Ambedkar University Delhi

CORPORATE
FINANCE
SUBMITTED TO: DR. KANWAL ANIL

NAMES ROLL NUMBER

ANANYA GARG S183F0002

DIVYA MARWAHA S183F0012

GUNDAILUNG GONMEI S183F0013

ROSHNI RAJAN S183F0035

 OBJECTIVE OF OUR STUDY
To identify and analyze the dividend pay- out ratio and dividend policy of top 4
FMCG companies. The study also aims to study the determinants affecting the
dividend pay-out ratio. The objectives of this research are to explore the extent of
association between dividend policy and firm performance (profitability). Our aim
is to understand the payout ratios and the type of dividend policy followed by the
company. We also aim to identify the profitability of the company and where does
that particular company stand in terms of growth, dividend and share prices in its
industry.
The companies our group aims to study –
1) Hindustan Unilever Limited
2) Dabur
3) Nestle India
4) Proctor and Gamble
 PROBLEM STATEMENT
Dividend decisions have myriad and long-standing strategic implications on a
company in the form of adding or depleting value created to the shareholder.
Dividend payment could provide a signal to the investors that the company is
complying with good corporate governance practices. Good corporate governance
practices are valuable for a company as it implying that the company is able to raise
funds from capital market with attractive terms. By distributing dividend, it able to
attract investors and indirectly increase the company share price. This sort of
company could easily raise funds through new share issuance for expansion which
then would increase profits and increase share price. Hence taking appropriate
dividend decisions plays a very important role as it will not only attract the investors
but also increase company’s goodwill. Along with that company should also
maintain a stable dividend ratio as retained earnings are also very important for any
company because they help in taking investment decisions. It is very important for
the company to decide the amount and frequency of dividends to be paid to the
investors. Through this study we aim at exploring the dividend policies and the
dividend pay- out ratios of 4 FMCG Companies.
 METHOLOGY
The research will be focusing on the dividend policies of various top FMCG firms
in India. The data will be collected through secondary means by using
MONEYCONTROL of past 5 years of top 10 FMCG companies listed in NSE. This
gives us an idea about the expected return for an investor. The total amount of
dividend payouts of companies noted on main market was presented in the first
place. Dividend pay-out ratio was commuted by dividing the total amount of
dividends paid to the shareholders relative to the net income of the company.
Comparison on the behavior of providing dividends will be made by using various
tools and charts.
 REVIEW OF LITERATURE
Over the past years several studies were made in relation to dividend policies and
their dividend pay- out ratio in the developed as well as under developed countries.
Various factors can be considered as the determinants of dividend payout policy and
a number of logics for dividend payout policy have been declared in the literature,
however, the researchers are not agreed on a single point.
Abdulrahman Ali Al‐Twaijry (2007) examined the variables which have an expected
influence on dividend policy and on payout ratio in emerging markets in his paper “
Dividend policy and pay- out ratio: evidence from the Kuala Lumpur stock
exchange” . Based on the literature he used eight hypotheses to analyze and compare
the dividend policies of 300 firms which were randomly selected. The results from
his study suggest that the current dividends are affected by their past and future
prospects. Dividends are also associated with the net earnings but to a very less
extent. Payout ratios (POR) were not found to have a strong effect on the
company's future earning growth, but had some significant negative correlation
with the company's leverage. Cash per share and share book value significantly
and positively affect both DPS and POR.
Mohammed Amidu, Joshua Abor, (2006) studied the determinants of dividend pay-
out ratios of listed companies in Ghana in his paper “Determinants of Dividend
Payout- Ratio in Ghana”. The analyses are performed using data derived from the
financial statements of firms listed on the Ghana Stock Exchange during a six year
period. He used the Ordinary Least Squares model to estimate the regression
equation. Growth in sales and market to book value are also used as proxies for
investment opportunities. The results show that there is a positive relationship
between dividend payout ratios and profitability. The study also reflected the
positive relationship between the dividend payout ratio and cash flow, and tax. On
the contrary findings show negative associations between dividend payout and risk,
institutional holding, growth and market to book value. Moreover, the significant
variables that played a major role in the results are profitability, cash flow, sale
growth and market to book value.

Factors Influencing Dividend Policy Decisions of Corporate India

Manoj Anand*

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.424.6376&rep=rep1&ty
pe=pdf

This study is an analysis of the results of 2001 survey of 81 CFOs of

“Business Times” bt-500 companies most valuable PSUs in India. With the objective
to find out what determines the dividend policy decisions of corporate India. Factor
analytic methodology was used to analyze the dividend policy of corporate India
based on the responses received from the CFOs to the survey questionnaire. The
results of the study were found to be consistent with the theory and was
simultaneously revealing as well. The management of corporate India believes that
dividend decisions are important as they provide a signaling mechanism for the
future prospects of the firm and thus affect its market value. They do consider the
investors’ preference for dividends and shareholder profile while designing the
dividend policy. They also had a target dividend
Pay-out ratio but were open to pay stable dividends with growth. This Study
concludes that dividend policy does play an important role for the CFOs and the
investors.

