High Conviction Stocks

8/19/2019 High Conviction Stocks

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SVKM’S

Narsee Monjee Institute of Management StudiesAnil Surendra Modi

School Of Commerce

Project ReportCorporate Financial Management

Reliance Industries

By:

Group 2

SYBBA-C

S No. Name Roll No.1 A h!in Gup"a C##$2 Ayu h Bho!mic% C##&' Ayu hi (o"hari C##)* +e,i%a Goel C##

+hru, Gup"a C#1#


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/a0le of Con"en"

Acknowledgement................................................................................................

About the Project..................................................................................................

About the Company..............................................................................................

Introduction...........................................................................................................

Nature of Dividends..............................................................................................

Types of Dividends according to Time Period.....................................................

Regular Dividend...............................................................................................

Interim Dividend................................................................................................

Special Dividend...............................................................................................Types of Dividends according to Payment Period...............................................

Dividend Policy....................................................................................................

Types of Dividend Policy.....................................................................................

Factors Affecting Dividend Policy.....................................................................10

Bonus Shares......................................................................................................12

Dividend Policy of Reliance Industries Limited................................................12

Divdend Trend of Reliance Industries Limited..................................................13

Bonus Shares Issued By Reliance Industries Limited........................................14

Reliance Industries Limited in comparison to its competitors...........................15

Indian Oil Corporation Limited.......................................................................15

Bharat Petroleum Corporation Limited...........................................................17

Co-Relation.........................................................................................................18

Correlation between Cash and Dividend.........................................................18

Correlation between Profits and Dividends.....................................................19

Bibiliography......................................................................................................20

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3/22

AC(NO345+G5M5N/3e !ould li%e "o e6pre our pecial "han% "o our "eacher Mr (u ha ra Goel !ho a,e u"he olden oppor"uni"y "o do "hi !onderful pro7ec"8 !hich al o helped u in conduc"in alo" of Re earch and !e came "o 0e a!are of a ,arie"y of ne! "hin . 3e are really ra"eful"o him.

3e al o apprecia"e "he help and uidance pro,ided "o u 0y our friend and family8 !i"hou"!hich !e !ould no" ha,e 0een a0le "o ucce fully comple"e "hi pro7ec".

/hi pro7ec" ha no" only a i "ed u in increa in our %no!led e 0u" al o helped u ainand impro,e ne! %ill of in"erac"in !i"h Corpora"e .

/9AN(S AGA N /O A44 O; /9OS5 39O 954 5+


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ABO


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N/RO+


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NA/


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• " i enerally declared and paid !hen company ha earned hea,y profi" or a0normal profi" durin "he year and direc"or !hich "o pay "he profi" "o

hareholder .

• Such paymen" of di,idend in 0e"!een "he "!o Annual General mee"in 0eforefinaliKin "he accoun" i called n"erim +i,idend.

• No n"erim +i,idend can 0e declared or paid unle deprecia"ion for "he fullyear no" propor"iona"ely ha 0een pro,ided for. " i 8 "hu 88 an e6"ra di,idend

paid durin "he year reDuirin no need of appro,al of "he Annual GeneralMee"in . " i paid in ca h.

'. Special +i,idend• A pecial di,idend i a paymen" made 0y a company "o i" hareholder "ha" "he

company declare "o 0e epara"e from "he "ypical recurrin di,idend cycle8 if any8 for "he company.

• < ually !hen a company rai e i" normal di,idend8 "he in,e "or e6pec"a"ion i"ha" "hi mar% a u "ained increa e. n "he ca e of a pecial di,idend8 ho!e,er8"he company i i nalin "ha" "hi i a one-off paymen".

• /herefore8 pecial di,idend do no" mar%edly affec" ,alua"ion or yieldcalcula"ion . /ypically8 pecial di,idend are di "ri0u"ed if a company hae6cep"ionally "ron earnin "ha" i" !i he "o di "ri0u"e "o hareholder or if i"i ma%in chan e "o i" financial "ruc"ure8 uch a de0" ra"io.

