Vijay Gurav
Mumbai 12 June

FOR a large chunk of India Inc., it’s time to shed the conservative image and be more generous to shareholders. A spate of bonus announcements from blue-chip companies like ITC, Mahindra and Mahindra (M&M) and Gujarat Ambuja Cement (GAC) seem to be suggesting this. While these fundamentally companies have been paying attractive dividends consistently for the past several years, the fact remains that their shareholders waited for several years – a decade in case of ITC and M&M – to get rewarded with bonuses, which has become quite common these days.

ITC is holding a board meeting on June 17 to consider a bonus issue, while M&M will announce it on June 14. The two companies rewarded their shareholders this way last time in 1994 and 1995, respectively. Recently, GAC announced a bonus issue in the ration of one share for every two shares held. Previously, the cement major issued a liberal 1:1 bonus in 1999.

According to analysts, many companies, especially in the manufacturing sector, have been adopting conservative bonus policies as they believe that regular dividend payments is the best policy to serve shareholder interest. Indeed, there are companies which have not come out with bonuses at all but are still regarded as shareholder-friendly, thanks to their track record of consistent dividend payments, feel analysts.

There is also a category of companies which have been adopting an aggressive policy on both counts, paying huge dividends and doling out liberal bonuses. IT heavy-weight Infosys Technologies is a classic example. The company announced four bonus issues in the past 10 years. It issued a 3:1 bonus and paid a hefty 2,590% dividend last year.

ITC has been paying decent dividends for the past several years. The cigarette major announced a 310% dividend for 2004-05, much higher than 200% in 2003-04 and 135% in 2002-03. GAC paid a dividend of 80% during the year ended June 30, 2004, compared to 70% and 60% during the previous two years. The company already paid an interim dividend of 60% for the current year.

M&M announced a 130% dividend, including 30% special dividend, for 2004-05. The tractor major paid dividends of 90% and 50% during the previous two years. These are fundamentally strong companies with a healthy book value. For instance, ITC posted an EPS (earnings per share) of Rs 88 per share while its book value, which is the net worth divided by number by equity shares, soared to Rs.315 per share in 2004-05. M&M recorded an EPS of Rs.44 and a book value of Rs.172, while, in case of GAC, the figures stood at Rs.21 and Rs.113, respectively.