Tata Motors Chairman Cyrus Mistry Says 'Pained' for Not Paying Dividend

Mumbai: With Tata Motors skipping a dividend payout for the first time in 15 years, chairman Cyrus Mistry said he is pained for not being able to give the "rightful dividend" to the investors, who questioned the reasons given by the company at its AGM on Thursday.

Answering shareholders' queries and demands in this regard, Mr Mistry said, "My personal belief is that it's a bad day for the company. I feel extremely unfortunate this day.

"Let me tell you it does not give me any pleasure to deny your rightful dividend. I know that many of you depend a lot on the dividend."

"But I request you to look the finances of the company and also look for the long term. We have to make some sacrifices for the long-term good of our company. I am deeply pained by our decision to not pay the dividend for FY15," an emotional Mr Mistry said.

He asserted that "Tata Motors remains committed to achieving better profitability through prudent cost management, world class quality, and introducing innovative and exciting products and services."

Tata Motors had last skipped a dividend payout in fiscal year 2000-01, when Ratan Tata was the chairman. This is also only the second instance in the company's history when it has not paid a dividend.

Angry at the decision, many shareholders questioned the rationale given by the company, including poor finances as also new laws and accounting rules.

"I've all the right to get dividend from this company. I am a senior citizen and I depend on the dividend income for my expenses. Mr chairman, you have to remember that I was an investor in the company even before you were born," an agitated shareholder told Mr Mistry at the 70th AGM of the company here this evening.

Another investor said, "in your first year you paid us Rs 4 a share as dividend, in the second year it was halved to Rs 2 and in the third year you are saying zero dividend even as you came to us many times to get our permission to hike executive pay".

A third investor ripped apart Mr Mistry's argument for not giving the payout, and demanded a logical explanation for the same, saying "your speech does not convince us as it is only a general statement".

"The argument that you have given is shallow and general. Please explain the actual reasons for denying the dividend. We need some cogent answers. I don't know which accounting rules you are citing," said an irate shareholder.

Addressing the shareholders, Mr Mistry said, "Considering the continuing weak operating environment and the performance of the standalone business and in view of the losses of the year, and in view of the new Companies Act and accounting rules, dividend is not allowed to be paid for fiscal 2014-15.

"I, personally and on behalf of the board, deeply regret non-recommendation of the same this year," Mr Mistry said, leading to a volley of sarcastic criticisms and pleas for reconsidering the board decision.

The 70th AGM, however was very sparsely populated as the occupancy level of the 1,075-seater Birla Matoshree hall was not even 20 per cent.

The shareholders also criticised the company's recent rights issue which was priced, according to a shareholder 22,250 times the face value of the share which is Rs 2.

"Let me know how many of you board members invested in the rights issue? How can you price the issue at such a high premium and deny us the dividend soon after?" asked another irate shareholder.

It can be noted that on May 7 this year, Tata Motors had raised Rs 9,040.56 crore from a rights issue, which was over-subscribed by 1.21 times. The issue was priced at Rs 450 (including a premium of Rs 448) each. The rights issue was open on April 17, 2014 and closed on May 2, 2015.

Defending the pricing, Mr Mistry said rights issue was priced at Rs 450, which was an 18 per cent discount of the CMP and also based on the long-term value of the stock.

One shareholder suggested that the company exit the car business as it could not make money for so many years now.

"You should have sold the passenger car business to Ford in 2006 when they evinced interest in buying it out," said the shareholder who also wanted the parent Tata Motors to stand on its own feet instead of being propped by its British arm JLR.

Shareholders also flayed Mr Mistry for not finding a replacement for the late Karl Slym even after two years, to which Mr Mistry said, "I am sorry that we could not find a proper replacement for the late Slym. But please understand that we are always on the lookout for an MD & CEO, who can successfully manage the complex nature our business for the long-term."

Many shareholders also criticised the company secretary and other clerical staff of the company, while others blamed its poor marketing and after sales service for the failure of the Nano.

"The Nano is a wonderful car, but your marketing and sales team does not know how to do their job. Therefore the car is failure. The company has to increase the touch points and service centres, as when it comes to after sales service Tata Motors is very bad," said another investor.

Answering a query from a shareholder Mr Mistry said the company's borrowings stood at Rs 73,610 crore in FY15. Out of these total loans, the average pricing of the domestic loan is around 10 per cent while the forex loan is priced at 3-5 per cent, Mistry added.

On the issues in its China market, Mr Mistry said, the world's largest auto market and also the single largest market for JLR, is likely to witness a softer market condition and Russia and Latin America may continue to face challenging times this year.

"Tata Motors remains committed to achieving better profitability through prudent cost management, world class quality, and introducing innovative and exciting products and services.

"JLR will continue to capitalise on strong, globally recognised brands, invest substantially in new products and technology and grow profitably both in existing and new markets worldwide," Mr Mistry concluded.

Last week Tata Motors reported a 49 per cent plunge in net income at Rs 2,768.91 crore in the three months to June as its cash-cow JLR began to falter its record run in China, where its sales fell by a third and its total sales share halved to 14.4 per cent in the quarter.

This was the first major decline in both sales and profits for Jaguar-Land Rover brands since the company was turned around early this decade, following headwinds in China.

Tata Motors bought JLR for $2.3 billion in the peak of the 2008 global economic slump.

Consolidated net sales stood at Rs 60,180.57 crore as against Rs 64,150.74 crore in the year-ago period, down 6.18 per cent, the company had said last week.

JLR revenue fell 9.64 per cent to 5 billion pounds from Rs 5.35 billion, while pre-tax profit fell to 638 million pounds from 924 million pounds, as China fall offset the strong performance in Britain, Europe and North America.

In rupee terms the JLR adjusted net almost halved to Rs 2,847 crore year on year.

On a standalone basis, Tata Motors India net profit fell 34.6 per cent at Rs 257.57 crore, down from Rs 393.65 crore while sales rose to Rs 9,197.62 crore from Rs 7,612.89 crore in the previous fiscal.

For the past four fiscals, the domestic business was bleeding for the largest auto company.