/Y 5S O; + I +5N+S ACCOR+ NG /O AYM5N/ 5R O+

1. Ca h +i,idend• ;irm di "ri0u"e a ca h di,idend a cer"ain percen"a e of annual earnin in

payou" ra"e . ;our da"e are crucial "o accoun"in ordance for ca h di,idend afollo! :

• The date of declaration: " i "he da"e a re olu"ion "o pay ca h di,idend "o"oc%holder of record on a pecific fu"ure da"e i appro,ed 0y "he 0oard of

direc"or . A" "ha" da"e "he firm incur a lia0ili"y promp"in "he reco ni"ion of ahor"-"erm de0" +i,idend aya0le and "he de0i" "o ei"her Re"ained 5arnin

or Ca h +i,idend +eclared.

• The ex-dividend date: " i "he da"e "he "oc% "op ellin !i"h di,idenda""ached. /he period 0e"!een "he da"e of declara"ion and "he e6-di,idend da"e iu ed 0y "he firm "o upda"e i" "oc%holder led er.

• The date of record: " i "he da"e a" !hich "he "oc%holder fi urin in "he"oc%holder led er are en"i"led "o "he ca h di,idend. No en"ry i reDuired.

• The date of pa ment: " i "he da"e a" !hich "he firm di "ri0u"e "he di,idendchec% and elimina"e "he di,idend paya0le a a lia0ili"y.

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2. S"oc%-+i,idend• Companie 8 no" ha,in ood ca h po i"ion8 enerally pay di,idend in "he form

of hare 0y capi"aliKin "he profi" of curren" year and of pa " year .

• Such hare are i ued in "ead of payin di,idend in ca h and called BonuShare . Ba ically "here i no chan e in "he eDui"y of hareholder . Cer"ain

uideline ha,e 0een u ed 0y "he company 4a! Board in re pec" of BonuShare .

'. roper"y +i,idend• ;irm may elec" "o declare a ?proper"y di,idend@ "ha" i paya0le in

nonmone"ary a e" ra"her "han declarin a ca h di,idend.

• Becau e a proper"y di,idend can 0e cla ified a a ?non-reciprocal nonmone"ary

"ran fer "o o!ner @8 "he proper"y di "ri0u"ed i re "a"ed a" fair mar%e" ,alue a""he da"e of declara"ion and a ain or lo i reco niKed.

*. Scrip +i,idend• Scrip di,idend are u ed !hen earnin 7u "ify a di,idend8 0u" "he ca h po i"ion

of "he company i "emporarily !ea%. So8 hareholder are i ued hare andde0en"ure of o"her companie . Such paymen" of di,idend i called Scrip+i,idend.

. 4iDuida"in +i,idend• A "ype of paymen" made 0y a corpora"ion "o i" hareholder durin i" par"ial or

full liDuida"ion. ;or "he mo " par"8 uch a di "ri0u"ion i made from "hecompany capi"al 0a e8 and a a re"urn of capi"al8 i "ypically no" "a6a0le for

hareholder .

$. Bond +i,idend• n rare in "ance 8 di,idend are paid in "he form of de0en"ure or 0ound or

no"e for a lon -"erm period. /he effec" of uch di,idend i "he ame a "ha" of payin di,idend in crip .

+ I +5N+ O4 CY/he di,idend policy of a company refer "o "he ,ie! and policie of "he mana emen" !i"hre pec" of di "ri0u"ion of di,idend .

/he di,idend policy of a company hould aim a" hareholder !eal"h ma6imi a"ion 0u" i"al o mo,e accordin "o "he en"imen" of "he mar%e" a !ell a "o "he pro pec" of "hecompany

" i concerned !i"h financial policie re ardin payin ca h di,idend in "he pre en" or

payin an increa ed di,idend a" a la"er "a e.

