says that several BSE 500 corporates (excluding banks and financial services companies) adopted an aggressive dividend payment strategy in 2013, despite a reduction in their net profit.
In a report released today, the rating agency expects 419 of the BSE 500 corporates to pay an aggregate dividend of between 1 to 1.2 lakh crore in FY'14 and avail aggregate debt of Rs 18,000-20,000 crore for the same.
The agency estimates that the 419 corporates availed themselves of Rs 9,180 crore of debt in FY'13 to fund the aggregate dividend payment of Rs 1,04,900 crore.
Dividend payment trend
The trend of dividend payment behaviour over FY'09-FY'13 suggests that in most instances, cash flow from operations was adequate and instances of debt requirement declined steadily from FY'11-FY'13.
However, the total quantum of debt needed increased sharply in FY'13 (after declining in FY'12) due to an increase in dividend payments and a reduction in profit after tax (PAT).
The agency draws attention to the case of 12 private corporates with high leverage above 5.0x, which could have borrowed an estimated Rs 2,770 crore to pay dividend.
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