A REPORT

ON

“DIVIDEND POLICIES OF NALCO”

BY:-
Rajiblochan Biswal
Enrollment No. : 1806283112

NATIONAL ALUMINIUM COMPANY LIMITED

A Report submitted in partial fulfillment of the requirements of

MBA Program of
RCEM

Distribution List:

Faculty Guide : Company Guide :

Prof. N. C. Kar Mr. Chandra Sekhar Gummadi
Professor, Department of Finance Manager, Finance,
RCEM, Bhubaneswar NALCO, Bhubaneswar
 AUTHORISATION

This is to certify that the project titled “Dividend Policies of NALCO” is a

bonafide research work done by Rajiblochan Biswal, bearing Enrollment No.:-

1806283112. This report is submitted as partial fulfillment of the requirements of

MBA program of RCEM Bhubaneswar. This project work is effectively

executed under the guidance and supervision.

Faculty Guide : Company Guide :

Prof. N. C. Kar Mr. Chandra Sekhar Gummadi
Professor, Department of Finance Manager, Finance,
RCEM, Bhubaneswar NALCO, Bhubaneswar
 ACKNOWLEDGEMENTS

I take this opportunity to express my sincere and profound gratitude to all those
who have been instrumental in making my project report during my internship at
National Aluminium Company Limited (NALCO) , Corporate Office,
Bhubaneswar, a memorable learning experience.

First and foremost, I would like to thank Shri T.K. Chand, Chairman-cum-
Managing Director, and Mr. Sambit Parida, Asst. General Manager (Trg.) &
Mr Ajit Pradhan, Manager (Trg.) of NALCO for providing me the chance to
undertake this internship study and allowing me to explore the area of finance
which would prove out to be very beneficial to me in my future assignments, my
studies as well as my career ahead.

I give my sincere thanks to Mr. S D Sahu, E.D. Finance, NALCO for suggesting
me to do this project and providing me with his insightful knowledge.

I would like to express my deep sense of gratitude and sincere appreciation to my

corporate guide and mentor Mr. Chandra Sekhar Gummadi, Manager, Finance,
NALCO for sparing his valuable time, to constantly monitor and guide my
progress. He has been a constant source of inspiration throughout the internship.
Right from framing of the project, to every required approach and decision, his
guidance was immense in nature. He has been constantly with me, providing me
with various learning opportunities and helping me unconditionally throughout
the internship tenure. I am thankful to him from the core of my heart.
I am also deeply grateful to my faculty guide and mentor Prof. N.C. Kar,
Professor, Department of Finance, RCEM Bhubaneswar, for his invaluable
suggestions, comments, feedback and support throughout the internship. I would

II
also like to thank him for his continuous support, advice and encouragement,
without which this report could never have been completed.
Lastly, I wish to thank my family, friends and all other concerned people,
for their valuable help and support, directly or indirectly related to the project
which motivated me to prepare and come up with this report.

Rajiblochan Biswal

Enrollment No. – 1806283112

RCEM, Bhubaneswar

III
 EXECUTIVE SUMMARY
This project is a sincere effort to study and analyze the Financial Management of
National Aluminium Company Limited (NALCO), which is one of the top listed
companies within the Aluminium Sector in India. Every manufacturing company
faces the problem of Financial Management in their day to day processes. An
organization's cost can be reduced and the profits can be increased only if it is
able to manage the financial position of the firm. At the same time the company
can provide customer satisfaction and hence can improve their overall
productivity and profitability.

This project analyzes NALCO's financial performance over the last decade from
the FY2006 to FY2015. The project work was divided into three phases. The first
phase was conducted on Financial Performance Analysis of NALCO using Ratio
Analysis. The second phase was regarding the application of various Dividend
models, policies and distribution of dividends to shareholders and its
implications. The final phase was conducted on the analysis of several Retirement
Benefit Plans which are provided by the Company and regarding their importance
from the Finance perspective.

The report's second phase comprises of the "Dividend Policies of NALCO". The
principle objective of any firm is the shareholder's wealth maximization. And one
of the ways of achieving it is through dividends, thus making the importance of
its analysis more pertinent. In this section, we discuss about the various dividend
policies, models like Walter Model, and Gordon Model etc., dividend payout ratio
at different phases, policy formulation, corporate behavior, dividend decisions,
its calculated interpretations and implications in context of NALCO. Comparison
with peer group is conducted for analyzing the position of NALCO with respect
to its peer group within the aluminium industry.

IV
The findings of this project is indicative of the fact that "NALCO's overall
financial position is in a very good and healthy condition." The company
achieved remarkable profits over the last decade. The long term solvency position
the company is excellent. The company's efficiency in liquidity and profitability
is remarkable. The few problems that NALCO is facing can be observed in the
area of low Fixed-Assets Turnover, narrowing competitor (BALCO) margin in
case of Inventory Turnover and also growing Cost to Company in case of Gratuity
provided to the employees. NALCO must have thorough circumspection about
these mentioned areas of improvement. Keeping aside the very few problems, the
company's dividend distribution methods are also excelling justifying the concept
of shareholder's wealth maximization. It can be well concluded that NALCO is
one of the finest organization in India and would definitely progress and achieve
higher limits in upcoming future.

This internship is a bridge between the institute and the organization. This made
me to involve in a project that helped me to employ my theoretical knowledge
about how the analysis of Financial Performance is done by an organization.
The experience that I gathered over the past three months has certainly provided
the orientation, which I believe will help me in shouldering any responsibility in
future.

V
 Table of Contents
AUTHORISATION.............................................................................2

ACKNOWLEDGEMENTS ...............................................................II

EXECUTIVE SUMMARY .............................................................. III

Chapter 1 : INTRODUCTION

1.1 INTRODUCTION TO THE RESEARCH PROJECT

a) PURPOSE OF THE PROJECT

b) SCOPE OF THE STUDY

c) RESEARCH METHODOLOGY

d) OBJECTIVES OF THE PROJECT

e) LIMITATIONS OF THE PROJECT

1.2 INDUSTRY ANALYSIS

a) INTRODUCTION TO ALUMINIUM INDUSTRY

b) WORLD SCENARIO

c) DOMESTIC SCENARIO

d) FUTURE OF INDIAN ALUMINIUM INDUSTRY

1.3 COMPANY ANALYSIS

a) INTRODUCTION TO NATIONAL ALUMINIUM COMPANY LIMITED

b) COMPANY PROFILE

c) PRODUCTS OF NALCO

d) PRODUCTION / OPERATION UNITS

e) LOCATIONS OF OPERATIONS
Chapter 2 : DIVIDEND POLICIES OF NALCO

2.1 INTRODUCTION TO DIVIDEND POLICIES

2.2 IMPORTANCE OF THE STUDY

2.3 MODEL SELECTING INVESTMENT AND DIBIDEND

DECISIONS

Chapter 3 : WHY YOU CHOOSE TO DIVIDEND POLICIES

Chapter 4 : DPE GUIDELINES ON DIVIDEND

Chapter 5 : DIVIDEND DATA ANALYSIS

5.1 10 YEARS DIVIDEND ANALYSIS

5.2 10 YEARS EPS & DPS ANALYSIS

5.3 10 YEARS OPENING & CLOSING CASH BALANCE ANALYSIS

 Chapter 1

INTRODUCTION
1.1 INTRODUCTION TO THE RESEARCH
PROJECT

a) PURPOSE OF THE PROJECT :

The purpose of this project is threefold : to carry out an in-depth analysis of
"Dividend Policies" of National Aluminium Limited Company (NALCO).

b) SCOPE OF THE STUDY :

Apart from the financial analysis, this study also deals with the various dividend
policies, dividend models as well as retirement benefit plans of NALCO, which
would help both the organization and its employees for the review purpose and in
terms of valuation, profitability and growth aspects of the organization.

