TCS accounted for 95% of Tata Sons’ dividend
Tata Sons, the holding and the promoter company of the Tata group, continues to remain dependent on Tata Consultancy Services to fund the investment and growth of other firms of the conglomerate.
In FY19, TCS accounted for 95 per cent of Tata Sons’ dividend from the listed companies in the bailiwick, the same as it was a year ago, but an increase over five years earlier.
In FY14, the software major, in which Tata Sons owns 72 per cent, accounted for 85 per cent of the group coffers (see the adjoining chart).
The holding company is estimated to have earned nearly ~19,600 crore as equity dividend and share buyback from TCS in the last financial year, up from around ~18,600 crore in the previous one.
Other listed companies in the group paid a combined equity dividend of ~1,010 crore to Tata Sons in FY18, up from ~901 crore a year before.
The analysis is based on the dividend payout at the end of the financial year and Tata Sons’ equity holding in various group companies beginning FY05.
Analysts say TCS is central to the financial health of Tata Sons and the group at the consolidated level.
“Most of the group companies except TCS and Titan Company (Titan Industries earlier) have struggled financially and operationally after the global financial crisis of 2008. Tata Sons has used its share of dividend income from TCS to provide equity support to other group companies and even diversify into newer sectors,” says G Chokkalingam, founder and managing director, Equinomics Research & Advisory Services.
It shows in the numbers. Growth in Tata Sons’ balance sheet and its equity investment in other group companies including unlisted subsidiaries and joint ventures has increased in step with its dividend income from TCS.
For example, in the last five years, Tata Sons made incremental equity investments of around ~30,000 crore in group companies, including unlisted ventures in telecom, broadcasting, retail, housing, and infrastructure.
The holding company also repaid in June last year the debt of ~50,000 crore its telecom subsidiary Tata Teleservices had.
Tata Sons’ dividend from Tata Consultancy Services, with small contributions from incremental borrowings, largely funded it. In the last five years, Tata Sons has cumulatively earned around ~62,500 crore as equity dividend, including proceeds from share buybacks.
In the same period, the borrowings of Tata Sons were up around ~14,500 crore. In comparison, other listed group companies paid an equity dividend of just ~3,800 crore to the holding company.
Cumulatively, TCS has contributed nearly ~83,000 crore to Tata Sons’ coffers since its listing in 2004 by way of dividend and share buybacks, accounting for nearly 90 per cent of Tata Sons’ cumulative dividend during the period. Analysts say a good showing by TCS has allowed Tata Sons and the group to maintain their pace of investment despite little or no contribution from big companies such as Tata Motors, Tata Steel, Tata Power, and Tata Chemicals.
For example, Tata Motors, the group biggest company in terms of revenue and assets, has skipped dividend for three years in a row. In the case of other group companies, dividend payout has remained either stagnant or grown marginally since the 2008 Lehman crisis.
For example, Tata Steel’s contribution to the group by way of equity dividend has gone up at a compound annual growth rate of 3.8 per cent in the last 10 years. Tata Sons got around ~495 crore as equity dividend from Tata Steel the last financial year, up from ~342 crore in FY09. Dividend payout by Tata Power and Tata Chemicals has been stagnant for the past five years.
Titan maintained double digit growth in dividend payout on a year-on-year basis but with an annual payout of ~444 crore in the last financial year, the amount is too small to move the needle at the group level.
Tata Sons’ dividend from TCS has found its way into the balance sheet of group companies such as Tata Motors, Tata Steel, Tata Power, and Indian Hotels by way of rights issues or issues of preference shares.