DIVIDEND POLICY DECISION

Presented by: Group 4

Atreyee Nandy, J. Mrudula, Paul Dhinakaran, Priya Bhutada,
Rohan Phillip Mathew, Srikanth Srinivasan, Vineeth Gangadharan
MEANING OF DIVIDEND
POLICY
INTRODUCTION
3 SCHOOLS OF THOUGHT PERTAINING
TO DIVIDEND
 Dividend irrelevance theory
 Dividends are undesirable
 Dividends are good for the company
MEASURES OF DIVIDEND
POLICY
 Dividend yield
 Dividend payout ratio
FEATURES OF DIVIDEND
 Dividends Tend To Follow Earnings
 Dividends Are Sticky
 Dividends Follow a Smoother Path than Earnings
 A Firm’s Dividend Policy Tends To Follow The
Life Cycle Of The Firm
Company Analysis
 Dr. Reddy’s Lab
 Suzlon Energy
 Hero Honda
 Dr. Reddy’s Lab
Company Overview

Five Year Analysis ( 2005 – 2009)

Criteria for the Analysis

 Earning
Dividend Retained Dividend Per Per Share
Year End Dividend(%) payout ratio Earnings (%) Share (Rs.) (Rs.)

Mar '05 100 0.584479 0.415521 5 8.55

Mar '06 100 0.18165 0.81835 5 27.53

Mar '07 75 0.053507 0.946493 3.75 70.09

Mar '08 75 0.132696 0.867304 3.75 28.26

Mar '09 125 0.187734 0.812266 6.25 33.29

DIVIDEND PAYOUT (%)
LIFE CYCLE ANALYSIS OF DIVIDEND POLICY
 DIVIDEND TRENDS

2005

• Dividend Percentage: 100

• Dividend Payout Ratio: 58.45%

• Retained Ratio: 41.55%

• EPS: Rs.8.55

• Dividend (per share): Rs.5

Share Prices Before & After Dividend Announcements ( 2005)
 DIVIDEND TRENDS

2006

• Dividend Percentage: 100

• Dividend Payout Ratio: 18.17%

• Retained Ratio: 81.83%

• EPS: Rs.27.53

• Dividend (per share): Rs.5

Share Prices Before & After Dividend Announcements ( 2006)
 DIVIDEND TRENDS

2006
• Nov, 2005 Acquisition of Roche’s API, For US $61 million.

• Acquisition of Betapharm, the fourth-largest generic pharmaceutical

company in Germany.

• A deal worth Rs. 2250 crore

• Funding of Acquisition:
– Internal funds
• Rs. 886.6 crore (39.4%)
– External Sources
• Debt from financial institutions
 2007

• Dividend Percentage: 75

• Dividend Payout Ratio: 5.35%

• Retained Ratio: 94.65%

• EPS: Rs.70.09

• Dividend(per share): Rs.3.75

Share Prices Before & After Dividend Announcements ( 2007)
 DIVIDEND TRENDS

2007

• Repayment of the debt raised for Betapharm funding

• R&D budget increased to 7%

• Market Expansion
 DIVIDEND TRENDS

2008

• Dividend Percentage: 75

• Dividend Payout Ratio: 13.27%

• Retained Ratio: 86.73%

• EPS: Rs.28.26

• Dividend (per share): Rs.3.75

Share Prices Before & After Dividend Announcements ( 2008)
 DIVIDEND TRENDS

2008

• 40% dip in net profits and turnover of the company

• Plans to invest significantly in biologics and global

generics
Net Profit
 DIVIDEND TRENDS

2009

• Dividend Percentage: 100

• Dividend Payout Ratio: 18.77%

• Retained Ratio: 81.23%

• EPS: Rs.33.29

• Dividend (per share): Rs.6.25

Share Prices Before & After Dividend Announcements ( 2009)
 DIVIDEND TRENDS

2009

• Use of internal cash reserves for acquisition

• DowPharma’s Small Molecules facilities in the UK
• BASF Corporation’s manufacturing facility at
Shreveport in Louisiana, USA
• Jet Generici SRL

• Golden Jubilee Year-substantial increase in profits

> Largest Wind Power and Wind Turbine manufacturing
Company in Asia (Fifth largest in the world)

> 12.3% share in the global 120 GW capacity

> Actively run by the Chairman and Managing Director, Mr. Tulsi
Tanti
PERFORMANCE HIGHLIGHTS
In Crores

PERFORMANCE HIGHLIGHTS
PAT v/s. Dividends Declared
 Highlights of 2008-09

• An year of high Investments

• Increase in Loan funds , Financial Charges and Exceptional Expense Items
• Resulting in a net Loss of Rs. Rs. 469.27 Cr.

• The Management for the next year, has decided to use funds for Debt
repayment and improving Working Capital position.

• Dividends Declared: Nil

• > Increase in Financial Charges

• Total Loans borrowed increased from 3084.74 Crs to 7329.48 Crs

Loan Type 2008-09 2007-08

12.5% secured redeemable non- 300.00 -
convertible debentures
Term Loans 579.94 22.06
Working capital Loans 3126.29 650.20
Zero Coupon convertible Bonds 2535.50 2005.50
Other Short Term Loans 787.75 406.98
TOTAL 7329.48 3084.74

• - Increase in Financial charge from Rs. 596.94 Crs to Rs. 1053.94 Crs
 > Exceptional items
Exceptional items increased to Rs 873.16 cr from Rs 285.21 cr.

Reasons:

• Foreign exchange losses of Rs 131.35 cr. due to restatement of

zero coupon convertible bonds.

• Provision for blade replacement cost aggregating Rs 221.59 cr. From Rs

121.71 cr. and consequential generation costs of Rs 189.51 cr.

• Mark-to-market losses of Rs 330.71 crore from Rs 23 cr. in 07-08 in

respect of foreign exchange forward / option contracts.
 Investments
• Completed acquisition of 91% stake in RE Power
• Belgium based Hansey Transmission operations commensed
• SE forge;

Current Scenario
• Q1 Loss: 462 cr
• Stock Price corrected by 70% over the past 3 months
• To raise 5000cr GDR,FCCB in Lux SE
• Rs. 970 Cr. CAPEX Plans
Stock Volatility
DIVIDEND POLICY
• An introduction
• The company policy
• The dividends declared
date of div

year decleration dividend %

2008 - 2009 21-04-2009 1000
2007 - 2008 24-04-2008 950
2006 - 2007 11-05-2007 850

2005 - 2006 30-05-2006 1000

2004 - 2005 12-04-2005 1000
2003 - 2004 12-04-2004 500
(interim for 04) 09-01-2004 500
2002 - 2003 900
2001 - 2002 15-04-2002 850
2000 - 2001 150
• Their dividend policy over the years:
• 2000 – 2001(150%)
• 2001 – 2002 (850%)
• 2002 – 2003 (900%)
• 2003 – 2004 (1000%)
• 2004 – 2005 (1000%)
• 2005 – 2006 (1000%)
• 2006 – 2007 (850%)
• 2007 – 2008 (950%)
• 2008 – 2009 (1000%)
THANK YOU!