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/Y 5S O; + I +5N+ O4 CY

1. Re ular +i,idend olicy• aymen" of di,idend a" u ual ra"e i "ermed a re ular di,idend. /he in,e "or

uch a re"ired per on 8 !ido! 8 o"her economically !ea%er per on prefer "oe" re ular di,idend.

• /he re ular di,idend can 0e main"ained only 0y "he company of lon "andinand "a0le earnin . A company hould e "a0li h "he re ular di,idend a" a lo!er ra"e a compared "o a,era e earnin of "he company.

2. S"a0le +i,idend olicy• /he "a0ili"y of di,idend mean con i "ency in "he "ream of di,idend

paymen" . " mean paymen" of cer"ain minimum amoun" of di,idend re ularly .A "a0le di,idend policy may 0e e "a0li hed in any of "he follo!in "hree form :

• Constant !ividend Per "hare: Some companie follo! a policy of payinfi6ed di,idend per hare irre pec"i,e of "he le,el of earnin year af"er year.Such firm crea"e re er,e i.e di,idend eDualiKa"ion re er,e "o ena0le "hem "o

pay "he fi6ed di,idend e,en in "he year !hen "he earnin are no" ufficien" or !hen "here are lo e . /he policy of con "an" di,idend per hare i more

ui"a0le "o concern !ho e earnin are "a0le o,er a no: of year .

• Constant Pa #ut Ratio " mean paymen" of fi6ed percen"a e of ne" earnina di,idend e,ery year. /he amoun" of di,idend in uch policy fluc"ua"e indirec" propor"ion "o "he earnin of "he company. /he policy of con "an" payou"i preferred 0y "he firm 0ecau e i" i rela"ed "o "heir a0ili"y "o pay di,idend .

• "ta$le Rupee !ividend Plus Extra !ividend Some companie follo! a policyof payin con "an" lo! di,idend per hare plu e6"ra di,idend in "he year of hi h profi" uch policy i more ui"a0le "o "he firm ha,in fluc"ua"in earninfrom year "o year.

'. rre ular +i,idend olicy• /hi policy i follo!ed !hen "here i uncer"ain"y of earnin 8 un ucce ful

0u ine opera"ion 8 lac% of liDuid re ource 8 fear of ad,er e affec" of re ular di,idend on "he financial "andin of "he company.

*. No +i,idend olicy• A company may follo! a policy of payin no di,idend pre en"ly 0ecau e of i"

unfa,ora0le !or%in capi"al po i"ion or on accoun" of reDuiremen" of fund for fu"ure e6pan ion and ro!"h.

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;AC/ORS A;;5C/ NG + I +5N+ O4 CY/heore"ically8 o,er "he pa " num0er of year 8 i" ha 0een 0elie,ed 0y "he academician "ha""he di,idend deci ion i influenced 0y num0er of fac"or . Some of "he fac"or "ha" affec" "hedi,idend deci ion of a firm are li "ed a follo! :

1. 4e al ro,i ion• ndian Companie Ac"8 1 $ ha i,en "he uideline re ardin le al pro,i ion

a "o di,idend . Such uideline are reDuired "o 0e follo!ed 0y "he companie!hene,er "he di,idend policy i "o 0e formula"ed. A per "he uideline 8 acompany i reDuired "o "ran fer a cer"ain percen"a e of profi" "o re er,e inca e "he di,idend "o 0e paid i more "han 1# percen".

• ;ur"her8 a company i al o reDuired "o pay di,idend only in ca h 0u" only !i"h"he e6cep"ion of 0onu hare .

