New in TCS : gets whopping 1860% dividend from TCS America International Corporation

MUMBAI: TCS, India's largest computer software firm and the group's main holding firm, received a massive dividend in 2011-12 from its wholly owned subsidiary, TCS America International Corporation.

The wholly owned subsidiary with a puny paid-up capital of Rs 1.02 crore, declared one of the largest dividend payouts by Indian corporates of 1860%, worth Rs 1,900 crore.

While the dividend would have been higher than most Indian companies' payouts, TCS America International is a fairly large company by Indian standards, earning more money than group firms such as Tata Global Beverages, Titan Industries and others.

TCS America, set up in 2004, declared a dividend of 280% of the net profits, a company official said. It had to dip into its reserves partially to make the bulge-bracket payment.


"Distribution of dividend from a subsidiary is based on various factors including the reserves available, the current financial performance and the expected future investment and expenditure requirements of each subsidiary," the company spokesperson said.

Tata Consultancy Services or TCS, the parent, acknowledged the surge in its dividend income in its recent annual report.

It was based on their "undistributed earnings and future investment plans," the report said.

TCS received Rs 2,428 crore in financial year 2012 as dividend income against Rs 39.27 crore in financial year 2011, a 6,082% spurt over the previous year's dividend payout.

Very few group companies or subsidiaries can match TCS America in revenue and profitability. In financial year 2011-12, it reported a 35% growth in revenues to Rs 20,051 crore compared with Rs 14,883 crore reported in 2011.

The growth is significant as the subsidiary grew at a faster clip than its parent.

The unconsolidated growth in revenues of the parent was at 33% and consolidated revenues grew by 30%.

"The differences in growth rates between Tata America International Corporation and TCS Ltd (the parent) is due to relatively different levels of fluctuation of major currencies like the US dollar, pound sterling and euro against the Indian Rupee," the spokesperson explained.

As Tata America International Corporation is TCS Ltd's wholly owned subsidiary in the US, its revenues are in US dollars, whereas TCS earns revenues in a number of currencies which include US dollar, pound sterling, euro as well as other currencies.

This has an impact on the respective growth rates, they added. TCS operates through a number of subsidiaries in various local markets, but none compare in scale and size to Tata America International.

Tata America International Corporation is the wholly-owned TCS subsidiary for the US market and represents the company in that market.

For computer software firms such as TCS, setting up subsidiaries registered in the markets they serve is more relevant now than before.

"Planning availability of resources at onsite locations has assumed greater significance amidst high visa rejection rates.

While higher local hiring for onsite projects and lower onsite utilisation have margin implications, the bigger concern is any antagonistic regulation that could emanate out of impending decisions on recent allegations of visa fraud or populist moves in the US election year," said Ashish Chopra, of Motilal Oswal Securities in a research report dated 13 June.

"The scenario should logically call for support in some form from the Government of India (GoI). Not only has that been elusive, the body-shop tag conferred upon top Indian IT companies by the income-tax department falls only a step short of US Senator Charles Schumer's chop-shop claims," Chopra wrote.