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ABOUT ONGC
ONGC Videsh Limited (OVL), the wholly-owned subsidiary of Oil and Natural Gas
Corporation Ltd. (ONGC), has registered a production of 9.433 MMTOE in 2010-11,
surpassing the earlier peak production of 8.870 MMTOE of oil and oil equivalent gas in
2009-10. This records highest ever oil & gas production from the overseas assets of OVL so
far and sets a milestone in its journey for the quest for oil and gas acreages abroad including
acquisition of fields, exploration, development, production, transportation of oil and gas.
VISION & MISSION
To be global leader in integrated energy business through sustainable growth,
knowledge excellence and exemplary governance practices.
World Class
y Dedicated to excellence by leveraging competitive advantages in R&D and
technology with involved people.
y Imbibe high standards of business ethics and organizational values.
y Abiding commitment to safety, health and environment to enrich quality ofcommunity life.
y Foster a culture of trust, openness and mutual concern to make working a stimulating
and challenging experience for our people.
y Strive for customer delight through quality products and services.
Intergrated In Energy Business
y Focus on domestic and international oil and gas exploration and production business
opportunities.
y Provide value linkages in other sectors of energy business.
y Create growth opportunities and maximize shareholder value.
Dominant Indian Leadership
y Retain dominant position in Indian petroleum sector and enhance India's energy
availability.
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Dividend Policy
The term dividend refers to that part of profits of a company which is distributed by the
company among its shareholders. It is the reward of the shareholders for investments made
by them in the shares of the company. The investors are interested in earning the maximum
return on their investments and to maximize their wealth. A company, on the other hand,
needs to provide funds to finance its long-term growth. If a company pays out as dividend
most of what it earns, then for business requirements and further expansion it will have to
depend upon outside resources such as issue of debt or new shares. Dividend policy of a firm,
thus affects both the long-term financing and the wealth of shareholders. As a result, the
firms decision to pay dividends must be reached in such a manner so as to equitably
apportion the distributed profits and retained earnings. Since dividend is a right of
shareholders to participate in the profits and surplus of the company for their investment in
share capital of the company, they should receive fair amount of the profits. The company
should, therefore, distribute a reasonable amount as dividends (which should include a
normal rate of interest plus a return for the risks assumed) to its members and retain the rest
for its growth and survival.
DIVIDEND DECISION AND VALUATION OF FIRM :
The value of the firm can be maximized if the shareholders wealth is maximized. There are
conflicting views regarding the impact of dividend decision on the valuation of the firm.
According to one school of thought dividend decision does not affect the share-holders
wealth and hence the valuation of the firm. On the other hand, according to the other school
of thought, dividend decision materially affects the shareholders wealth and also the
valuation of the firm. We have discussed below the views of the two schools of thought under
two groups:
y The Relevance Concept of Dividend or the Theory ofRelevance.
y The Irrelevance Concept of Dividend or the Theory ofIrrelevance
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The Relevance Concept of Dividends:
According to this school of thought, dividends are relevant and the amount of dividend
affects the value of the firm. Walter, Gordon and others propounded that dividend decisions
are relevant in influencing the value of the firm. Walter argues that the choices of dividend
policies almost and always affect the value of the enterprise.
The Irrelevance Concept of Dividend:
The other school of thought propounded by Modigliani and Miller in 1961. According to MM
approach, the dividend policy of a firm is irrelevant and it does not affect the wealth of the
shareholders. They argue that the value of the firm depends on the market price of the share;
the dividend decision is of no use in determining the value of the firm.
TYPES OF DIVIDEND POLICY :
The various types of dividend policies are discussed as follows:
1. Regular Dividend Policy
Payment of dividend at the usual rate is termed as regular dividend. The investors such as
retired persons, widows and other economically weaker persons prefer to get regular
dividends. A regular dividend policy offers the following advantages.
y It establishes a profitable record of the company.
y It creates confidence amongst the shareholders.
y It aids in long-term financing and renders financing easier.
y It stabilizes the market value of shares.
y The ordinary shareholders view dividends as a source of funds to meet their day-today
living expenses.
y If profits are not distributed regularly and are retained, the shareholders may have to
pay a higher rate of tax in the year when accumulated profits are distributed.