This project can be helpful for the forecast and evaluation of the overall performance
of the National Aluminium Limited Company (NALCO) in future.

The scope for doing this project is limited to three companies namely NALCO,
HINDALCO and BALCO, as these three companies share more than ninety percent
of the industry market share. The data used is limited to past ten years and ratio
analysis is the only financial analysis tool used in this project. The resources
available are utilized to the optimum.

c) RESEARCH METHODOLOGY :
 Research is defined as a systematic gathering, recording and analysis of data

about problem relating to any particular field.

 It determines strength, reliability and accuracy of the project.
This study used a descriptive research design for the purpose of getting an insight
regarding the topic, as factual and as accurate as possible. Collection of data is done
via public domain, annual reports of the respective companies, company brochures
and also filing RTI requests for the data if not available. Both primary as well as
secondary data collection method is used for this study report. The details of the
various data sources and references have been given at the end of the report.

d) OBJECTIVES OF THE PROJECT :

The broad objectives of this report are as follows : -
 To study and analyze the "Dividend Policies of NALCO".
 To draw the significance of this analysis for the company's future prospects
based on its past performance and current position.

e) LIMITATIONS OF THE PROJECT :

Though there are many merits involved in my study, but it is not free from certain
limitations given below :
 This report is based on secondary data from the public domain.
 There are certain information which are deemed to be confidential, which
would not be used in this project.
 Since NALCO is a "Zero-Debt" company, thus, there may be difficulty in some
areas of data collection and less options to explore.
 Time may act as another hindrance, since to prepare a quality report of this
magnitude, time plays a major role.

1.2 INDUSTRY ANALYSIS

a) INTRODUCTION TO ALUMINIUM INDUSTRY :
Aluminium is the third most available element on earth constituting almost 7.3% by
mass. Currently, it is also the second most used metal in the world after steel. Due
to the fact that consistent growth of Indian economy, the demand for metals , used
for various sectors, is also on the higher side. As a result, the Indian Aluminium
Industry is also growing consistently.

The consumption of aluminium in India is dominated by industries like power,

infrastructure, transportation and packaging etc. India is the world's fifth largest
aluminium producer with an aluminium production of around 2 million tonnes,
accounting almost 3.7% of the total aluminium production in the world. India is also
a huge reservoir of Bauxite with a Bauxite reserve of 3 billion tonnes.

 History of Indian Aluminium Industry:

Indian Aluminium Industry was first established in 1808 and it took almost 46 years
to make its production commercially viable. India entered in to the aluminium
industrial sectors in a modest way with the formation of the Indian Aluminium
Company Limited known as INDAL in private sector in the mid 40's. INDAL was
established based on the bauxite reserves occurring on the Deccan Basalts in the
central and western India. In the year 1959, Hindustan Aluminium
Company(HINDALCO) was established by the Birla Brothers, which had a
capacity of producing 20,000 tonnes per annum. Madras Aluminium Company
(MALCO) was also established later in 1965, which has a smaller capacity. These
companies were commissioned solely on the basis of Western Ghat bauxite ore
deposits near Mettur. The Government of India established the public sector
undertaking known as Bharat Aluminium Company limited (BALCO) at Korba in
the state of Madhya Pradesh. Later, in the year 1987, National Aluminium Company
(NALCO) was commissioned to produce Aluminium with a capacity of producing
0.218 million tonnes. Regulations and control was there during 1970's, resulting into
price distribution controls and restrictions in entry in Aluminium Industry. Later in
1991, with de-licensing of industry, the liberal import of technologies and capital
goods was started. The liberalization resulted in a growth rate of 12% of the
industry, comparing to the growth rate of 6% during the 1980.

The country came into the limelight and got highlighted in the world map of Bauxite
Reserves. Now India is known to be having one of the largest reserves of best quality
bauxite mines. As per the estimate India has a total reserve of more than three billion
tons (300 crore tons) of bauxite reserves. The total areas of these scattered deposits
of bauxite ores spread in nearly 25000 square kilometers in the state of Odisha and
Andhra Pradesh. The bauxite belt is about 300 kilometres long and has a width
ranging from 40 to 100 kms. With the discovery of these huge bauxite ore deposits
India has occupied its position in the world map of bauxite reserves at the 5th rank
from the top to down counting. The discovery of this huge deposit has given birth
to our very own company National Aluminium Limited Company (NALCO).
 b) WORLD SCENARIO :

Major Producers of Aluminium :

East & Central

Europe- 45,765
Note: Figures
North America- in metric
54,837 West Asia(Ex China)-
Europe - 33,946 tonnes
43,103

GCC-
China (Reported)-
4694
2,02,796

Africa- 19,104

South America-
Oceania- 24,012
23,565

Rest of the
World- 8,793

c) DOMESTIC SCENARIO :
 Aluminium Production in India:
India moved up in ranks to be the fourth largest aluminium producer accounting
almost 5% of the total aluminium production in the world. India is also a huge
reservoir of Bauxite with a Bauxite reserve of 3 billion tones.
India saw a significant growth in aluminium production in the past five years. Due
to the growing demand from the construction, electrical, automobiles and
packaging industry, the production of aluminium also hiked up.

After a stagnant consumption of primary aluminium in India from the end of

1990s to 2002 (when the consumptions were between 500 – 600 KT), it started
rising sharply since 2002. The consumption reached at 1,080 KT in 2006. The
consumption of aluminium in India is dominated by the industries like power,
infrastructure, and transportation etc.

 Major Players :
The Indian aluminium industry is dominated significantly by three companies that
constitute the majority of India's aluminium production. Following are the major
players in the Indian aluminium industry:
 Hindustan Aluminium Company (HINDALCO).

 National Aluminium Company (NALCO).

 Bharat Aluminium Company (BALCO).

Pros and Cons of Aluminium Industry in India and China.

Country Name Advantages Disadvantages
India  Good quality bauxite  Tough local

resources. environment.

 Good potential for coal  Delays in land

resources. acquisition and

clearances
 China  Local demand advantage.  Insufficient

bauxite/alumina.
 Fast implementation.

 High power

tariffs , power
availability
concerns.

d) FUTURE OF INDIAN ALUMINIUM INDUSTRY :

The future of the aluminium industry is intrinsically related to the issue of global
warming and emission of greenhouse gases. A key focus of the industry is the
reduction in emissions by the following ways :
 Promoting aluminium recycling.

 Expanding use of the metal in automobiles, trains and aircrafts.

Innovative products and solutions are also central to the future demand for
aluminium and growth of the industry. Fuel-cell powered cars are promising
applications that can potentially become a high growth segment for the aluminium
industry. This is because aluminium could be used to produce hydrogen fuel
efficiently, which would help in the growth of fuel-cell powered cars and thereby
arrest greenhouse emissions.

