On the National Stock Exchange (NSE), the scrip fell to Rs 200.30 after opening at a high of Rs 227. The counter saw volumes of around 3.2 lakh shares and most of the trades were carried out at an average price of Rs 213. On the BSE, the scrip touched an intra-day low of Rs 205 after the dividend was announced. The scrip finally closed at Rs 212.

Although at the current level a dividend of Rs 60 provides an excellent yield of 28 per cent per annum, the thought of holding shares of a shell company (once the dividend has been availed of) has scared investors away.

Over the past two years, the cosmetics major has undergone a major transformation -- from a marketer to a contract-manufacturer to a shell company. The only consolation for investors is the Lakme board's decision to give ahigh dividend at a later date out of the accumulated profits, subject to shareholders' approval.

The Lakme board, which met on Monday, has decided to pay a maximum dividend of 600 per cent for the 15-month period ending June 30, 1998, after providing for statutory reserves and dividend tax. But this dividend will be paid only if the shareholders approve the sale of Lakme's brands and its manufacturing facilities.

In February 1998, Lakme decided to sell its share in Lakme Lever Ltd and its brands to Hindustan Lever Ltd (HLL) for Rs 200 crore. The board also approved the sale of its manufacturing facilities to HLL for Rs 29 crore.HLL had announced the takeover of Lakme's cosmetics business a couple of months ago through the purchase of the Tata group's 50 per cent stake in the joint venture Lakme-Lever Ltd. Lever paid Rs 130 crore for the deal and an additional Rs 70 crore worth of outstanding debentures were redeemed, taking the total outgo to Rs 200 crore. Now, with the manufacturing facilities valued atRs 29 crore, the total cash inflow will be around Rs 159 crore.

Of this amount, the company would have to pay around Rs 70 crore towards taxes. This would leave a cash surplus of Rs 89 crore with the company. As Lakme had not announced any concrete deployment plans, the market was expecting the company to dole out a hefty cash to shareholders either in the form of a dividend or cash bonus.

The belief was strengthened by the fact that Lakme has a very strong reserves position of Rs 140 crore on an equity of only Rs 13 crore. On this expectation, the scrip reversed the free-fall (from Rs 292 after the sell-out announcement to Rs 132) and climbed to Rs 235.

The Lakme board has also decided to extend the financial year to a 15-month period ending June 30, 1998, to facilitate the inclusion of the profit from these divestments into its accounts after the shareholders' approval. The Lakme board has also decided to give a higher dividend at a later date out of the accumulated profits, subject to shareholders'approval.

From the balance, a certain portion would be transferred to the new retailing activity of Lakme Exports and the remaining would be used to ensure the generation of sufficient income and profits in order to pay dividends to its shareholders till the new retailing activity generates adequate profits.

An opportunity to make good lost

MUMBAI, April 13: It could well turn out to be the most cosmetic first round windfall. Lakme has announced a 600 per cent dividend, and promised more in a second round.

But the Lakme shareholder who bought shares at Rs 270 on the eve of the announcement of the erstwhile cosmetics market leader's sellout to Hindustan Lever has still not made a paisa on the deal: not even after the wannabe retail company's highest dividend ever.

The market capitalisation of the small shareholder who bought 100 shares at Rs 270 each on the day of the announcement stood at Rs 27,000. On Friday last, the closing price stood at Rs 207, which implied a market cap of Rs 20,700.Taken together with the dividend entitlement of Rs 6,000, arising out of the payout decision of 600 per cent or Rs 60 per equity share of Rs 10, his total proceeds would be Rs 26,070, which would mean that the company, which had an opportunity to compensate such shareholders through dividend payout, has not yet fully compensated him for the loss incurred.

The stock market, for this very reason, had expected a dividend of around 1,000 per cent, a substantially higher percentage of the sale proceeds. But clearly, due to the pendency of some "legal and statutory approvals" the company has not been able to take on account the funds inflow through the sellout deals as yet.

Once it does so, the company has promised a substantially higher dividend, which it will announce later in the financial year extended recently till June. Lakme has paid out an exact half of the sale proceeds. Its aggregate dividend payout so far stands at Rs 79.52 crore, which is the almost precise half of the sale proceeds of Rs 159 crore.