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ABOUT ONGC

ONGC Videsh Limited (OVL), the wholly-owned subsidiary of Oil and Natural Gas

Corporation Ltd. (ONGC), has registered a production of 9.433 MMTOE in 2010-11,

surpassing the earlier peak production of 8.870 MMTOE of oil and oil equivalent gas in

2009-10. This records highest ever oil & gas production from the overseas assets of OVL so

far and sets a milestone in its journey for the quest for oil and gas acreages abroad including

acquisition of fields, exploration, development, production, transportation of oil and gas.

VISION & MISSION

To be global leader in integrated energy business through sustainable growth,

knowledge excellence and exemplary governance practices.

World Class

y Dedicated to excellence by leveraging competitive advantages in R&D and

technology with involved people.

y Imbibe high standards of business ethics and organizational values.

y Abiding commitment to safety, health and environment to enrich quality ofcommunity life.

y Foster a culture of trust, openness and mutual concern to make working a stimulating

and challenging experience for our people.

y Strive for customer delight through quality products and services.

Intergrated In Energy Business

y Focus on domestic and international oil and gas exploration and production business

opportunities.

y Provide value linkages in other sectors of energy business.

y Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership

y Retain dominant position in Indian petroleum sector and enhance India's energy

availability.

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Dividend Policy

The term dividend refers to that part of profits of a company which is distributed by the

company among its shareholders. It is the reward of the shareholders for investments made

by them in the shares of the company. The investors are interested in earning the maximum

return on their investments and to maximize their wealth. A company, on the other hand,

needs to provide funds to finance its long-term growth. If a company pays out as dividend

most of what it earns, then for business requirements and further expansion it will have to

depend upon outside resources such as issue of debt or new shares. Dividend policy of a firm,

thus affects both the long-term financing and the wealth of shareholders. As a result, the

firms decision to pay dividends must be reached in such a manner so as to equitably

apportion the distributed profits and retained earnings. Since dividend is a right of

shareholders to participate in the profits and surplus of the company for their investment in

share capital of the company, they should receive fair amount of the profits. The company

should, therefore, distribute a reasonable amount as dividends (which should include a

normal rate of interest plus a return for the risks assumed) to its members and retain the rest

for its growth and survival.

DIVIDEND DECISION AND VALUATION OF FIRM :

The value of the firm can be maximized if the shareholders wealth is maximized. There are

conflicting views regarding the impact of dividend decision on the valuation of the firm.

According to one school of thought dividend decision does not affect the share-holders

wealth and hence the valuation of the firm. On the other hand, according to the other school

of thought, dividend decision materially affects the shareholders wealth and also the

valuation of the firm. We have discussed below the views of the two schools of thought under

two groups:

y The Relevance Concept of Dividend or the Theory ofRelevance.

y The Irrelevance Concept of Dividend or the Theory ofIrrelevance

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The Relevance Concept of Dividends:

According to this school of thought, dividends are relevant and the amount of dividend

affects the value of the firm. Walter, Gordon and others propounded that dividend decisions

are relevant in influencing the value of the firm. Walter argues that the choices of dividend

policies almost and always affect the value of the enterprise.

The Irrelevance Concept of Dividend:

The other school of thought propounded by Modigliani and Miller in 1961. According to MM

approach, the dividend policy of a firm is irrelevant and it does not affect the wealth of the

shareholders. They argue that the value of the firm depends on the market price of the share;

the dividend decision is of no use in determining the value of the firm.

TYPES OF DIVIDEND POLICY :

The various types of dividend policies are discussed as follows:

1. Regular Dividend Policy

Payment of dividend at the usual rate is termed as regular dividend. The investors such as

retired persons, widows and other economically weaker persons prefer to get regular

dividends. A regular dividend policy offers the following advantages.

y It establishes a profitable record of the company.

y It creates confidence amongst the shareholders.

y It aids in long-term financing and renders financing easier.

y It stabilizes the market value of shares.

y The ordinary shareholders view dividends as a source of funds to meet their day-today

living expenses.

y If profits are not distributed regularly and are retained, the shareholders may have to

pay a higher rate of tax in the year when accumulated profits are distributed.

