Zee Shan

Comparative Analysis of Dividend Policy of Cement and Chemical Sector
Contents
CHAPTER ONE ............................................................................................................................ 11 Introduction .................................................................................................................................... 11 Objective of this Project............................................................................................................. 12 Sample Size................................................................................................................................ 12 Data Collection Sources ............................................................................................................. 12 Theoretical Framework .................................................................................................................. 13 Dividend Irrelevance Theory ..................................................................................................... 13 Dividend Relevance Theory ...................................................................................................... 14 Preference for dividends ........................................................................................................ 14 Taxes on Investor ................................................................................................................... 15 Floatation Cost ....................................................................................................................... 15 Institutional Investor .............................................................................................................. 15 Dividend as Passive Residual .................................................................................................... 16 Traditional Approach of Dividend Decision .............................................................................. 16 Literature Review........................................................................................................................... 16 Cement Sector ................................................................................................................................ 20 Historical Overview ................................................................................................................... 20 Market Structure ........................................................................................................................ 22 Attock Cement Pakistan Limited ............................................................................................... 23 Vision ..................................................................................................................................... 24 Mission................................................................................................................................... 24 Products of ACPL .................................................................................................................. 24 Falcon Cement ....................................................................................................................... 24 Ordinary Portland Cement ..................................................................................................... 25 Block Cement......................................................................................................................... 25 Lucky Cement Limited .............................................................................................................. 25 Founder History ..................................................................................................................... 26 Vision ..................................................................................................................................... 26
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Mission................................................................................................................................... 26 Collaboration.......................................................................................................................... 26 Products of LCL..................................................................................................................... 27 Ordinary Portland Cement ..................................................................................................... 27 Sulphate Resistant Cement .................................................................................................... 27 Clinker ................................................................................................................................... 27 Block Cement......................................................................................................................... 28 Chemical Sector ............................................................................................................................. 28 Fauji Fertilizer Company ........................................................................................................... 29 Vision ..................................................................................................................................... 29 Mission................................................................................................................................... 30 Subsidiary Companies ........................................................................................................... 30 Products of FFC ..................................................................................................................... 30 Sona Urea ............................................................................................................................... 30 Sona DAP .............................................................................................................................. 31 FFC SOP ................................................................................................................................ 31 Fauji Fertilizer Bin Qasim Limited ............................................................................................ 31 Vision ..................................................................................................................................... 32 Mission................................................................................................................................... 32 Products of FFBL................................................................................................................... 32 Granola Urea .......................................................................................................................... 32 Features .................................................................................................................................. 32 CHAPTER TWO: DATA ANALYSIS ......................................................................................... 33 Definition ................................................................................................................................... 34 Dividend Payout Ratio ................................................................................................................... 34 Leverage Ratio ............................................................................................................................... 35 Profitability Ratio .......................................................................................................................... 35 Average Tax Rate .......................................................................................................................... 36 Price to Sales Ratio ........................................................................................................................ 37 Annual Sales Growth ..................................................................................................................... 37 Lucky Cement Company Limited .................................................................................................. 38
