Analyzing Dividend Policy

7/31/2019 Analyzing Dividend Policy

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Analyzing Dividend Policy

NTPC

Company declared an interim dividend of Rs. 3 per equity share paid in Feb,2011 along with

a final dividend of Rs. .80 which makes it a total dividend of Rs. 3.80 per equity share of Rs.

10 each which is equal to which is equal to the amount of dividend paid last year. The total

dividend payout for the year amounting to Rs. 3133.26 Crore represents 34.42% of the profits

after tax. Dividend has been recommended in accordance with your Company''s policy of

balancing dividend payout with the requirement of deployment of internal accruals for its

growth plans.

Company has maintained the same level of dividend as last year , this means company wants

to send a signal that its dividend policies are stable . Directors believe that growth of the

company through capacity addition, backward and forward integration and strategic

diversification of its operations would lead to increase in shareholders value.

Dividend for the year 2012 is going to be higher as only interim dividend has been declared

for the same period and final dividend still needs to be paid. Companies dividend has been

increasing over the past few years.


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NHPC

Directors have recommended a dividend of Re. 0.60 per share (excluding dividend tax) for

the year 2010-11. The final dividend shall be paid after approval at the Annual General

Meeting. The total dividend pay out for the year amounting to Rs. 738.04 crore represents

34.06 per cent profits after tax.

Company has been paying dividend regularly similar to NTPC but the amount of dividend

paid is lesser than that of NTPC. Company has maintained consistent dividend policy for the

last five years .

NHPC has been paying higher dividend from the past and it has doubled the amount of

dividend paid to investors in last 2 years but still dividend paid by NHPC is less than NTPC

in absolute terms.

KSK Energy Ventures

The Company is currently involved in implementation of various projects and more

specifically the 3600 MW power project through its downstream subsidiaries which is one of

the largest single location greenfield project by private enterprise anywhere in India. In order

to meet the investment requirements for various ongoing projects, which will contribute to

the shareholders'' wealth in the long term, the Directors have not recommended any Dividend

to the equity shareholders for the financial year 2010-11.

The Company had paid dividend on 8% Cumulative Redeemable Preference Shares

of Rs. 10/- each issued to L&T Infrastructure Finance Company Limited proportionately

from the date of allotment.


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NTPC has been paying the highest amount of dividend among the three companies, it has

been consistent over the last few years when it comes to paying dividends. They have paid

dividend of more than 30% of there profits over the past five years, on the other hand , NHPC

has been paying lower amount of dividend as compared to NTPC. KSK Energy Ventures has

not been paying any dividend keeping in mind investment opportunities.

Investors may not invest in KSK energy Venture keeping in mind no dividend paid by the

company, on the other hand, NTPC would enjoy greater investor confidence and trust as they

have been consistently paying dividend over the last 5 years which has not been the case with

KSK Energy Ventures.

VALUATIONS

Assumptions :

1. Tax rate is assumed to be 30%.2. WACC for stable growth is assumed to be same for expected growth at

14.906.

3. Growth when economy is stable is estimated to be 9%.

WORKING CAPITAL MANAGEMENT

A measure of both a company's efficiency and its short-term financial health is given by

working capital. It is basically the net current assets which is current assets less current

liabilities. These involve managing the relationship between a firm's short-term assets and

its short-term liabilities. The goal of working capital management is to ensure that the firm is

able to continue its operations and that it has sufficient cash flow to satisfy both maturing

short-term debt and upcoming operational expenses.

For such a purpose it is important to analyse different current asset of a company specifically

which constitutes major part of the assets such as cash , debtors and inventories. Company

managing these resources is going to end up having better working capital management.

NTPC

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
http://en.wikipedia.org/wiki/Asset#Current_assetshttp://en.wikipedia.org/wiki/Current_liabilityhttp://en.wikipedia.org/wiki/Operations_managementhttp://en.wikipedia.org/wiki/Operations_managementhttp://en.wikipedia.org/wiki/Current_liabilityhttp://en.wikipedia.org/wiki/Asset#Current_assets


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Inventory Turnover Ratio 29.18 27.54 28.21 33.59 14.1

Debtors Turnover Ratio 7.54 9.06 12.78 17.52 30.78

Investments TurnoverRatio 29.18 27.54 28.21 33.59 30.51

Total Assets Turnover

Ratio 0.49 0.46 0.45 0.46 0.44

Asset Turnover Ratio 0.76 0.7 0.67 0.7 0.65

Number of Days In

Working Capital 142.33 154.07 173.56 171.01 167.21

Inventory turnover ratio has increased over the years this tells us that there has beenincrease in the sales and revenue and holding cost has also gone down.

Debtor turnover ratio has reduced, company must re-assess its policy in regard toensure timely collection of imparted credit that is not earning interest for the firm.

It shows NTPCs efficiency to convert its debtors into liquid is decreasing. The financial health of the company is sound enough and it appears positive in

accordance with its balance sheet and profit and loss a/c.

No. of working capital days has reduced this shows that less amount of workingcapital is required by the company.


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NHPC




Investments Turnover Ratio 125.34 102.78 80.93 3.6 6.48

Total Assets Turnover Ratio 0.11 0.12 0.09 0.09 0.08

Number of Days In Working

Capital 219.56 318.07 -95.76 -82.67

-

304.3

Inventory turnover ratio has increased many fold which suggests huge increase insales and better management of inventories.

Debtor turnover has reduced which shows that companies ability to convert debtorsinto liquid cash or cash equivalent has reduced.

Working days for the company has reduced which shows that company requires lessnumber of capital to carry out its day to day activities.


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KSK Energy



Fixed Assets Turnover Ratio 1.93 8.04 11.65 7.60 6.92


Interest Coverage Ratios 2.68 2.56 4.78 5.89 4.60

Number of Days In Working Capital 1,585.35 5,103.02 5,289.26 697.49 2,874.77

EBITDA 11382 8050 3695 2158 3365

Revenue 21717 13879 4534 3496 2389

Inventory turnover has increased over the period which shows increase in sales andbetter inventory management by the company.

Debtor turnover ratio is increased over the past few years which shows company hasbeen managing debtors efficiently and has been successful in converting debtors into

cash.

Companies number of working capital days have been reduced which is a good signas this shows that company requires less amount of liquid assets.

Revenue and EBITDA margins have been continuously on the rise as company has anumber of projects which have started to yield dividends.

Being a relatively new entrant, company has a number of development opportunitiesin the market.

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Analyzing Dividend Policy