 Growth Aspect :

The rapid growth of the emerging nations led by China and India is expected to
drive aluminium consumption in the future. Aluminium consumption in BRIC
nations alone is expected to increase at a CAGR of 9% over the period 2007-2020
while global aluminium consumption is anticipated to more than double to 78.5 mt
over the same period. India is considered the fifth largest producer of aluminium
in the world and demand for the metal is expected to touch 3.3 mt by 2020.
Demand in the fast-growing Chinese market is expected to reach 40.8 mt by 2020.
The gradual recovery of the recession-hit world markets, especially the
construction and transportation sectors, would facilitate further expansion of
aluminium consumption.

Global aluminium production is being driven by China. The production of primary

aluminium grew at 18.8% per annum between 2003 and 2008 in China. Going
forward, the rapidly expanding Asian economy is expected to reach a capacity of
34.8 mtpa by 2010.

Demand Growth 2007-2020.

78.5
80

70

60
Tonnes in millions

50
40.8
38
40 2007
30 2020

20
12.2
10 3.3
1.2
0
GLOBAL CHINA INDIA

Year-wise Demand Comparison of Global & Countries

1.3 COMPANY ANALYSIS

 Company Vision
 To be a reputed global company in the metals and energy sectors.

 Mission
 To achieve sustainable growth in business through diversification,

innovation and global competitive edge.

 To satisfy the customer and shareholders, employee and all other stake

holder.

 Statement of values
 The corner stone of NALCO’s corporate governance philosophy is anchored

in the values of transparency, empowerment and accountability seeking to

ensure superior “Triple Bottom Line” performance. Aspects of Integrity,
Ethical practices, Transparency are enshrined in our Sustainable Development
Policy.

a) INTRODUCTION TO NATIONAL ALUMINIUM COMPANY

LIMITED :
 Background :
During the late seventies, the Government of India considered of establishing an
integrated alumina-aluminium factory in the state of Odisha. In January 1980 the
visit of the President of France to India saw the signing of a memorandum of
understanding (MOU) for initiating technical discussion on collaboration and
financing of one of the largest integrated alumina and aluminium projects in the
world. In November 1980, Government of Odisha sanctioned for the
establishment of the Odisha Aluminium Complex, which was christened and
registered as National Aluminium Company Limited (NALCO), on the 7th of
January 1981.
The then Prime Minister of India, Smt.Indira Gandhi laid the foundation stone of
NALCO at Damanjodi on 29th March 1981. Thus began a new chapter in the Indian
history of aluminium industry with NALCO.
National Aluminium Company limited(NALCO) was incorporated as a Public
Sector Undertaking following a major investment decision of Government of India
to utilize a part of large deposits of bauxite discovered in the East Coast. NALCO
had started with an initial Mission of “ Constructing and commissioning each of its
units as scheduled and within estimated cost”. This mission was successfully
achieved and has only a few parallel in the Public Sectors.
Then , NALCO declared “TO BE A COMPANY OF GLOBAL REPUTE IN
ALUMINIUM SECTOR” and to achieve its vision , NALCO had to give thrust on
export , international collaboration and trading and at the same time continue to be
the leader among Indian Aluminium Industries, which is striving for its growth , by
increasing its business activities , capacity expansion , diversification and
development of value added products joint ventures etc. NALCO is now one of the
pioneer of Alumina/ Aluminium producing Companies in South Asia and plays a
key role in the development of aluminium industry in the country and economic
progress.
NALCO had initially set up an Aluminium Plant in Koraput District and Smelter
Plant in Angul District of Orissa State. The annual production capacity of the
Alumina Plant was 8,00,000 MT . this was further expanded to 15,75,000 MT/year
. Similarly Aluminium Smelter initially set up at 2,30,000 MT and further expanded
to 3,45,000 MT / year in phases. A Captive Power Plant was also set up at Angul
with a capacity of 720 MW( being increased to 960 MW) to meet requirement of
Smelter Plant. For production of above , required raw materials like coal , calcined
petroleum coke , coal tar pitch , Fuel Oil and Caustic soda etc . are to be moved
from various locations by road and rail through Railway network.

b) COMPANY PROFILE :

National Aluminium Company Limited (NALCO) is a Navratna CPSE under

Ministry of Mines, Govt. of India. It was established on 7th January, 1981, with its
registered office at Bhubaneswar. The Company is a group ‘A’ CPSE having
integrated and diversified operations in mining, metal and power with sales turnover
of Rs 7024 crores in financial year 2013-14. Presently, Government of India holds
80.93% equity of NALCO.
The company has a 68.25 lakh TPA Bauxite Mine & 22.75 lakh TPA Alumina
Refinery located at Damanjodi in Koraput dist. of Odisha, and 4.60 lakh TPA
Aluminium Smelter & 1200 MW Captive Power Plant located at Angul, Odisha. As
per diversification plan, NALCO has ventured into renewable energy sectors. The
Company has successfully commissioned two wind power plants. A 50.4 MW wind
power plant at Gandikota, Andhra Pradesh and another of 47.6 MW wind power
plant at Jaisalmer, Rajasthan are operational since December, 2012 and January,
2014 respectively. 260 KWP Rooftop Solar Power System has been made
operational at Office and Township, Bhubaneswar during FY 2014-15.

NALCO has bulk shipment facilities at Vizag port for export of

Alumina/Aluminium and import of caustic soda and also utilizes facilities of
Kolkata and Paradip ports. The company has its regional marketing offices in Delhi,
Kolkata, Mumbai & Chennai its branch offices at Bangalore, Paradeep , Ahmedabad
and its 11 stockyards at various locations in the Country.

NALCO is the first Company in Aluminium sector in the Country to venture into
International market in a big way with London Metal Exchange (LME) registration
since May, 1989. The Company is listed at Bombay Stock Exchange (BSE) since
1992. All the manufacturing units and the port facility of the Company, are certified
to ISO 9001, ISO 14001, and OHSAS 18001 Management Systems and Integrated
Management System operates at these units . The energy intensive manufacturing
units i.e. Smelter, CPP & Alumina Refinery are also certified to ISO 50001 Standard
for energy management system. SA 8000 certification is also obtained for all the
manufacturing units and corporate office.

The Company has plans to set up a 2 lakh TPA caustic soda plant in JV with Gujarat
Alkalies & Chemicals Limited (GACL) and 55,000 TPA Aluminium Conductor
plant in JV with Power Grid Corporation of India Limited (PGCIL). The Company
has plans to set up a 14MW wind power plant at mined out area of Damanjodi and
another 100MW wind power plant at any suitable location in the Country.

The company has formed a JV Company with Nuclear Power Corporation of India
Limited (NPCIL) for establishing 2X700 MW Nuclear Power Plants at an estimated
investment of Rs. 11,459 crores at Kakrapara in Gujarat. For development of
downstream ancillary industries, a JV Company has been formed with IDCO,
Odisha for Angul Aluminium Park.

