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BQEdge | Speed Bumps For M&M’s Stock And Why HPCL May Announce Dividend

BQEdge is specially curated for BQBlue subscribers. Every day this note will offer special equity market and stock-specific insights and flag select emerging trends in the tricky-to-trade derivatives market.

On Today’s Edition

  • Why Mahindra & Mahindra’s stock may remain in the slow lane.
  • What might push HPCL to make a big dividend announcement?

Watch | M&M Remains In The Slow Lane

What Might Push HPCL To Make A Big Dividend Announcement?

The stars are lined up for India’s third-largest oil marketing company Hindustan Petroleum Corporation Ltd.’s to announce a hefty dividend, mostly because its major shareholder needs funds to successfully conduct a buyback, which in turn is to help the main shareholder pulling all the strings – the government of India.

A government-owned public listed exploration company, Oil and Natural Gas Corporation Ltd. – which owns a little more than 51 percent stake in HPCL – announced a buyback worth over Rs 4,000 crore though it has only Rs 170 crore in cash as of September 30, 2018. So ONGC needs more cash and there are three ways it can find some…

  • Free cash generated from third quarter financials.
  • Funds received from Indian Oil Corporation Ltd.’s dividend and buyback.
  • A big dividend payout from HPCL.

Free cash generation could well be muted for ONGC in Q3 due to the sharp fall seen in crude prices and because of more than Rs 9,500 crore capital expenditure incurred in the quarter.

ONGC owns close to 133.7 crore shares in IOCL, which means that it could get approximately Rs 1,510 crore from the dividend and buyback conducted by that public sector company.

But, even if it were to use both these routes, it would fall short of cash as ONGC also has a debt of close to Rs 14,000 crore to repay which it aims to do by the end of the ongoing financial year.

That makes a potential dividend payout by HPCL likely. Not certain, but likely.

Besides, HPCL has the cash - as of September 30, 2018, the company had a cash balance of close to Rs 5,777 crore.

It’s also likely that while in the past HPCL has announced dividend payouts as high as Rs 2,200 crore, it may well exceed that this time since its major shareholder needs the funds. As does its major shareholder.