Tata Sons war chest swells on TCS dividend

Payout by software arm funding most of the group's investments

A dividend bonanza from India's largest information technology company Tata Consultancy Services will come in handy for Tata Sons as it steps up investment in group companies. In the past three months, Tata Sons received nearly Rs 9,400 crore in dividends from TCS, almost twice its revenue in 2013-14. 

The cash will help Tata Sons fund the acquisition of NTT Docomo's stake in Tata Teleservices, the upcoming rights issue of India Hotels and the investment in its venture with Singapore Airlines. 

The NTT Docomo stake is likely to cost around Rs 7,250 crore and subscription to Indian Hotels' issue at least Rs 250 crore if non-promoters fully subscribe to their portion of shares. India Hotels' plans to raise around Rs 1,000 crore through the issue. Tata-SIA Ltd intends to launch services by September and will need an investment of $100 million (Rs 600 crore) to launch the airline.

Besides, Tata Sons has to repeatedly top up the balance sheets of various unlisted ventures in telecom, retail, broadcasting, financial services and insurance among others. In 2013-14, Tata Sons invested around Rs 2,900 crore in group companies.

 

In the last five years, Tata Sons' incremental investment in group companies has closely tracked its share of dividend income from TCS. The company has cumulatively invested around Rs 18,500 crore in group companies, including unlisted ones, since March 2009.

During the period, it earned around Rs 16,000 crore of dividends from TCS. This excludes TCS' interim dividend in the first quarter of the current financial year.

A higher dividend income also shores up Tata Sons' borrowing capacity. At the end of this March, the company was sitting on cash and equivalents of Rs 6,074 crore, down from around Rs 7,500 crore at the end of 2013-14.

TCS will reward its shareholders with dividends of Rs 8,813 crore in the first quarter against a total pay-out of Rs 6,296 crore in 2013-14. TCS' pay-out includes a special divided of Rs 40 per share worth around around Rs 7,800 crore.

TCS' total dividend outgo in 2014-15 is likely to cross Rs 11,500 crore, given the company's policy of paying quarterly dividends. Historically, the infotech company pays a constant interim dividend every quarter and tops it up with a higher final pay-out in the fourth quarter.

In 2013-14, TCS paid a dividend of Rs 4 per share in the first three quarters followed by a final pay-out of Rs 20 a share in the fourth quarter. 

Tata Sons, which owns 73.7 per cent of TCS, is the biggest beneficiary of this. TCS is one of India's top dividend payers behind Coal India and ahead of ONGC.

Coal India declared a dividend of Rs 8,842 crore in 2012-13 and an interim dividend of Rs 18,317 crore this January.