1. A STUDY ON
DIVIDEND DECISIONS
AT
KESORAM CEMENT INDUSTRIES Ltd.
BASANTHNAGAR, KARIMNAGAR.
PROJECT REPORT
Submitted to the OSMANIA UNIVERSITY
In the partial fulfillment for the
Award of the Degree of
MASTER OF BUSINESS ADMINISTRATIONS
Submitted by
PRINCETON POST GRADUATE COLLEGE
HYDERABAD
(affiliated to Osmania University)
(2009-2011)
1

2. DECLARATION
I student of Master of Business
Administration at, PRINCETON P.G. COLLEGE, declare
that the project report on "DIVIDEND DECISIONS" has
been carried out by me for “KESORAM CEMENT
INDUSTRIES Ltd”. This is being submitted in partial
fulfillment of the "MASTERS DEGREE IN BUSINESS
ADMINISTRATION".
I further, declare that this is my original work
and I did not try to duplicate any other‟s report. I as a
part of my academic course do this during the year
2008–10.
Date:
Place:
2

3. ACKNOWLEDGEMENT
I express my sincere gratitude to KESORAM
CEMENT INDUSTRIES Ltd., Basanthnagar, for giving
an opportunity to expose myself to the real time
environment through this project. I also express gratitude to
the finance manager, Mr. Saraiah Garu for his
encouraging guidance, who helped me in accomplishing
this project in all possible ways and all the members of the
DEPARTMENT OF BUSINESS ADMINISTRATION
of PRINCETON P.G. COLLEGE for their
encouragement given to me.
I am indebted to Mr. Murali Krishna Assistant
General Manager (IR & HRD) of KESORAM CEMENT
who gives me access to the required details for
accomplishing this.
I like to my immense pleasure and satisfaction in
expressing thanks to my Guide Mrs. Aruna , and also
other faculty membe
3

4. TABLE OF CONTENTS
CHAPTER CONTENTS PG. NO.
LIST OF TABLES i
LIST OF FIGURES ii
ABSTRACT iii
CHAPTER 1 INTRODUCTION 1-7
1.a INTRODUCTION TO THE TOPIC 1
1.b IMPORTANCE OF THE STUDY 2
1.c NEED FOR THE STUDY 3
1.d OBJECTIVES OF THE STUDY 4
1.e RESEARCH METHODOLOGY 5
1.f LIMITATIONS 7
CHAPTER 2 REVIEW OF LITERATURE 8-40
CHAPTER 3 COMPANY PROFILE 41-50
CHAPTER 4 DATA ANALYSIS & INTERPRETATION 51-63
CHAPTER 5 FINDINGS, SUGGESTIONS & CONCLUSION 64-66
5.a FINDINGS 64
5.b SUGGESTIONS 65
5.c CONCLUSION 66
BIBLIOGRAPHY 67
4

5. LIST OF TABLES
TABLE PAGE
TITLE
NO. NO.
4.1 DIVIDEND PER SHARE 52
4.2 EARNINGS PER SHARE 54
4.3 RETURNS PER SHARE 56
4.4 PRICE EARNINGS 58
4.5 PROFIT AFTER TAX 60
4.6 NET WORTH 62
5

6. LIST OF FIGURES
FIGURE PAGE
TITLE
NO. NO.
4.1 DIVIDEND PER SHARE 53
4.2 EARNINGS PER SHARE 55
4.3 RETURNS PER SHARE 57
4.4 PRICE EARNINGS 59
4.5 PROFIT AFTER TAX 61
4.6 NET WORTH 63
6

7. ABSTRACT
The objective of this present study is financial management
that is to use business funds in such a way that the firm‟s
earnings are maximized. So chose a study to conduct on the
dividend decision study of KESORAM CEMENT using
ratio in comparison with previous year performance. The
title of the project is study of dividend decisions.
The core objective of this present study is how the
decisions are made over dividends owner for the welfare of
a business. These objectives can be achieved by 1.
Retained earnings 2. Share holders wealth maximization.
The project is covered of profits and shares of
KESORAM CEMENT drawn from annual report of the
company. Ratio analysis is used for evaluating shares and
earnings of KESORAM CEMENT.
In this study an attempt is made to know the growth
of total investment and earnings of Kesoram Cement
Industries for past few years.
7

8. iii
Chapter-1
INTRODUCTION
8

9. 1.a INTRODUCTION
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
Charted Accounts of India" dividend is a "Distribution to shareholder
out of profits or reserves available for this purpose"
The Dividend policy has the effect of dividing its net earnings into
two Parts: Retained earnings and dividends. The retained earnings
provide funds to finance the long-term growth. It is the most
significant source of financing a firm‟s investment in practice. A
firm, which intends to pay dividends and also needs funds to finance
its investment opportunities, will have to use external sources of
finance. Dividend policy of the firm. Thus has its effect on both the
long-term financing and the wealth of shareholders. The Moderate
view, which asserts that because of the information value of
dividends, some dividends should be pa-id as it may have favorable
affect on the value of the share.
The theory of empirical evidence about the dividend policy does
not matter if we assume a real world with perfect capital markets and
no taxes. The second theory of dividend policy is that there will
definitely be low and high payout clients because of the differential
personal taxes. The majority of the holders of this view also show
that balance, there will be pre-ponderous low payout clients because
of low capital gain taxes.
9

10. The third view argues that there does exist an optimum dividend
policy. An optimum dividend policy is justified in terms of the
information in agency costs.
1.b IMPORTANCE OF THE STUDY
The dividend policy of a firm determines what proportion of
earnings is paid 'to shareholders by the way of dividends and what
proportion is ploughed back in the firm reinvestment purposes. If a
Firm's capital budgeting decision is independent of its dividend of its
dividend policy, a higher dividend payment will entail a greater
dependence on external financing. On the other hand, if a firm‟s
capital budgeting decision is dependent on its dividend decision, a
higher payment will cause shrinkage of its capital budget and vice
versa. In such a case the dividend policy has a bearing on the capital
budgeting decision.
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.
10

11. 1.c NEED FOR THE STUDY
The principal objective of corporate financial management is
to maximize the market value of the equity shares. Hence the key
question of interest to us in this study is, "What is the relationship
between dividend policy and market price of equity shares?"
Most of the discussion on dividend of dividend policy and
firm value assumes that the investment decision of a firm is
independent of its dividend decision. The need for this study arise
from the above raised question and the most controversial and
unresolved doubts about the relevance of irrelevance of the dividend
policy.
11

12. 1.d OBJECTIVES OF THE STUDY
The basic objective of this study is as fallows:
1. To understand the importance of the dividend decision and their
impact
on the firm's capital budgeting decision.
2. To know the various dividend policies followed by the firm.
3. To understand the theoretical backdrop of the various divided
theories.
4. To compare the various theories of dividend with reference to their
Assumptions and conclusions.
5. To know whether the dividend decisions have an impact on the
market
Value of the firm's equity.
6. To see the various dividend policies of the kesoram cement
industry.
7. To derive the empirical evidence for the relevance theories of
dividends WALTER‟S MODEL AND GORDON'S MODE
12

