InvestorQ : Can you tell me about the new Dividend policy announced by Bajaj Auto?
Aashna Tripathi made post

Can you tell me about the new Dividend policy announced by Bajaj Auto?

Aditi Sharma answered.
1 year ago

In the previous week, Bajaj Auto announced their new Dividend Policy is the right step towards improving the ROE of the company. The announcement outlines the need to enhance the availability of higher dividends to shareholders so value is enhanced. Is that feasible? This is how it would work.

· Going ahead, the new dividend policy at Bajaj Auto will make the dividend declaration evert year contingent on the surplus cash with the company.

· What exactly is surplus cash? Surplus cash has been defined as the sum of cash as well as marketable securities held by the company, excluding stakes in its group companies and other long-term strategic investments.

· The surplus available will be the defining point in the new dividend policy. For the dividend pay-outs the dividends will be paid out as a percentage of the standalone profits of Bajaj Auto. This will disallow any type of price variances.

· If the cash surplus was more than Rs.15,000 crore then the company would pay out 90% of standalone profits. If the cash surplus was between Rs.7,500 cr and Rs.15,000 cr, 70% of the standalone profits would be paid out.

· If the standalone profit was below Rs.7,500 crore, then dividend at 50% of the standalone profits only would be paid out. In short it will be contingent on cash surplus generated.

· Bajaj Auto had a surplus of Rs.16,240 crore on its books. Hence, Bajaj Auto would fall in the highest dividend paying bracket and it can distribute 90% of its standalone profits as dividends. That would certainly be interesting times.