A CASE STUDY ON DIVIDEND POLICY OF SARAS DAIRY

PREFACE
With the increasing trend of globalization the market competition are increasing day by day. In this competition the customer attitude has also change. Consumers attitude has been of prime importance in the marketing of every product. As marketer it is important to recognize why and how individual make better strategic marketing decision. If marketers understands consumers buying behavior than they are able to shape their marketing strategies accordingly. No doubt, marketers who understand consumers behaviors have great competitive advantage in the market palace. Today, In competitive edge, choice of alternative is available in the market and consumers are also influenced by their informational and environmental clues that can persuade the consumer. So the usability patterns of SARAS milk consumers become more important for company to understand and retain subscribe. This report is an effort from the researcher to find out the attitude of the SARAS consumer in the competitive changing scenario. The report has been prepared in four chapters consisting Introduction to the company, survey profile, project profile, conclusion, and suggestion respectively.

Dividend Policy
Abstract:
The literature on dividend policy has produced a large body of theoretical and empirical research, especially following the publication of the dividend irrelevance hypothesis of Miller and Modigliani (1961). No general consensus has yet emerged after several decades of investigation, and scholars can often disagree even about the same empirical evidence. This paper aims at providing the reader with a comprehensive understanding of dividends and dividend policy by reviewing the main theories and explanations of dividend policy including dividend irrelevance hypothesis of Miller and Modigliani, bird-in-the-hand, tax-preference, clientele effects, signalling, and agency costs hypotheses. The paper also attempts to present the main empirical studies on corporate dividend policy. However, due to the enduring nature and extensive range of the debate about dividend policy which has spawned a vast amount of literature that grows by the day, a full review of all debates is not feasible. The paper reaches at a conclusion that the famous statement of Fisher Black about dividend policy "the

harder we look at the dividends picture, the more it seems like a puzzle,with pieces that just do not fit together" (Black, 1976, p. 5) is still valid.

Introduction
Dividend policy still remains an academic debate amid the clouding picture of its importance among the financial economists till today. There are few aspects of corporate financial policy where the gap between the academics and the practitioners is larger than that of the dividend policy. From Miller & Modigliani (1961)

There exists a vast body of empirical research on the dividend behaviour of SARAS DAIRY. However, much less is known about the dividend policy of firms based elsewhere. The literature is even sparser on the link between dividends and control across the world, and in particularminority shareholder expropriation via the dividend policy. As DeAngelo et al. (2008, p.218) state, there is much yet to be learned about the nature and scope of minority stockholder exploitation. This lack of evidence is highly surprising given that theory predicts that there should be a link between dividend policy on one side and control and the danger of the minority shareholders being expropriated on the other side. In corporate finance, the finance manager is generally thought to face two operational decisions: the investment (or capital budgeting) and the financingdecisions. The capital budgeting decision is concerned with what real assets the firm should acquire while the financing decision is concerned withhow these assets should be financed. A third decision may arise, however, when the firm begins to generate profits. Should the firm distribute all orproportion of earned profits in the form of dividends to the shareholders, or should it be ploughed back into the business? Presumably, in taking any courseof action, managers should

concentrate on how to maximise the wealth of shareholders for whom the 172 firm is being managed. Managers must not only consider the question of how much of the companys earnings are needed for investment, but also take into consideration the possible effect of their decisions on share prices. The term dividend policy refers to the practice that management follows in making dividend payout decisions or, in other words, the size and pattern of cash distributions over time to shareholders. This issue of dividend policy is one that has engaged managers since the birth of the modern commercial corporation. Surprisingly then dividend policy remains one of the most contested issues in finance. The study of dividend policy has captured the attention of finance scholars since the middle of the last century. They have attempted to solve several issues pertaining to dividends and formulate theories and models to explain corporate dividend behaviour. The dividend enigma has not only been an enduring issue in finance, it also remains unresolved. Almost three decades ago Black (1976) described it as a puzzle, and since then an enormous amount of research has occurred trying to solve the dividend puzzle. Allen, Bernardo and Welch (2000, p.2499) summarised the current consensus view when they concluded Although a number of theories have been put forward in the literature to explain their pervasive presence,

dividends remain one of the thorniest puzzles in corporate finance. The enduring nature and extensive range of the debate about dividend policy has spawned a vast amount of literature that grows by the day.