13. 1.e RESEARCH METHDOLOGY
Sample of the study:
A sample is a part of the target population, carefully selected to
represent that population. When researchers undertake sampling
studies, they are interested in estimating one or more population
values and/ or testing one or more statistical hypothesis. The sample
of our study consists of the financial data of kesoram cement
industries for the past five financial years.
Sources of data:
The sources of information are classified to two primary data and
secondary data. The data collected by the researcher and agent
known to the researcher, especially to answer the research question,
is known as the primary data. Studies made by others for their own
purposes represent secondary data to the researcher.
Secondary sources can usually be found more quickly and cheaply
than primary data especially when national and international statistics
are needed. Similarly, data about distant places often can be collected
more cheaply through secondary sources.
13

14. Period of the study
The period of any research is the period which the data has been
collected and analyzed. The period of this study has been limited to
the period from 15-07-2009 to 30-08-2009.
Sampling Designs
The sampling technique selected for conducting this study is
judgment sampling. This is a restricted and non-probabilistic method
of sampling; where the sample consisting of one company has been
selected on basis of the past dividend payment made by the
Company.
Tools of Collecting Data
There are various ways of collecting the data. Some of the most
commonly used ones are telephone interview, personal interview
and, questionnaire administering. These are basically the methods for
collecting the primary data the data required for conducting this
study it has been collected from the various web portals as the data is
basically secondary in nature.
14

15. 1.f LIMITATIONS
Every research conducted has certain limitations. These rise
due to the method of sampling used, the method of data collation
used and the source of the data apart from many other things. The
limitations of this study are as follows:
The data collected is of secondary nature and hence it is difficult
to ascertain the reliability of the data.
a) The scope of the study has been limited to the impact of the
dividend on the market value of the firm's equity. Others factors
affecting the firm's market value have been assumed to have
remained unchanged.
b) The period of the study has been limited to only five years.
c) The method of sampling used is judgment sampling' hence the
Choice of the sample has been left entirely to the choice of the
Researcher. This has led to some amount bias being introduced into
the research process.
15

16. Chapter-2
REVIEW OF
LITERATURE
16

17. HISTORY OF INDIAN CEMENT INDUSTRY
By stating production in 1914 the story of story of Indian
cement is a stage of continuous growth. Cement is derived from the
Latin word "cementam".
Egyptians and Romans found the process of manufacturing
cement. In England during the first century the hydraulic cement has
become more versatile building material. Later on, Portland cement
was invented and the invention was usually attributed to Joseph Asp
din of Enland.
India is the world's 4th largest cement produced after China,
Japan and U.S.A. The South Industries have produced cement for the
first time in 1904. The company was setup in Chennai with the
installed capacity of 30 tones per day. Since then the cement industry
has progressing leaps and bounds and evolved into the most basic
and progressive industry. Till 1950-1951, the capacity of production
was only 3.3 million tones. So far annual production and demand
have been growing a pace at roughly 78 million tones with an
installed capacity of 87 million tones.
In the remaining two years of 8th plan an additional capacity
of 23 million tones will actually come up. India is well endowed with
cement grade limestone (90 billion tones) and coal (190) billion
tones). During the nineties it had a particularly impressive expansion
with growth rate of 10 percent.
17

18. The strength and vitality of Indian Cement Industry can be
gauged by the interest shown and support gives by World Bank,
considering the excellent performance of the industry in utilizing
the loans and achieving the objectives and targets. The World Bank
is examining the feasibility of providing a third line of credit for
further upgrading the industry in varying areas, which will make it
global. With liberalization policies of Indian Government. The
industry is posed for a high growth rates in nineties and the
installed capacity is expected to cross 100 million tones and
production 90 million tones by 2003 AD.
The industry has fabulous scope for exporting its product to
countries like the U.S.A., U.K., Bangladesh Nepal and other several
countries. But there are not enough wagons to transport cement for
shipment.
Cement - The Product:
The natural cement is obtained by burning and crushing the
stones containing clayey, carbonate of lime and some amount of
carbonate of magnesia the natural cement is brown in color and its
best variety is known as "ROMAN CEMENT". It sets very quickly
after addition of water.
It was in the eighteenth century that the most important advances in
the development of cement were which finally led to the invention of
Portland cement.
In 1756, John Smeaton showed that hydraulic lime which can
resist the action of water can be obtained not only from hard lime
stone but from a limestone which contain substantial proportion of
clayey.
in 1796, Joseph Parker found that modules of argillaceous
limestone made excellent hydraulic cement when burned in the usual
18

19. manner. After burning the product was reduced to a powder. This
started the natural cement industry.
The artificial cement is obtained by burning at a very high
temperature a mixture of calcareous and argillaceous material. The
mixture of ingredients should be intimate and they should be in
correct proportion. The calcined product is known as clinker. A
small quantity of gypsum is added to clinker and it is then pulverized
into very fine powder, which is known as cement.
The common variety of artificial cement is known as normal
setting cement or ordinary cement. A mason Joseph Aspdn of Leeds
of England invented this cement in 1824. He took out a patent for
this cement called it "PORTLAND CEMENT" because it had
resemblance in its color after setting to a variety of sandstone, which
is found a abundance in Portland England.
The manufacture of Portland cement was started in England
around 1825. Belgium and Germany started the same 1855. America
started the same in 1872 and India started in 1904.
The first cement factory installed in Tamil Nadu in 1904 by
South India limited and then onwards a number of factories
manufacturing cement were started. At present there are more than
150 factories producing different types of cements.
Composition of Cement:
The ordinary cement contains two basic ingredients, namely,
argillaceous and calcareous. In argillaceous materials the clayey
predominates and in calcareous materials the calcium carbonate
predominates.
A good chemical analysis of ordinary cement along with
desired range of ingredients.
19

20. Ingredients Percent Range
Lime (Cao) 62 62-67
Silica (SiO2) 22 17-25
Alumina (Al2 O3) 5 3-8
Calcium soleplate (casO4) 4 3-4
Iron Oxide(Fe2O3) 3 3-4
Magnesia(Mgo) 2 1-3
Sulphur(s) 1 1-3
Alkalis 1 0.2-1
20

21. Industry Structure and Development:
With a capacity of 115 million tones of large cement plants,
Indian cement industry is the fourth largest in the world. However
per capita consumption in our country is still at only 100Kgs against
300Kgs of developed countries and offers significant potential for
growth of cement consumption as well as addition to cement
capacity. The recent economic policy announcement by the
government in respect of housing, roads, power etc., will increase
cement consumption
Opportunities and Threats
In view of low per capita consumption in India, there is a
considerable scope for growth in cement consumption and creation
of new capacities in coming years.
The cement industry does not appear to have adequately
exploited cement consumption in rural segment where damaged
where damaged growth is possible.
Landed cost of cement (with import duty) continues to be
higher than home market prices but with reduced import duty,
increasing imports, may pose a serious threat to the domestic cement
industry.
Outlook
The recent change in the budget 2001-2002 relating to fiscal
incentives for individual housing and reduction in borrowing cost for
this purpose and with the government reaffirmation to accelerate the
reform process, infrastructure development should logically get
21

