A LIVE PROJECT ON

VISIT A STOCK EXCHANGE/STOCK BROKING COMPANY AND TAKE OUT A

MODAL CASE OF A DIVIDEND PAYING COMPANY

SUBMITTED BY: Sagar Acharjee

ID NO. :231IUT0160055

PROGRAM – MBA 1ST YEAR

COURSE CODE – INM522

SUBJECT – Financial Management-II

GUIDED BY – SUJIT DEB

ICFAI UNIVERSITY TRIPURA

Kamalghat, Mohanpur, Tripura - 799210

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 ACKNOLEDGMENTS
I would like to extend my sincere gratitude to Prof.Sujit Deb,our resteemed faculty
for the subject "Financial Management-II" for guiding and supporting us
throughout the live project on " VISIT A STOCK EXCHANGE/STOCK
BROKING COMPANY AND TAKE OUT A MODAL CASE OF A DIVIDEND
PAYING COMPANY”

Prof.Sujit Deb invaluable insights, mentorship, and unwavering

encouragement have been instrumental in shaping our understanding of
financial statement analysis and its practical application. We are deeply
appreciative ofthe knowledge and expertise shared with us during this
project.
Furthe rmore, I would like to express my appreciation to my fellow students
who collaborated on this project. Their collective efforts and dedication have
contributed significantly to the successful completion of this analysis.
This project has been a valuable learning experience, and we acknowledge
Prof. Sujit Deb contribution in making it a rewarding endeavour.

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 INTRODUCTION

Dividend policy is a critical aspect of corporate finance that governs how a

company distributes profits to its shareholders. It is a strategic decision that
management must make to strike a balance between retaining earnings for
reinvestment in the business and rewarding shareholders with dividends. Dividend
policy plays a significant role in influencing shareholder wealth, investor
perceptions, and the overall valuation of the company. The study of dividend
policy encompasses various dimensions, including the timing, frequency, and
magnitude of dividend payments, as well as the use of alternative methods such as
share repurchases. This area of corporate finance has garnered considerable
attention from researchers, investors, and corporate executives seeking to
understand the factors driving dividend decisions and their implications for firm
value.

Key objectives of examining dividend policy include:

 Maximizing Shareholder Wealth: The primary goal of dividend policy is

to maximize shareholder wealth by determining the optimal allocation of
profits between dividends and retained earnings. Companies must strike a
balance between distributing dividends to reward shareholders and retaining
earnings to finance growth opportunities and capital expenditures.
 Investor Preferences and Expectations: Dividend policy influences
investor perceptions and expectations regarding a company's financial
health, stability, and growth prospects. Investors often view consistent
dividend payments as a signal of financial strength and management
confidence in the company's future prospects. Understanding investor
preferences and sentiment is essential for companies to attract and retain
investors.

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 OBJECTIVE
The main objective of this study is to understand the dividend policy following:

 Understanding Abbott India Ltd.'s dividend policy for 3/5 years.

 Calculate the share prices using the Walter model, Gordon model and Modigliani Miller
model.

Comment on the determinants of the dividend policy of the company

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THEORIES OF DIVIDEND

1. MODIGLIANI and MILLER (M.M) HYPOTHESIS:

MM hypothesis is primarily based on the arbitrage argument. Through the arbitrage process,
MM hypothesis discusses how the value of the firm remains same whether the firm pays
dividend or not.

P1+¿ D
P 0= 1
¿
1+ K e

Where,

P0= Price in the beginning of the period.

P1= Price at the end of the period.

D1= Dividend at the end of the period.

Ke = Cost of equity/ rate of capitalization/ discount rate.

2. Walter’s model:

 All investment proposals of the firm are to be financed through retained earnings only.
 'r' rate of return & 'Ke cost of capital are constant
 Perfect capital markets: The firm operates in a market in which all investors are rational
and information is freely available to all.

The relationship between dividend and share price based on Walter's formula is shown below:

r
D+ +( E−D)
Market price (P) = ke
ke

Where,

P = Market Price of the share.

E = Earnings per share.

D = Dividend per share.

Ke = Cost of equity/ rate of capitalization/ discount rate.