However, it must be remembered that regular dividends can be maintained only by
companies of long standing and stable earnings. A company should establish the regular
dividend at a lower rate as compared to the average earnings of the company.
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2. Stable Dividend Policy
The term stability of dividends means consistency or lack of variability in the stream of
dividend payments. In more precise terms, it means payment of certain minimum amount of
dividend regularly.A
stable dividend policy may be established in any of the following threeforms.
Constant dividend per share: Some companies follow a policy of paying fixed dividend per
share irrespective of the level of earnings year after year. Such firms, usually, create a
Reserve forDividend Equalisation to enable them to pay the fixed dividend even in the year
when the earnings are not sufficient or when there are losses. A policy of constant dividend
per share is most suitable to concerns whose earnings are expected to remain stable over a
number of years. Figure given below shows the behavior of dividend in such policy.
Constant pay out ratio:Constant pay-out ratio means payment of a fixed percentage of net earnings as dividends
every year. The amount of dividend in such a policy fluctuates in direct proportion to the
earnings of the company. The policy of constant pay-out is preferred by the firms because it
is related to their ability to pay dividends. Figure given below shows the behavior of
dividends when such a policy is followed.
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Stable rupee dividend plus extra dividend: Some companies follow a policy of paying
constant low dividend per share plus an extra dividend in the years of high profits. Such a
policy is most suitable to the firm having fluctuating earnings from year to year.
3. Irregular Dividend Policy
Some companies follow irregular dividend payments on account of the following:
y Uncertainty of earnings.
y Unsuccessful business operations.
y Lack of liquid resources.
y Fear of adverse effects of regular dividends on the financial standing of the company.
4. No Dividend Policy
A company may follow a policy of paying no dividends presently because of its unfavourable
working capital position or on account of requirements of funds for future expansion and
growth.
5. Residual Dividend Policy
When new equity is raised floatation costs are involved. This makes new equity costlier than
retained earnings. Under the Residual approach, dividends are paid out of profits after
making provision for money required to meet upcoming capital expenditure commitments.
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FINANCIAL STATEMENTS OF ONGC
BALANCE SHEET OF ONGC AS ON 31ST
MARCH 2010 (RSIN MILLIONS)
Particulars As at 31st march 2010 As at 31st march
2009
Sources of funds
Shareholders funds
Share Capital 21388.87 21388.87
Reserves and surplus 851437.15 765965.28
872826.02 787354.15
Loan funds
Unsecured loans 49.75 267.35
Deferred tax liability 89182.13 78022.35
Liability for abandonment cost 164006.68 160089.65
Total 1126064.58 1025733.50
Application of funds
Fixed assets (Gross Block) 715537.79 613556.05Less:- depreciation and impairment 559052.77 509412.32
Net block 156485.02 104143.73
Capital WIP 102413,54 116964.57
Producing Properties
Gross Cost 843112.16 757297.13
Less:- depletion and impairment 440290.04 395717.19
Net producing properties 402822.12 361579
Exploration/ development 55496.83 50687.37
Investments
Current Assets &Loans And
AdvancesInventories 46785.72 40606.71
Sundry debtors 30586.37 40838.04
Cash & bank balance 108279.29 121405.48
Deposit with scheduled bank 74031.06 69556.64
Other current assets 6333.05 13548.86
Loans and advances 271697.74 260043.83
537713.23 545999.56
Less Current Liabilities 120875.63 104252.80