However, it must be remembered that regular dividends can be maintained only by

companies of long standing and stable earnings. A company should establish the regular

dividend at a lower rate as compared to the average earnings of the company.

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2. Stable Dividend Policy

The term stability of dividends means consistency or lack of variability in the stream of

dividend payments. In more precise terms, it means payment of certain minimum amount of

dividend regularly.A

stable dividend policy may be established in any of the following threeforms.

Constant dividend per share: Some companies follow a policy of paying fixed dividend per

share irrespective of the level of earnings year after year. Such firms, usually, create a

Reserve forDividend Equalisation to enable them to pay the fixed dividend even in the year

when the earnings are not sufficient or when there are losses. A policy of constant dividend

per share is most suitable to concerns whose earnings are expected to remain stable over a

number of years. Figure given below shows the behavior of dividend in such policy.

Constant pay out ratio:Constant pay-out ratio means payment of a fixed percentage of net earnings as dividends

every year. The amount of dividend in such a policy fluctuates in direct proportion to the

earnings of the company. The policy of constant pay-out is preferred by the firms because it

is related to their ability to pay dividends. Figure given below shows the behavior of

dividends when such a policy is followed.

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Stable rupee dividend plus extra dividend: Some companies follow a policy of paying

constant low dividend per share plus an extra dividend in the years of high profits. Such a

policy is most suitable to the firm having fluctuating earnings from year to year.

3. Irregular Dividend Policy

Some companies follow irregular dividend payments on account of the following:

y Uncertainty of earnings.

y Unsuccessful business operations.

y Lack of liquid resources.

y Fear of adverse effects of regular dividends on the financial standing of the company.

4. No Dividend Policy

A company may follow a policy of paying no dividends presently because of its unfavourable

working capital position or on account of requirements of funds for future expansion and

growth.

5. Residual Dividend Policy

When new equity is raised floatation costs are involved. This makes new equity costlier than

retained earnings. Under the Residual approach, dividends are paid out of profits after

making provision for money required to meet upcoming capital expenditure commitments.

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FINANCIAL STATEMENTS OF ONGC

BALANCE SHEET OF ONGC AS ON 31ST

MARCH 2010 (RSIN MILLIONS)

Particulars As at 31st march 2010 As at 31st march

2009

Sources of funds

Shareholders funds

Share Capital 21388.87 21388.87

Reserves and surplus 851437.15 765965.28

872826.02 787354.15

Loan funds

Unsecured loans 49.75 267.35

Deferred tax liability 89182.13 78022.35

Liability for abandonment cost 164006.68 160089.65

Total 1126064.58 1025733.50

Application of funds

Fixed assets (Gross Block) 715537.79 613556.05Less:- depreciation and impairment 559052.77 509412.32

Net block 156485.02 104143.73

Capital WIP 102413,54 116964.57

Producing Properties

Gross Cost 843112.16 757297.13

Less:- depletion and impairment 440290.04 395717.19

Net producing properties 402822.12 361579

Exploration/ development 55496.83 50687.37

Investments

Current Assets &Loans And

AdvancesInventories 46785.72 40606.71

Sundry debtors 30586.37 40838.04

Cash & bank balance 108279.29 121405.48

Deposit with scheduled bank 74031.06 69556.64

Other current assets 6333.05 13548.86

Loans and advances 271697.74 260043.83

537713.23 545999.56

Less Current Liabilities 120875.63 104252.80

Provisions 74124.02 70798.18

194999.65 211050.98

Net current assets 342713.58 334948.58

Miscellaneous Expenditure 8413.16 6506.10

Total 1126064.58 1025733.50

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PROFIT AND LOSS ACCOUNT FORTHE YEARENDED 31

St MARCH, 2010

(RS.IN MILLIONS)

2009-10 2008-09

INCOME

Gross Sales 6,02,048.19 6,39,477.08

Less:-Excise duty 2,185.42 3,494.11

Net sales 5,99,862.77 6,35

Other income 41866.86 53,122.72

6,41,729.63 6,89,105.69

EXPENDITURE

(Increase)/decrease in stock (1,180.38) (811.02)