2. Ma ni"ude of 5arnin• Ano"her impor"an" a pec" of di,idend policy i "he e6"en" of company

earnin . " er,e a "he in"roduc"ory poin" for framin "he di,idend policy./hi i o 0ecau e a company can pay di,idend ei"her from "he curren" year

profi" or "he pa " year profi". So8 if "he profi" of a company increa e8 i" !illdirec"ly influence "he di,idend declara"ion a "he la""er may al o increa e. /hu 8"he di,idend i direc"ly lin%ed !i"h "he a,aila0ili"y of "he earnin !i"h "hecompany.

3. +e ire of Shareholder :

• /he deci ion "o declare "he di,idend i "a%en 0y Board of +irec"or 0u" "heyare al o reDuired "o con ider "he de ire of "he hareholder 8 !hich depend on "hela""er economic condi"ion.

• /he hareholder 8 !ho are economically !ea%8 prefer re ular di,idend policy!hile "he rich hareholder may prefer capi"al ain a compared "o di,idend .

• 9o!e,er8 i" i ,ery difficul" for "he 0oard "o reconcile "he conflic"in in"ere "of differen" hareholder ye" "he di,idend policy ha "o 0e framed %eepin in,ie! "he in"ere " of all "he in"ere "ed par"ie .

*. Na"ure of ndu "ry• /he na"ure of indu "ry in !hich a company i opera"in 8 influence "he di,idend

deci ion.

• 4i%e "he indu "rie !i"h "a0le demand "hrou hou" "he year are in a po i"ion "oha,e "a0le earnin 8 "hu 8 hould ha,e "he "a0le di,idend policy and ,ice-,er a.

. A e of "he Company

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• A company a e al o de"ermine "he Duan"um of profi" "o 0e declared adi,idend .

• A ne! company hould re "ric" i" elf "o lo!er di,idend paymen" due "o a,infund for "he e6pan ion and ro!"h a compared "o "he already e6i "incompanie !ho can pay more di,idend .

• A firm ma"ure8 "hey e6perience a con"rac"ion in "heir ro!"h !hich re ul" ina decline in "heir capi"al e6pendi"ure . Con eDuen"ly8 "he e firm ha,e more freeca h flo! "o pay a di,idend . Similarly8

• More ma"ure firm are more li%ely "o pay di,idend . n con"ra "8 youn er firmneed "o 0uild up re er,e "o finance "he fu"ure ro!"h oppor"uni"ie 8 "hu 8ma%in "hem "o re"ain "he earnin .

$. /a6a"ion olicy• /he "a6 policy of a coun"ry al o influence "he di,idend policy of a company.

/he ra"e of "a6 direc"ly influence "he amoun" of profi" a,aila0le "o "hecompany for declarin di,idend .

&. Con"rol ;ac"or • Ye" ano"her fac"or de"erminin di,idend policy i "he "hrea" "o loo e con"rol. f a

company declare hi h ra"e of di,idend8 "hen "here i "he po i0ili"y "ha" acompany may face liDuidi"y crunch for !hich i" ha "o i ue ne! hare 8re ul"in in dilu"ion of con"rol. (eepin "hi "hrea" in ,ie!8 a company may ofor lo!er le,el of di,idend paymen" and more plou hin 0ac% of profi" inorder "o a,oid any uch "hrea".

). 4iDuidi"y o i"ion• A company liDuidi"y po i"ion al o de"ermine "he le,el of di,idend. f a

company doe no" ha,e ufficien" ca h re ource "o ma%e di,idend paymen"8"hen i" may o for i ue of 0onu hare .

. ;u"ure ReDuiremen" :

• A company !hile famin di,idend policy hould al o con ider i" fu"ure plan .f i" fore ee ome profi"a0le in,e "men" oppor"uni"ie in near fu"ure "hen i" mayo for lo!er di,idend and ,ice-,er a.

1#.A ency Co "• n "hi "ra"um8 di,idend are paid ou" "o "oc%holder in order "o pre,en"

mana er from 0uildin unnece ary empire "o 0e u ed in "heir o!n in"ere ".

