The maker of Tanishq branded jewellery announced a final dividend of Rs 4 per share along with its March quarter and full year earnings. The dividend payout is 40 per cent of the company’s net income, and highest ever, but only optically so.
Titan had announced a similar dividend for the financial year ending March 2020. However, because of the 42 per cent drop in the company’s net profit in 2019-20, the dividend payout ratio appeared substantially higher.
“As a shareholder I am sorely, sorely disappointed. I don’t know what are you going to do with the cash,” Jhunjhunwala said.
The veteran investor, who called Titan his most successful stock bet till date, argued that the company had Rs 3,000 crore on its books, and with its revenues holding firm, it could have paid out a higher dividend to investors.
“You know, you are taking a cash call. And what are you going to use it for? The sales, you yourself are saying, are good. So I don’t understand the reason why the honourable board has decided to prune the dividends,” Jhunjhunwala said.
Jhunjhunwala along with his wife Rekha Jhunjhunwala held 5.1 per cent stake in the jewellery maker, according to the latest shareholding pattern of the company. Jhunjhunwala pruned his holding in the March quarter to an 18-year low from 5.3 per cent at the end of December quarter.
The Titan management defended its action by saying that it had made the highest dividend payout in its history for 2020-21, and that it had not thought it was pruning the dividend. The company also said that it would soon announce a formal dividend distribution policy of 25-40 per cent of net profit on the company’s website.
Jhunjhunwala retorted to the proposed dividend distribution policy, by suggesting that the payout was still ‘miserly’ for a cash-generating business like Titan’s.
The company management defended its position of holding cash as a safety net for any future policy reversal by RBI on the gold-on-lease format. However, Jhunjhunwala argued that the company can’t keep holding cash for a lifetime out of fear that the RBI policy would reverse.
“I think you are being totally unfair to minority shareholders,” Jhunjhunwala said.