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Dividend Payout Ratio of LCL ................................................................................................... 38 Leverage Ratio of LCL ............................................................................................................... 39 Profitability Ratio of LCL .......................................................................................................... 40 Average Tax Rate of LCL........................................................................................................... 41 Cash from Operations of LCL.................................................................................................... 42 Price Earnings Ratio of LCL ..................................................................................................... 43 Price to Sales Ratio of LCL ....................................................................................................... 44 Annual Sales Growth of LCL ..................................................................................................... 45 Attock Cement Pakistan Limited ................................................................................................... 46 Dividend Payout Ratio of ACPL ................................................................................................ 46 Profitability Ratio of ACPL ....................................................................................................... 48 Table 12 ..................................................................................................................................... 49 Average Tax Rate of ACPL ........................................................................................................ 49 Table 13 ..................................................................................................................................... 50 Cash from Operations of ACPL ................................................................................................. 50 Table 14 ..................................................................................................................................... 51 Price Earnings Ratio of ACPL ................................................................................................... 51 Price to Sales Ratio of ACPL ..................................................................................................... 52 Annual Sales Growth of ACPL .................................................................................................. 53 Fauji Fertilizer Bin Qasim Limited ................................................................................................ 54 Table 17 ..................................................................................................................................... 54 Dividend Payout Ratio of FFBL ................................................................................................ 54 Table 18 ..................................................................................................................................... 55 Leverage Ratio of FFBL ............................................................................................................ 55 Profitability Ratio of FFBL........................................................................................................ 56 Average Tax Rate of FFBL ........................................................................................................ 57 Cash from Operations of FFBL ................................................................................................. 58 Table 22 ..................................................................................................................................... 59 Price Earnings Ratio of FFBL ................................................................................................... 59 Table 23 ..................................................................................................................................... 60 Price to Sales Ratio of FFBL ..................................................................................................... 60
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Annual Sales Growth of FFBL ................................................................................................... 61 Fauji Fertilizer Company Limited ................................................................................................. 62 Dividend Payout Ratio of FFC .................................................................................................. 62 Table 26 ..................................................................................................................................... 63 Leverage Ratio of FFC .............................................................................................................. 63 Table 27 ..................................................................................................................................... 64 Profitability Ratio of FFC.......................................................................................................... 64 Table 28 ..................................................................................................................................... 65 Average Tax Rate of FFC .......................................................................................................... 65 Cash from Operations of FFC ................................................................................................... 66 Table 30 ..................................................................................................................................... 67 Price Earnings Ratio of FFC ..................................................................................................... 67 Price to Sales Ratio of FFC ....................................................................................................... 68 Annual Sales Growth of FFC ..................................................................................................... 69 Comparison of Cement and Chemical Sectors .............................................................................. 70 Dividend Payout Ratio ............................................................................................................... 70 Leverage Ratio ........................................................................................................................... 71 Profitability Ratio ...................................................................................................................... 72 Price Earnings Ratio .................................................................................................................. 72 CHAPTER THREE ....................................................................................................................... 74 Conclusion ................................................................................................................................. 74 Bibliography .................................................................................................................................. 75