• n addi"ion8 di,idend reduce "he iKe of in"ernally enera"ed fund a,aila0le "omana er 8 forcin "hem "o o "o "he capi"al mar%e" "o o0"ain e6"ernal fund

5a "er0roo%8 1 )*1* .

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• ;irm !i"h a lar er percen"a e of ou" ide eDui"y holdin are u07ec" "o hi her a ency co " . /he more !idely pread i "he o!ner hip "ruc"ure8 "he moreacu"e "he free rider pro0lem and "he rea"er "he need for ou" ide moni"orin .9ence8 "he e firm hould pay more di,idend "o con"rol "he impac" of

!ide pread o!ner hip.11.Bu ine Ri %

• Bu ine ri % i a po"en"ial fac"or "ha" may affec" di,idend policy. 9i h le,el of 0u ine ri % ma%e "he rela"ion hip 0e"!een curren" and e6pec"ed fu"ure profi"a0ili"y le cer"ain.

• Con eDuen"ly8 i" i e6pec"ed "ha" firm !i"h hi her le,el of 0u ine ri % !illha,e lo!er di,idend paymen" . Many re earcher ar ued "ha" "he uncer"ain"y of a firm earnin may lead i" "o pay lo!er di,idend 0ecau e ,ola"ile earnin

ma"erially increa e "he ri % of defaul". n addi"ion8 field "udie u in ur,ey da"ae. .8 4in"ner8 1 $1$ repor"ed compellin e,idence "ha" ri % can affec"di,idend policy. n "he e ur,ey 8 mana er e6plici"ly ci"ed ri % a a fac"or "ha"influence "heir di,idend choice.

BON


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+ I+5N+ /R5N+ O; R54 ANC5 N+


15/22

• A "he "rend i i,en "here8 1##F of "he face ,alue had 0een declared a di,idend in

2## -#$ pre,iou "o "hi 8 in 2##*-# "ha" !a & F i.e. R . &. P. hare and "hen R 4declared more di,idend in "he fur"her year 8 li%e 11#F8 1'#F for "!o year .

• /hi ho! "he company "ron pro pec" for "heir fu"ure profi" a "hey aredeclarin more di,idend year 0y year. " al o pro,ide a en e of 0enchmar% for "hedi,idend "o "he hareholder of Reliance ndu "rie .

• Reliance ndu "rie declared 7u " F of "heir profi" a di,idend for "he year 2## -1#8 !hich i almo " half of "he pre,iou di,idend of 2##)-# 8 "ha" !a 1'#F.Company declara"ion !a no" accordin "o "he mar%e" en"imen" 0u" "ill "he

hare price of R 4 did no" ha,e any do!n ide on i" hare price "ha" may0e due "o

"heir ood profi" !hich a,e an indica"ion of fur"her in,e "men" 0y "he company a"hey re"ained ' F for "heir re er,e .

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Table 1: Dividend declared by Reliance Industries Limited in the past 9 years


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BON


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R54 ANC5 N+


18/22

RIL IOC2013-

14 32,319.02 24,279.522012-

13 32,286.63 24,279.522011-

12 32,710.59 24,279.522010-

11 32,733.74 24,279.52

A

e,iden" from "he da"a pro,ided in "he a0o,e "a0le 8 Reliance ndu "rie ha a more "a0ledi,idend policy ince8 i" i con "an"ly increa in !herea "he "rend for OC ha 0een a li""leun "a0le !here af"er declarin a di,idend of F in "he year 2#1#-118 "hey declared 7u "

#F in "he ne6" year. " poin" "o!ard an un "a0le policy.

/he profi" af"er "a6 earned 0y R 4 ha 0een i nifican"ly more "han "he OC.

