Sunday, July 30, 2017

AGM : Cholamandalam Finance

The only issue that came up repeatedly at the recently held AGM of Cholamandalam Finance was the shareholder-unfriendliness of the company.

Granted that the company is conservative. But, Sundaram Finance which is the citadel of conservatism is declaring twice the dividend per share as Cholamandalam though SFL's earnings per share is almost the same, in fact marginally less. Cholamandalam has not issued any bonus share so far, again unlike Sundaram Finance.

If shareholders are not rewarded when the going is good, the PE Ratio of the company will continue to lag behind its peers'. Dividend Distribution Policy which the SEBI has mandated to be disclosed in both the annual report and the company's website, is not published in the annual report. The policy which is available on the website takes shareholders for a ride by disclosing that the Board will recommend dividend to the extent of nearly 20% of PAT minus transfers to statutory and regulatory Reserves. The Reserves account for nearly 50% of PAT every year. So dividend payout is only nearly 10% which is dismal. By contrast, Sundaram Finance declares 20 to 30% of its PAT as dividends.

The claim of Cholamandalam that it is professionally managed is therefore a myth.


akji said...

In Cholamandalam the promoters group holds more than 53 % and in Sundaram finance it is around 49 to 50% ( Promoters with Institutions )It is not known as to why they do not declare higher dividends. The capital is Rs.111 crores and Rs. 156 crores respectivey Sundaram Finace and Cholamandalam. The Net profit for March 2017 is Rs. 139 crores and Rs. 219 crores. In reality Cholamandalam is more conservative than Sundaram

K.R.Srivarahan said...

I agree. When promoters get more than Rs. 10 lac dividend, their tax liability inches up. This could be one reason for miserly dividends. The promoters may be getting their cashflow in some other way. After all, corporate governance in our country is more absent than present.