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r = Internal rate of return/ return on investment

3.GORDON MODEL
 Firm is an all-equity firm i.e. no debt.
 IRR will remain constant,
 Ke will remain constant,
 Growth rate (g = br) is also constant

The following formula is used by Gordon to find out price per share:

E 1(1−b)
Po =
k e−¿ br ¿

Where,

Po = Price per share

E1 = Earnings per share

b = Retention ratio; (1 - b = Payout ratio)

Ke = Cost of capital

r = IRR

br = Growth rate (g)

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 COMPANY PROFILE

Abbott India Limited is a leading pharmaceutical company in India, known for its
commitment to improving healthcare outcomes through innovative medicines and
healthcare products. Established in 1910, Abbott has a rich legacy of over a
century in India, dedicated to providing high-quality healthcare solutions across
various therapeutic areas such as gastroenterology, women's health, cardiology,
neurology, and diabetes care, among others.

The company's portfolio includes a wide range of pharmaceuticals, medical

devices, diagnostics, and nutritional products, catering to the diverse needs of
patients and healthcare professionals. Abbott India is renowned for its focus on
research and development, consistently introducing new and advanced treatments
to address unmet medical cneeds and enhance patient care.

ENHANCING HEALTH THROUGH KNOWLEDGE

In addition to providing quality products, we’ve developed programs that empower

people with tools and knowledge, including:

 Continuum of Diabetes Care ensures that the 65 million diagnosed

diabetics have the tools they need to treat their diabetes, and the 77
million high-risk pre-diabetics have the resources they need to prevent
it.

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 METHODOLOGY
 Data Type: Secondary Data
 Data Collection: Web Site

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 FACTS AND OBSERVATION

Announcemen
Ex-Date Dividend Type Dividend (%) Dividend (Rs) Remarks
t Date

19-05-2023 21-07-2023 Final 1800 180.00 Rs.180.0000 per

share(1800%)Final
Dividend
20-05-2023 21-07-2023 Special 1450 145.00 Rs.145.0000 per
share(1450%)Special
Dividend
17-05-2022 02-08-2022 Final 1450 145.00 Rs.145.0000 per
share(1450%)Final
Dividend
18-05-2022 02-08-2022 Special 1300 130.00 Rs.130.0000 per
share(1300%)Special
Dividend
18-05-2021 19-07-2021 Final 1200 120.00 Rs.120.0000 per
share(1200%)Final
Dividend
19-05-2021 19-07-2021 Special 1550 155.00 Rs.155.0000 per
share(1550%)Special
Dividend
08-06-2020 28-08-2020 Final 1070 107.00 Rs.107.0000 per
share(1070%)Final
Dividend
09-06-2020 28-08-2020 Special 1430 143.00 Rs.143.0000 per
share(1430%)Special
Dividend
27-05-2019 13-08-2019 Final 500 50.00 Rs.50.0000 per
share(500%)Final Dividend
28-05-2019 13-08-2019 Special 150 15.00 Rs.15.0000 per
share(150%)Special
Dividend
14-05-2018 10-07-2018 Final 500 50.00 Rs.50.0000 per
share(500%)Final
Dividend.
15-05-2018 10-07-2018 Special 50 5.00 Rs.5.0000 per
share(50%)Special
Dividend.
18-05-2017 10-07-2017 Final 400 40.00 Rs.40.0000 per
share(400%)Final
Dividend.
26-05-2016 08-07-2016 Final 350 35.00 Rs.35.0000 per
share(350%)Final Dividend
27-05-2015 22-07-2015 Final 310 31.00 Rs.31.0000 per
share(310%)Final Dividend
28-05-2014 23-07-2014 Final 230 23.00 Rs.23.0000 per
share(230%)Final Dividend
20-02-2013 16-04-2013 Final 170 17.00 Rs.17.0000 per
share(170%)Final Dividend

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SALES GROWTH

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CALCULATION OF SHARE PRICES USINGWALTER MODEL:
The relationship between dividend and share price based on Walter's formula is shown below:

r
D+ +( E−D)
Market price (P) = ke
ke

Where,
r=15% or 0.15
Ke=0.10
EPS=10
Value of shares at different dividend ratio (when r>Ke)
D/P ratio=0%
0.15
0+
P= 0.10 (10-0)
0.10