22. priority leading to increase in demand of cement in coming years.
The addition capacity of cement in the pipeline is limited and
therefore the' demand and supply situations is expected to be more
favorable and cement prices are likely to firm up.
Risks and Concerns
Slow down of Indian economy or drop in growth rate of
agriculture may adversely affect the consumption. The recent
increase in railway freight coupled with diesel / petrol price like will
increase the cost of production and distribution, as being bulky,
cement is freight intensive increase in Limestone royalty also adds to
the cost of production, which is considerably higher than
corresponding costs of many other developing countries.
In our country there is a need to under take a massive
programmed of house construction activity into the rural and urban
areas? It is impossible to construct a house without cement and steel,
in other words, cement is one of the basic construction materials and
therefore it is one of the vital elements for the economic development
of the nation.
India in spite of being the 4th biggest producer of cement in
the world has still a very low per capital consumption of cement.
Cement Companies 5l Nos
Cement Plant 99 Nos
Installed Capacity 64.8mt
Total investment (approx)Rs. 10,000
cores Total Manpower Over 1.25 Lakh
22

23. DIVIDEND DECISIONS-
THEORITICAL
FRAME WORKS
Dividend refers to that portion of a firm's net earnings, which
are paid out to the shareholders. Our focus here is on dividends paid to
the ordinary shareholders because holders of preference shares are
entitled to a stipulated rate of dividend. Moreover, the discussion is
relevant to widely held public limited companies, as the dividend issue
does not pose a major problem for closely held private limited
companies, since dividends are destroyed out of the profits, the
alternative to the payment of dividends is the retention of earning prof-
its. The retained earning constitutes an accessible important source and
financing the investment requirements of firms. There is, thus a type of
inverse relationship between retained earnings and cash dividends:
larger retentions, lesser dividends smaller retentions, larger dividends.
Thus, the alternative uses of the not earnings dividends and retained
earnings are competitive and conflicting.
A major decision of financial management is the dividend
decision in the sense that the firm has to choose between distributing
the prof-it‟s to the shareholders and plugging them back into the
business. The choice would obviously hinge on the effect of the
23

24. decision on the maximizations of shareholders wealth. Given the
objective of financial management of maximizing present values, the
firm should be guided by the considerations as to which alternative use
is consistent with the goal of wealth maximization. That is, the firm
would be well advised to use the net prof-its for paying dividends to the
shareholders if that payment will lead to the maximization of wealth of
the owners. If not, the firm should rather retain theme to finance
investment programmers. The relationship between dividends and
value of the firm should therefore, be the decision criterion.
There are however, conflicting opinions regarding the impact of
dividends on the valuation of a firm. According to one school of
thought; dividends are irrelevant so that the amount of dividends paid
has no effect on the, valuation of a firm. . .
On the other hand, certain theories consider the dividend
decision as relevant to the value of the firm measured in terms f the
market price of the shares.
The purpose of thus report is, therefore, to present a critical
analysis of some important theories representing these two schools of
thought with a view to illustrating the relationship between dividend
24

25. policy and the valuation of a firm. The theories, which support the
relevance hypothesis, examined in the report.
IRRELEVANCE OF DIVIDEDS:
MODIGLIANI AND MILLER MODEL:
The crux of the argument supporting the irrelevance of dividends to
Valuation is that the dividend policy of a firm is a part of its financing
decision. As a part of the financing decision, the dividend policy of the
firm is a residual decision and dividends are passive residuals
Crux of the Argument:
The crux of the MM position on the irrelevance of
dividend is the arbitrage argument. The arbitrage process, involves a
swathing and balancing operation. In other words, arbitrage refers to
entering simultaneously y into two transactions here are the acts .of
25

26. paying out dividends and raising external funds either through the sale
of new shares or raising additional loans-to finance investment
programmers. Assume that a Firm has some investment opportunity.
Given its investment decision, the firm has two alternatives:
(i) it can passiceretain is earnings to finance the
investment programmed; (ii) or distribute the earnings to he
shareholders as dividend and raise an equal amount externally through
the sale of new shares/bonds for the purpose. If the firm selects the
second -alternative, arbitrage process is involved, in that payment of
dividends is associated with raising funds through other means of
financing, the effect of dividend payment on Shareholder‟s wealth will
be exactly offset by the effect of raising additional share capital.
When dividends are paid to the shareholders, the market
price of the shares will decrease. What the investors as a result of
increased dividends gain will be neutralized completely vie the
reduction in the terminal value of the shares. The market price before
and after the payment of dividend would be identical. The investors
according to Modigliani and Miller, would, therefore, be indifferent
between dividend and retention of earnings. Since the shareholders are
indifferent, the wealth would not be affect by current and future
dividend decisions of the firm. It would depend entirely upon the
expected future earnings of the firm.
26

27. There would be no difference to the validity of the mm premise, if
external funds were raised in the form of debt instead of equity capital.
This is because of their indifference between debt and equity witty
retest to leverage. The cost of capital is independent of leverage and
the cost of debt is the same as the real cost of equity.
Those investors are indifferent between dividend and retained
earnings imply that the dividend decision is irrelevant. The arbitrage
process also implies that the total market value plus current dividends
of two firms, which are alike in all respects except D/P ratio, will be
identical. The individual shareholder can retain and invest his own
earnings as we as the firm would. With dividends being relevant, a
firm's cost of capital would be independent of its D/P ratio.
Finally, the arbitrage process will ensure that-under conditions of
uncertainty also the dividend policy would be irrelevant. When two
firms are similar in respect of business risk, prospective future earnings
and investment policies, the market price of their shares must be the
same. This, mm argues, is wealth to less wealth. Differences in current
and future dividend policies cannot affect the market value of the two
firms as the present value of prospective dividends plus terminal value
is the same.
27

28. A Critique:
Modigliani and Miller argue that the dividend decision of
the firm is irrelevant in the sense that the vale the firm is independent
of it. The crux of their argument is that the investors are indifferent
between dividend and retention of earnings. This is mainly because of
the balancing natures internal financing (retained earnings) and
external financing (rising of funds externally) consequent upon
distribution earnings to finance investment program's. Whether the
mm hypotheses provides a satisfactory framework for the theoretical
relationship between dividend decision and valuation will depend, in
the ultimate analysis on whether external and internal financing really
balance each other. This in turn, depends upon the critical
assumptions stipulated by them. Their conclusions, it may be noted,
under the restrictive assumptions, a logically consistent and
intuitively appealing. But these assumptions are unrealistic and
untenable in practice As a result, the conclusion that dividend
payment and other methods of financing exactly offset each other
and, hence, the irrelevance of dividends is not a practical proposition'
it is merely of theoretical relevance.
The validity of the MM Approach is open to question on two Coutts:
(i) Imperfection of capital market,
(ii) Resolution of uncertainty
28

