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  • Sep 19, 2022 - 5 Indian Companies with Insane Cash Reserves. Big Dividends Ahead?

5 Indian Companies with Insane Cash Reserves. Big Dividends Ahead?

Sep 19, 2022

5 Indian Companies with Insane Cash Reserves. Big Dividends Ahead?

With the markets facing high volatility this year, investors are heavily relying on dividend stocks to generate returns.

Historical data shows that high dividend yield stocks tend to perform better when markets are down as compared to other stocks. What makes them more attractive at this stage are also the relatively low bank fixed deposit rates.

Companies that pay dividends usually have high cash reserves. Cash that they don't require for capex or any other requirements.

Here are five companies with the highest cash reserves in India. Read on to find out whether they have the potential to pay dividends in the coming months.

#1 Reliance Industries

First on our list is Reliance, India's largest private sector corporation.

Its business spans energy, retail, textiles, entertainment, and digital services.

The company had the highest cash reserves at the end of the financial year 2022. Its closing cash and cash equivalents stood at Rs 361.7 bn, while its net cash flows stood at Rs 178.4 bn.

This was after the company's Rs 40 bn bond buyback program in January 2022.

Its free cash flow per share for the year stood at Rs 163.6.

However, the company has a total debt (long and short term) of Rs 2.6 tn. It has also recently announced a huge capex of Rs 2 tn to set up a nationwide 5G mobile network by the end of next year.

Apart from this, Reliance plans to invest Rs 750 bn to expand its petrochemicals and textile business capacities.

Though such huge capex signals the company's long-term growth, in the short-term, it will require cash to pay interest on its debt and fund capex.

Yet Reliance has been continuously paying dividends to its shareholders in the last five years. Its five-year dividend payout ratio stands at 9.38%.

Whether the company pays dividends this year remains to be seen. To know more about Reliance, checkout its factsheet.

#2 Tata Steel

Second on the list is Tata Steel, Asia's first integrated steel company.

Tata Steel is present across the steel manufacturing value chain, from mining iron ore and coal to manufacturing and distributing finished steel products.

The company reported cash and cash equivalents of Rs 156 bn for the financial year 2022. Its net cashflows stood at Rs 100.9 bn and its free cashflow per share was Rs 363.4.

Tata Steel has been concentrating on deleveraging its balance sheet. The company prepaid debt worth Rs 6.3 bn during the financial year 2022. As a result, its debt to equity ratio declined to 0.4x from 0.9x the previous year.

Its total debt as of March 2022 stood at Rs 688.2 bn.

Currently, the company has a total crude steel production of 31 m tons, of which 19 m tons are produced in India. Tata Steel aims to increase its capacity in India to 30 m tons by 2025.

For this, the company has been incurring substantial capex. Its capex of Rs 120 bn for the rest of the year is expected to be funded through internal cash flows.

Despite its debt repayment and capex plan, the company plan to maintain its cash levels.

In the last five years, Tata Steel has consistently made dividend payments. Its five-year average dividend payment ratio is 4%.

To know more about Tata Steel, checkout its factsheet.

#3 Larsen & Turbo India (L&T)

Third on the list is L&T India, a multinational conglomerate that provides engineering, procurement, and construction (EPC) solutions.

Its services are used in key sectors such as information technology, financial services, hydrocarbon, and power.

The company's cash and cash equivalents stood at Rs 137.7 bn at the end of the financial year 2022. Its net cashflows stood at Rs 3.1 bn, and its free cash flow per share was Rs 136.3.

L&T India's total debt at the end of the financial year 2022 stood at Rs 1.2 tn. During the year, the company's debt fell by Rs 86.7 bn. As a result, its debt to equity ratio decreased to 0.8x from 1.1x the previous year.

Recently, the company announced 'Lakshya 2026', through which plans to double its turnover by 2026. It also aims to become asset-light and more profitable, ultimately resulting in more cashflows for the business.

Apart from this, the company has been supporting its subsidiaries financially. Both these require the company to incur some long-term expenditures.

Despite a huge planned expenditure, reducing debt levels and consistent dividend payments indicate a dividend payment in the upcoming season.

L&T India is known to pay consistent dividends to its shareholders and has consistently paid dividends in the last five years. Its five-year average dividend payout was 42.6%.

To know more about L&T India, checkout its factsheet.

#4 Tata Consultancy Services (TCS)

Fourth on the list is TCS, one of the largest IT services companies in India and the flagship IT company of the Tata Group.

The company offers a host of IT services, including consulting, digital transformation, and artificial intelligence, to multiple industries such as banking, retail, and manufacturing.

TCS' cash and cash equivalents stood at Rs 124.8 bn on 31 March 2022, while its net cash flows stood at Rs 54.7 bn. The company's free cash flow per share stood at Rs 109.2.

Being a debt-free company, the company has no outside obligations. It also doesn't have huge capex plans that require the company to take debt.

Due to healthy operating cash flows, the company is one of India's most cash-rich companies.

In the last five years, the company has bought back shares three times from its shareholders and has always paid consistent dividends.

Despite the frequent buybacks and consistent dividend payments, the company's cash flows are strong and are expected to remain that way in the medium term due to a strong order book.

TCS's average dividend payout ratio has been 48% in the last five years.

To know more about TCS, checkout its factsheet.

#5 Hindalco

Last on the list is, Hindalco one of the largest aluminium and copper manufacturing companies.

The company has a diversified product portfolio that includes alumina, speciality alumina, primary aluminium, copper cathode, and copper rods.

Hindalco reported cash and cash equivalents of Rs 116.3 bn at the end of the financial year 2022. It had net cash flows of Rs 29.9 bn and its free cash flow per share stood at Rs 75.8.

At the end of the financial year 2022, the company's total debt stood at Rs 656.9 bn. However, the company plans to reduce its debt over the medium term. This resulted in a reduction in debt to equity ratio from 0.9x to 0.7x in the financial year 2022.

The company is planning a capex of US$ 3-3.3 bn to improve its downstream projects in batteries, electric vehicles (EV), and consumer durables.

It plans to fund the capex through internal sources and not take any additional debt.

Given the limited cashflows, high capex, and debt repayment plan, the company may find it tough to cover dividend payments in the financial year 2023.

Hindalco, however, has paid consistent dividends in the last five years. Its average dividend payout ratio is 6.9%.

To know more about Hindalco, checkout its factsheet.

Should you invest in cash-rich companies for dividends?

If your primary goal is to earn regular income in the form of dividends, then you will have to look at more parameters than just cash ratios.

Not all cash-rich companies consistently pay dividends if they have big growth plans.

Instead, check their capex plans, as most companies rely on internal resources (cash reserves) to fund their capex.

Another parameter that you should consider is their debt levels. Companies with high debt or rising debt are most unlikely to pay dividends. If the company with increasing debt continues to pay dividends, it signals warning bells.

Though dividends provide a sense of stability in volatile market conditions, do not invest in stocks by just looking at their dividends.

You will have to also check the company's fundamentals. A company that is consistently growing its revenue and profits, has good order book status or is launching new products, and is managing its debt well is considered to be fundamentally strong.

Speaking of dividend stocks, smallcap analyst at Equitymaster Richa Agarwal recently recorded a video exploring the concept of dividend investing.

Do not forget to check the list of stocks with healthy dividends that Richa shared in the video.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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1 Responses to "5 Indian Companies with Insane Cash Reserves. Big Dividends Ahead?"

Janardan Mohanty

Sep 19, 2022

Another company is Castrol India

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Equitymaster requests your view! Post a comment on "5 Indian Companies with Insane Cash Reserves. Big Dividends Ahead?". Click here!