Reliance ndu "rie ha no" only 0een crea"in !eal"h in form of di,idend "hey ha,e 0eendi "ri0u"in 0u" "he hareholder are al o e""in a i nifican" capi"al ain from "he increa ein ,alue of hare !a ha 0een remar%a0le and crea"ed much !eal"h for "he hareholder .

a e 1) of 22

Table &: omparison of Total 'umber of (hares issues by I! and RIL

Table ): omparison of *arnings per (hare for I! and RIL

R 4 OC

2#1'-1* $).#2 2). 1

2#12-1' $ .# 2#.$1

2#11-12 $1.2$ 1$.2

2#1#-11 $1. & '#.$&


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Bhara" e"roleum Corpora"ion 4imi"ed

Year RIL BPCL

2014 21,984 4,060.88

2013 21,003 2,642.92

2012 20,040 1,311.27

2011 20,286 1,546.68

Year R 4 +eclared+i,idend F

R 4 +eclared+i,idend

R . in Cr.

B C +eclared+i,idend F

B C4 +eclared+i,idend

R . in Cr.

2#1'-1* 28& ' 1 1822 .2*

2#12-1' # 28$2) 11# & .'

2#11-12 ) 28 '1 11# ' &.&

2#1#-11 )# 28') 1*# #$.1$

;rom /a0le )8 !e infer "ha" B C4 ha 0een anouncin more di,idend for "he hareholder

"han R 4. 9o!e,er8 "he amoun" "ha" i pen" 0y R 4 for di,idend i much more "han B C4ince8 "he "o"al num0er of hare "ha" ha,e 0een i ued 0y R 4 i much more "han B C4.

9o!e,er8 if /a0le & i "a%en in"o con idera"ion8 !e ee "ha" "he 5 S 5arnin per hare of B C4 i i nifican"ly lo!er "han "he R 48 from !hich !e conclude "ha" R 4 i more

profi"a0le firm. /hi "a"emen" i confirmed from "he da"a in /a0le $.

CO-R54A/ ON

Correla"ion i "he proce of e "a0li hin a rela"ion hip or connec"ion 0e"!een "!o or more"hin . " i "he in"erdependence of ,aria0le Duan"i"ie . " ,alue ,arie from 1 "o -1. 1

a e 1 of 22

Table +: omparison of #ro$t after Ta% for ,# L and RIL

Table -: ,# L and RIL declared dividends for the past " years

Table .: omparison of *arnings per (hare for ,# L and RIL

Year RIL BPCL

2014 68.02 56.16

2013 65.05 36.55

2012 61.26 36.27

2011 61.97 42.78


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meanin "he correla"ion i perfec"ly po i"i,e8 and -1 meanin i" i perfec"ly ne a"i,e.Correla"ion i o i"i,e !hen "he ,alue increa e "o e"her8 and Correla"ion i Ne a"i,e !henone ,alue decrea e a "he o"her increa e . /he formula for i" i :

Correla"ion 0e"!een Ca h and +i,idend

YEAR CASH DIVIDEND

2012 39,596 2,531

2013 49,547 2,6282014 36,624 2,793

CORRELATION -0.362

/here i a ne a"i,e co-rela"ion 0e"!een Ca h and +i,idend. /hi i due "o "he di,idend"ha" !ere declared 0y "he company in "he la " 2-' year ha 0een in "he form of Ca h. /ha"i !hy a "he di,idend increa e 8 "he ca h decrea e and ,ice-,er a.

a e 2# of 22

Figure ": Formula for orrelation

Table 9: o/relation bet0een ash and Dividend of RIL


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Correla"ion 0e"!een rofi" and +i,idend

Year rofi" +i,idend

2#12 $8 1* 28 '1

2#1' &8$# 28$2)

2#1* )8$1# 28& '

CORR54A/ ON #. )

3i"h "he increa e in rofi" 8 "he +i,idend declared 0y "he company ha al o 0eenincrea in and "hu 8 "here i a po i"i,e co-rela"ion 0e"!een rofi" and +i,idend of "he firm.

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Table 1 : o/relation bet0een #ro$ts and Dividend of RIL


22/22

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