29. Market Imperfection: Modigliani and Miller assume that capital
markets are perfect. This implies that there are no taxes; flotation costs
do not exist and there is absence of transaction costs. These
assumptions ate untenable in actual situations.
A. Tax Effect:
An assumption of the mm hypothesis is that there are no taxes.
1t implies that retention of earnings (internal financing) and payment
of dividends (external financing) are, from the viewpoint of law
treatment, on an equal footing the investors would find both forms of
financing equally desirable. The tax liability of the investors, broadly
speaking. is of two types: i tax on dividend income, and capital gains.
While the first type of tax is payable by the investors when the firm
pays dividends, the capital gains tax is related to retention of earnings.
From an operational viewpoint, capital gains tax is (i) lower thebe the
tax or dividend income and (ii) it becomes payable only sheen shares
are actually sold, than is, it is a differed till the actual sale of the shares.
The types of` taxes, MM position would imply otherwise. The different
tax treatment of div dined and capital gains means that with the
retention of earnings the shareholders. For example, a firm pays
dividends to the shareholders out of the retained earnings; to finance its
investment program's it issues rights shares. The shareholders would
29

30. have to pay tax on the dividend income at rates appropriate to their
income bracket. Subsequently, they would purchase the shares of the
firm. Clearly, than tax could have been avoided if, instead of paying
dividend, the earnings were -retained if, however the investors required
funds, they could sell a part of their investments, in which case they
will pay tax (capital gains) at a lower rate. There is a definite
advantage to the investors Owing to the tax differential in dividend and
capital gains tax and , therefore, they can be expected to prefer
retention of earnings.
B. Flotation costs:
Another assumption of a perfect capital market underlying
the MM Hypothesis is dividend irrelevance is the absence of
flotation costs. The term `flotation cost' refers to the cost involved
in raising capital from the market for instance, underwriting
commission, brokerage and other expenses. The presence of
flotation costs affects the balancing nature of internal retained
earnings) and external (dividend payments) Financing. The MM
position, it may be recalled, agues that given the investment
decision of the firm, external funds would have to be raised, equal
to the amount of dividend, through the sale of new share to finance
the investment programmed. The two methods of financing are not
30

31. perfect substitutes because of flotation costs. The introduction of
such costs implies that the net proceed from the sale of new shares
would be less than the face valid of the shares, depending upon their
size.8 it means tat to be able to make use of external funds,
equivalent to the dividend payments, the firms would have to sell
shares for an amount in excess of retained earnings. In other words,
external financing through sale of shares would be costlier than
internal financing via retained earnings. The smaller the size of the
issue, the greater is the percentage flotation cost. 9 To illustrate
suppose the cost of flotation is 10 percent and the retained earnings
are Rs.900, In case dividends are paid, the firm will have to sell
shares worth Rs.100/- to raise funds are paid, the firm will have to
sell shares worth Rs.1000/- to raise funds equivalent or the retained
earnings. That external financing is costlier is another way ol'
saying that firms would prefer to retain earnings rather tab pay
dividends and then raise funds externally.
C. Transaction and Inconvenience Costs:
Yet another assumption, which -is open to question, is that
there are no transaction costs in the capital market. Transaction costs
refer to costs associated with the sale of securities by the shareholder-
investors. The no-transaction costs postulate implies that if dividends
are not paid (or earnings are retained), the investors desirous of current
31

32. income to meet consumption needs can sell a part of their holdings
without incurring any cost, like brokerage and so on. This is obviously
an unrealistic assumption.
Since the sale of securities involves cost, to get current
income equivalent to the dividend, if paid, the investors would have to
sell securities in excess of the income that they will receive. Apart
from the transaction cost, the sale of securities, as an alternative to
current income, is inconvenient to the investors. Moreover, uncertainty
is associate with the sale of securities. For all these reasons an investor
cannot be expected, as MM assume, to be indifferent between dividend
and retained earnings.
The investors interested in current income would certainly
prefer dividend payment to plugging back of profits by the firm.
32

33. D. Institutional Restrictions :
The dividend alternative is also supported by legal
restrictions as to the type of ordinary shares in which certain investors
can invest for instance, the Life Insurance Corporation of India is
permitted in terms of clauses I(a) to 1(g) of section 27-A of the
Insurance Act, 1938, to invest in only such equity shares on which a
dividend of not less than 4 per cent including bonus has been paid for S
years out of 7 years immediately preceding. To be eligible for
institutional investment, the companies should pay dividends. These
legal impediments therefore, favor dividends to retention of earning. A
variation of the legal requirement to pay dividends is to be found in the
case of the Unit Trust of India (UTI). The UTI is required in terms of
the stipulations governing its operation, to distribute at least 90 percent
of its net income to unit holder. It cannot invest more than S per cent of
its inventible fund under the unit schemes 1964 and 1971, in the shares
of new industrial undertakings. The point is that the eligible securities
for investment by the UTI are assumed to be those that are on the
dividend payment list.
To conclude the discussion of market imperfections there are
four factors, which dilute the difference of investors between dividends
and retained earnings. Of these, flotation costs seem to favor retention
of earnings on the other hand, the desire for current income and, the
33

34. related transaction and inconvenience costs, legal restrictions as
applicable to the eligible securities for institutional investment and tax
example of dividend income imply a preference of payment of
dividends. In sum, therefore, market importer implies that investors
would like the company to retain earnings to finance investment
.programs. The dividend policy is not irrelevant.
Resolution of Uncertainty:
A part from the market imperfection, the validity of the
mm hypothesis, insofar as it argues that dividends are irrelevant, is
questionable under conditions of uncertainty. MM hold, it would be
recalled, the at dividend policy is as irrelevant under conditions of
uncertainty as, it is when prefect certainty is assumed. The MM
hypothesis, however, not tenable as investors cannot between
dividend and retained earnings under conditions of uncertainty. This
can be illustrated with reference to four aspects: (i) near vs. distant
dividend; (ii) informational content of dividends; (in) preference for
current income; and (iv) sale of stock at uncertain price/under pricing.
I. Near Vs Distant Dividend:
One aspect of the uncertainty situation is the payment of dividend
now or at a later data. If the earnings are used to pay dividends to the
investors, they get immediate or neat dividend if however, the net
earnings are retained, and the shareholders would be entitled to receive
34

35. a return after some time in the form of an increase in the price of shares
(Capital gains) or bonus shares and so on. The dividends may then, be
referred to as `distant-or-future' dividends. The crux of the problem is:
are investors indifferent between immediate and future dividends.
According to Gordon" investors are not indifferent; rather, they would
prefer near dividend to distant dividend the when it would be payment
of the investors cannot be precisely forecast. The longer the distance
in future dividend payment, the higher is the uncertainty to the
shareholders
The uncertainty increases the risk of the investors. The payment
of immediate dividend resolves uncertainty. The argument that
near dividend is preferred over the distant dividends involves the
"bird-in-hand' argument. This argument is developed in some
detail in the later part of this report. since current dividends are
less risky than future/distant dividends, shareholders would favors
dividends to retained earnings.
II. Informational Content of Dividends:
Another aspect of uncertainty, very closely related to the first
(i.e.
Resolution of uncertainty or the -bird-in-hand' argument) is the
informational content of dividend argument. According to the latter
35

36. argument, as the name suggests, the dividend contains some
information vital to the investors. The payment of dividend conveys
to the shareholders information relating to profitability of the
firm.The international content .argument finds support in some
empirical evidence. IT id contended that changes in dividends
convey more significant information than what earnings
announcements do. Further, the market reacts to dividend changes-
prices rise in response to a significant increase in dividends and fall
when there is a significant decrease or omission.
III. Preference for Current Income:
The Third aspect of the uncertainty question to dividends is based
on the desire of investors for current income to meet consumption
requirements. The MM hypothesis of irrelevance of dividends
implies that in case dividends are not paid, investors who prefer
current income can sell a part of their holdings in the firm for the
purpose. But, under uncertainty conditions, the two alternatives are
36