Purchases 139.31 85166.03

Production, transportation, selling and distributionexpenditure

2,43,199.46 2,32,438.87

Depreciation, Depletion, Amortization and Impairment 1,46,431.88 1,19,541.97

Financing costs 144.23 1,189.17Provisions and write-offs 2,974,01 11,665.77

Adjustments relating to prior period (net) 182.69 765.31

3,91,891.20 4,49,956.10

Profit Before Tax and Extraordinary Item 2,49,838.43 2,39,149.59

Extraordinary Item - 657.73

Profit Before Tax 2,49,838.43 2,39,149.59

Provision for Taxation

- Current tax(including wealth tax Rs.22.50 million,

previous year Rs. 20.00 million)

7,12,02.50 7,90,70.00

- Earlier years (199.41) (5540.19)

-D

eferred tax 1,11,59.78 4314.36- Fringe Benefit Tax - 700.00

Profit After Taxation 1,67,675.56 1,61,263.15

Surplus at beginning 0.13 0.95

BALANCE AVAILABLE FORAPPROPRIATION 1,67,675.69 1,61,264.10

APPROPRIATIONS

Proposed dividend 32,083.09 29,944.22

Interim dividend 38,499.71 38,499.71

Tax on dividend 11,615.61 11,632.04

Transfer to General Reserve 85,477.00 81,188.00

Balance carried to Balance-sheet 0.28 0.13

1,67,675.69 1,61,264.10

Earnings per Equity Share- Basic and Diluted(Rs)

(Face value Rs 10/- per share)

-before extraordinary items (net of tax) 78.39 75.19

After extraordinary items 78.39 75.40

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FINANCIAL HIGHLIGHTS OF 5 YEARS AT A GLANCE (Rs. in millions)

PARTICULARS 2009-10 2008-09 2007-08 2006-07 2005-06

PAT 167676 161263 167016 156429 144308

EPS(BEFORE

EXTRA

ORDI

NA

RYITEMS)

78.39 75.19 78.09 71.66 98.22

EPS(AFTER

EXTRAORDINARY

ITEMS)

78.39 75.40 78.09 73.14 101.20

DIVIDEND(IN %) 330 320 320 310 450

BV OFSHARE 404 365 327 287 376

DIVIDEND

AMOUNT (INTERIM

ANDFINAL )

70583 68444 68444 66305 66305

NO .OFSHARES 2138872530 2138872530 2138872530 2138872530 142593992

CURRENT RATIO 2.30:1 2.26:1 2.47:1 2.77:1 3.08:1

DEBT EQUITY

RATIO0.00006:1 0.0003:1 0.001:1 0.001:1 0.002:1

NET WORTH 886413 780848 699435 614099 535934

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DATA REGARDING EPS(EARNINGS PERSHARE) AND DPS(DIVIDEND PER

SHARE)

Chart of comparison between EPS and DPS

INTERPRETATION

y Both EPS and DPS are growing at same rate

y As such there is consistency in EPS and DPS, they have maintained balance in

declaring dividend , it is declared within particular rangey In 2005, shareholding was 1425933992 equity shares, so EPS and DPS are high

compared to further years

y Till 2005 the earning was distributed among lesser shares compared to post bonus

scenario

y In 2006, 712938538 bonus shares were issued and share holding pattern changed to

2138872530

0

20

40

60

80

100

120

2005-06 2006-07 2007-08 2008-09 2009-10

EPS

DPS

(RS. In millions)Year EPS DP

2005-06 98.22 44.99

2006-07 71.66 30.99

2007-08 78.09 31.99

2008-09 75.19 31.99

2009-10 78.39 32.99

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DATAREGARDINGDIVISONOFDIVIDENDONTHEBASISOF

PERIOD(INTERIMANDFINAL)

Years INTERIM FINAL

2005-06 35648.35 28518.68

2006-07 38499.66 27805.31

2007-08 38499.66 29944.22

2008-09 38499.66 29944.22

2009-10 38499.66 32083.09

Chart of comparison between INTERIM and FINAL

INTERPRETATION

y It is seen that company declares both interim and final dividend

y The amount of interim dividend is more compared to final dividend

y Both are maintaining a balance at a constant rate

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2005-06 2006-07 2007-08 2008-09 2009-10