Dividend and Bonus Policies of Indian Companies: An Analysis

Pitabas Mohanty

https://journals.sagepub.com/doi/pdf/10.1177/0256090919990406

This Study focuses on the dividend paying behavior of more than 200 Indian
companies over 15 years. In this study the sample period (1982-1996) is further sub
categorized into two sub-periods (1982-91) and (1992-96). In the first sub period
there was a total sample of 250 out of which only 160 provided bonuses which were
further divided into four categories A, B, C and D.
In the second sub period out of 201 Companies only 91 companies offered bonuses.
After comparing the results of the two periods it was found that that it was consistent
with the signaling hypothesis that a bonus issue signals an increase in the cash
dividends. A study of the dividend and bonus policies of Indian companies revealed
that most of the companies do not maintain a constant payout ratio. Most of the
companies reward their shareholders by offering a bonus issue. The dividend rate
does not fall proportionately in most cases and hence the cash dividend paid to the
shareholder increases after a bonus issue.

An Empirical Analysis of Determinants of Dividend Policy - Evidence from the

UAE Companies
The study focuses on various determinants of dividend payout for all the firms across
UAE.
It investigates the determinants of dividend payout for all firms in the areas of real
estate, energy sector, construction sector, telecommunications sector, health care and
industrial sectors (except bank and investment concerns) listed on the Abu Dhabi
Stock exchange for a period of 5 years from 2005- 2009. It took various determinants
of dividend namely - Profitability, Risk,, Liquidity, Size and Leverage of the firm.
They performed various Correlation and Regression analysis to come to a conclusion
on how these determinants ( independent variables) affect the profitability and
ultimately the dividend payout.

Source : https://www.sciencedirect.com/science/article/pii/S0304405X01000393

Determinants of Dividend Payout Ratios: Evidence from United States

The paper seeks that for the entire sample, the dividend payout ratio is the function
of profit margin, sales growth, debt-to-equity ratio, and tax. For firms in the Services
industry the dividend payout ratio is the function of profit margin, sales growth, and
debt-to-equity ratio. For manufacturing firms we find that dividend payout ratio is
the function of profit margin, tax, and market-to-book ratio. It is also found that the
results are different when the dividend payout ratio is defined as the ratio between
the cash dividend that the after-tax cash flow, not the after tax earnings of the
companies. They have used co-relational and nonexperimental research design. The
process of measurement is central to quantitative research because it provides the
fundamental connection between empirical observation and mathematical
expression of quantitative relationships
Source : https://benthamopen.com/ABSTRACT/TOBJ-3-8

COMMON TERMS USED IN

THE REPORT

 Operating Profit & OPM

Operating Profit gives an indication of the current operational profitability of

the business and allows a comparison of profitability between different
companies after removing out expenses that can obscure how the company is
really performing.

Interest cost depends on the management's choice of financing, tax can vary
widely depending on acquisitions and losses in prior years, and depreciation
and amortization policies may differ from company to company.

 Profit Before Tax

Profit before tax deducts all expenses from revenue including interest
expenses and operating expenses, excluding tax. Since taxes change every
year, PBT gives investors a good idea about the company profits every year.

 Return On Capital Employed %

 Capital Employed is defined as total assets less current liabilities. Return On
Capital Employed is a ratio that shows the efficiency and profitability of a
company's capital investments. The ROCE should always be higher than the
rate at which the company borrows money.

 Dividend

Dividend is a payment made by a company to its shareholders usually as a

distribution of profits. When a company makes profit it can either re-
invest it in the business or it distribute it to its shareholders by way of
dividends. The dividend pay out ratio is the amount of dividends paid to
shareholders relative to the amount of total net profit of a company.

A reduction in dividends paid is not appreciated by investors and usually the

stock price moves down as this could point towards difficult times ahead for
the company. On the other hand a stable dividend pay out ratio indicates a
solid dividend policy by the company's management.
 DIVIDEND POLICY
STRUCTURE OF TOP 4
COMPANIES
 ABOUT THE COMPANY

HUL works to create a better future every day and helps people feel good, look good
and get more out of life with brands and services that are good for them and good
for others.

