PSUs show dividend fatigue as payout ratios hit decade's low in FY25
The dividend payout ratio of public sector enterprises sank to the lowest in the decade in the previous financial year as firms pivot to capex and long-term growth.
India Inc. may have celebrated a record ₹4.9 trillion dividend bonanza in FY25, but the party was noticeably quieter in one corner: the public sector. Behind the headline numbers, state-run enterprises showed clear signs of dividend fatigue, both in payout ratios and growth. Dividends, which had seen strong double-digit gains in previous years, contracted, while payout ratios plunged to multi-year lows. The shift points to a change in priorities: public sector firms are increasingly favouring reinvestment, capital discipline, and long-term value creation over generous near-term distributions.
Earnings pain
A Mint analysis of 496 BSE 500 companies, based on Capitaline data covering audited, unaudited, and proposed dividends, shows that public sector undertakings (PSUs) accounted for just 30% of total dividends in FY25—down from 35% in the previous year. Their dividend payout ratio also dropped to 29.8%, the lowest since FY15 and well below the historical average of around 50%. In fact, these government-owned companies have seen a secular decline in their payout ratios over the past five years.
“This appears more like a cyclical pause than a fundamental reset," said Harshal Dasani, research analyst at Invasset PMS. “FY25 earnings were weighed down by volatile commodity prices, oil under-recoveries, and heavy capex commitments. Many PSUs have opted to reinvest profits internally, especially in strategic sectors such as energy, infrastructure, and defence." The data corroborates his claims: The aggregate net profits of the PSUs saw a pale growth of 1.3% in FY25 after witnessing a 43% jump last year.
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Echoing this sentiment, Anil Rego, founder and fund manager at Right Horizons PMS, said, “The sharp decline in PSU payout ratios in FY25, down from the historical average of around 50%, appears more cyclical than structural at this stage."
Shifting focus
The decline in payout ratios also reflects a broader push among state-run firms to deploy capital for future growth. “This steep fall in outflow in the form of dividends is mainly due to a larger focus on capital expenditures by PSUs, “ said G. Chokkalingam, Equinomics Research founder and managing director. “A vast majority of manufacturing PSUs have announced several major capital expenditure plans—some aimed at expanding existing operations and others exploring new businesses or geographies."
Companies like Coal India exemplify this shift. The company not only plans to expand its coal mining operations but has also proposed ventures into non-coal minerals such as graphite and acquisitions abroad. “Many PSUs have good medium- to long-term business prospects, and they are prioritizing reinvestment over short-term distributions," he added.
The changing priorities of these traditional dividend payers is also reflected in their lower giveaways. PSUs distributed 6% lower dividends in FY25 after a sharp 43% surge in FY24. and consistent gains ranging from 27% to 62% in the preceding years.
“Multiple PSUs faced earnings pressures amid sector-specific challenges, particularly in energy combined with elevated capex requirements in infrastructure, defence and energy transition initiatives. This likely influenced the decision to retain a higher share of profits to fund growth internally. This can be viewed as a pivot toward fiscal prudence or a prelude to privatisation readiness," Rego said.
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Revenue buffer
Dividends from public sector enterprises and the Reserve Bank of India provide the government with a crucial revenue buffer. However, against the backdrop of slowing dividend payouts, its budget target might seem optimistic. The Union Budget has pegged a revenue target of ₹3.25 trillion from dividends in 2025-26, a 12.4% increase compared to the revised estimates of ₹2.89 trillion in 2024-25.
“The FY26 Budget’s projection of a 12.4% rise in PSU dividend revenue to ₹3.25 trillion may seem optimistic after FY25’s softness, but underlying fundamentals support this outlook," noted Dasani. “Key sectors like power, coal and oil show improved cash positions, setting the stage for a rebound in profitability. The Budget’s optimism likely reflects a catch-up from under-distribution and a strategic push to balance fiscal needs without stifling PSU growth."
Rego also acknowledged the projection may appear ambitious amid weaker FY25 trends but noted, “Several PSUs maintained or enhanced their dividend payouts, reinforcing the fiscal importance of these state-run enterprises."
However, with a substantial dividend from RBI ( ₹2.7 trillion) and strong payouts from public sector banks, the government is set to benefit from a solid revenue buffer in FY26.
“Some rebound in profitability is anticipated across oil and gas and utilities," Rego added. “The estimates reflect a growing reliance on dividends as stable revenue. While care is needed to avoid straining PSU growth capital, improved profitability and efficient capital use can support fiscal consolidation—if backed by sustained earnings recovery," he added further.
This is the third part of a four-part series of data stories on the dividends declared by India Inc. Read the first part here and the second part here.
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