The company is involved in playing a significant role in the socio-economic

development of the areas where it operates. Rehabilitation of displaced families,
employment, income generation & health care for local people, development of
infrastructure, care for environment and various humanitarian goodwill missions
have earned NALCO a place of pride in the corporate world. With the setting up of
NALCO Foundation and doubling of CSR budget to 2% of the net profit, the
company is well-poised to augment its activities on social responsibilities
significantly.
In order to promote education amongst tribal children, NALCO has sponsored more
than 655 students in reputed educational institutes in Odisha by way of bearing all
their expenses on studies including lodging and boarding etc.

c) PRODUCTS OF NALCO :

NALCO’s products belong to Aluminium Sector in the non-ferrous metal category

as given below :
I. Aluminium Metal
 Ingots
 Alloy Ingots
 T-Ingots
 Sows
 Billets
 Wire Rods
 Cast strips

II. Alumina & Hydrate

 Calcined Alumina
 Alumina Hydrate

III. Zeolite-A

IV. Special Products

 Specialty Hydrate / Alumina (Alumina Chemicals)

V. Rolled Product
  Aluminium Rolled Products
 Aluminium Chequered Sheets

VI. Power Thermal Power

 Co-generation Power
 Wind Power
 Solar Power

d) PRODUCTION / OPERATION UNITS :

The main highlights of the major production units of the Company are given below:
I. Bauxite Mine :
On Panchpatmali hills of Koraput district in Orissa, a fully mechanized opencast
mine is in operation since November, 1985, serving feedstock to Alumina
Refinery at Damanjodi located on the foothills. Present capacity of Mines is
68.25 lakh TPA. Bauxite occurs over the full length of the Panchpatmali plateau,
which spans over 18 kms.

II. Alumina Refinery :

The Alumina Refinery is located at Damanjodi, Odisha, approximately 14 KM
from the bauxite mine at Panchpatmali. The mined-out bauxite is transported
from captive mine to refinery by a 14.6 KM long single-light multi-curve 1800
tonnes per hour (TPH) capacity cable belt conveyor. The alumina produced is
transported to aluminium smelter at Angul (Odisha) and to Vizag (Andhra
Pradesh) port by rail. The present capacity of Alumina Refinery is 22.75 lakh
TPA. Alumina produced is used to meet Company's requirements for production
of primary aluminium at smelter. The surplus alumina is sold to third parties in
the export markets.
III. Aluminum Smelter :
The present capacity of smelter is 4.60 lakh TPA. Alumina is converted into
primary aluminium through a smelting process by using electrolytic reduction.
From the pot-line, the molten aluminium is routed to either the casting units,
where the aluminium can be cast into ingots, sow ingots, tee ingots, billets, wire
rods, cast strips and alloy ingots, or to RPU where the molten aluminium is rolled
into various cold-rolled products or cast into aluminium strips. Aluminium
products are sold in the domestic market and also exported through Kolkata,
Paradeep & Vizag ports.

IV. Captive Power Plant :

Presently the Captive Thermal Power Plant has a generation capacity of 1200
MW (10X120MW). While the captive thermal power plant provides entire
electric power requirement of aluminium smelter, it also feeds for approximately
35 MW of the power requirement to the alumina refinery through the State Grid.
The location of captive thermal power plant at Angul is also strategic to the
availability and supply of coal from nearby Talcher Coalfields. The 18.5 KM
captive railway system links the captive thermal power plant to the Talcher
coalfields, enabling transport of the critical and bulk requirement of coal.

V. Port Facilities :
On the Northern-arm of the inner harbour of Visakhapatnam Port on the Bay of
Bengal, NALCO has established mechanized storage and ship handling facilities
for exporting Alumina in bulk and importing Caustic Soda with conveying
capacity of 2,200 TPF. Six (6) RCC (Reinforced Cement Concrete) Silos are
maintained by the Company with 3 x 25,000 MT RCC Silos for Alumina storage
capacity and with 3 x 10,000 LMT for Caustic Soda Lye storage capacity
e) LOCATIONS OF OPERATIONS :
The locations of the plant is distributed at different regions of Odisha and in the
state of Andhra Pradesh. They are as follows:

Locations of Operations of NALCO.

Registered and corporate office Smelter Plant
NALCO Bhawan NALCO Nagar
Plot no. P/1, Nayapalli Angul – 759145
Bhubaneswar – 751013 (Odisha)
(Odisha)
Mines & Refinery Capative Power Plant
Mines & Refinery Complex Angul – 759122
Damanjodi- 763008 (Odisha)
Dist-Koraput (Odisha)
Utkal E-Coal Block Port Facility
S&P Complex Opp ore Handling Complex
NALCO Nagar Port Area Vishakapatnam – 530035
Angul (Odisha) (Andhra Pradesh)

Gandikota 50.4 MW Wind Power Plant Jaisalmer 47.6MW Wind Power Plant
National Aluminium Company Limited National Aluminium Company Limited
Village- Gandikota, Div- Prodattur Village-Ludarva Dist-Jaisalmer
Dist- Kadapa Rajasthan – 345001
Andhra Pradesh – 516434
 Chapter 2
DIVIDEND POLICIES OF
NALCO
2.1 INTRODUCTION TO DIVIDEND POLICIES

The term "Dividend" refers to that part of the profits of a company which is
distributed amongst its shareholders. It may therefore be defined as the return that a
shareholder gets from the company, out of its profits, on his share holdings.
“According to the Institute of Chartered Accounts of India”, "Dividend is a
distribution to shareholder out of profits or reserves available for this purpose”.

Dividends are commonly defined as the distribution of earnings (past or present) in

real assets among the shareholders of the firm in proportion to their ownership.

 Types of Dividends :
I. Cash Dividends: This is the most common form of dividend. Cash dividends
are those dividends when simply cash is paid out of the profits.
II. Share Repurchases: The Company repurchases the stock. Shareholders pay
tax only on the capital gains portion.
III. Stock Split: It increases the number of shares in a public company. The price
is adjusted such that the before and after market capitalization of the company
remains the same and dilution does not occur.
IV. Bonus Issue: It is a free share of stock given to current shareholders in
a company, based upon the number of shares that the shareholder already
owns. While the issue of bonus shares increases the total number of shares
issued and owned, it does not change the value of the company.
V. Right Issue: With the issued rights, existing shareholders have the privilege
to buy a specified number of new shares from the firm at a specified price
within a specified time.
"Dividend Policy" of a firm determines what proportion of earnings is paid to the
shareholders by way of dividends and what proportion is ploughed back in the firm
for reinvestment purposes.

Dividend policy has been an issue of interest in financial literature since Joint Stock
Companies came into existence. The primary goal of "Financial Management" is
shareholders’ wealth maximization, which translates into maximizing the value of
the company as measured by the price of the company’s common stock. This goal
can be achieved by giving the shareholders a “fair” payment on their investments.

Dividends paid by the firms are viewed positively both by the investors and the
firms. The firms which do not pay dividends are rated in oppositely, by investors
thus affecting the share price.
Dividend policy is challenging for the directors and financial manager of a
company, because different investors have different views on present cash
dividends and future capital gains. And also regarding the extent of effect of these
dividends on the share price. Due to this controversial nature of a dividend policy it
is often called the dividend Puzzle.

2.2 IMPORTANCE OF THE STUDY

 The principle objective of any firm is the shareholder's wealth maximization.

And one of the ways of achieving it is through dividends, thus making the
importance of its analysis more prominent.