INTERIM

FINAL

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DIVIDEND PAYOUT RATIO

Year Dividend Payout (in %)

2005-06 45.80

2006-07 43.25

2007-08 40.97

2008-09 42.55

2009-10 42.08

Chart ofDividend payout ratio

INTERPRETATION

y Out of total earnings, looking at figures it seems that company pays nearly half of the

earnings as dividend

y There has been no deviation, as consistency is maintained, the dividend amount of all

the years fall in the range of 40% to 45%

45.8

43.25

40.97

42.5542.08

38

39

40

41

42

43

44

45

46

47

2005-06 2006-07 2007-08 2008-09 2009-10

Dividend Payout (in %)

Dividend Payout (in %)

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DATA REGARDING RETAINED EARNINGS

DIVIDEND DECLARED IN CURRENT YEAR:-

y The company paid an interim dividend on Rs. 18 per share (180%)

y In Dec, 2009 the BOD have recommend a final dividend of Rs. 15 per share (150%)

making the aggregate dividend at Rs. 33 per share (330%) as compared to Rs. Per

share (320%) paid in 2008-09.

y The total dividend will absorb Rs 70,583 million, besides Rs 11,616 million as tax on

dividend which is historically the highest dividend payout by the company.

Market Trend ONGC v/s BSE sensex

(Rs. in millions)

YearR

etained Earnings2005-06 71191

2006-07 79999

2007-08 86940

2008-09 81187

2009-10 85477

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STOCK OPTIONS:-

The company has not issued any stock options to its directors/employees.

TRANSFER OF UNPAID/UNCLAIMED DIVIDEND AMOUNT TO

INVESTOREDUCATION AND PROTECTION FUND (IEPF):-

During the year under report, an amount of Rs 3,744,255 and Rs 3,88,213 pertaining to

unpaid dividend for the financial year 2001-02 and 2002-03 (int.) reserve was transferred to

the IEPF set up by the Central Government.

This is in accordance with the sections 205A and 205C of the companys Act, 1956 requiring

transfer of dividend remaining unclaimed and unpaid for a period of 7 years from the duedate to the IEPF.

Unclaimed final dividend for the year2002-03 (Final) is due for transfer to IEPF on or before

28th

Oct 2010. All shareholders, whose dividend is unpaid, are requested to lodge their claim

with M/s Karvy the RTA by submitting an application before 30th

30th

sep, 2010 since no

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claim will lie against the company or the IEPF once the dividend amount is deposited in

IEPF.

Given below are the proposed dates for transfer of the unclaimed dividend to IEPF by the

company during this and next calendar year.

F.Y. Date of declaration Proposed date for

transfer to IEPF

2002-03 Final 29.09.2003 28.10.2010

2003-04 Interim 04.02.2004 03.03.2011

Final 29.09.2004 28.10.2011

CONCLUSION

ONGC is a public sector enterprise, with a large shareholding by president of India and it is

rated in fortune 500 companies list it is a growing company, which not only looks at the

profitable investments but also follows a constant dividend policy ensuring a regular return to

investors, retained earnings are utilized for profitable investments and trust of shareholders is

also attained. A part from this company has also issued bonus shares along with dividend in

2005.

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Bibliography

y Source: - http://www.ongcindia.com/, accessed on 17th

April, 2011.

y Source: -

http://www.ongcindia.com/%5Cdownload%5CCorp%20Sust%20Report%5

CONGC_Sustainability_Report_2009-10.pdf, accessed on 17th

April, 2011.

y Source: -

http://www.ongcindia.com/download/AnnualReports/Annual_Report_2008_09.pdf,

accessed on 17th

April, 2011.

y Source: - http://www.ongcindia.com/profile_new.asp, accessed on 17thApril, 2011.

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y Source: -

http://www.ongcindia.com/%5Cdownload%5CCorp%20Sust%20Report%5C

Annexure.pdf , accessed on 17th

April, 2011.