![qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmDIVIDEND DECISION BY RELIANCE INDUSTRIES LTD.dividend , bonus & market sentiments (trend of last 4 years)[Pick the date]Akshay Bhatia MBA (hons.) LPU<br />INTRODUCTION OF COMPANY<br />The Reliance group, founded by Dhirubhai H. Ambani (1932-2002), in 1966 is India's largest private sector enterprise, with businesses in the energy and materials value chain. Group's annual revenues are in excess of US$ 28 billion. The flagship company, Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector company in India.<br />According to the company website quot;
1 out of every 4 investors in India is a Reliance shareholderquot;
. Reliance has more than 3 million shareholders, making it one of the world's most widely held stocks.<br />Reliance Industries Limited has a wide range of products from petroleum products, petrochemicals, to garments (under the brand name of Vimal), Reliance Retail has entered into the fresh foods market as Reliance Fresh and launched a new chain called Delight Reliance Retail and NOVA Chemicals have signed a letter of intent to make energy-efficient structures. The primary business of the company is petroleum refining and petrochemicals. It operates a 33 million tone refinery at Jamnagar in the Indian state of Gujarat. Reliance has also completed a second refinery of 29 million tons at the same site which started operations in December 2008. The company is also involved in oil & gas exploration and production. <br />DEVIDEND DECISIONS<br />The term dividend refers to that part of profit (after tax) which is distributed to the shareholders who are the real owners of the company. The amount which is undistributed part rest out of the profits of the company is known as Retained earnings. Higher the dividend payout, lower will be retained earnings.<br />The dividend policy of a company refers to the views and policies of the management with respect of distribution of dividends. The dividend policy of a company should aim at shareholder-wealth maximization but it also moves according to the sentiments of the market as well as to the prospects of the company as Reliance Industries Limited is doing from last many of years to provide wealth maximization to the shareholders with providing dividends as well as the prices of their shares in stock market has also been increasing which is benefitting the owners with capital gains in their shares.<br /> 2008-092007-082006-072005-06 Net worth114520.3980577.3461255.0245154.07Capital Employed188494.12117057.0289140.8967019.68 Market capitalization (Rs. In crores)309984.75331541.82186067.02142492.51 Net Sales (Rs. In crores)141959133805.78111699.0380877.79PBIDT25373.7528934.6420524.5114982.01PAT(Rs. In crores)15309.3219458.2911943.49069.34 Earning Per Share(Rs.)95.24131.9784.2863.7Market Per Share(Rs.)2132.462280.81280.6980.24Payout (%)12.668.512.2714.7Retention (%)87.3491.587.7385.3 Dividend (annual) %130130110100dividend (Rs.)13131110 Return on investment (%)13.6619.323.5923.18<br />WALTER MODEL<br />Prof James E. Walter devised an easy and simple formula to show how dividend can be used to maximize the wealth of shareholders. He considers dividend as one of the important factors determining the market valuation. According to Walter, in the long run, share prices reflect the present value of future stream of dividends. Retained earnings influence stock prices only through their effect on further dividends.<br /> 2009200820072006EPS95.24131.9784.2863.7Rate of ROI (%) ( r )13.6619.323.5923.18retention rate (b)87.3491.587.7385.3cost of capital( k )4.465.786.566.49Dividend13131110Walter Model (p) (E-D)r/k251.88397.25263.52191.80P5939.087097.804184.723109.36<br />According to this model if the ROI from retained earnings is higher than the market capitalization rate then the value of its shares would be high even if the dividends are low. As given in the case of RIL the dividends are very less and retention rate is very high , nearly 90% of the profits but still the company’s share price is increasing which is due to their difference in returns rate and market capitalization rate as given in above table the difference is around 10-15% on positive side. <br />This Walter model is showing a fact that why market prices of shares of growth companies are high even if dividend payout is low, so it is proved that Walter model of dividend is very accurate in proving relation of dividend with market prices. <br />GORDON MODEL<br />Myron Gordon has developed a model that dividends are relevant and the dividend decision of the company affects its value. There are many assumptions taken for this approach, like rate of return on investment is constant, retention ratio is constant, cost of capital is also constant and higher than growth rate of the firm, corporate taxes do not exist. <br />GORDON MODEL(P0) br11.9317.6620.7019.54k-br-7.47-11.88-14.14-13.05P01100.711005.3693517.109406.5843<br /> <br />DIVIDEND TREND <br />,[object Object]](https://image.slidesharecdn.com/dividenddecisionsbyril-100801072840-phpapp02/85/Dividend-Decisions-By-Reliance-Industries-1-320.jpg)
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- 2. As the trend is given there, 100% of the face value had been declared as dividend in 2005-06( previous to this, in 2004-05 that was 75% i.e. Rs. 7.5/.share) and then RIL is declaring more dividends in the further years, like 110%, 130% for two years.
- 4. Earning per share of three years, i.e. 2006,07,08 are increasing from Rs. 63 to Rs. 131 and in response to this company had given dividend @ 100%, 110% & 130%, at increasing rates. This shows that company is giving much return to their shareholders as their part of profits.
- 5. But if we take a look at the Earning Per Share of 2009 i.e. Rs. 95, which is less than the previous year’s EPS and the company had not increased its dividend as it was doing from last 3 years, but still they maintained to gave them the same dividend as to the related previous year i.e. 130%. That may be some tactics to meet the expected demands of the shareholders that is the dividend paid by RIL in related previous year i.e. 130%.
- 7. Following are some of RIL’s expansion plans which was also assisted with such internal finance (retained earnings)-
- 8. In 2004-05, RIL acquired the polyester major, Trevira GMBH, headquartered in Frankfurt, Germany which has the capacity of 130,000 tonnes per annum of polyester staple fibers, polyester filament yarns and polyester chips.
- 9. In the year 2006, the company set up a new export-oriented refinery through its subsidiary, Reliance Petroleum Limited (RPL).
- 10. In the year 2007, Indian Petrochemicals Corporation Limited (IPCL) merged with the RIL. Also, Reliance Retail entered the organized retail market in India with the launch of its convenience store format under the brand name of 'Reliance Fresh'.
- 11. During the year 2007, the company commissioned their largest expansion project. The company expanded its polypropylene (PP) capacity by 280 KTA at Jamnagar that increased the combined capacity to 1,710 KTA.
- 13. Reliance Industries is declaring just 70 % of their profits as dividends for this year, which is almost half of the previous dividend of 2008-09, that was 130%. Company’s declaration is not according to the markets’ sentiments but still the share price of RIL have not any downside on its share prices that mayb be due to their good profits which is giving an indication of further investment by the company as they are retaining 93 % for their reserves.
- 15. Liquidity of RIL’s shares in the market increases.
- 16. This issue also reduces the Earnings per share, Book Value and other per share values.
- 17. As we have seen in above graph, the market price gets adjusted on issue of bonus shares.All the above explanations, relations and dependency of one aspect on other states that market price depends upon many aspects like dividend, retention ratio, company previous performance, expansion prospects, growth opportunities, prospects of shareholders, intention of the company with their dividend declaration policies. <br />