Provisions 74124.02 70798.18
194999.65 211050.98
Net current assets 342713.58 334948.58
Miscellaneous Expenditure 8413.16 6506.10
Total 1126064.58 1025733.50
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PROFIT AND LOSS ACCOUNT FORTHE YEARENDED 31
St MARCH, 2010
(RS.IN MILLIONS)
2009-10 2008-09
INCOME
Gross Sales 6,02,048.19 6,39,477.08
Less:-Excise duty 2,185.42 3,494.11
Net sales 5,99,862.77 6,35
Other income 41866.86 53,122.72
6,41,729.63 6,89,105.69
EXPENDITURE
(Increase)/decrease in stock (1,180.38) (811.02)
Purchases 139.31 85166.03
Production, transportation, selling and distributionexpenditure
2,43,199.46 2,32,438.87
Depreciation, Depletion, Amortization and Impairment 1,46,431.88 1,19,541.97
Financing costs 144.23 1,189.17Provisions and write-offs 2,974,01 11,665.77
Adjustments relating to prior period (net) 182.69 765.31
3,91,891.20 4,49,956.10
Profit Before Tax and Extraordinary Item 2,49,838.43 2,39,149.59
Extraordinary Item - 657.73
Profit Before Tax 2,49,838.43 2,39,149.59
Provision for Taxation
- Current tax(including wealth tax Rs.22.50 million,
previous year Rs. 20.00 million)
7,12,02.50 7,90,70.00
- Earlier years (199.41) (5540.19)
-D
eferred tax 1,11,59.78 4314.36- Fringe Benefit Tax - 700.00
Profit After Taxation 1,67,675.56 1,61,263.15
Surplus at beginning 0.13 0.95
BALANCE AVAILABLE FORAPPROPRIATION 1,67,675.69 1,61,264.10
APPROPRIATIONS
Proposed dividend 32,083.09 29,944.22
Interim dividend 38,499.71 38,499.71
Tax on dividend 11,615.61 11,632.04
Transfer to General Reserve 85,477.00 81,188.00
Balance carried to Balance-sheet 0.28 0.13
1,67,675.69 1,61,264.10
Earnings per Equity Share- Basic and Diluted(Rs)
(Face value Rs 10/- per share)
-before extraordinary items (net of tax) 78.39 75.19
After extraordinary items 78.39 75.40
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FINANCIAL HIGHLIGHTS OF 5 YEARS AT A GLANCE (Rs. in millions)
PARTICULARS 2009-10 2008-09 2007-08 2006-07 2005-06
PAT 167676 161263 167016 156429 144308
EPS(BEFORE
EXTRA
ORDI
NA
RYITEMS)
78.39 75.19 78.09 71.66 98.22
EPS(AFTER
EXTRAORDINARY
ITEMS)
78.39 75.40 78.09 73.14 101.20
DIVIDEND(IN %) 330 320 320 310 450
BV OFSHARE 404 365 327 287 376
DIVIDEND
AMOUNT (INTERIM
ANDFINAL )
70583 68444 68444 66305 66305
NO .OFSHARES 2138872530 2138872530 2138872530 2138872530 142593992
CURRENT RATIO 2.30:1 2.26:1 2.47:1 2.77:1 3.08:1
DEBT EQUITY
RATIO0.00006:1 0.0003:1 0.001:1 0.001:1 0.002:1
NET WORTH 886413 780848 699435 614099 535934
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DATA REGARDING EPS(EARNINGS PERSHARE) AND DPS(DIVIDEND PER
SHARE)
Chart of comparison between EPS and DPS
INTERPRETATION
y Both EPS and DPS are growing at same rate
y As such there is consistency in EPS and DPS, they have maintained balance in
declaring dividend , it is declared within particular rangey In 2005, shareholding was 1425933992 equity shares, so EPS and DPS are high
compared to further years
y Till 2005 the earning was distributed among lesser shares compared to post bonus
scenario
y In 2006, 712938538 bonus shares were issued and share holding pattern changed to
2138872530
0
20
40
60
80
100
120
2005-06 2006-07 2007-08 2008-09 2009-10
EPS
DPS
(RS. In millions)Year EPS DP
2005-06 98.22 44.99
2006-07 71.66 30.99
2007-08 78.09 31.99
2008-09 75.19 31.99
2009-10 78.39 32.99
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DATAREGARDINGDIVISONOFDIVIDENDONTHEBASISOF
PERIOD(INTERIMANDFINAL)
Years INTERIM FINAL
2005-06 35648.35 28518.68
2006-07 38499.66 27805.31
2007-08 38499.66 29944.22
2008-09 38499.66 29944.22
2009-10 38499.66 32083.09
Chart of comparison between INTERIM and FINAL
INTERPRETATION
y It is seen that company declares both interim and final dividend
y The amount of interim dividend is more compared to final dividend
y Both are maintaining a balance at a constant rate