 Any firm, whether a profit making or non-profit organization has to take

certain capital budgeting decision. The importance and subsequent

indispensability of the capital budgeting decision has led to the importance
 of the dividend decisions for the firms, thereby, making it an important area
to assess before taking crucial decisions.

 The impact of the balance between dividends and retained earnings on the

market value of the firm's equity is quite prominent to be assessed and

analyzed.

 This study focuses on the various Dividend Policies at NALCO, and the

detailed analysis of these would be beneficial for the review purpose of the
concerned stakeholders in terms of valuation, profitability and growth aspects
of the organization.

 This report facilitates the company and also the concerned stakeholders to

understand the key financial factors associated with both NALCO as well as
the industry, regarding dividend distribution, and arriving at the key growth
prospects.

 The knowledge of analytical comparison of the various theories of the

dividend with reference to their assumptions and conclusion is much of a

required attribute of Finance Manager in today's corporate world.

2.3 MODELS RELATING INVESTMENT AND

DIVIDEND DECISION

Two important models supporting dividend Correlation are given as follows :

a) Walter Model :
James Walter has proposed a model of share valuation which supports the view
that the dividend policy of the firm has a bearing on share valuation.

The critical assumptions of Walter’s Model are as follow:

 The firm is an all-equity financed entity and rely only on retained earnings

to finance its future investments.

 The rate of return on investments is constant.

 The firm has an infinite life.

Mathematically it’s given by

𝐷 (𝐸 − 𝐷)r/𝑘𝑒
𝑃= +
𝑘𝑒 𝑘𝑒

where,
P = Market price of the share
D = Dividend per share
r = Rate of return on the firm's investments
𝑘𝑒 = Cost of equity

E = Earnings per share.

Therefore, from above, the market value of a share is the result of expected
dividends and capital gains according to Walter Model.

The key argument in support of the relevance proposition of Walter’s model is the
relationship between the return on a firm’s investment or its internal rate of return
(r) and its cost of capital or the required rate of return (Ke) The firm would have
an optimum dividend policy, which will be determined y the relationship of r and
k. In other words, if the return on investments exceeds the cost of capital, the firm
should refrain the earnings, whereas it should distribute the earnings to the
shareholders in case the required rate of return exceeds the expected retune on the
firm’s investments. The rationale is that if r > ke, the firm is able to earn more than
what the shareholders could by reinvesting, if the earnings are paid to them. The
implication of r < ke is that shareholders can earn a higher return by investing
elsewhere.

Walter’s model, thus, relates the distribution of dividends (retention of earning) to

available investment opportunities. If a firm has adequate profitable investment
opportunities. It will be able to earn more than what the investors expect so that
r>ke. Such firms may be called growth firms. For growth firms, the optimum
dividend policy would be given by a D/P ratio of zero.

That is to say the firm should plough back the entire earnings within the firm. The
market value of the shares will be maximized as a result. In contrast, if a firm does
not have profitable investment opportunities (when r < ke,) the shareholders will
be better off if earnings are paid out to them so as to enable them to earn a higher
return by using the funds elsewhere. In such a case, the market price of shares will
be maximized by the distribution of the entire earnings as dividends. A D\P ratio
of 100 would give an optimum dividends policy.

Finally, when r= k (normal firms), it is a matter of indifference whether earnings

are retained or distributed. This is so because for all D/P ratios (ranging between
zero and 100) the market price of shares will remain constant. For such firms,
there is no optimum dividend policy (D/P ratio.)

Limitations:
 The Walter’s model, one of the earliest theoretical models, explains the relationship between
dividend policy and value of the firm under certain simplified assumptions. Some of the
assumptions do not stand critical evaluation. IN the first place, the Walter’s model assumes
 that exclusively retained earnings finance the firm’s investment; no external financing is used.
The model would be only applicable to all- equity firms.
 Secondly, the model assumes that r is constant. This is not a realistic assumption because when
the firm makes increased investments, r also changes.
 Finally as regards the assumption of constant risk complexion of firm has a direct bearing on
it. By assuming a constant Ke. Walter’s model ignores the effect of risk on the value of the
firm.

b) Gordon Model :
Myron Gordon proposed a model of stock valuation using the dividend
capitalization approach. The model is based on the following assumptions :
 The firm is an all-equity firm. No external financing is used and exclusively

retained earnings to finance future investment programs.

 r and ke are constant.

 The firm has perpetual life.

 The retention ratio, once decided upon, is constant. Thus, the growth rate,

(g=br) is also constant.

 Kc>br.

E(1 − b)
𝑃=
𝑘𝑒 − 𝑏𝑟

where,
P = Market price of the share
E = Earnings per share
b = Retention ratio (1 - payout ratio)
r = Rate of return on the firm's investments
𝑘𝑒 = Cost of equity
br = Growth rate of the firm (g)
Therefore, the model shows a relationship between the payout ratio, rate of return,
cost of capital and the market price of the share.

It can be seen from the assumption of Gordon’s model that they are similar to
those of Walter’s model. As a result, Gordon’s model, like Walter’s contends that
dividend policy of the firm is relevant and that investors put a positive premium
on current incomes/dividends.
The crux of Gordon’s arguments is a two-fold assumption: (i) investors are risk
averse, and (ii) they put a premium on a certain return and discount/ penalize
uncertain returns.

As investors are rational, they want to avoid risk. The term risk refers to the
possibility of not getting a return on investment. The payment of current dividends
ipso facto completely removes any chance of risk. If, however, the firm retains the
earnings (i.e. current dividends is uncertain, both with respect to the amount as
well as the timing. The rational investors can reasonably be expected to prefer
current dividend. In other words, they would discount future dividends that are
they would placeless importance on it as compared to current dividend. The
investors evaluate the retained earnings as a risky promise. In case the earnings are
retained, therefore the market price of the shares would be adversely affected.

The above argument underlying Gordon’s model of dividend relevance is also

described as a bird-in-the-hand argument. “That a bird in hand is better than two in
the bush is based to the logic that what is available at present is preferable to what
may be available in the future. Basing his model on this argument, Gordon argues
that the futures are uncertain and the more distant the future is, the more uncertain
in it is likely to be. If, therefore, current dividends are withheld to retain profits,
whether the investors would at all receive them later is uncertain. Investors would
naturally like to avoid uncertainty. In fact, they would be inclined to pay a higher
price for shares on which current dividends are paid. Conversely, they would
discount the value of shares of a firm, which postpones dividends. The discount
rate would vary, as shown if figure with the retention rate or level of retained
earnings. The term retention ratio means the percentage of earnings retained. It is
the inverse of Dividend Payout Ratio. The omission of dividends, or payment of
low dividends, would lower the value of the shares.
 Chapter 3
WHY YOU CHOOSE TO
DIVIDEND POLICIES
A company is raising funds from different sources; it includes debentures,
preference shares and equity shares. Payments to debenture holders and to
preference share holders are at a fixed rate. No commitment is made to equity share
holders in terms of return. If there is a loss then no payment will be made to them,
however if there is a profit, then the company is required to decide whether to pay
dividend or not. If dividend is to be paid, then what amount to be paid is required to
be decided. Again this decision will be taken in such a way so that it maximizes
wealth of shareholders. There are various types of dividend policies – regular,
stable, constant and irregular. In this post, we will discuss various factors affecting
dividend policy.

