White goods major Whirlpool of India may have reported a massive turnaround in its financials in the last four years, but its equity investors are yet to receive dividends as a result of this. When the company saw its net profits jump from Rs 145 crore in 2009-10 to Rs 166 crore in 2010-11, it used part of the surplus to pay out dividends on its preference shares and also redeem the outstanding preference capital.

The company said in its Annual Report, “Dividend on equity shares is not recommended for the year ended March 31, 2011, as your management had to first redeem 15,23,42,500 10 per cent redeemable non-convertible cumulative preference shares of Rs 10 each...” Whirlpool of India had issued 15.3 crore preference shares to Whirlpool Canada Holding Company - an arm of its parent, in 2005 carrying a 10 per cent dividend and both a call and a put option to the investors to redeem it anytime before the end of 20 years.

Whirlpool of India has turned around its business drastically in the last four years to become a key player in the consumer home appliances market. From a loss of Rs 5.3 crore in March 2007, the company had by 2010-11 reported a net profit of Rs 166 crore. The Whirlpool of India turned into profits in FY-08 and since then has been growing net profits at a compounded annual rate of over 70 per cent.

Following good cash flows, the company paid the accumulated dividend on the preference shares in 2009-10. However, last year 9.84 crore preference shareholders exercised the put option and requested for redemption. The company paid dividend to them on a pro-rata basis and redeemed the shares.

In the company's annual general meeting recently, it was further decided that the company will redeem the remaining outstanding preference shares of 5.38 crore too before August 31.

This may mean that equity shareholders in Whirlpool can look forward to dividends from next year, if the company's performance continues to improve. With preference shares redeemed in full, the burden of fixed payment on the company may be reduced and leave out surplus cash for equity dividends.

Whirlpool of India has been seeing strong cash inflows over the past two years and has been funding all its investment requirements internally. Last year, the company was left with a cash balance of Rs 53 crore after paying its preference dividend commitments, setting aside a sum for preference share redemption, repaying some long-term borrowings and fixed asset purchases. It is also worth highlighting that the company has repaid its outstanding loans completely.

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