What State-Run Oil Firms Can Pay In Dividend To Help India Bridge Budget Gap

With two months left in the fiscal, the government has mopped up Rs 35,000 crore— or a third of its divestment target—by selling stake in public sector companies. One source will help the Modi administration narrow the shortfall: annual dividends that state-run oil companies pay.

Public sector enterprises have to pay a minimum annual dividend at 30 percent of the net profit or five percent of their net worth, whichever is higher, according to the Department of Investment and Public Asset Management. But in the last five years, all the six oil and gas PSUs have on an average paid higher.

How Much Can Oil Refiners And Retailers Pay?

Three out of the six oil and gas firms may find it difficult to pay a dividend at the five-year average rate, according to BloombergQuint’s calculations based on their capital expenditure plans and earnings estimates.

Take the example of Hindustan Petroleum Corporation Ltd. The average of estimates compiled by Bloomberg suggests that the oil refiner will report an earnings per share of Rs 33.6 in 2019-20. It paid an average of 50.9 percent of its profit as a dividend in the last five years. At that proportion, HPCL will have to pay Rs 17.1 per share or Rs 3,706 crore in FY20. But it won’t have the cash since estimated Ebitda of Rs 9,245 crore and the planned capex of Rs 9,500 crore will turn its free cash flow negative in the fiscal.

Bharat Petroleum Corporation Ltd. and Oil India Ltd. will face a similar situation.

Because of lower estimated profits and high capex, the two refiners and the oil explorer won’t have enough cash to pay dividends even at the minimum 30 percent of the profit mandated by the government, according to BloombergQuint’s calculations.

The three companies may have to raise debt, according to Nitin Tiwari, oil and gas analyst at Antique Stock Broking. That, however, won’t be a big concern given lower leverage, he said.

“Given that the Government of India’s revenue targets are under stress and unlikely to be met in the current fiscal and comfortable cash-flow and balance sheet position of oil and gas PSUs, it’s highly likely that there could a handsome dividend payout,” he said.

If the government asks the companies to pay dividends based on the average payouts of the past five years, it could garner about Rs 37,200 crore—nearly 65 percent of its budgeted target. None of these six oil and gas companies have paid any interim dividends so far this fiscal.