Tata Sons doled out hefty dividends even as profit fell

The directors of Tata Sons may be concerned with the financial health of the company but the shareholders — trusts controlled by the Tatas — should be happy, if the dividends doled out by the company are anything to go by.

Tata Sons in a statement on Thursday, highlighted that the dividend income steadily declined even as expenses continued to rise. The directors of Tata Sons are primarily concerned with the results of Tata Sons and their duty to all its shareholders, particularly, the Tata Trusts, who hold 66% of the equity capital.

Interestingly, the two main trusts controlling Tata Sons – Sir Dorabji Tata Trust and Sir Ratan Tata Trust – saw their dividend income more than double from Rs.166.62 crore in 2014-15 to Rs.499.87 crore in 2015-16, as per the company’s filings with the Registrar of Companies.

The total dividend paid to shareholders of Tata Sons amounted to Rs.805.15 crore in 2015-16, much higher than Rs.267.69 crore paid in the previous financial year. Mr. Mistry became the chairman of Tata Sons in December 2012. Details of the dividends paid in the earlier years could not be ascertained.

Even Mr. Mistry, by virtue of his holding in Tata Sons through Cyrus Investments Pvt Ltd and Sterling Investment Corporation, saw his dividend income rise from Rs.59.40 crore to Rs.178.18 crore between 2014-15 and 2015-16.

While the trusts controlled by the Tata family collectively hold nearly 66 per cent stake in Tata Sons, Mr Mistry has a stake of 18.38 per cent through the two investment entities.

Special dividend

As per its RoC filings, Tata Sons announced a 800 per cent dividend on the equity shares of the company in 2015-16. While the quantum of ordinary dividend was the same as that of previous financial year, a special dividend of 800 per cent was declared as well in 2014-15. The special dividend payout amounted to Rs.5,774 crore, as per the filings. The dividend received by the company from Tata Consultancy Services, however, nearly halved from Rs.10,854.57 crore in 2014-15 to Rs.5,845.98 crore in 2015-16.

Tata Sons, in its Thursday’s statement, has said that dividends received from as many as 40 entities declined from Rs.1,000 crore in 2012-13 to Rs.780 crore in 2015-16. It has, however, excluded the dividends received from TCS saying “Mr. Mistry does not really contribute materially to TCS’s management and TCS has needed no funds from Tata Sons for its growth.”

The statement adds that the fall in dividends “surely reflects the decline in the total profits of those operating companies from which dividends are paid during the last four years.” As per the RoC filings of Tata Sons, the dividend is used to “augment the resources of the company to make long-term investments in its promoted companies.”

The hefty dividend payouts also seem to have impacted the standalone profit of Tata Sons. Between 2015-16 and 2014-15, the net profit fell nearly 67 per cent from Rs.9,062.05 crore to Rs.3,013.11 crore. On a consolidated basis, though, the profit rose from Rs.19,180 crore to Rs.23,119 crore between 2014-15 and 2015-16.

Tata Sons’s contribution to Progressive Electoral Trust fell to zero in 2015-16 from Rs.4.74 crore in 2014-15. Progressive Electoral Trust has been formed by the Tata Group for the purposes of political funding. Board members and directors like Ronendra Sen, Farida Khambata, Ishaat Hussain, Vijay Singh and Nitin Nohria were being paid Rs.1.30 crore a year as commision.

“While prima facie the commission paid to the directors may look somewhat higher, I think it would be wrong to correlate the quantum of commission with the sacking of Mr. Mistry from the board,” Amit Tandon, MD, IiAS, a proxy advisory firm said.