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List of Graphs
1. Graph 2. Graph 3. Graph 4. Graph 5. Graph 6. Graph 7. Graph 8. Graph 9. Graph 10. Graph 11. Graph 12. Graph 13. Graph 14. Graph 15. Graph 16. Graph 17. Graph 18. Graph 19. Graph Cement Industry Market Share Dividend Payout Ratio of LCL Leverage Ratio of LCL Profitability Ratio of LCL Average Tax Rate of LCL Cash from Operations of LCL Price Earnings Ratio of LCL Price to Sales Ratio of LCL Annual Sales Growth of LCL Dividend Payout Ratio of ACPL Leverage Ratio of ACPL Profitability Ratio of ACPL Average Tax Rate of ACPL Cash from Operations of ACPL Price Earnings Ratio of ACPL Price to Sales Ratio of ACPL Annual Sales Growth of ACPL Dividend Payout Ratio of FFBL Leverage Ratio of FFBL 25 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector 20. Graph 21. Graph 22. Graph 23. Graph 24. Graph 25. Graph 26. Graph 27. Graph 28. Graph 29. Graph 30. Graph 31. Graph 32. Graph 33. Graph 34. Graph Profitability Ratio of FFBL Average Tax Rate of FFBL Cash from Operations of FFBL Price Earnings Ratio of FFBL Price to Sales Ratio of FFBL Annual Sales Growth of FFBL Dividend Payout Ratio of FFC Leverage Ratio of FFC Profitability Ratio of FFC Average Tax Rate of FFC Cash from Operations of FFC Price Earnings Ratio of FFC Price to Sales Ratio of FFC Annual Sales Growth of FFC Comparison of D/P ratio of Cement and Chemical Sector 35. Graph Comparison of Leverage Ratio of Cement and Chemical Sector 36. Graph Comparison of Profitability Ratio of Cement and Chemical Sector 37. Graph Comparison of P/E ratio of Cement and Chemical Sector 72 71 70 69 55 56 57 58 59 60 61 62 63 64 65 66 67 68
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List of Tables
1. Table 2. Table 3. Table 4. Table 5. Table 6. Table 7. Table 8. Table 9. Table 10. Table 11. Table 12. Table 13. Table 14. Table 15. Table 16. Table
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Dividend Payout Ratio of LCL Leverage Ratio of LCL Profitability Ratio of LCL Average Tax Rate of LCL Cash from Operations of LCL Price Earnings Ratio of LCL Price to Sales Ratio of LCL Annual Sales Growth of LCL Dividend Payout Ratio of ACPL Leverage Ratio of ACPL Profitability Ratio of ACPL Average Tax Rate of ACPL Cash from Operations of ACPL Price Earnings Ratio of ACPL Price to Sales Ratio of ACPL Annual Sales Growth of ACPL
37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector 17. Table 18. Table 19. Table 20. Table 21. Table 22. Table 23. Table 24. Table 25. Table 26. Table 27. Table 28. Table 29. Table 30. Table 31. Table 32. Table Dividend Payout Ratio of FFBL Leverage Ratio of FFBL Profitability Ratio of FFBL Average Tax Rate of FFBL Cash from Operations of FFBL Price Earnings Ratio of FFBL Price to Sales Ratio of FFBL Annual Sales Growth of FFBL Dividend Payout Ratio of FFC Leverage Ratio of FFC Profitability Ratio of FFC Average Tax Rate of FFC Cash from Operations of FFC Price Earnings Ratio of FFC Price to Sales Ratio of FFC Annual Sales Growth of FFC 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68
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ABBREVIATIONS & ACRONYMS
Words Lucky Cement Company Limited Attock Cement Pakistan Limited Fajui Fertilizer Bin Qasim Limited Fauji Fertilizer Company Limited Dividend Per Share Earnings Per Share Return on Assets Price Earnings Ratio Price to Sale Ratio (LCL) (ACPL) (FFBL) (FFC) (DPS) (EPS) (ROA)
Abbreviations
(P/E Ratio) (P/S Ratio)
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Abstract
The main purpose of this project is to make comparison of dividend policy of Cement and Chemical Sector and to know which determinants are similar in both of the sectors and which are not. For this purpose, from each sector two companies are selected. In Cement Sector, companies named as LCL and ACPL are chosen whereas in Chemical Sector, companies named as FFBL and FFC are selected. Five years data is taken for analysis of dividend policy. After reviewing literature it is discovered that dividend policy depends upon some factors such as Leverage, ROA, Average Tax rate, P/E ratio, P/S ratio and Annual Sales Growth and these are called its determinants. These determinants when calculated for both of sectors gives clear idea about the similarities and dissimilarities between the two sectors. Some ratios are clearly different from each other such as D/P ratio, Leverage ratio, ROA and Price Earnings Ratio in both sectors.
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CHAPTER ONE
Introduction
Dividend payout ratio had always been under debate under financial literature. Many researchers have tried to find out the determinants of dividend payout ratio. During their research they have discovered and suggested different factors which should be considered by the managers before declaring dividends. The term dividend payout ratio represents the certain amount of percentage of firms profit which is given to the firms investor in the name of dividend. The decision of dividend payout ratio varies from company to company and even from industry to industry. Larger amounts of dividends give the clear indication to the firms investor and potential investor that firm is going to earn large and sustainable income (Baker, 2009). Despite of the fact that there has been a lot of research in all over the world about the dividend policy, it is still a debatable issue and certainly requires more research to gather more evidences. Dividend is just like a puzzle pieces that are not matching together, the more we made search of it the more we got confused (RW, 2007). Dividend policy of a firm also has an influence on the share price of the firm because there is a direct relationship between the price earnings ratio and dividend payout ratio but one of the most important
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector aspect that should be considered by the managers while devising the dividend policy is that the main objective which they should consider must be in alliance to the shareholders wealth maximization (Mayers, 2002). Objective of this Project
The main objective of this project is to know: To identify factors affecting dividend payout ratio of Cement Sector and Chemical Sector. To compare factors affecting Dividend Payout ratio.
