In spite of losses in FY24, a number of companies have suggested paying dividends, subject to shareholder approval. It's interesting to note that promoters own 20% to 75% of these companies, meaning that in some circumstances, they stand to gain a lot from dividend payments.
Gujarat Alkalies and Chemicals Ltd., Kolte Patil Developers, Mahindra Lifespace Developers, RHI Magnesita India, Shreyas Shipping & Logistics, Hinduja Global Solutions, Bajaj Healthcare, and Arvind Fashions are a few of the loss-making businesses that intend to pay dividends.
Experts clarify that loss-making businesses are able to distribute dividends as long as they generate profits independently. Dividend payments are not specifically restricted under the Companies Act where there are standalone earnings. A Dividend Distribution Policy, on the other hand, governs dividend distribution for the top 1000 listed businesses.
Furthermore, even in the event that the business is losing money, dividends may still be paid from free reserves. Gujarat Alkalies and Chemicals, which had a loss of Rs 132.24 crore in FY24, is a recent example. In spite of this, the business announced a 13.85 rupee dividend per share. Of the Rs 101.71 crore dividend distribution, the promoters, who own around a 46% interest, earned Rs 47 crore.
In a same vein, Kolte Patil Developers declared a dividend of Rs 4 per share while reporting an annual loss of Rs 71.26 crore. Approximately 69.45 percent of the corporation is owned by its promoters. The promoters received Rs 21.11 crore of the Rs 30.21 crore dividend that was given.
A dividend of Rs 41 crore was given by Mahindra Lifespace Developers, of which Rs 21.08 crore represented the promoters' portion. A dividend of Rs 32.56 crore was given by Hinduja Global Solutions, with Rs 22.05 crore going to the promoters.
Regarding legal matters, Makarand Joshi, the founder and CEO of MMJC and Associates, stated that before issuing dividends, loss-making businesses must make sure they are in compliance with all relevant laws.
In addition to the regulatory environment, market players assert that before recommending dividends, companies—both profitable and loss-making—need to take into account factors including expansion plans, market pricing, and geopolitical scenarios that might escalate the cost of administering the firm.
Additionally, companies are free to use profits from prior years to pay dividends, with no upper limit on the amount.
Nevertheless, there are certain limitations on the amount and rate of dividends when they are paid out of general reserves. Either way, distribution of dividends is contingent upon accounting for depreciation and adjusting for any losses realized in prior or current years.
Additionally, if dividends from general reserves are to be distributed, shareholder approval is required. Joshi contrasted this by saying that the board does not require prior shareholder permission to issue dividends supported by income from preceding years as interim dividends.