With over 35 brands spanning 20 distinct categories such as soaps, detergents,

shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged
foods, ice cream, and water purifiers, the Company is a part of the everyday life of
millions of consumers across India. Its portfolio includes leading household brands
such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline,
Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru,
Knorr, Kissan, Kwality Wall’s and Pureit.

The Company has about 18,000 employees and has a sales of INR 34619 crores
(financial year 2017-18). HUL is a subsidiary of Unilever, one of the world’s leading
suppliers of Food, Home Care, Personal Care and Refreshment products with sales
in over 190 countries and an annual sales turnover of €53.7 billion in 2017. Unilever
has over 67% shareholding in HUL
 DIVIDEND POLICY
HUL focuses on having a stable dividend policy. This helps to provide a decent
return to the investors as well as retain some amount of profits for future growth
and expansion.

• Interim dividend is considered for declaration by the Board

INTERIM based on the performance of the Company during the year.

DIVIDEND

• Dividend is based on the performance for the full year. The

actual quantum of dividend pay-out on a yearly basis will be
dependent on the existing and expected underlying
DIVIDEND financial performance, market conditions, cash flow
position, interim dividend, if any, already declared during
the year and future requirements of funds

This clearly shows that the company has a STABLE DIVIDEND POLICY
 BASIC CHARTS TO UNDERSTAND
HUL’S PROFITABILITY AND
DIVIDEND STRUCTURE

THE CHART SHOWS THE EQUITY DIVIDEND , NET PROFIT AND PERCENTAGE OF
EQUITY DIVIDEND PAID TO THE INVESTOR
RETURN ON CAPITAL EMPLOYED
PROFIT BEFORE TAX
OPERATING PROFIT
 DIVIDEND ANALYSIS

This chart shows last five-year trend of share prices and dividends declared by the company. The
trend line is upward sloping with no major deviations. This clearly shows that the company has a stable
dividend policy with a growth in the share prices.
This chart shows comparison of last 365 days share prices with dividend. This gives a clear picture of the
dividend pay-out of the company. This chart clearly shows the dividend was declared twice which was
almost in the similar bracket.

This is a comparison last two-year price with share prices of current year which clearly shows an upward
trend. This shows that the company is growing and providing a stable return to its investors.
 ABOUT THE COMPANY
Dabur India Ltd is one of the leading FMCG Companies in India. The company is
also a world leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic
products. They operate in key consumer products categories like Hair Care, Oral
Care, Health Care, Skin Care, Home Care and Foods. The company's FMCG
portfolio includes five flagship brands with distinct brand identities, Dabur as the
master brand for natural healthcare products, Vatika for premium personal care,
Hajmola for digestives, Real for fruit juices and beverages and Fem for fairness
bleaches and skin care products.

The company operates through three business units, namely consumer care division
(CCD), international business division (IBD) and consumer health division (CHD).
Their CCD business is divided into four key portfolios: healthcare, personal care,
home care and foods. Their CHD business offers a range of healthcare products.
Their IBD business includes brands, such as Dabur Amla and Vatika.

The company has 20 state-of-the-art manufacturing facilities spread across the

globe. Of these, 12 production facilities are located in India with key manufacturing
locations being Baddi (Himachal Pradesh) and Pantnagar (Uttaranchal) besides
seven factories located at Sahibabad (Uttar Pradesh), Jammu, Silvassa, Alwar, Katni,
Narendrapur, Pithampur and Nasik. The Foods business is serviced by
manufacturing facilities at Newai (Rajasthan) and Siliguri (West Bengal). Outside
India, the company has manufacturing facilities in Dubai, Sharjah, Ras-al- Khaimah,
Egypt, Nigeria, Nepal and Bangladesh.

The company has a wide distribution network, covering 6 million retail outlets with
a high penetration in both urban and rural markets. Their products also have a huge
presence in the overseas markets and are available in over 120 countries across the
globe. Their brands are highly popular in the Middle East, SAARC countries, Africa,
US, Europe and Russia. Dabur's overseas revenue accounts for over 30% of the total
turnover.
 DIVIDEND POLICY
Dividend policy is the set of guidelines a company uses to decide how much of its
earnings it will pay out to shareholders. Some evidence suggests that investors are
not concerned with a company's dividend policy since they can sell a portion of
their portfolio of equities if they want cash. This evidence is called the "dividend
irrelevance theory," and it essentially indicates that an issuance of dividends should
have little to no impact on stock price. That being said, many companies do pay
dividends, so let's look at how they do it.
There are three main approaches to dividends: residual, stability or a hybrid of the
two.
Dabur’s dividend policy is different and The company basically has 3 factors in
mind which are illustrated through the following picture.