Introduction Of The Industry

India is the highest milk producer in the entire globe. India is well known as the 'Oyster' of the global dairy industry, with opportunities galore for the entrepreneurs globally. It might be dream for any nation in the world to capitalize on the largest and fastest growing milk and mil products' market. The dairy industry in India has been witnessing rapid growth with liberalization. As the economy provides good opportunities for MNCs and foreign investors to release the full potential of this industry. The main objective of the Indian Dairy Industry is to manage the national resources in a manner to enhance milk production and upgrade milk processing using innovative technologies.

The crossbred technology in the Indian Dairy Industry has further augmented with the viability of the dairy units by increasing the milk production per animal. Then subsequently milk production has also increased at an exponential rate while the benefits of an increase in milk production also reached the consumers from a relatively lower increase in the price of milk. The favorable price environment for milk producers for the Dairy Industry in India however appeared to have weakened during the 90's, a decline in the real price of milk being noticed after the year 1992. And then slowly regained it is glory after 1992 to till now. In India dairying from very much earlier is regarded as an instrument for social and economic development. The country's milk supply comes from millions of small producers, who are dispersed throughout the rural areas. All these farmers maintain an average herd of one or two milch animals, comprising cows and/or buffaloes. Mostly ample labour and a small land base encourage farmers to practice dairying as an occupation subsidiary to agriculture. As income from crop production is seasonal instead dairying provides a stable which is a yearround income and also an important economic incentive for the small farmer.

Brief Introduction

India had tremendous milk production in 40 years and has become the world's largest milk-producing nation with a gross output of 84.6 million tons in 2001. The Indian Dairy Industry has achieved this strength of a producer-owned and professionally-managed cooperative system, despitethe facts that a majority of dairy farmers are illiterate and run small, marginal operations and for many farmers, selling milk is their sole source of income. More than 10 million dairy farmers belong to 96,000 local dairy cooperatives, who sell their products to one of 170 milk producers' cooperative unions who in turn are supported by 15 state cooperative milk marketing federations.

In India dairy business has been practiced as rural cottage industry over the years. Semi-commercial dairy started with the establishment of military dairy farms and co-operative milk unions throughout the country towards the end of the 19th century. Since Independence this Industry has made rapid progress. A large number of modern milk and milk product factories have since been established.The organized dairies in India have been successfully engaged in the routine commercial production of pasteurized bottled milk for Indian dairy products. The growth of Indian Dairy Industry during the last three decades has been impressive, at more than 5% per annum; and in the 90's the country has emerged as the largest producer of milk. This is not a small achievement when we consider the fact that dairying in India is largely stringent that farmers in general keep dairy animals in proportion to their free crop and also are available for family labor with little or no purchased inputs and a minimum of marketed outputs. The existence of restrictive trade policy milk in the Diary Industry and the emergence of Amul type cooperatives have changed the dairy farming practices in the country. Farmers have gained the favorable price for their milk and for their production

which was essentially a self-reliant one is which is now being transformed into a commercial proposition. In India Milk production is dominated by small and marginal land-holding farmers and also by landless labourers who in aggregate own 70% of the national milch animal herd.And as the crop production on 78% of the agricultural land still depends on rain, which is prone to both drought and floods, rendering agricultural income is very much uncertain for most of the farmers. Dairying, as a subsidiary source of income and occupation, is real relief to most of the farmers in the society. Usually one or two milch animals enable the farmers to generate sufficient income to break the vicious subsistence agricultural-debt cycle. The Operation Flood which is the successful Indian dairy development programmed has analyzed that how food aid can be utilized as aninvestment in building the type of institutional infrastructure that can bring about national dairy development. Programmes like this, with similar policy orientations, may prove to be appropriate to dairy development in in India. India in the early 1950's was commercially importing around 55000 tonnes of milk powder annually to meet the urban milk demand. Most of the significant developments in dairying have taken place in India in this century only.