Sample Size
Dividend Payout ratio depends upon many factors which are called its determinants and the data regarding these determinants i.e. , Leverage ratio, Profitability ratio, Price Earnings ratio, Price to Sales ratio and Annual Sales Growth have been taken out for years during 2008 to 2012. Data Collection Sources
To ensure the accuracy of this project data has been collected from Annual reports, Research articles, Books and Websites.
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Theoretical Framework
Many theories have been originated on dividend policy by the researchers but two theories are of the great importance. Dividend irrelevance theory states that it does not matter and have no influence on the shareholders wealth that whether the firm pay dividend or not to its shareholders. The other theory which is totally opposite to the dividend irrelevance theory is the dividend relevance theory and this theory states that dividend paid to shareholder is relevant to both shareholders and the firm.
Dividend Irrelevance Theory Modigliani and Miller both have given this idea of dividend irrelevance theory. This theory states that it does not create any difference whether dividends are distributed or not. They are also of the view that earning capacity of a firm is the only determinant which calculates value of the firm. Modigliani and Miller states that their theory is based upon three assumptions: 1. There should not be any floatation and transaction cost. Investor has to face transaction cost in the shape of brokerage commission when dividends are not paid to them by the firm. On the other hand, firm also has to face transaction cost i.e., floatation cost when securities are issued by the firm. These securities are issued when firm do not retain the profits and distribute them to their investors. 2. There is no taxation cost. Tax amount is calculated on both capital gains and dividends paid to the shareholder but tax paid on dividend is much greater than the tax paid on capital gain. Tax on capital gains is paid on the time of selling of
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector stock. Hence the investor will urge more towards capital gains rather than the dividends if firm keep the profits for reinvestment purposes and thinks that it would be of great advantage to reinvest them rather than distributing them as dividend payment. 3. This theory also assumes that investor has all information of the present and current scenario and this information is costless to investor and also of the view that investor has same information as the manager of the company.
Dividend Relevance Theory All the arguments opposed to dividend irrelevance theory provide basis for dividend relevance. These arguments include preference for dividends, taxes on investor, floatation cost, institutional restriction etc.
Preference for dividends Many investors have inclination for dividends rather than the capital gains. These investors are of the view that dividend payments remove the uncertainty which is associated with the reinvestment of these dividends. They are of the view that they do not like to wait for a long time and often made their home made dividend policy and sometimes make irrational decision on behalf of this.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Taxes on Investor Tax amount is also the main concern for the investor. Shareholders get the advantage of retention of earnings by the firm because the tax amount calculated on dividend is much higher than the tax calculated on capital gains. Furthermore, the tax amount on capital gains is calculated and deferred up to the sale of the stock. In addition to this, tax calculated on capital gains can be avoided in case the appreciated stocks are gifted or given as a charitable cause and if the owner of the stock dies.
Floatation Cost Floatation cost is a cost which is related to issuance of shares. If favorable circumstances are available for investment for a firm then it is better for firm to retain its earnings rather than to give them as dividend to shareholders otherwise the firm would have to explore external financial sources to meet their financial needs.
Institutional Investor Institutional investors are limited to purchase few kinds of common stocks and they have to make portfolio of common stock of different firms. Institutional investor while making their investment decision consider only those firms which are relatively paying more and consistent amount of dividends and if a company is not paying dividend from a long period of time, then it restrict the institutional investor to invest in that particular firm.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Dividend as Passive Residual This theory is of the view that internal financing is much more inexpensive than the external financing. This theory states that dividend are unused part of the firms earning. Firms after meeting all of its equity investment needs distribute the remaining amount as dividends. Dividend as a passive residual is adopted to minimize external equity financing. Passive residual is followed when the firm felt that profitable investment opportunities are ahead to it.