Company provides dividend out of current year’s profit after providing for depreciation and
transferring required profits to reserves. It has the policy that it can also provide dividend out of
profits for any previous year. In Dabur there is a policy that board should avoid the practice of
declaring dividend out of reserves. Company should generally provides interim dividend one to
three times a year and should provide final dividend once at the maximum out of the profits that
are available
BASIC CHARTS TO UNDERSTAND
HUL’S PROFITABILITY AND
DIVIDEND STRUCTURE
THIS CHART SHOWS THE % OF EQUITY DIVIDEND PAID TO INVESTORS

ROCE CHART
PROFIT BEFORE TAX
According to the data that is derived and the charts that can be extracted it is clearly seen that
company uses both interim and final dividend to lure and satisfy its shareholders. When the
profit rises dividend also rises. One eye catching policy that Dabur follows is that when there are
low profits Dabur keep its final dividend low and when during the course of the year profits
speed up or increases Dabur quickly declares interim dividend to make its shareholders happy
Studying the dividend policy of Dabur from 22nd March, 2018 to 22nd March, 2019 Company
provides interim dividend only once which is 125% in November and final dividend which is
also 125% in July. Hence kept a stable dividend pay outs.
HISTORIC PRICES ACCORDING TO BSE

Historical prices in BSE i.e. the opening price was 323 and the current prices are 421.8 which
shows a drastic appreciation in the share price. This means that company is growing and doing
very well as its price appreciated more than 25%. Hence we can infer that the company is doing
very well and the highest and the lowest prices are also not dwindling. Hence there is a stable
price that is prevailing throughout. There is not much of a difference between NSE and BSE data
as the highs and lows are almost the same as in NSE also highs are 320 and 420 will be the
current price.
The Dividend- Payout Ratio

The dividend payout ratio of the company has been stable throughout the 5 years and it is
showing a stable dividend policy that is being taken by the company. Stable dividend policy
helps in 2 ways as when there are profits the company can use them as retained earnings and can
invest further which will be further profitable for the company and if the company faces loses
then it won’t give a very bad signal to the shareholders who have invested in the company. So
keeping in mind the pros and cons the company follows a policy of stable dividend.

For the year ending March 2018, Dabur India has declared an equity dividend of 750.00%
amounting to Rs 7.5 per share. At the current share price of Rs 422.50 this results in a dividend
yield of 1.78%.
 ABOUT THE COMPANY

Nestle

NESTLÉ's relationship with India dates back to 1912, when it began trading as The
NESTLÉ Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling
finished products in the Indian market.

NESTLÉ has been a partner in India's growth for over a century now and has built a very
special relationship of trust and commitment with the people of India. The Company's activities
in India have facilitated direct and indirect employment and provides livelihood to about one
million people including farmers, suppliers of packaging materials, services and other goods.

The Company continuously focuses its efforts to better understand the changing lifestyles
of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness
through its product offerings. The culture of innovation and renovation within the Company and
access to the NESTLÉ Group's proprietary technology/Brands expertise and the extensive
centralized Research and Development facilities gives it a distinct advantage in these efforts. It
helps the Company to create value that can be sustained over the long term by offering
consumers a wide variety of high quality, safe food products at affordable prices.

NESTLÉ India manufactures products of truly international quality under internationally

famous brand names such as NESCAFÉ, MAGGI, MILKYBAR, KIT KAT, BAR-ONE,
MILKMAID and NESTEA and in recent years the Company has also introduced products of
daily consumption and use such as NESTLÉ Milk, NESTLÉ SLIM Milk, NESTLÉ Dahi and
NESTLÉ Jeera Raita.
 DIVIDEND POLICY

The Board of Directors of the Company approves the Dividend Distribution Policy of the
Company which endeavors for fairness, consistency and sustainability while distributing profits
to the shareholders.

The factors considered while arriving at the quantum of dividend(s) are:

 Current year profits and outlook in line with the development of internal and external
environment.

 Operating cash flows and treasury position keeping in view the total debt to equity ratio.

 Possibilities of alternate usage of cash, e.g. capital expenditure etc., with potential to create
greater value for shareholders.

 Providing for unforeseen events and contingencies with financial implications.

The Board may declare interim dividend(s) as and when they consider it fit, and
recommend final dividend to the shareholders for their approval in the general meeting of the
Company.