=150
D/P ratio= 25%
0.15
2.50+
P= 0.10 (10-2.50)
0.10

=137.50
D/P ratio= 50%
0.15
5+
P= 0.10 (16.62-5)
0.10

=125
D/P ratio= 75%

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 0.15
7.5+
P= 0.10 (16.62-7.5)
0.10

= 112.50
D/P ratio= 100%
0.15
10+
P= 0.10 (16.62-10)
0.10

=100
Interpretation:
From the above calculation, it is quite clear that the value of shares (P) is inversely
related to the D/P ratio. As the pay-out ratio increases, the market value of shares
declines. This is so, because the firm is a growth firm (where r > K,) and is able to
earn a return on investments (r) exceeding the required rate of return (K,). The
market value of shares (& 150) is highest when D/P ratio is zero, i.e. the firm
retains its entire earnings. When all earnings are distributed, i.e. D/P ratio is 100%,
then its market value shows the lowest price (100).So, the optimum pay-out ratio is
zero.
Value of shares at different dividend ratio (when r=Ke)
r=0.10 Ke=0.10
D/P ratio=0%
0.10
0+
P= 0.10 (10-0)
0.10

=100
D/P ratio= 25%
0.10
2.50+
P= 0.10 (10-2.50)
0.10

=100

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D/P ratio= 50%
0.10
5+
P= 0.10 (10-5)
0.10

=100
D/P ratio= 75%
0.10
7.5+
P= 0.10 (10-7.5)
0.10

= 100
D/P ratio= 100%
0.10
10+
P= 0.10 (10-10)
0.10

=100

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 CONCLUSION
Abbott India Ltd. has established itself as a prominent player in the Indian pharmaceutical
landscape, boasting a diversified portfolio of products catering to a wide range of medical needs.
With a strong emphasis on research and development, Abbott India has consistently introduced
innovative healthcare solutions to the market, enhancing its competitiveness and solidifying its
position as a trusted healthcare partner.The company's commitment to quality and compliance
with regulatory standards has further bolstered its reputation among healthcare professionals and
consumers alike. Leveraging its global expertise and resources, Abbott India continues to expand
its presence in key therapeutic segments, driving growth and generating value for its
stakeholders.

Moreover, Abbott India's focus on sustainability and corporate social responsibility underscores
its dedication to making a positive impact on society and the environment. Through initiatives
aimed at improving access to healthcare, promoting education, and fostering environmental
stewardship, the company demonstrates its commitment to creating long-term value beyond
financial performance.

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 CONCEPTUAL RELEVENCE
Abbott India Ltd. is a significant player in the pharmaceutical and healthcare industry, thus its
conceptual relevance spans several domains:

Pharmaceutical Industry: Abbott India operates within the pharmaceutical sector, involved in
the manufacturing and marketing of pharmaceutical products. Its relevance lies in contributing to
healthcare through the production of medicines, vaccines, and medical devices.

Healthcare Access: Abbott India's products contribute to improving healthcare access and
outcomes for patients across India. This is particularly relevant in the context of public health, as
access to quality medicines and healthcare services is crucial for societal well-being.

Innovation and Research: The company's investments in research and development lead to the
development of new drugs, treatments, and medical technologies. This underscores its relevance
in advancing medical science and improving healthcare delivery.

Economic Impact: Abbott India's operations have economic significance, contributing to

employment, tax revenue, and overall economic growth. Its performance and strategies also
reflect broader economic trends and dynamics within the pharmaceutical sector.

Regulatory Environment: As a pharmaceutical company, Abbott India operates within a highly

regulated environment. Its compliance with regulatory standards and engagement with
government policies are relevant in understanding the regulatory landscape of the pharmaceutical
industry.

Corporate Social Responsibility (CSR): Abbott India's CSR initiatives, such as healthcare
outreach programs, access to medicines, and community development projects, demonstrate its
commitment to social responsibility. Understanding these initiatives is relevant for assessing the
company's impact beyond financial metrics.

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Global Health Trends: Abbott India's operations and strategies are influenced by global health
trends, such as demographic shifts, disease prevalence, and healthcare reforms. Analyzing its
responses to these trends provides insights into broader global health dynamics.

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