Laurus has a dividend policy to give 20% PAT as dividend. I agree in the short term company is better off spending on Capex than paying dividend. I see mainly two reason company has this dividend policy.
- Laurus is trying to build an institution for long term with well defined corporate governance practice, 20% dividend policy is one of them. They are not compromising it for the short term hiccups.
- Laurus has issues with free cash flow generation due to continuous capex spending, dividend payment gives confidence to investors that company has no cash issues.
FY23 they spend 100-150 cr for dividend payment and spending 1000 cr on capex. So I don’t think its fair to say laurus is taking debt to fund dividend – Its clear debt is going for capex. Another point to note is laurus has never expressed the aspire to be debt free, since the inception they have always used debt to fund the expansion and it has worked well for them so far – so they are sticking to the play book.
Debt is a double edged sword, but one should remember cost of equity is higher than cost of debt. Debt if “managed well” by company will benefit equity shareholders.
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