Analyzing Dividend Policy

NTPC
Company declared an interim dividend of Rs. 3 per equity share paid in Feb,2011 along with a final dividend of Rs. .80 which makes it a total dividend of Rs. 3.80 per equity share of Rs. 10 each which is equal to which is equal to the amount of dividend paid last year. The total dividend payout for the year amounting to Rs. 3133.26 Crore represents 34.42% of the profits after tax. Dividend has been recommended in accordance with your Company''s policy of balancing dividend payout with the requirement of deployment of internal accruals for its growth plans. Company has maintained the same level of dividend as last year , this means company wants to send a signal that its dividend policies are stable . Directors believe that growth of the company through capacity addition, backward and forward integration and strategic diversification of its operations would lead to increase in shareholders value.

Dividend for the year 2012 is going to be higher as only interim dividend has been declared for the same period and final dividend still needs to be paid. Companies dividend has been increasing over the past few years.

NHPC
Directors have recommended a dividend of Re. 0.60 per share (excluding dividend tax) for the year 2010-11. The final dividend shall be paid after approval at the Annual General Meeting. The total dividend pay out for the year amounting to Rs. 738.04 crore represents 34.06 per cent profits after tax. Company has been paying dividend regularly similar to NTPC but the amount of dividend paid is lesser than that of NTPC. Company has maintained consistent dividend policy for the last five years .

NHPC has been paying higher dividend from the past and it has doubled the amount of dividend paid to investors in last 2 years but still dividend paid by NHPC is less than NTPC in absolute terms.

KSK Energy Ventures

The Company is currently involved in implementation of various projects and more specifically the 3600 MW power project through its downstream subsidiaries which is one of the largest single location greenfield project by private enterprise anywhere in India. In order to meet the investment requirements for various ongoing projects, which will contribute to the shareholders'' wealth in the long term, the Directors have not recommended any Dividend to the equity shareholders for the financial year 2010-11. The Company had paid dividend on 8% Cumulative Redeemable Preference Shares of Rs. 10/- each issued to L&T Infrastructure Finance Company Limited proportionately from the date of allotment.

NTPC has been paying the highest amount of dividend among the three companies, it has been consistent over the last few years when it comes to paying dividends. They have paid dividend of more than 30% of there profits over the past five years, on the other hand , NHPC has been paying lower amount of dividend as compared to NTPC. KSK Energy Ventures has not been paying any dividend keeping in mind investment opportunities. Investors may not invest in KSK energy Venture keeping in mind no dividend paid by the company, on the other hand, NTPC would enjoy greater investor confidence and trust as they have been consistently paying dividend over the last 5 years which has not been the case with KSK Energy Ventures.

VALUATIONS

Assumptions : 1. Tax rate is assumed to be 30%. 2. WACC for stable growth is assumed to be same for expected growth at 14.906. 3. Growth when economy is stable is estimated to be 9%.

WORKING CAPITAL MANAGEMENT

A measure of both a company's efficiency and its short-term financial health is given by working capital. It is basically the net current assets which is current assets less current liabilities. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. For such a purpose it is important to analyse different current asset of a company specifically which constitutes major part of the assets such as cash , debtors and inventories. Company managing these resources is going to end up having better working capital management.

NTPC
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Number of Days In Working Capital

29.18 7.54 29.18 0.49 0.76 142.33

27.54 9.06 27.54 0.46 0.7 154.07

28.21 12.78 28.21 0.45 0.67 173.56

33.59 17.52 33.59 0.46 0.7 171.01

14.1 30.78 30.51 0.44 0.65 167.21

Inventory turnover ratio has increased over the years this tells us that there has been increase in the sales and revenue and holding cost has also gone down. Debtor turnover ratio has reduced, company must re-assess its policy in regard to ensure timely collection of imparted credit that is not earning interest for the firm. It shows NTPCs efficiency to convert its debtors into liquid is decreasing. The financial health of the company is sound enough and it appears positive in accordance with its balance sheet and profit and loss a/c. No. of working capital days has reduced this shows that less amount of working capital is required by the company.

NHPC

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

Inventory Turnover Ratio

187.04

102.78

80.93

3.6

6.48

Debtors Turnover Ratio

2.77

6.04

8.47

8.04

8.32

Investments Turnover Ratio

125.34

102.78

80.93

3.6

6.48

Total Assets Turnover Ratio

0.11

0.12

0.09

0.09

0.08

Number of Days In Working Capital

219.56

318.07

-95.76

-82.67

304.3

Inventory turnover ratio has increased many fold which suggests huge increase in sales and better management of inventories. Debtor turnover has reduced which shows that companies ability to convert debtors into liquid cash or cash equivalent has reduced. Working days for the company has reduced which shows that company requires less number of capital to carry out its day to day activities.

KSK Energy

Mar '11 Inventory Turnover Ratio Fixed Assets Turnover Ratio Debtors Turnover Ratio Interest Coverage Ratios Number of Days In Working Capital EBITDA Revenue 9.5 1.93 595.5 2.68 1,585.35 11382 21717

Mar '10 5.9 8.04 489.53 2.56 5,103.02 8050 13879

Mar '09 2.57 11.65 350.5 4.78 5,289.26 3695 4534

Mar '08 0.66 7.60 357.59 5.89 697.49 2158 3496

Mar '07 0.34 6.92 317.58 4.60 2,874.77 3365 2389

Inventory turnover has increased over the period which shows increase in sales and better inventory management by the company. Debtor turnover ratio is increased over the past few years which shows company has been managing debtors efficiently and has been successful in converting debtors into cash. Companies number of working capital days have been reduced which is a good sign as this shows that company requires less amount of liquid assets. Revenue and EBITDA margins have been continuously on the rise as company has a number of projects which have started to yield dividends. Being a relatively new entrant, company has a number of development opportunities in the market.