1 Factors affecting Dividend Policy

1.1 Type of Industry

1.2 Ownership Structure

1.3 Age of corporation

1.4 The extent of Share Distribution

1.5 Different Shareholders’ Expectations

1.6 Leverage

1.7 Future Financial Requirements / Reinvestment opportunity

1.8 Business Cycles

1.9 Changes in Government Policies

1.10 Profitability

1.11 Taxation Policy

1.12 Trends of Profits

1.13 Liquidity

1.14 Legal Rules

1.15 Inflation

1.16 Control Objectives

1.17 Repayment of debt

Factors affecting Dividend Policy

A company needs to analyze certain factors before framing their dividend policy.

The following are the various factors/determinants that impact the dividend policy
of a company:

Type of Industry

The nature of the industry to which the company belongs has an important effect on
the dividend policy. Industries, where earnings are stable, may adopt a consistent
dividend policy as opposed to the industries where earnings are uncertain and
uneven. They are better off in having a conservative approach to dividend payout.

Ownership Structure

The ownership structure of a company also impacts the policy. A company with a
higher promoter’ holdings will prefer a low dividend payout as paying out dividends
may cause a decline in the value of the stock. Whereas, a high institutional
ownership will favor a high dividend payout as it helps them to increase the control
over the management.
Age of corporation

Newly formed companies will have to retain major part of their earnings for further
growth and expansion. Thus, they have to follow a conservative policy unlike
established companies, which can pay higher dividends from their reserves.

The extent of Share Distribution

A company with a large number of shareholders will have a difficult time in getting
them to agree to a conservative policy. On the other hand, a closely held company
has more chances of succeeding to finalize conservative dividend payouts.

Different Shareholders’ Expectations

Another factor that impacts the policy is the diversity in the type of shareholders a
company has. A different group of shareholders will have different expectations. A
retired shareholder will have a different requirement vis-a-vis a wealthy investor.
The company needs to clearly understand the different expectations and formulate
a successful dividend policy. Psychologically, cash dividend will give more
satisfaction to shareholder in comparison to capital appreciation.

Leverage

A company having more leverage in their financial structure and consequently,

more interest payments may to decide for a low dividend payout, so as to increase
their net worth and to make sure that it can make payment of financial charges even
in case of earning of the company is falling. Whereas a company utilizing more of
own financing will prefer high dividends.

Future Financial Requirements / Reinvestment opportunity

Dividend payout will also depend on the future requirements for the additional
capital. A company having profitable investment opportunities is justified in
retaining the earnings. However, a company with no capital requirements should
opt for a higher dividend.

Business Cycles

When the company experiences a boom, it is prudent to save up and make reserves
for dips. Such reserves will help a company to maintain dividend even in depressing
markets to retain and attract more shareholders.
Changes in Government Policies

There could be the change in the dividend policy of a company due to the imposed
changes by the government. The Indian government had put temporary restrictions
on companies to pay dividends during 1974-75.

Profitability

The profitability of a firm is reflected in net profit ratio and ratio of profit to total
assets. A highly profitable company have a capacity to pays higher dividends and a
company with less profits will adopt a conservative dividend policy.
Taxation Policy

The corporate taxes will affect dividend policy, either directly or indirectly. The
taxes directly reduce the residual earnings after tax available for the shareholders.
If dividend income is taxable in the hands of investor and capital gain is exempt,
then company may retain its earning so as to increase price per share, which
ultimately gives higher return to investors’ and vice versa. Further if it is possible
that bifurcate all shareholders into high tax bracket or low tax bracket, accordingly
dividend policy can be framed. Finally, objective is to give maximum return to
shareholders.

Trends of Profits

Even if the company has been profitable over the years, the trend should be properly
analyzed to find the average earnings of the company. This average number should
be then studied in relation to the general economic conditions. This will help in
opting for a conservative policy if a depression is approaching.

Liquidity

Liquidity has a direct relation with the dividend policy. Many a times, company
having high profit, may have majority of profit blocked in working capital or it may
acquired assets. In that case its liquidity is poor. In that case company should pay
fewer dividends. High dividend payment is possible only if company has good
earning and sound liquidity.

Legal Rules

There are certain legal restrictions on the companies for dividend payments. It is
legal to pay a dividend only if the capital is not reduced post payment. These rules
are in place to protect creditors’ interest. Most importantly providing depreciation
is mandatory before making payment of dividend. Depreciation is to be provided at
minimum rates provided. Providing depreciation is very important because with that
company is able to retain an amount of profit for replacement of fixed assets in
future.

Inflation

Inflationary environments compel companies to retain major part of their earnings

and indulge in lower dividends. As the prices rise, the companies need to increase
their capital reserves for their purchases of fixed assets. In case of inflationary
situation, same quantity of closing stock will have more valuation, so payment of
tax also increases.

Control Objectives

The firms aiming for more control in the hands of current shareholders prefer a
conservative dividend payout policy. It is imperative to pay fewer dividends to
retain more control and the earnings in the company.

In a nutshell, the management of a company is completely free to frame the required

dividend policy. There are no obligations to be adhered to. So, the company needs
to judiciously weight all the above-mentioned factors and formulate a balanced
dividend policy. A dividend policy can also be revised in the wake of changes in
any of the factors.

Repayment of debt.

If a substantial amount of debt is required to paid, in that case even though the
company has high amount of earning, it may pay less dividend.
 Chapter 4
DPE GUIDELINES ON
DIVIDEND
INVESTMENT MANAGEMENT OF CPSEs-GUIDELINES ON CAPITAL
RESTRUCTURING OF CENTRAL PUBLIC SECTOR
ENTERPRISES(CPSEs)

Background-

Department of public enterprises (DPE),department of expenditure &department of

economic affairs in the ministry of finance have issued guidelines from time to time
on issue of bonus shares buyback of share splitting of share and dividend’s
announced in the budget 2016-17 the government is adopting a comprehensive
approach for efficient management of its investment in CPSEs by addressing inter
related issues such as capital restructuring dividend bonus share etc.

2. The resource management issues for a CPSE need to be looked into in the context
of the focus rives of the government to inner alia spur economic growth through
efficient management of gol's investment in CPSEs.it is therefore imperative that
government of Indian’s interests as a majority shareholder investor in a CPSE are
duly represented through the nominee official director on the board of the company.
The nominee director should discharge their responsibility to ensure efficient
allocation of gol's investment in CPSEs for growth and economic development .it
may require that an appropriate view is taken by the department/Administrative
ministry in such financial matters before the board meetings in line with this
approach.

3. In the above background the guidelines on these subjects need to be rationalized

so as to comprehensively capture the various aspects of capital restructuring of
CPSEs.accordingly in supersession of guideline issued earlier the following
consolidated guidelines on general principles and mechanism for capital
restructuring of CPSEs is issued as below:
4.APPLICABILITY:

4.1 These guidelines shall apply to all corporate bodies where government of India
and /or government controlled one or more body corporate have controlling interest
hereinafter would be referred to as central public sector enterprises CPSEs for these
guidelines.

4.1.1 Body corporate shall include body incorporated under the provisions of the
companies act,1956 or the companies act 2013 or under any other act as may be
applicable except limited liability partnership.