37. not on the same footing because (i) selling a small fraction of
holdings periodically is inconvenient. that selling shares to obtain
income, as an alterative to dividend, involves uncertain price and
inconvenience, implies that investors are likely to prefer current
dividend. The MM proposition would, therefore, not be valid because
investors are not indifferent.
IV. Under Pricing:
Finally the MM hypothesis would also not be valid when conditions
are assumed to be uncertain because of the prices at which the firms
can sell shares to raise funds to finance investment program's
consequent upon the distribution of earnings to the shareholders The
irrelevance argument would valid provided the firm is able to sell
shares to replace dividends at the current price. Since the shares would
have to be offered to bedew investors, the firm can sell the shares only
at a price below the prevailing price.
37

38. RELEVANCE OF DIVIDENDS
In sharp contrast to the MM position, there are some theories that
consider dividend decisions to be an active variable in determining the
value of a firm. The dividend decision is, therefore, relevant. We
critically examine below two theories representing this notion:
1) WALTERS MODEL
2) GORDON'S MODEL
WALTER'S MODEL
Proposition Walter‟s models support the doctrine that dividends are
relevant. The investment policy of a firm cannot be separated from its
dividends policy and both are according to Walter interlinked. The
choice appropriate dividend policy affects the value of an enterprise.
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
38

39. 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 DP ratio of 100 would give an optimum dividends
policy. .
39

40. Finally, when r= k (normal firms), it is a matter of indifference
whether earnings are retained or distributed. This is so because for a4l
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.)
Assumptions:
The critical assumptions of Walter's Model are as follow:
1. All financing is done through retained earnings:
External sources of funds like debt or new equity capital are not
used.
2. With additional investments undertaken, the firm's business, risk
does not change.
It implies that r and k are constant. .
3 There is no change in the key variable, namely, beginning earnings
per share, E.
And dividends per share, D. The values of D and E may be changed
in the model to
determine results, but any given value of E and D are assumed to
remain constant in
determining? Given value.
4. The Firm has perpetual (or very long) life.
40

41. 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. Sonic of the assumptions do not
stand critical evaluation. IN tile 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 are 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.
41

42. GORDON'S MODEL
Another theory, which contends that dividends are relevant, is
Gordon's model. This model, which opines that dividend policy of a
firm affects its value, is based on the following assumptions:
Assumptions:
1. The firm is an all-equity firm. No external financing is used and
exclusively retained earnings Finance investment program's.
2. r and ke are constant.
3. The firm has perpetual life
4. The retention ratio, once decided upon, is constant. Thus, the
growth rate, (g=br) is. Also constant.
5. Kc > br.
42

43. Arguments:
It can be seed 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 Got-don'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 dividends that
are they would placeless importance on it as compared to current
dividend. The investors evaluate the retained earnings as a risky
43

44. 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 D/P ratio. The
omission of dividends, or payment of low dividends, would lower the
value of the shares.
44

45. 45

46. Dividend Capitalization Model:
According to Gordon, the market valued of a share is equal to
the present value of future streams of dividends. A simplified version
of Gordon's model can be symbolically 18 expressed as
E(1-b)
Ke-br
Where p = price of a share
E= Earnings per share
b= Retention ratio or percentage of earnings retained.
1-b=D/P ratio or percentage of earnings distributes as
dividends
Ke= Capitalization rate/cost of capital
Br=g=Growth rate= rate of return on investment of an equity
firm.
DIVIDEND POLICIES:
In the light of the conflicting and contradictory viewpoints
as also the available empirical evidence there appears to be a case for
the proposition that dividend decisions are relevant in the sense that
investors prefer them over retained earnings and they have a bearing on
the firm's objective of maximizing the shareholder's wealth.
46

47. FACTORS DETERMINIG THE DIVIDEND POLICIES
The factors determining the dividend policy of a firm may, for
purpose of exposition, be classified into: (a) Dividend payout (D/P)
ratio, (b) Stability of dividends, (c) Legal, contractual and internal
constraints and restrictions, (d) owners considerations, (e) Capital
market considerations. And (f) Inflation.
A. Dividend Payout (D/P) RATIO:
A major aspect of the dividend policy of a firm is its dividend
payout (D/P) ratio, that is, the percentage share of the net earnings
distributed to the shareholders as dividends. The relevance of the D/P
ratio, as a determinant of the dividend policy of a firm, has been
examined at some length in the preceding chapter. It is briefly
recapitulated here.
Dividend policy involves the decision to pay out earnings or to
retain them for reinvestment in the firm. The retained earnings
constitute a source of financing. The payment of dividends result in the
47

48. reduction of cash adds, therefore, in a depletion of total assets. In order
to maintain the asset level, as well as finance investment opportunities,
the firm must obtain funds from the issue of additional equity or debt.
If the firm is unable to raise external funds, its growth would be
affected. Thus, dividend imply outflow of cash and lower future
growth. In other words, the dividend policy of the firm affects both the
shareholders' wealth and the long term growth of the firm. The
optimum dividend policy should strike the balance between current
dividends and future growth which maximizes the price of the firm's
shares. The D/P ratio of a firm should be determined with reference to
two basic objectives-maximizing the wealth of the firm's owners and
providing sufficient funds to finance growth. These objectives are not
mutually exclusive, but interrelate.
Given the objective of wealth maximization, the firm's dividend
policy (D/P ratio) should be one, which can maximize the wealth of its
owners in the `long run'. In theory, it can be expected that the
shareholders take into account the long-run effects of D/P ratio that is,
if the firm is paying low dividends and having high retentions, they
recognize the element of growth in the level of future earnings of the
firm. However, in practice, they have a clear-cut preference for
dividends because of uncertainty and imperfect capital markets. The
payment of dividends can therefore, be expected to affect the price of
48

49. shares: a low D/P ratio may cause a decline in share prices, while a
high ratio may lead to rise in the' market price of the shares.
Making a sufficient provision for financing growth can be
considered a secondary objective of dividend policy. Without
adequate funds to implement acceptable projects, the objective of
wealth maximization cannot be achieved. The firm must forecast its
future needs for funds, and taking into account the external
availability of funds and certain market considerations, determine
both The amount of retained earnings needed and the amount of
retained earnings available after the minimum dividends have been
paid. Thus; dividend payments should not be viewed as a residual,
but rather a required outlay after which any remaining funds can be
reinvested in the firm.
B. Stability of Dividends:
The Second major aspect of the dividend policy of a firm is
the stability of dividends. The investors favors stable dividend as much
as they favors the payment of dividends (D / P ratio).
The term dividend stability refers to the consistency or lack of
variability in the stream of dividends. In more precise terms. it means
that a certain minimum amount of dividend is paid out regularly. The
49