Traditional Approach of Dividend Decision

The basic argument of this theory is that there exist positive relationship between stock market price of the firm and its dividend policy. If a firm pays more dividends then the share price of this firms stock increases and if the firm pays less dividend or does not declare any dividend then this would have a negative impact on the firms share price.
Literature Review
A research was conducted on dividend policy on US markets and eight emerging countries firm and the purpose of this research was to investigate dividend behaviors in US and these emerging markets (Aivazian & Booth, 2001). The independent variables taken for this purpose were profitability and amount of debt. The conclusion derived from this research revealed that:
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Profitability has the direct impact on the dividend payments: ROE advocate high dividend payments. High Debt to Equity ratio, denote lower dividend payments which means high financial leverage restrict the firm to distribute the dividends among the investor. There is no significant relationship between the size and risk with the dividend policy of the firm. In emerging markets firms with the long term assets tends to distribute smaller dividend payments because of the drop in the short term assets that are used to take short term debts. According to a research about the dividend policy in Irans stock exchange in which all the listed companies were taken as a sample for this research purpose. The motive of this research was to see the factors that influence the dividend policy. Since the dividend payout ratio was taken as a dependent variable whereas the price earnings ratio, debt, profitability, firm size and retained earnings of all firms were taken as an independent variables for this research purpose. Furthermore it was also to be discovered that whether these independent variables have positive correlation with the dependent variable or negative and it is might possible that some of these independent variables have no correlation with the dependent variable. (Moradi, Salehi, & Shahnaz, 2009) Results reveal that there exists inverse relationship in case of debt and price earnings ratio and direct relationship in case of profitability of firm and dividends.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Furthermore the results also disclosed that there exists no significant relationship between dividend policy (dependent- variable) and firms retained earnings and size. Different theories that why investor value dividends rather than investing dividends into the business and earn in the future. Several theories gave explanation of determinants of dividend policy. These theories are of the view that many investors prefer dividend payments rather than reinvesting in the business and wait in the future for earnings and it was also discovered that relatively stable and mature firms are more expected to distribute dividends. (BEN-DAVID, 2010) Behavioral biases theories describe that dividends avoid mental costs which is related to the selling of stock and are logical enough to indicate the firm stability. It was also revealed that dividends are tool for valuation of firms and therefore create pressure on firms to distribute regular dividends in the favor of investor. Life cycle theory describes that mature and stable firms pay regular dividends as compared to the firms passing through the other phases. At the end of this research article it was concluded that it has always been confusion that why firms distribute dividends whether firms distribute them as a social norm or investor use them as a yardstick for the firm valuation. Some theories have failed to describe that why firms distribute dividends although some empirical evidences are in consistent with these theories but certainly it needs some more empirical evidences to prove correct about these theories.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Capital structure is one of the most important elements of dividend policy (M & Abor, 2008). Researchers have found a considerable level of heterogeneity in dividend policy of public and private sector. Especially firms with the dispersed ownership declares low amount of dividends than public firms. Likewise the firms in spite of their ownership structure that have been converted from public to private have increased their dividends. Similarly public firms are more hesitant to cut down its dividends than the private firms. In private firms generally ownership in concentrated to one person this thing ensure the irrelevance of agency conflicts and normally it is observed that dividend policy of these firms are sensitive towards the earnings and investment opportunities. These findings are similar to (HK & GE, 2000). A research was conducted which investigates the determinants of dividend payout ratio. Study indicate that there exist generally positive relationship between firms profits and dividend payout ratio which represent that firms declares more dividend in case of higher profits. In case of cash flows there is no notable relation between firms cash flows and dividend payout ratio (Gill, Biger, & Tibrewala, 2010). As far as corporate tax is concerned it also has positive relationship with the firms dividend payout ratio which means that as the firms corporate tax liability increases then firm tends to pay more dividends whereas the firm pay less dividend in case of sales growth as compared to previous year which indicate negative relation between them.