India's Milk Product Mix

Fluid Milk Ghee Butter Curd

46.0% 27.5% 6.5% 7.0%

Khoa (Partially Dehydrated Condensed Milk) 6.5% Milk Powders, including IMF Paneer & Chhana (Cottage Cheese) Others, including Cream, Ice Cream 3.5% 2.0% 1.0%

Total contribution to the economy/ sales

The Indian Dairy Industry engages in the production and processing of milk & cream. This industry is involved in the manufacture of various dairy products like cheese, curd, yoghurt etc. The Indian Dairy Industry specializes in the procurement, production, processing, storage and distribution of dairy products. India as nation stands first in its share of dairy production in the international scenario. The industry contributes about Rs 1,15,970 to the national economy.

Employment opportunities
The Indian Diary industry which is in the developing stage provides gainful employment to a vast majority of the rural households. It employs about 8.47 million people on yearly basis out of which 71% are women. Jobs in Indian dairy industry are mainly in the fields of production and processing of dairy products. An individual with minimum of 60% marks who has bachelor's degree course in the dairy technology can easily be availing an opportunity to work in this industry. For the graduation course in Dairy technology one has to qualify the All India Entrance Test that is affiliated to the Indian Council of Agricultural Research. After that the person can continue with his masters in dairy technology. Jobs would be for the following positions.

Dairy Scientists: The main job of the dairy scientists is to deal with collection of milk and taking care of the high yielding variety of animals.

Dairy Technologists: the work of Dairy technology requires procurement officers who take the responsibility of collecting milk from farmers, milk booths ad cattle-rearers. This particular procurement officer should well understand the latest technology that is applicable in maintaining the quality of milk of the process of transporting it to the desired location.

Dairy Engineers: dairy engineers are usually appointed is to set up and maintain dairy plants.

Marketing Personnel: These individuals deal with the sale and marketing of milk together with milk products.

Introduction of The Company

Registered Plant commissioned APS Coverage Started with March 1975 June 1981 April 1984 Jaipur & Dausa 25 DCS

Towards fulfillment of the national objective of making India self sufficient in milk production, a small step was taken in March 1975 and Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., Jaipur (popularly known as Jaipur Dairy) was registered under Cooperative Act 1965 to work in then Jaipur District. Initially this union did not have the processing facilities. It started with a modest beginning of procuring 250 liters of milk per day.

The initial handling capacity of the dairy plant was 1.5 Lakh Lt. per day with a powder plant of 10 MT per day capacity, which was commissioned in the year 1981 under Operation Flood Program 1 by National Dairy Development Board for service of thousands of rural farmers families of Jaipur.

Over the years, there has not been looking back for Jaipur Dairy and the significant growth has been made in all fields i.e. procurement, processing and production of various milk and milk products and marketing thereof under the brand name of SARAS. The plant is managed and operated by well-qualified, competent and experienced managerial cadre and highly motivated work force to provide highest quality of products and best of the services to our esteemed customers.

To further improve the efficiency and effectiveness of the plant performance, Jaipur Dairy (Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., Jaipur) had earlier obtained the Quality Management Systems Certification as per ISO 9002:1994 in combination with IS: 15000 (HACCP) in the year 2000. Now the dairy has upgraded the system in accordance

with ISO: 9001: 2000 in combination with (HACCP) as per IS: 15000: 1998.