50. stability of dividends can take any of the following three forms: (i)
constant dividend per share, (ii) constant/stable /P ratio, and (iii)
constant dividend per share plus extra dividend.
i. Constant dividend per Share :
According to this form of stable dividend policy, a company
follows a policy of certain fixed amount per share as dividend. For
instance, on a share of face value of Rs 10, firm may pay a fixed
amount of, say Rs 2-5O as dividend. This amount would be paid year
after year, irrespective of ht level of earnings. In other words,
fluctuations in earnings would not affect the dividend payments. In
fact, when a company follows such a dividend policy, it will pay
dividends to the shareholder even when it suffers losses. A stable
dividend policy in terms of fixed amount of dividend per share does
not, however, mean that the amount of dividend is fixed for all times to
come. The dividends per share are increased over the years when the
earnings of the firm increase and it is Expected that the new level of
earnings can be maintained .Of course, if the increase to be temporary,
the annual dividend remains at the existing level It can, thus, be seen
that while the earnings may fluctuate from year to year, the dividend
per share is constant - To be able to pursue such a policy, a firm whose
earnings are not stable would have to make provisions in years when
50

51. earnings are higher for payment of dividends in lean years. Such firms
usually create a reserve for dividends equalization. The balance
standing in this fund is normally invested in such assets as can be
readily converted into cash.
ii. Constant Payout Ratio:
With constant/target payout ratio, a firm pays a constant
percentage of net earnings as dividend to the shareholders. In other
words, a stable dividend payout ratio implies that the percentage of
earnings paid out each year is fixed. Accordingly, dividends would
fluctuate proportionately with earnings and are likely to be highly
volatile in the wake of wide fluctuations in the earnings of the
company .As a result, when the earnings of a firm decline substantially
or there is a loss in a given period, the dividends, according to the
target payout ratio, would be low or nil. To illustrate, if affirm has a
policy of SO percent target payout ratios, its dividends will range
between Rs Sand zero per share on the assumption that the earnings
per share are Rs 10 and zero respectively. The relationship between the
earnings per share (EPS) and dividend per share (DPS) under the
policy of constant payout ratio.
51

52. iii. Stable Rupee Dividend plus Extra Dividend:
Under this policy, a firm usually pays a fixed dividend to the
shareholders and in years of marked prosperity; additional or extra
dividend is paid over and above the regular dividend. As soon a normal
conditions return, the firm cuts extra dividend and pays the normal
dividend per share. The policy of paying sporadic dividends may not
find favor with them. The alternative to the combination of a small
regular dividend and an extra dividend is suitable for companies whose
earnings fluctuate widely. With this method, a firm can regularly pay a
fixed, though small, amount of dividend so that there is no risk of
being able to pay dividend to the shareholders. At the same time, the
investors can participate in the prosperity of the firm. By calling the
amount by which the dividends exceed the normal investments as
extra. The Firm, in effect, cautions the investors-both existent as well
as prospective- they should .not consider it as a permanent increase in
dividends. It may, therefore, be noted that from the investor's
viewpoint, the extra dividend is of a sporadic nature. What the
investors expect is that they should get an assured fixed amount as
dividends, which should gradually and consistently increase over the
years. The most commendable from of stable dividend policy is the
constant dividend per share policy. There are several reasons why
52

53. investors why investors would prefer a stable dividend policy. There
ate several reasons why investors would prefer a stable dividend policy
and pay a higher price for a firm's shares which observe stability in
dividend payments.
Desire for Current Income:
A factor favoring a stable policy is the desire for current income by
some investors. Investors such as retired persons and windows, for
example, view dividends as a source of funds to meet their current
living expenses. Such expenses are fairly constant from period to
period. Therefore, a fall in dividend will necessitate selling shares to
obtain funds to meet current expenses and, conversed, reinvestment of
some of the dividend income if dividends rise significantly. For one
thing, many of the income-conscious investors may not like to dip into
their principal' for current consumption. Moreover, either of the
alternatives involves, inconvenience apart, transaction costs in terms of
brokerage, and other expenses. These costs are avoided if the dividend
stream is stable and predictable. Obviously such a group of investors
may be willing to pay a higher share price to avoid the inconvenience
of erratic dividend. Payments, which disrupt their budgeting. They
would place positive utility on stable dividends
53

54. Information content
Another reason for pursing a stable dividend policy is that
investor's are thought to use dividends and changes in dividends as a
source of information about the firm's profitability. If investors know
that the firm will change dividends only if the management foresees a
permanent earnings change, then the level of dividends informs
investors about the compacts expected earnings. Accordingly the
market views the changes in the dividends of such a cornpai7ti- as of a
semi-permanent nature. A cut in dividend implies poor earnings
expectation; no change, implies earnings stability; and a dividend
increase, signifies the managements optimism about earnings. On the
other hand, a company that pursues an erratic dividend payout policy
does not provide any such information, thereby increasing the risk
associated with the shares. Stability of dividends, where such dividends
are based upon long-run earning power of the company, is, therefore, a
means of reducing share-riskiness and consequently increasing share
value to investors.
Requirements of Institutional Investors:
A third factor encouraging stable dividend policy is the
Requirement of institutional investors , like Life Insurance Corporation
54

55. of India and General Insurance Corporation of India (insurance
companies) and Unit Trust of India (mutual funds) and so on, to invest
in companies which have a record of continuous and stable dividend.
These financial institutions owing to the large size of their inventible
funds, re(resent a significant force in the financial markets and their
demand for the company's securities can have an financial markets and
their demand for the company's securities cha have an er4hancing
Effect on its price and,
there by on the shareholder's wealth. A stale dividend policy is a
prerequisite to attract the inventive funds of these institutions. One
consequential impact of the purchase of shares nay them is that there
may be an increases in the general demand for the company's shares.
Decreased marketability risk, coupled with decreased financial risk,
will have a positive effect on the value of the firm's shares.
A part from theoretical postulates for the desirability of stable
dividends, there are also Manu empirical studies classic among them
being that of limner5. To support the viewpoint that companies purser
a stable dividend policy. In other words, companies, while taking
decisions on the payment of dividend, bear mind the dividend below
the amount paid in previous years. Actually, most firms seem to favor
a policy of establishing a non-decreasing dividend per share above a
55

56. level than can safely be sustained in the future. These cautious creep up
of dividends per share results in stable dividend per share pattern
during fluctuant earnings per share periods, and a rising the function
pattern of dividends per share during increasing earnings per share
periods.
Chapter-3
56

57. COMPANY
PROFILE
KESORAM CEMENT
One among the industrial giants in the country today, serving
the nation on the industrial front Kesoram Industries Limited has a
chequered and eventful history is dating back to the Twenties when
the Industrial House of Birlas acquired it. With only a Textile Mill
under it banner in 1924, it grew from strength to strength and spread
57

58. its activities to never fields like Rayon, Pulp, transparent paper, Spun
pipes and Refractoriness, Tires, Oil Mills and Refinery Extraction.
Looking to the wide gap between demand and supply, of a vital
commodity, cement, which plays an important role in nation - building
the Government of India de-licensed the Cement Industry in- the year
1966 with a view to attract private entrepreneurs to augment the
cement product Kesoram rose to the occasion and decided to set up a
few cement plants in the country.
The first Cement Plant of Kesoram with a capacity of 2.5 lack
tones per annum based on dry process, was established in 1969 at
Basanthnagar a backward area in Karimnagar District, Andhra
Prudish, and christened it Kesoram Cement. The second unit
followed suit, which added a capacity of 2.00 lack tones in 1971. The
plant was further expanded to 9.00 lack tones by adding 2.5 lack
tones in August 1978. 1.14 lack tones in January, 1981 and 0.87 lack
tones in September, 1981.
Kesoram Cement has outstanding track record of performance
and distinguished itself among all the Cement factories in India by
bagging the coveted National Productivity Award for two successive
58