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2005-06 2006-07 2007-08 2008-09 2009-10
INTERIM
FINAL
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DIVIDEND PAYOUT RATIO
Year Dividend Payout (in %)
2005-06 45.80
2006-07 43.25
2007-08 40.97
2008-09 42.55
2009-10 42.08
Chart ofDividend payout ratio
INTERPRETATION
y Out of total earnings, looking at figures it seems that company pays nearly half of the
earnings as dividend
y There has been no deviation, as consistency is maintained, the dividend amount of all
the years fall in the range of 40% to 45%
45.8
43.25
40.97
42.5542.08
38
39
40
41
42
43
44
45
46
47
2005-06 2006-07 2007-08 2008-09 2009-10
Dividend Payout (in %)
Dividend Payout (in %)
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DATA REGARDING RETAINED EARNINGS
DIVIDEND DECLARED IN CURRENT YEAR:-
y The company paid an interim dividend on Rs. 18 per share (180%)
y In Dec, 2009 the BOD have recommend a final dividend of Rs. 15 per share (150%)
making the aggregate dividend at Rs. 33 per share (330%) as compared to Rs. Per
share (320%) paid in 2008-09.
y The total dividend will absorb Rs 70,583 million, besides Rs 11,616 million as tax on
dividend which is historically the highest dividend payout by the company.
Market Trend ONGC v/s BSE sensex
(Rs. in millions)
YearR
etained Earnings2005-06 71191
2006-07 79999
2007-08 86940
2008-09 81187
2009-10 85477
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STOCK OPTIONS:-
The company has not issued any stock options to its directors/employees.
TRANSFER OF UNPAID/UNCLAIMED DIVIDEND AMOUNT TO
INVESTOREDUCATION AND PROTECTION FUND (IEPF):-
During the year under report, an amount of Rs 3,744,255 and Rs 3,88,213 pertaining to
unpaid dividend for the financial year 2001-02 and 2002-03 (int.) reserve was transferred to
the IEPF set up by the Central Government.
This is in accordance with the sections 205A and 205C of the companys Act, 1956 requiring
transfer of dividend remaining unclaimed and unpaid for a period of 7 years from the duedate to the IEPF.
Unclaimed final dividend for the year2002-03 (Final) is due for transfer to IEPF on or before
28th
Oct 2010. All shareholders, whose dividend is unpaid, are requested to lodge their claim
with M/s Karvy the RTA by submitting an application before 30th
30th
sep, 2010 since no
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claim will lie against the company or the IEPF once the dividend amount is deposited in
IEPF.
Given below are the proposed dates for transfer of the unclaimed dividend to IEPF by the
company during this and next calendar year.
F.Y. Date of declaration Proposed date for
transfer to IEPF
2002-03 Final 29.09.2003 28.10.2010
2003-04 Interim 04.02.2004 03.03.2011
Final 29.09.2004 28.10.2011
CONCLUSION
ONGC is a public sector enterprise, with a large shareholding by president of India and it is
rated in fortune 500 companies list it is a growing company, which not only looks at the
profitable investments but also follows a constant dividend policy ensuring a regular return to
investors, retained earnings are utilized for profitable investments and trust of shareholders is
also attained. A part from this company has also issued bonus shares along with dividend in
2005.
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Bibliography
y Source: - http://www.ongcindia.com/, accessed on 17th
April, 2011.
y Source: -
http://www.ongcindia.com/%5Cdownload%5CCorp%20Sust%20Report%5
CONGC_Sustainability_Report_2009-10.pdf, accessed on 17th
April, 2011.
y Source: -
http://www.ongcindia.com/download/AnnualReports/Annual_Report_2008_09.pdf,
accessed on 17th
April, 2011.
y Source: - http://www.ongcindia.com/profile_new.asp, accessed on 17thApril, 2011.
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y Source: -
http://www.ongcindia.com/%5Cdownload%5CCorp%20Sust%20Report%5C
Annexure.pdf , accessed on 17th
April, 2011.