Dalal Street Likely to See a Flurry of Share Buy­backs

Cash-rich com­pa­nies look to re­turn money to in­vestors af­ter govern­ment im­posed 10% tax on div­i­dend of more than .₹ 10 lakh in Bud­get; Wipro sets the ball rolling

The Economic Times - - Companies: Pursuit Of Profit - Rajesh.Mas­caren­has @times­group.com

Mum­bai: In­vestors can ex­pect a flurry of share buy­backs in the months ahead from cash-rich com­pa­nies look­ing to re­turn some of that money to share­hold­ers. This fol­lows the Fe­bru­ary 29 Bud­get im­pos­ing a 10% tax on div­i­dend of more than .₹ 10 lakh per year. Wipro an­nounced a buy­back on Wed­nes­day, the first com­pany to have done so since April1. Buy­backs are an­other way of giv­ing back cash to in­vestors.

“Con­sid­er­ing the three lev­els of tax­a­tion — cor­po­rate tax, div­i­dend dis­tri­bu­tion tax by com­pa­nies and 10% tax on div­i­dend in ex­cess of .₹ 10 lakh in the hands of the re­cip­i­ents — com­pa­nies are likely to cut down on div­i­dend dis­tri­bu­tion and go for buy-

RE­TURN RA­TIOS

15,474 5,625 5,010 3,245 2,964 2,944 2,899 2,386 2,362 2,082 2,005 1,859 1,687 1,539 1,511 1,447 45,221 2,948 29,934 3,508 34,128 212,923 79,262 19,125 30,655 16,070 61,508 42,508 35,176 76,274 36,899 10,403 In­fosys, ICICI Bank, Tata Con­sul­tancy Ser­vices, HDFC Bank, Bharti Air­tel, Cairn and Vedanta have paid be­tween .₹ 1,000 crore and .₹ 5,000 crore as div­i­dends in FY15. Not ev­ery com­pany is ex­pected to get on the buy­back band­wagon.

“Buy­back trend may get trac­tion go­ing for­ward due to tax ef­fi­ciency, but those who want to main­tain the div­i­dend pay­out his­tory may stick to pay­ing div­i­dend,” said Sau­rabh Mukher­jea, CEO, In­sti­tu­tional Eq­ui­ties, Am­bit Cap­i­tal. For in­vestors re­ceiv­ing div­i­dend in ex­cess of .₹ 10 lakh per an­num, the Bud­get pro­posed tax at the rate of 10% of the gross amount in ad­di­tion to div­i­dend dis­tri­bu­tion tax.

“In the near term, I feel only those com­pa­nies in which pro­mot­ers have sub­stan­tial stake in their per­sonal names and have failed to an­nounce the div­i­dend be­fore March 31, could go for buy­backs,” said Nilesh Shah, CEO, Ko­tak MF. The best ex­am­ple of the prac­tice of re­turn­ing money to share­hold­ers through buy­backs is War­ren Buf­fet’s Berk­shire Hath­away, which has not paid div­i­dends since 1967. But it main­tains an ag­gres­sive stock buy­back pol­icy that puts cash di­rectly into share­hold­ers’ pock­ets.

Div­i­dend Paid Re­serves Cash & Bank Bal­ance 16,503 3,015 7,589 2,538 15,668 11,571 42,305 8,829 3,365 888 36,331 3,532 365 389 1,516 586

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