An interim dividend is a dividend payment made before a company's annual general

meeting (AGM) and the release of final financial statements.
 In case the Board proposes not to distribute the profit; the grounds thereof and information on
utilization of the undistributed profit, if any, shall be disclosed to the shareholders in the Annual Report
of the Company.
 BASIC CHARTS TO UNDERSTAND
NESTLE INDIA PROFITABILITY AND
DIVIDEND STRUCTURE

THIS CHART SHOWS THE % OF DIVIDEND PAID

ROCE
PROFIT BEFOR TAX
OPERATING PROFIT
 DIVIDEND ANALYSIS
Dividend Policy Of Nestle Over Last One Year

From The above graph we can see that in the last year Nestle’s Dividen Payout has been
a bit erratic but hav always shown positive payouts to its Investors and Shareholders.Similar is
the case with the 5year Data but has shows positive growth over the years.

Dividend Policy Of Nestle In The Last Five Years

HISTORIC PRICES ACCORDING TO BSE AND NSE

Historical prices in BSE i.e. the opening price was 7844 and the current price was
10599.95 which shows an appreciation in the share price. Hence there is a stable
price that is prevailing throughout. There is not much of a difference between NSE
and BSE data as the highs and lows are almost the same as in NSE with highs of
7800 and 10515.05 as the current price

HISTORIC PRICES ACCORDING TO BSE

HISTORIC PRICES ACCORDING TO NSE

The Dividend Payout Ratio

Nestle India
Key Financial Ratios ------------------- in Rs. Cr. -------------------

Dec '18 Dec '17 Dec '16 Dec '15 Dec '14

Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00 10.00
Dividend Per Share 115.00 71.00 78.00 48.50 63.00
Operating Profit Per Share (Rs) 271.50 217.45 177.50 161.27 210.73
Net Operating Profit Per Share (Rs) 1,171.21 1,038.17 956.67 847.92 1,022.12
Free Reserves Per Share (Rs) -- -- -- -- --
Bonus in Equity Capital 76.13 76.13 76.13 76.13 76.13
Profitability Ratios
Operating Profit Margin(%) 23.18 20.94 18.55 19.01 20.61
Profit Before Interest And Tax Margin(%) 19.75 17.22 14.48 14.57 17.04
Gross Profit Margin(%) 20.20 17.52 14.72 14.77 17.19
Cash Profit Margin(%) 16.81 15.38 14.32 17.03 15.24
Adjusted Cash Margin(%) 16.81 15.38 14.32 17.03 15.24
Net Profit Margin(%) 14.23 12.24 10.04 6.88 12.02
Adjusted Net Profit Margin(%) 13.91 12.02 9.88 6.79 11.91
Return On Capital Employed(%) 68.50 55.88 49.46 46.47 62.36
Return On Net Worth(%) 43.74 35.81 30.74 19.98 41.75
Adjusted Return on Net Worth(%) 43.74 35.81 32.80 37.76 41.50
Return on Assets Excluding Revaluations 381.03 354.78 312.57 292.26 294.27
Return on Assets Including Revaluations 381.03 354.78 312.57 292.26 294.27
Return on Long Term Funds(%) 68.50 55.88 49.46 46.48 62.45
Liquidity And Solvency Ratios
Current Ratio 0.67 0.68 0.57 0.50 0.53
Quick Ratio 0.45 0.45 0.32 0.25 0.25
Debt Equity Ratio 0.01 0.01 0.01 0.01 0.01
Long Term Debt Equity Ratio 0.01 0.01 0.01 0.01 0.01
Debt Coverage Ratios
Interest Cover 22.70 21.01 429.40 400.53 125.20
Total Debt to Owners Fund 0.01 0.01 0.01 0.01 0.01
Financial Charges Coverage Ratio 25.70 24.74 530.15 506.09 148.92
Financial Charges Coverage Ratio Post
18.35 18.06 365.72 277.76 107.97
Tax
Management Efficiency Ratios
Inventory Turnover Ratio 11.70 11.29 10.13 10.33 12.06
Debtors Turnover Ratio 105.75 107.11 104.61 92.11 107.49
Investments Turnover Ratio 11.70 11.29 10.13 10.33 12.06
Fixed Assets Turnover Ratio 3.24 2.98 1.77 1.62 1.99
Total Assets Turnover Ratio 3.04 2.90 3.03 2.88 3.45
Asset Turnover Ratio 3.15 3.08 3.14 2.87 3.07

Average Raw Material Holding -- -- -- -- --

Average Finished Goods Held -- -- -- -- --
Number of Days In Working Capital -50.48 -45.95 -59.02 -65.15 -43.29

CONCLUSION
We can conclude from the above study that HUL and Dabur follows a stable dividend policy by
maintaining the dividend payout ratio to be stable. We can also infer that Nestle has a Policy
which is fluctuating and also not at all stable which shows that nestle should follow a policy
which is stable because that is the policy that should be followed