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Research also indicates that in some industries higher debt financing results into higher dividend payout ratio whereas these results are observed opposite in other cases. Dividend payments are trap for encouraging the investment (J.J.Adefila, 2009) on this supposition a research was conducted on 100 listed companies in Nigeria. The main purpose of this study is to critically investigate the possible consequences that dividend policy have on the market price of its shares. Study disclosed that dividend payment and share price are not linked with each other which mean that dividend payments are tempting bait for encouraging the potential investor is incorrect. Some of the Nigerian firms make an effort to pay dividend whether they are earning profits or not because they feel investors are advocate of dividend. Research also disclosed that dividend payments are in consistent with the earnings of the firm but it is not always in correlation as it should be. Study concluded with the comments that Nigerian firms should consider many factors while drafting or formulating its dividend policy and this optimal dividend policy should cater both current and potential investor and their inclination to give up dividend now for future expected returns and their on the risk associated with delay of return
Cement Sector
Historical Overview Pakistan cement sector has shown great improvement since independence as this sector had only 4 cement producing units at that time. These production units were
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector located in West Pakistan with only a little production capacity of not more than half million tonnes. After the independence, this industry flourished gradually with 9 more production plants. In these 9 plants 5 plants were established in 1950s where as the rest were set up in 1960s. During the Ayub period this industry flourished a lot and reached to almost 3.34 million tonnes. After the Ayub period nationalization of all private sectors made a stunning growth in the later years and the production within the three decades reaches to 8.4 million tonnes in 1992 from 3.5 million in 1972. After the denationalization there was a great focus on construction of houses and to meet the local demand, government allowed to established new production units and in the result 7 more production plants were built with the production capacity of 2.55 million tones. During the period 1995-97 cement production units were unable to fulfill the local demand and hence it was decided to import the cement. In the same period expected annual growth targets were not met as the industry growth had just witnessed 8% annual growth. Pakistan again started to export after its down fall in the cement industry in the years 2001-02 so that excess capacity could be utilized. It was the Musharraf period in which cement industry flourished and succeeded to attract foreign investors and the existing companies began to produce more to meet the ever rising demand of cement and reached to the production capacity of almost 44.67 million tonnes (Chemical Secor in Pakistan, 2011).
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Market Structure There are almost 24 players which are operating in the industry and out of them there are 5 major players which are controlling the markets and in these companies Lucky Cement is on the top of the sector by gaining the market share of almost 21% and DG khan cement is at the 2nd place.
Others 37%
Lucky Cement 21%
DG Khan Cement 16% Maple Leaf Kohat Cement Cement 9% 5%
Bestway Cement 12%
Figure1.Cement industry market share
Cement industry of Pakistan is mainly divided among 24 players with annual production capacity of around 60 million metric tons. The sector is controlled by 5 major players. Production capacity of cement sector in Pakistan has witnessed a huge rise during the last few years because of increase in local and export demand of cement. It has increased from 30 Million Tonnes in the year 2006-07 to the 44 million Tonnes in 2012 (Economic Survey of Pakistan, 2011). Pakistan cement is being exported to Afghanistan, Middle
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector East, Africa and India. Cement export is considered exempted as the exporter bears no expenses of Sales Tax and Federal Excise Duty. However, Sales Tax and Federal Excise Duty is being charged for the domestic users the charges of which are 16% and 500 per ton. Cement manufacturing plants requires huge amount of fuel which are imported with no charges of custom duty and 16% Sales Tax from other countries. .whereas according to the government investment policy, the plant and equipment used for manufacturing of cement can be imported by bearing 5% custom duty. The key elements which have imposed limitation on the performance of the cement sector are the demand and supply mechanism and energy crises of the country.
