Tata Sons sees dividend income rise 4.2% in FY18

Tata group holding company Tata Sons saw its dividend income go up by 4.2 per cent to ~75.69 billion in 2017-18. It was ~72.62 billion in the previous financial year, according to the company’s filings on the Ministry of Corporate Affairs website.

The firm also made substantial income last year through profit on sale and redemption of investments worth ~95.54 billion. “The profit on sale of investment comprised mainly sale of long-term investment held by the company in Tata Consultancy Services (TCS), amounting to ~89.29 billion,” company documents stated. There was also a marginal increase in the income received through brand equity subscription.

Brand equity subscription is the royalty Tata Sons charges group companies to use the Tata name. This increased 5.45 per cent from ~5.32 billion in 2016-17 to ~5.61 billion in 2017-18.

A drop in dividend income from operating companies to Tata Sons was cited as one of the key reasons by Tata Trusts for the sudden removal of Cyrus Mistry from the position of Tata Sons’ chairman in October 2016. The dividend earned from investments had dipped to ~66.3 billion in 2015-16, down 43.3 per cent from ~117 billion in the previous year.

The trusts which control 65.29 per cent in Tata Sons are dependent on dividends on shares it holds in the company for their philanthropic activities. Tata Sons can pay higher dividend to the trusts only if they earn more dividend income from operating companies. Tata Sons’ dividend income has risen for two years in a row.

On a consolidated basis, Tata Sons posted a 14 per cent rise in total revenue to ~1,969.03 billion in the year ended March 2018 from ~1,731.78 billion in the previous year. Profit after tax declined to ~43.79 billon from ~184.32 billion, a fall of 76 per cent.

TCS has been a major contributor to the company, as has previously been noted by rating agencies. Rating agency ICRA noted in its February 2018 report that TCS accounted for over 90 per cent of the dividend income in 2016-17 and most of the group’s total market capitalisation. “However, robust business and financial position of TCS provides comfort,” it said.

Tata Sons, in turn, has declared dividends worth ~3.2 billion to its shareholders. It paid an additional dividend of ~219.9 million on preference shares. Its shareholders include Sir Dorabji Tata Trust and the Sir Ratan Tata Trust, among others.

For Tata Sons chairman N Chandrasekaran, FY18 was his first full year as Tata Sons chairman. Chandra, who took the corner office in February 2017, earned a total compensation of ~551.1 million as remuneration. Icra noted in its report that Tata Sons had higher investment plans than in the past, including on account of support to Tata Teleservices. This is likely to increase debt levels in the near term, according to the rating agency. “Icra, however, continues to draw comfort from the favourable risk profile and liquidity position of the company and expects it to limit its leveraging to prudent levels by effecting sale of some of its investments, should the need arise,” it said.

The company filings noted that it had written off ~286.5 billion in Tata Teleservices. It also added that the aggregate borrowings of the company was up at ~274.5 billion compared to ~203.9 billion at the end of the previous year.