Background of Corporate Dividend Policy

The issue of corporate dividends has a long historyand, as Frankfurter and Wood (1997) observed, is bound up with the development of the corporate formitself. Corporate dividends date back at least to the early sixteenth century in Holland and Great Britain when the captains of sixteenth century sailing ships

started selling financial claims to investors, which entitled them to share in the proceeds, if any, of the voyages. At the end of each voyage, the profits and the capital were distributed to investors, liquidating and ending the ventures life. By the end of the sixteenth century, these financial claimsbegan to be traded on open markets in Amsterdam andwere gradually replaced by shares of ownership. It is worth mentioning that even then many investors would buy shares from more than one captain to diversify the risk associated with this type of business. At the end of each voyage, the enterprise liquidation of the venture ensured a distribution of the profits to owners and helped to reduce the possibilities of fraudulent practice by captains. However, as the profitability of these ventures was established and became more regular, the process of liquidation of the assets at the conclusion of each voyage became increasingly inconvenientand costly. The successes of the ventures increasedtheir credibility and shareholders became more confident in their management (captains), and this was

accomplished by, among other things, the payment of generous dividends (Baskin, 1988). As a result, these companies began trading as going concern entities, and distributing only the profitsrather than the entire invested capital. The emergence of firms as a going concern initiated the fundamental practice of

firms to decide what proportion ofthe firms income (rather than assets) to return toinvestors and produced the first dividend payment regulations (Frankfurter and Wood, 1997). Gradually, corporate charters began to restrict the paymentsof dividends to the profits only. The ownership structure of shipping firms graduallyevolved into a joint stock company form of business. But it was chartered trading firms more generally that adopted the joint stock form. In 1613, the British East India Company issued its first joint stock shares with a nominal value. No distinction was made, however, between capital and profit (Walker, 1931, p.102). In the seventeenth century, the success of this type of trading company seemed poised to allow the spread of this form of business organization to include other activities such as mining, banking, clothing, and utilities. Indeed, in the early 1700s, excitement about the possibilities

ofexpanded trade and the corporate form saw a speculative bubble form, which collapsed spectacularly when the South Sea Company went into bankruptcy. The Bubble Act of 1711 effectively slowed, but did not stop, the development of the corporate form in Britain for almost a century (Walker, 1931). In the early stages of corporate history, managers realized the importance of high and stable dividend payments. In some ways, this was due to the analogy

investors made with the other form of financial security then traded, namely government bonds. Bonds paid a regular and stable interest payment, and corporate managers found that investors preferred shares that performed like bonds (i.e. paid a regular and stable dividend). For example, Bank of North America in 1781 paid dividends after only six months of operation, and the bank charter entitled the board of directors to distribute dividends regularly out of profits. Paying consistent dividends remained of paramount importance to managers during the first half of the 19th century (Frankfurter and Wood, 1997, p.24) In addition to the importance placed by investors on dividend stability, another issue of modern corporate dividend policy to emerge early in the nineteenth century was that dividends came to be seen as an important form of information. The scarcity and unreliability of financial data often resulted in investors making their assessments of corporations through their dividend payments rather than reported earnings. In short, investors were often faced with inaccurate information about the performance of a firm, and used dividend policy as a way of gauging what managements views about future performance might be. Consequently, an increase in divided payments tended to be reflected in rising stock prices. As corporations became aware of this phenomenon, it raised the possibility that

managers of companies could use dividends to signalstrong earnings prospects and/or to support a companys share price because investors may read dividend announcements as a proxy for earnings growth. To summarise, the development of dividend payments to shareholders has been tied up with the development of the corporate form itself. Corporate managers realized early the importance of dividend payments in satisfying shareholders expectations. They often smoothed dividends over time believing that dividend reductions might have unfavourable effects on share price and therefore, used dividends as a device to signal information to the market. Moreover, dividend policy is believed to have an impact on share price. Since the 1950s, the effect of dividend policy on firm value and otherissues of corporate dividend policy have been subjected to a great debate among finance scholars. The next section considers these developments from botha theoretical and an empirical point of view.