4.1.2 Controlling interest means control over the composition of the board of
directors or exercise or control over more than one-half of the total share capital or
able to exercise more than 50per cent voting right in the meeting of the
member,board of director or any other similar executive structure,e.g.,governing
body,executive committee etc.

4.1.3 A body corporate in which government of India and or CPSEs including their
subsidiaries controls the composition of the board of directors, or exercises or
control more than one- half of the total share capital shall be deemed to be a body
controlled by government of India.

4.2 These guideline for payment of dividend, issue of bonus shares and buyback of
share shall not apply to the body corporate which is prohibited from distribution of
profit to its member,e.g.companies set up under section 8 of the companies act 2013
or under extant provisions of any other act or which has accumulated losses.

4.3 The guideline for payment of dividend shall be applicable Frome financial year
ending on or after 31stmarch 2016 and guidelines for issue of bonus shares, buyback
and splitting of share shall be applicable from financial year starting 1 stapril 2016
or thereafter.
4.4 CPSEs shall ensure compliance of these guidelines by taking up this matter as
an agenda item along with a compliance note in the board meeting of the company
convened for finalization and approval of its annul account. Requisite approval of
shares holders/ members shall be obtainedin the AGM/EGM to be held immediately
there after.

5.PAYMENT OF DIVIDEND

Department of expenditure vide its O.M. Nos.7(5)E-Coord/2004 and O.M.

No.7(2)E-Coord/2005 dated 27/09/2004 and 23/11/2005 respectively & department
of economic affairs vide O.M.3(3)-B(s)/2015 dated 05/01/2016 have issued
guidelines on dividend pay out by CPSEs.however,it is observed the CPSEs are not
restructuring their capital by issue of bonus shares to maintain healthy balance in
capital and net worth. Declaration of dividend at reasonable rate on a regular interval
boosts investorconfidence. Although dividend is paid on paid up share capital,
dividend pay-outshould be seen with reference to return to share Holder’s money,i.e
net worth needs to be compared with alternative investment opportunities available
to the investors. Hence there is a felt need for a clear dividend policy and CPSEs
need to take a decision on dividend within a clear articulated framework/guidelines
of the Government.

5.2 In supersession of earlier guidelines, every CPSE would pay a minimum annul
dividend of 30℅ of PAT or 5℅ of the net-worth, whichever is higher subject to the
maximum dividend permitted under the extant legal provisions.

5.3 Nonetheless, CPSEs are expected to pay the maximum dividend permissible
under the act under which a CPSE has been set up, unless lower dividend proposed
to paid is justified after the analysis of the following aspects on a case to case basis
at the level of Administrative Ministry /Department with the approval of Financial
Advisers.
(i) Net worth Of the CPSE and its capacity to borrow .

(ii) long-term borrowing ;

(iii) CAPEX/Business Expansion needs;

(iv) Retention of profit for further leveraging in line with the CAPEX needs ;and

(v) Cash and bank balance.

5.4 The analysis should confirm that the retention of funds augmenting its net-worth
is being optimally leveraged to ensure higher investment by the CPSEs .The report
for exemption ,if any ,in this regard will be submitted by the CPSEs through their
Administrative Ministry to Secretary ,Department of Economic Affairs and
Secretary ,Department of Investment and Public Asset Management
(DIPMA)before the end of second quarter of the financial year.

6. BUYBACK OF SHARES :

6.1 The DPE had issued guidelines vid O.M No.DPE/14(24)2011-Fin .Dated 26th
March ,2012 regarding buyback of shares .These guidelines only provides that if a
CPSE decides to buy back its own shares from the shareholders using surplus cash
,Department of Disinvestment (DOD) on behalf of major shareholders may tender
/offer equity on behalf of Government of India. It further provides that CPSEs will
amend their Articles of Association to provide for buyback of shares, provided such
provision does not exist in their Articles Of Association .

6.2 It has been observed that CPSEs are not looking into the merit based capital
restructuring including the option of buyback of shares if they do not have plans to
deploy surplus funds optimally for business purposes . Although CPSEs have been
set for specific purpose ,some of them are not able to deploy the cash/bank balance
for viable business expansion . In such cases ,buyback of shares improves investors
‘ Confidence in the company and is likely to help the company to raise capital in
future when it requires funds for expansion /Diversification for growth .Thus, it
supports their market capitalization ,which is in the overall long term interest of the
company .

6.3 In supersession of earlier guidelines ,every CPSE shall look into and analyse/
deliberate in first Board meeting after the closure of the financial year the following
parameters for the purpose of buyback;

(i) Cash and bank balance;

(ii) Capital Expenditure and business expansion as committed with reference to the
CAPEX incurred in the last 3 years;

(iii) Net-worth [Free reserves and paid-up capital ,including other reserves (if any)];

(iv) Long term borrowing and further capacity to borrow on the basis of its Net
worth;

(v) Any other financial commitment in the near future;

(vi) Business /other receivables and contingent liabilities, if any; and

(vii) Market price /book value of share.

6.4 Based on this analysis, it needs to be clearly brought out that surplus cash and
bank balance with the CPSE shall be considered for restructuring of capital through
buy back .How ever , every CPSE having net worth of at least Rs .2000.crore and
cash and bank balance of over Rs .1000 crore shall exercise the option to buy-back
their shares.

7. Issue of Bonus Shares ;

7.1 The Department of public Enterprises had issued guidelines on issue of bonus
shares by public Sector Undertaking vide O.M. No. DPE /12(6)-fin . Dated
10thNovember 1995 and O.M .No. DPE/13(21)-fin. Dated 25th November 2011
respectively .These guidelines provide that each Administrative Ministry may direct
the CPSEs under their paid up capital should immediately consider the scope for
issuing bonus shares to Government of India and pro-rata to other existing
shareholders if partial disinvestment had occurred so far.

7.2 The Department of Expenditure had issued O.M. dated 24th September, 2004
providing for that all profit-making companies must also consider issuing bonus
shares to the Government. Subsequently , the Department vide its O.M dated
23rdNovember 2005 stipulated that PSEs having large cash/free reserves and
sustainable profitability will issue bonus shares .The Department of Economic
Affairs vide its O.M dated 5th January , 2016 provides that CPSEs with large cash
/free reserves and sustainable profits may issue bonus shares .

7.3 The Government has from time to time underlined the desirability that CPSEs
should capitalize a portion of their large reserves by issuing bonus shares to the
existing shareholders .The issue of bonus shares helps in bringing about a balance
between paid up capital &accumulated reserves and elicits good public response to
equity issues of the public enterprises and its market capitalisation.

7.4 In supersession of all guidelines issued earlier, every CPSE should look into and
analyze/deliberate in their Board meeting /Finance Committee, the issue of bonus
shares when their defined reserves and surplus are equal to or more than 5 times of
its paid up equity share capital . In case, if it is decided not to issue bonus shares,
the nominee Official Director shall ensure that the board analyses the justification
for the decision, and reasons for the same be recorded specifically.

7.5 However, every CPSE shall issue bonus shares if their defined reserves and
surplus is equal to or more 10 times of its paid up equity share capital.

