Hero Honda to pay 4,000% dividend

NEW DELHI: Hero Honda declared its highest dividend yet on Tuesday, and held out the possibility of another payout next month, part of the company's

push to reward shareholders as it celebrates its silver jubilee this year.

The world's largest two-wheeler maker by volumes will pay a 4,000% interim dividend of Rs 80 on each share of Rs 2 face value, which in percentage terms is the highest payout by an Indian company to date.

The Munjal family-controlled Hero Group and Japan's Honda Motor Co, owners of 26% each in the company, will gain nearly Rs 486 crore each after the payout. The interim dividend will result in an outgo of Rs 1,869 crore. A second board meet on April 19 would decide on another dividend from this year's profits, said Hero Honda CFO Ravi Sud.

"In the last 3-4 years, we have accumulated quite a bit of cash, and ... the board thought this is the right time to take care of shareholders," said Mr Sud.

Hero Honda had cash reserves of Rs 5,400 crore as of today, helped by strong sales and tight capital management. The company hopes to close the year to March 31 with sales of 4.5 million two-wheelers. Its net profit rose 78.3% to Rs 535.77 crore for the quarter ended December 2009 from a year ago.

Hero Honda invested Rs 350 crore this year to expand production capacity and on new products. It is also building a new plant. "With high level of profitability and high EBIDTA margins, cash will continue to accumulate unless the payout ratio is increased substantially," said Mr Sud.

Shares in the firm closed nearly 2% down at Rs 1,966.70 on Tuesday. Analysts said news of the dividend was discounted by the market. Investors were expecting a big payout from Hero Honda, as it's a cash-rich company and treasury returns have not been good in recent months, said Vaishali Jajoo, analyst with Angel Broking in Mumbai.

Hero Honda is known for its double-digit dividends, but its latest interim dividend payout is around four times the final dividend payouts of each of the previous five years. The company paid Rs 20 dividend on every Rs 2 share in 2004-05 and 2005-06. It paid Rs 17, 19 and 20 respectively in the next three years.

The company has set April 15 as the record date for paying the special dividend, it told NSE. That means shareholders will receive the dividend from April 22.



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