59. years, i.e., in 1985 and 1986, so also the National Awards for Mines
Safety for two year 1985-86 and 1986-87. Kesoram also bagged
NCBM's (National Council for Cement and Building Materials)
National Award for Energy Conservation for the year 1989-90.
Kesoram got the prestigious State Award "Yajamanya Ratna"
& "Best Management Award" for the year 1989,so also the FAPCCI
(Federation of Andhra Pradesh Chamber of Commerce and Industry)
Award for Best Family Planning effort in the State. For the year 1987-
88, Kesoram also got the FAPPCI Award for Best Industrial Promotion
/ Expansion effort in the State. In the year 1991 Kesoram also got the
May day Award of the Government of Andhra Pradesh for "Best
Management" and "Pundit Jawaharlal Nehru Silver Rolling Trophy for
Best productivity effort in the State, sponsored by FAPCCI, for 1993
Kesoram got the Best.
Management Award of the Government of Andhra Pradesh.
Kesoram is also conscious of its social responsibilities. Its rural and
community development programmers include adoption of two nearby
villages, running an Agricultural Demonstration Farm, a Model Dairy
Farm etc., Impressed by these activities, FAPCCI choose Kesoram to
confer the Award for "Best efforts of an Industrial Unit in the State to
Develop Rural Economy" twice, in the year 1994 as well as in 1998.
Kesoram also has to its credit the National Award (Shri S.R. Rangta
59

60. Award for Social Awareness) for the year 1995-1996, for the Best
Rural Development Efforts made by the Company. In the same year
Kesoram also got the FAPCCI Award for "Best Workers Welfare"
Kesoram got the First Prize for Mine Environment and Pollution
Control for year 1999 too, for the 3rd year in succession in July, 2001
Kesoram annexed the "Vana Mithra" Award from the Government of
Andhra Pradesh.
Quality conscious and progressive in its outlook, KESORAM
CEMENT is an OHSAS 08001 Company and also joined the select
brand of IS09001-2000 Companies.
Performance:
The performance of Kesoram Cement industry had been
outstanding achieving over cent per cent capacity utilization although
despite many odds like power cuts and which most 40% was waste due
to wagon shortage etc.
The company being a continuous process industry works round the
clock and has an excellent record of performance achieving over 100%
capacity utilization.
60

61. Kesoram has always combined technical progress with
industrial performance. The company had a glorious track record for
the last 27 years in the industry.
Technology:
Kesoram Cement uses most modern technology and the
computerized control in the plant. A team of dedicated and well-
experienced experts manages the plant. The quality is maintained much
above the bureau of Indian Standards. The raw materials used for
manufacturing cement are:
• Lime stone
• Bauxite
• Hematite
•Gypsum
61

62. History
The first unit was installed at Basanthnagar with a capacity of 2.5 lack
TPA (tones per annum) incorporating humble supervision, preheated
system, during the year 1969.
The second unit followed suit with added a capacity of 2 lack
TPA in 1971.
The plant was further expanded to 9 lack by adding 2.5 lack
tones in August, 1978, 1.13 lack tones in January, 1981 and 0.87 lack
tones in September, 1981.
Power
Singareni Collieries makes the supply of coal for this industry
and the power was obtained from AP TRANSCO. The power demand
for the factory is,. about 21 MW. Kesoram has got 2 diesel generator
sets of 4 MW each installed in the year 1987.
Kesoram cement now has a 1 S KW, captive power plant to
facilitate for un interrupted power supply for manufactured of cement.
62

63. Environmental and Social Obligations
For environmental promotion and to keep-up the ecological
balance, this section has undertaken various social welfare programs
by adopting ten nearly villages, organizing family welfare camps,
surgical camps, children immunization camps, animal health camps,
blood donation camps, distribution of fruit bearing trees and seeds,
training for farmers etc., were arranged.
Welfare and Recreation Facilities ,
For the purpose of recreation facility to auditoriums were
provided for playing indoor games, cultural function and activities like
drama, music and dance etc.
The industry has provided libraries and reading rooms. About
1000 books are available in the library. All kinds of newspaper,
magazines are made available. Canteen is provided to cater to the
needs to the employees for supply snacks, tea, coffee and meals etc.
One English medium and one Telugu medium school are provided
to meet the educational requirements.
The company has provided a dispensary with a qualified
medical office and paramedical staff for the benefit of the employees.
63

64. The employees covered under ESI scheme have to avail the medical
facilities from the ESI hospital. Competitions in sports and games are
conducted every year for August 15, Independence day and January
26, Republic Day among the employees.
Electricity:
The power consumption per ton for cement has come down to
108 units against 113 units last year, due to implementation of various
energy saving measures. The performance of captive power plant of
this section continues to be satisfactory. Total power generation during
the years was 84 million units last year. This captive power plant is
playing a major role in keeping power costs with in economic levels.
The management has introduced various HRD programs for
training and development and has taken various other measures for the
betterment of employee‟s efficiency / performance.
The section has installed adequate air pollution control systems
and equipment and is ISO 14001 such as Environment Management
System is under implementation.
64

65. Production
Last 23 years production of Kesoram cements industry, Basanthnagar.
Year Production (in
tones)
1985-86 749197
1986-87 761581
1987-88 1805921
760708
1988-89
1989-90 550254
1990-91 601453
1991-92 643307
1992-93 643663
1993-94 748258
1994-95 685596
1995-96 731177
65

66. 1996-97 784555
1997-98 782383
1998-99 731049
1999-2000 746474
2000-2001 688305
2001-2002 777092
2002-2003 692424
2003-2004 727447
2004-2005 735012
2006-2007 1046166
2007-2008 1056742
2008-09
2008-2009 1199445
2009-10 1378833
2010-11 1150486
2011-12 1074233
Note: Production including internal consumption also.
66

67. Cement and clinker production were lower than the previous
year mainly because of lower dispatches of cement due to recession
prevailing in cement industry with slow down in demand during the
year under review. This section had to curtail production due to
accumulation of large stocks of clinker. However, sales realization
during the second half of the year has improved and it is hoped that
prices will stabilize at some reasonable levels.
Directors of Kesoram Industries Limited
Chairman
• Syt. B.K. Birla
Directors
• Smt. K.G. Maheshwari
• Shri. Pramod Khaitan
• Shri B.P. Bajoria
• Shri P.K. Chokesy
• Smt. Neeta Mukerji
• (Nominee of I.C.I.C.I.)
• Shri D.N. Niishra
• (Nominee of L.I.C.)
• Shri Amitabha Gosh
• (Nominee of U.T.I.)
• Shri P. K. Ivlalik
• Smt Manjushree Khaitan
Secretary
• Shri S.K. Parik
67