7.6 Defined reserves and surplus would mean free reserves, the share premium
account, and the capital redemption reserve account.
8. Splitting of Shares :

8.1 Department of Expenditure vide its OM NO. 7(2)/E-Coord/2005 dated 23rd

November, 2005 provides that companies with high market price of shares will
consider stock splits. However, it does not state when a CPSE needs to consider
stock splits and simply mentions that CPSEs with high market price of share will
consider splitting of shares.

8.2 It has been endeavor of the government to encourage participation of small

investors to invest in the company. In view of this , the Board of the CPSEs needs
to discuss and decide on the desirability of splitting the share .

8.3 However, a CPSE where market price or book value of its share exceeds 50
times of its face value will split-off its shares appropriately provided its existing
face value of the share is equal to or more than RS. 1.

9. Miscellaneous Provisions:

9.1 Net-worth as referred to in the above guidelines would have the same meaning
as defined in the Companies Act, 2013, as amended from time to time.

9.2 The above guidelines on payment of dividend, bonus shares, buyback and
splitting of shares would be subject to the provisions of the Act under which a CPSE
has been set up, as amended from time and any other extant regulations/rules.

9.3 In case, any CPSE is not able to comply with any of the above guidelines,
specific exemption has to be obtained from DIPMA, Ministry of Finance, and
Government of India through their Administrative Ministry /Department. The
Administrative Ministry will ensure the compliance of these guidelines and refer
proposal for exemption(s) to DIPAM along with their opinion /Comments and
concurrence of the Financial Adviser in the Matter.
9.4. The Department of Public Enterprises (DPE) which conducts an annual survey
may consider an appropriate modification, if required, in their existing format to
adequately capture various aspects of the above guidelines for the efficient
management of GOI's investment in CPSEs. The findings of the Survey may also
be suitability incorporated in its annual publication on “Public Enterprises Survey
“.
 Chapter 5
DIVIDEND DATA
ANALYSIS
 10 Year’s Dividend

Dividend Policy: Department of Expenditure vide its O.M. Nos. 7(5)E-Coord/2004

and O.M. Nos.7(2)E –Coord/2005 dated 27/09/2004 and 23/11/2005
respectively and Department of Economic Affairs vide O.M. 3(3)-B(s)/2015
dated 05/01/2016 have issued guidelines on dividend payout by CPSEs. In
suppression of this guidelines, Every CPSE would pay a minimum annual
dividend of 30% of PAT or 5% of Net Worth, whichever is higher subject to
the maximum dividend permitted under the extant legal provisions. The
below table contains the information regarding dividend payable and actual
dividend paid in the last 10 years.

(Rs. In Crore)

Year Dividend as Dividend as Dividend Actual

30% of PAT 5% of Net Payable Dividend
Worth
2008-09 331.69 488.50 488.50 322.16
2009-10 244.27 519.75 519.75 161.08
2010-11 320.79 558.25 558.25 257.72
2011-12 254.85 585.75 585.75 257.72
2012-13 177.85 596.65 596.65 322.15
2013-14 193.61 606.10 606.10 386.59
2014-15 396.56 539.85 539.85 451.02
2015-16 219.31 645.35 645.35 467.13
2016-17 200.60 510.30 510.30 541.22
2017-18 402.73 525.25 525.25 595.78
1. In the Financial Year 2008-09 the company earned Profit After Tax (PAT) of
Rs. 9770.00 crore and it’s Net Worth at the time was Rs.1272.27 crore. As
per Dividend Distribution Policy it should be paid the higher of 30% of PAT
i.e. Rs.331.69 crore or 5% of Net Worth i.e. Rs. 488.5 crore. So the dividend
payable is Rs.488.50 being the higher of the above two. But the actual
dividend paid was Rs.322.16 crore.
2. In the year 2009-10 the same policy for dividend distribution was adopted
where dividend payable was Rs.519.75 being the higher of 30% of PAT i.e.
Rs.244.27 and 5% of Net Worth i.e. Rs.519.75. And the actual dividend paid
was Rs.161.08 crore.
3. The same Dividend Distribution Policy has been adopted over the last 10
years for payment of dividend. But the company used to pay dividend to its
shareholders less than the dividend payable.However, the company paid
actual dividend more than the dividend payable in last 2 years.
EPS & DPS DATA
ANALYSIS
 (Rs.in Crore)

Year Earnings Per Dividend Per Retained by the

Share Share(DPS) Company
(EPS)
2008-09 19.75 5.00 14.75
2009-10 12.64 2.50 10.14
2010-11 4.15 2.50 1.65
2011-12 3.30 1.00 2.30
2012-13 2.30 0.13 2.17
2013-14 2.49 1.50 0.99
2014-15 2.84 1.75 1.09
2015-16 2.84 1.81 1.03
2016-17 2.98 2.10 0.88
2017-18 6.94 2.31 4.63
1. In the Financial year 2008-09 the company’s Earning Per Share was Rs.19.75
and the company had paid dividend @ Rs.5.00 per share. After giving
dividend to its shareholders the company earned a profit of Rs.14.75 per
share.
2. In 2009-10 the company’s Earnings Per Share had been decreased to
Rs.12.64. Keeping in view the decreased Earnings Per Share than Previous
Financial Year the company the company had paid dividend @ Rs.2.5 per
share which was the half of previous year’s dividend payment. And the
company’s profit was Rs.10.14 per share.
3. The Earnings Per Share was decreasing every year. In the year 2010-11 it was
only Rs.4.15. However the company had decided to pay a dividend at the
same rate as in the previous year to satisfy its shareholders. And after paying
dividend to its shareholders the company earned a profit of Rs.1.65 per share.
 OPENING & CLOSING
CASH BALANCE ANALYSIS
 (Rs. In Crore)

Year Opening Closing Increase / (-)

Cash Balance Cash Balance Decrease of Cash
2008-09 3516.46 2869.04 -647.42
2009-10 2869.04 3152.35 283.31
2010-11 3152.35 3795.23 642.88
2011-12 3795.23 4168.35 373.12
2012-13 4168.35 3504.38 -663.97
2013-14 3504.38 4048.29 543.91
2014-15 4048.29 4627.98 579.69
2015-16 4627.98 4933.53 305.55
2016-17 4933.53 4499.86 -433.67
2017-18 4499.86 4394.47 -105.39

1. In the Financial Year 2008-09 the company’s Opening Balance was

Rs.3516.46 crores in the financial activities of Cash Flow. The Company
also made a profits of Rs.14.75 per share. Instead of making a spectacular
profits on share the company’s Closing Balance is less than the Opening
Balance due to making some heavy expenses and purchases. In that year
the company had purchased a fixed assets also. Hence, the Closing
Balance in 2008-09 was Rs.2869.04 crore which shows that the company
had an outflow of cash of Rs.647.42 crore.

2. The Opening Balance in the year 2009-10 was Rs.2869.04 crore which is
the closing balance of the previous year. The company made a profit of
Rs.10.14per share and the closing balance was Rs.3152.35 crore. The
 company still had a cash inflow of Rs.283.31 crore after making some
expenses and purchases in relation to the shares.

3. The company is making profits on share every year since last 10 years.
But due to heavy expenses and purchases as per the requirements of the
company the outflow of cash sometimes exceeds the inflow of cash.
However, most of the year the company had the inflow of cash which has
been shown clearly in the table above.