Paying dividend from operational earnings and paying a dividend to distribute windfall gains are separate issues. If a company does not have any immediate use for the proceeds earned from the sale of an asset, good governance would be to share that with shareholders, either as a dividend or through share buyback… especially if a management assured its investors that it would.
On being asked about such a payout in an investor call after the second quarter, HGS Executive Director and Global CEO Partha DeSarkar said, “Yes, so this is actively being deliberated with the board,” and added that, “the consideration is to return back to the shareholders, but we want to do it in a tax-efficient manner. So, all of these things are being deliberated in the board obviously.”
But the company disappointed its investors, and the board has failed to articulate a cash distribution policy.
DeSarkar told analysts that the company decided to sell the healthcare business as it was not able to attract the value that it deserves from the Indian stock market.
“It is a U.S.-centered business, with all its revenues from the U.S. and therefore we were always finding the gap in people’s ability to understand what this business is and what its inherent worth is. The healthcare businesses were loss-making when acquired, the company turned it around and found investors who would value this business.”
It is true HGS struggled to get the value for its operation from the Indian stock market. The stock had touched an all-time high of Rs 3,948 per share in anticipation of a significant shareholder reward. At the all-time high for the stock, the market cap was Rs 8,244 crore. The asset sale yielded it as much and more.
What may irk shareholders further is that the company has announced it will be seeking shareholder approval to enhance the limits applicable for extending loans, making investments, and providing guarantees or security under Section 186 of the Companies Act, 2013 to Rs 3,500 crore. Currently, HGS has inter-corporate deposits to Hinduja Group companies but that has been capped at Rs 500 crore.