DIVIDEND POLICY OF TCS

SAURAV GHOSH(BM010202) SHITAL RAJ TOIJAM(BM0102004) SHUBHRA SINGH(BM010205) VARUN CHAUDHARY(BM010207) VIGYA KAUSHIK(BM010208)

TATA CONSULTANCY SERVICES LIMITED (TCS)

Tata Consultancy Services Limited (TCS) is the world-leading information technology organization. TCS commenced operations in 1968, when the IT services industry didnt exist as it does today.

Part of one of Asia's largest conglomerates - the TATA Group.

FACES OF TCS

CONT
TCS

provides following services: Application Development and Maintenance Business Process Outsourcing E-Business Engineering and Industrial Services Infrastructure Services Quality and IT Process Consulting E-Security

CONT
TCS

provides services & solutions to customers across following industries: Banking Financial Services Insurance Telecom Manufacturing Media and Entertainment Retail and Consumer Goods Transportation, Travel & Hospitality Healthcare and Life Sciences Energy & Utilities

SOURCE OF REVENUE
TCS Banking, Financial Services & Insurance customers contributed: 1. 42% of TCS Global Revenues in FY07 , 2. Up from 38.5% in FY05, and 3. YoY growth of 44% in FY 2007

Contribution from mainstream application development and maintenance stood at less than 50% of overall revenues. TCS BaNCS Poduct (Banking and Financial Market) Revenue Rs. 4184 Million, 2% of total revenue

DIVIDEND
The

term dividend refer to that part of divisible profits among its shareholders. other words, dividend is that portion of companys profit which is distributed among its shareholders as a percentage of per value of share or at a fixed rate per share according to the decision of its board of directors.

In

DIFFERENT TYPES OF DIVIDEND :

Regular

Dividend Stock Dividend Bond Dividend Property Dividend Scrip dividend Interim Dividend

DIVIDEND POLICY
Dividend

policy is a very significant financial

decision. It determines the divisions of earnings between payments to shareholders and retained earnings. If the value of firm is a function of its dividendpay-out ratio , the dividend policy will affect directly the firms cost of capital.

DIVIDEND THEORIES
MILLER AND MODIGLIANI APPROACH
Dividend

decision is irrelevant so far the valuation of the firm is considered. Value of the firm depends on its earning potential and investment policy. When investment decision of the firm is given, dividend decision is of no significance in determining the value of the firm.

ASSUMPTIONS
The capital market is perfect. Investors behave rationally. The firm has fixed investment policy. Risk or uncertainty does not exist. There are either no taxes or there are differences in tax rates applicable to dividends and capital gains.

r = Div + (P1-P0)/P0

WALTERS APPROACH
Choice

of dividend policy affects the value of the firm. Payment of dividend may have negative or positive impact on the price of the share of the company. He argues that in the long run, share prices reflect only the present value of the expected return.

ASSUMPTIONS

The firms business risk does not change with additional investment. The firm finances all its investments through retained earnings, debt and new equity is not issued. All earnings are either distributed as dividends or invested internally immediately. The firm has a very long or infinite life.

EXPLANATION
Walters model is based on the relationship between the firms return on investment, r and cost of capital or required rate of return, k P = DIV + r (EPS-DIV) / k k k P = market price per share. DIV = dividend per share. EPS= earning per share. r = firms rate of return. k = firms cost of capital or capitalization rate.

 No

external financing. Constant rate of return and cost of capital. The formula does not consider all the factors affecting dividend policy. It fails to explain the behavior of share price in the situation when r = k.

GORDONS MODEL
ASSUMPTION:
Myron Gordon develops one very popular model explicitly relating the market value of the firm to dividend policy. All equity firm. No external financing. Constant return. Constant cost of capital. Perpetual earning. No taxes. Cost of capital greater than growth rate. The retention ratio, b, once decided upon, is constant.

EXPLANATOIN
When growth in earning and dividend is incorporated, resulting from retained earnings, in dividend capitalization model, the present value of the share is determined by: P0 = EPS(1 - b)/ k - br or DIV/ k g -----------(1) P0 = present value of a share. EPS = earning per share. b = retention ratio. 1 b = payout ratio. DIV = dividend per share. k = capitalization rate of firm or cost of capital. br = growth rate ,g

 Eqn.(1),explicitly

shows the relationship of expected EPS, dividend policy as reflected by retention ratio,b, internal rate of return, r, and cost of capital, k, in the determination of value of the share. This equation is useful for studying the effects of dividend policy on the value of the share. Consider the case of a normal firm where r =k,then P0 = EPS(1 - b)/ k br = EPS/r = rA/r = A [since, EPS=rA, where, A is the assets per share ] P0 = A --------------------(2) i.e. when r = k, dividend policy is irrelevant.

In case of declining firm where r < k, if b = 0 , then P0 = rA/k Therefore, if r < k, then r/k<1 ,it follows that P0 is smaller than the firms investment per share in assets,A.

In case of a firm in growth where r > k. The value of a share will increase as b increases under the condition r > k.

DIVIDEND POLICY ANALYSIS

EPS &DPS (IN RS.)

YEAR 2005 2006 EPS 61.90 55.53 DPS 11.5 13.5

2007
2008 2009 2010

38.39
46.07 47.92 28.62

13
14 14 20

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