68. Senior Executives
• Shri K.C. Jain (Manager of the Company)
• Shri J.D. Poddar
• Shri O.P. Poddar
• Shri P.K. Goyenka
• Shri D. Tan don
Auditors
•Messrs Price Waterhouse Subsidiary Companies of Kesoram
Industries
•Bharat General & Textile Industries Limited
•KICM Investment Limited
• Assam Cotton Mills Limited Soft shree Estates Limited.
68

69. Chapter-4
DATA ANALYSIS
&
69

70. INTERPRETATION
DIVIDEND DECISIONS IN
KESORAM
CEMENT INDUSTRY
The various modes of dividend theories, which have been
discussed earlier, the sample of the kesoram cement industry
selected. And analyzed to empirical evidence for the two theories
supporting the relevance of dividend policies Walter's model and
Gordon's model.
We shall classify the kesoram cements industry into these six
categories basing on the explain the Dividend per share, Earning per
share, Return per share, Price Earning, Profit after Tax, Net worth.
These are explaining based on last six financial years‟ data.
Since 2003-04 to 2008-09 collected the data in kesoram
cement industries. At Basanthnagar.
70

71. COMPARISION OF DIVIDEND PER
SHARE
OF THE KESORAM CEMENTS
TABLE 4.1
DIVIDEND
YEAR
PERSHARE
2005-06 2.50
2006-07 3.00
2007-08
4.00
2008-09 5.50
2009-10 2.25
2010-11 3.25
2011-12 1.00
71

72. DIVIDEND PER SHARE
FIGURE
4
72

73. Interpretation:
The dividend Per Share of kesoram Cement ltd., is Rs 2.50 in
the year of 2005-06. The dividend per share for the next two
financial year is 3.00 and 4.00 respectively.
When it is compared with the year 2005-06 the dividend per share in
the year 2008-09 it is increased at the rate of 120% and 30% in the
year of 2010-2011.
COMPARISION OF EARNING PER
SHARE
OF THE FIRM FOR THE LAST FIVE
YEARS
73

74. TABLE 4.2
YEAR EARNING PERSHARE
2006-07 58.08
2007-08
83.80
82.80
2008-09
2009-10 51.88
2010-11 -45.95
2011-12 -83.02
74

75. EARNING PER SHARE
FIGURE 4.2
Interpretation:
The Earning per share of the firm is moderate in the year 2006-
07. The Earning per share fluctuated slightly during the financial
years 2006-07 , 2007-08 and 2008-09.
However, there is massive decrease reported ( about 200% of
2008-09 in the year 2011-12)
75

76. COMPARISION OF PROFIT AFTER TAX
OF THE KESORAM CEMENTS
TABLE 4.5
YEAR PAT (in Rs)
2006-07 265.68
_
2007-08 383.35
378.74
2008-09
2009-10 237.34
2010-11 -210.21
2011-12 -379.74
76

77. PROFIT AFTER TAX
FIGURE 4.5
Interpretation:
The profit after tax of kesoram cement limited had moderate
at 2006-07 and next year was increased. After 2006-07 increased
highly. That is 383.35 and then decreases continuously till 2011-12
i.e to -379.74.
77

78. COMPARISION OF NET WORTH
OF THE KESORAM CEMENTS
TABLE 4.6
YEAR Net worth
654.46
2006-07
2007-08 981.92
2008-09 1,330.10
2009-10 1,540.24
2010-11 1,300.25
2011-12 915.01
78

79. NET WORTH
FIGURE 4.6
Interpretation:
There is a gradual increased in the net worth of the firm
subject to 2006-07 up to 2009-10 then a gradual decrease till 2011-
12.
79

80. Declaration of dividends
Announcement Effective Dividend Dividend
Date Date Type (%)
30/04/2012 28/06/2012 Final 10%
28/04/2011 17/06/2011 Final 32.5%
10/11/2010 24/11/2010 Interim 22.5%
29/04/2010 14/06/2010 Final 32.5%
03/11/2009 16/11/2009 Interim 22.5%
04/05/2009 09/06/2009 Final 32.5%
03/11/2008 17/11/2008 Interim 22.5%
05/05/2008 09/06/2008 Final 55%
06/03/2007 20/03/2007 Interim 40%
03/05/2006 13/06/2006 Final 30%
80

81. Chapter-5
FINDINGS, SUGGESTIONS &
CONCLUSION
5.a FINDINGS:
After analyzing the financial position of Kesoram Cement
Industries and evaluating its Fixed Assets Management or Capital
Budgeting Techniques in respect of Components analysis. Trend
analysis and Ratio analysis. The following conclusions are drawn
from the project preparation.
1) Regarding the dividend per share of the Keshoram Cement, it
has observed that it has been increased.
2) Regarding the earning per year of the firm, it has observers
that it has been increased massively.
81

82. 3) Regarding the return per share of the firm, it has observed
that it has been increased.
4) Regarding the Price earning value of the firm's share, it has
observed that in the financial year 2008-09, it got decreased
when compared with the financial years 2006-07 and 2007-
08.
5) Regarding the profit after tax of the firm, it has observed that
it has been increased highly in the financial year 2008-09.
6) Regarding the Net worth of the firm, it has observed that
There is a gradual increased in the net worth of the firm
subject to very high in the financial year 2007-08.
5.b SUGGESTIONS:
The following Suggestions are being provided to the kesoram
cement industry.
1) Investors always prefer the dividend payment for Capital
appreciation. Hence some amount of Dividend must be
paid regularly. Unless the Payment will reduce the net worth
of the industry.
2) The industry should improve the dividend per share.
82

83. 3) The industry should follow stable dividend policy.
4) The industry should maintain high per share.
5) The industry must improve and maintain high ratio.
6) When the industry get the price earning highly, That
industry will
Grow.
7) The industry Net worth is very good. The industry has to
maintain this type of Net worth.
5.c CONCLUSION:
From the analysis of the company from the kesoram
cement industries we can note the following points:
1) Profit After Tax has increased from Rs 45.75 Cores to
Rs. 265.68 Cores. '
83

84. 2) Earning per share has improved from Rs 9.99 to Rs.
58.08
3) Dividend has been enhanced from Rs. 3.00 to 4.00
4) Increased net worth from Rs. 416.05 Cores to Rs. 65 4.4 3
5) The dividend carries some informational content.
6) The dividend pay out ratio has an impact on the firm.
7) The dividend per share increased normally.
8) There is a fluctuation in earning per share
9) The Return per share has been increased gradually.
84

85. BIBLIOGRAPHY
BIBLIOGRAPHY:
1 Prasanna Chandra: `Financial Management-Theory and
Practice' 5‟Th Edition, 2001, Tata Mc Graw Hill
Publishing
House.
2. Cooper Donald E, Pamela S Schindler, 8th Edition, 2003, Mc
Graw Hill Publishing House.
3. Khan M Y, P Jain: „Financial Management-Text and
problems‟ 3rd Edition, 1999, Tata Mc Graw Hill Publishing
House.
4. Pandy I M: „Financial Management‟ 8th Edition, 2003, Vikas
Publishing House Private Limited.
5. Lawrence J. Gilma : Principle of managerial Finance, Addisa
Worley.
85

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