Hero Honda Motors Ltd in a filing to DalalStreet mentioned that its board will meet on March 30 to consider a special interim dividend. Media (Bloomberg links) speculates that the dividend payout could be Rs80- Rs100 per share (Rs16B–Rs20B) and the company currently has cash reserves in excess of Rs45B (c. US$1B).
The announcement follows statements made by the CFO, Mr. Ravi Sud, in November (Nov 19, 2009, Economic Times), in which he highlighted that the company had an excess cash surplus of Rs40B. He said that the board of directors would make a decision about the special dividend payment at the appropriate time.
Given that Hero Honda is a profitable two-wheeler operation with strong free cash flow generation (likely to be in excess of Rs15B in FY10E), the board has considered whether to pay out the special dividend. Moreover, the company has kept its dividend payout constant over the past several years at Rs17-20 per share, despite rising profitability – hence the dividend payout ratio declined from 62% in FY03 to 31% in FY09
