DIVIDEND POLICY OF HERO HONDA OVER THE LAST 5 YEARS

 Hero Honda is one of the largest manufacturers of the 2 wheeler. It has around
30% of the market share in the 2 wheeler segment. The company has always kept
its share holders happy since 1991, after the liberalization of Indian economy.
 It has been paying dividends. The Munjal family holds 26% of the total stake
before the split and later it brought out another 26% of the stakes from Honda and
now trying to reposition itself in Indian market.
 After 10 years 2001-02 it paid around 850% which was 705 of its net profit. In 2001-
02, it paid 850% dividend which was about 76% of its net profits. In 2002-03, Hero
Honda announced a 900% dividend, again more than two-thirds of its net profits.
In 2003, it declared a final dividend of Rs 10 per share and a special dividend of Rs
8 per share, on a share having par value of Rs 2 per share. This amounted to almost
70% payout of profits. From 2003-04 to 2005-6, the company has paid 1000%
dividend for the third consecutive year. The company's high dividend payouts have
always attracted media.
 From the below graph we can see that the company has increased the % of the
dividends year on year.

HERO HONDA Dividend Declaration

4500
4000
3500
3000
2500
2000
1500
1000
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0
YEAR 1 2 3 4 5 6 7 8 9 10
 Finally in the year 2010 it declared 4000% of dividends because Munjal family
knew that it would need money to acquire the remaining 26% stakes from the
Japanese firm Honda, hence it declared 4000% dividends, the highest in the last 26
years.
 This kind of the dividend declaration usually done in the companies where
majority of the stake holders are the family members itself. The share prices of the
Hero Honda declined by 1.93% on the BSE after the dividends were declared.
 The reason Hero Honda was able to declare high dividends was due to very less
operating expenses and high operating profits.

Year wise dividend policy of Hero Honda

In the year 2005-2006;

 The company believed that if the funds are not used for capital investments then
those funds should be distributed to the shareholders, rather than retaining it over
the next year.
 For the financial year 2005-2006 HERO HONDA recommended a 1000% dividend,
Rs 2 per equity share to the shareholders dividend of Rs 20 per share, aggregating
to Rs 399.38 billion. This was the highest dividend declared by any manufacturing
firm at least in the last three years.
 The reason being the sales grew by 14.5 %. It was 2.62 million units in 2004-2005 to
3 million units in the year 2005-2006. The overall customer base was 15 million.
This increased the sale and business performance that resulted into PAT from 810
million in 2004-2005 to 971 million in 2005-2006. It grew by 20%. Thus this led to
propose a 1000% dividend.
 The company also manufactured new bikes like CD Delux, Glamour, and Achiever
etc.
Profits before and for the year ended 2005-2006, the increasing profits led to increased
proposed dividend.

The graph shows the EPS rising from 1985 to 2005-

2006.The dividend payout per share is 20; the dividend
payout percent is 46.9%; earning per share is 48.6 and
the market value is 8.8.

In the year 2006-2007

 From the following table we can see that the

dividend per share is 17 which decreased from 20 to 17 that means the company
declared less dividend and the EPS also decreased from 48.6 to 43 which shows
that profit reduced from the last year.

2006-07
Dividend Per Share 17
Dividend Payout (%) 46.3
Earning Per Share 43
Market Value 5.6
Rs 2 per share 25 lakhs equity share were issued. From the above tables the dividend
proposed was 339.47 which was less than 2005 due to fewer sales and subsequently less
profits.

In the year 2007-2008

The profit in the year was 1225 and 969 million
respectively. The sales rose in this year but
company declared 950 percent dividend as compare
to previous year 850 percent. The company
declared Rs. 19 as dividend per equity share on
the face value. The share prices this year was
volatile because of the recession effect in India.
The dividend per share increased to 19 and dividend payout percent was 45.9 and
earnings per share was 49.5

The company declared 950 % dividend. This year the sales performance were improved
than the previous year as the recessionary pressure got light. So as the profits increased
from 858 million of last year to 968 million this year.

In the year 2008-2009

The profits in 2008-2009

were Rs 1561 and Rs 1282.
The dividend declared
was 950% higher than the
the previous year. The
dividend payout ratio was
down to 36.5 % from 45.9
%. The company earned
less profit earned in 2008-2009 as compared to previous year. Due to fewer sales the
company earned less profit but they still declared a higher dividend than the previous
year because of the retained earnings that the company had accumulated.
The dividend per share increased from 2007 i.e. from 19 to 20 and this shows that the
sales volume increased as the industry achieved a growth rate of 11.53% where as HERO
HONDA achieved annual sales volume of 19 %. 1000 % dividend was declared seeing the
cash generating capacity of the company, the expected capital needs of the business and
strategic considerations.

In the year 2009-2010

The financial year 2009-2010 the company declared its dividend at a galloping rate of
5500%. The company declared its last dividends in two phases. The first phase was at
4000% and the second was declared at 1500%. The dividends declare is Rs. 80 on per
equity share. The total dividend including is declared of Rs. 30 on further announcement.
Rs 110 dividend declared on per equity share which having face value 2.

The reason of sudden increase in high dividend policy in the financial year 2009-
10

 Profit after tax of the company was very high i.e. RS.2, 231.83 corer which quite
greater than last year’s Rs. 1281.76 corer.
 In this financial company was celebrating its silver jubilee year with strong
financial growth, company announced special dividend to its shareholders.
 In this year company didn’t re invested its money for any kind of capital
investment so its dividend optimally distributed to its shareholders.
 During the year company recorded its highest revenue in last 9 years of period. Net
turnover increased 16o98.79 million from 12,265.21 million of last year turnovers.
 During the year company has launched 9 new models which surpassed record
sales.

The earnings per share is shown in the graph from the year 2005-2006

to 2009-2010. Highest EPS was declared in 2009-2010 that was 111.28.

was the highest among the last 4 years.

Conclusion

The graph shows the share movements of HERO HONDA as compared with Nifty in
2008. The nifty is falling but the HERO HONDA share prices are rising, that we can see
from the graph. The performance of the company is good and commendable in spite of
being under recessionary pull the company managed to perform well and declare high
dividends for the share holder. Thus the company focused on wealth maximization of the
share holders rather than profit maximization, because each year the company declared
high profits than the previous year.
The company’s dividend policy is very consistent over the period that was taken into
consideration. It consistently maintained a high dividend payout ratio and prioritized
wealth maximization rather than going for profit maximization.

The earnings per share is shown in the graph from the year 2005-2006

to 2009-2010. Highest EPS was declared in 2009-2010 that was 111.28.

was the highest among the last 4 years.