Attock Cement Pakistan Limited ACPL is a pioneer in cement sector in Pakistan and working as an associate with the Pharaon Group of Compaies which is working in Pakistan from several years. ACPLs project was started with the initial investment of around Rs. 1.5 billion as a venture between Pakistan and Saudi Arabia. In this project foreign investment was also injected of around US$ 45 million. The cement industry of Pakistan is divided into two zones: North and South Zones where as, ACPL is situated in the South Zone. In South Zone, ACPL manufacturing plants are situated in District Lasbela, Tehsil Hub and Balochistan. ACPL is certainly making huge contribution towards national economy with depositing around Rs.2600 Million in the national treasure in shape of Sales Tax, Excise duty, Royalty and Income Tax during the period 2010-2011.
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Vision To be the market leader by providing continuous quality products and move forward in every aspect of the business.
Mission
To be the highly reliable cement manufacturing company with our continuous improved products with the main focus of our customer satisfaction and excellent services.
Products of ACPL ACPL has many famous products brands that are not only famous in Pakistan but also in the worldwide. ACPL has always tried to improve its products quality with the help of its competent engineers. Followings are some of the ACPLs renowned products brands.
Falcon Cement Falcon is ACPLs most popular brand not only all over the Pakistan but also in the foreign countries because of its superior quality products. ACPL has not only succeeded in maintaining its existing customer but also it has attracted its new customers
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector in the local and foreign markets as well. ACPL with its superior quality has able to achieve many quality standards awards like British Standard Institution, Sri Lankan Standard Institution, American Standard Testing Methods etc.
Ordinary Portland Cement OPC is used in almost all types of construction and it has been the most expensive and popular product under the Falcon Brand. OPC is manufactured from Gypsum and Portland Clinker. OPC has able to meet with many national and international standards like Pakistan and British standard.
Block Cement Block cement is another popular product among the block makers because of its quick setting and this is being manufactured specially for the block makers.
Lucky Cement Limited LCL is the largest producer of cement in Pakistan listed in Karachi, Lahore and London Stock Exchanges. LCL is initiated by Yunus Brothers Group which is renowned for its export products with current capacity of producing 26000 tons of dry cement per day. Lucky cement with its quality products has able to get many national and international certificates of standard products.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Founder History
Late Abdul Razzak, a prominent business leader with its calculated economic thinking has been the main reason of Group success. The Group has received national export trophy from government many a times because of the highest export. Mr. Abdul Razzak has also been honored with Sitare-e-Imtiaz due to his visionary leadership.
Vision We conceive ourselves the leader of industry by pointing out and taking advantage of new possibilities in the global market and by giving considerable importance to the corporate citizenship behavior.
Mission To keep up the professionalism to attract new customers with the help of new technology and giving quality standards to cater the international demand ensuring environment friendly approach.
Collaboration LCL has succeeded to get membership of many famous institutions like PakistanBusiness Council (PBC) and Pakistan Institute of Corporate Governance (PICG). PBC with huge funding institutions from manufacturing sector aims to encourage Pakistani businesses to the global economy. On the other way PICG has worked well to draft the
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Corporate Governance Policies and it has also worked to ensure implementation of Corporate Governance on all firms effectively.
Products of LCL LCL is producing the products that are not only the locally demanded but they are also appreciated worldwide. Block cement, Clinker and OPC are the specialized products of LCL which have been exported to other countries because of its superior quality.
Ordinary Portland Cement OPC is used in all the major construction where rigid requirements are needed to be fulfilled and this is also used to make other products of cement.
Sulphate Resistant Cement SRC is used for to avoid the sulphate attacks and is helpful for the construction area near the seashore and is able to consume low heat of hydration.
Clinker Clinker is normally used as a primary product in the construction process. It is demanded by the customers who have their own grinding units. It can also be saved for a long period of time without compromising on its quality.
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Block Cement Block cement is used for the production of blocks. Although it is similar to SRC but it is used occasionally and made according to the requirement of the market.
Chemical Sector
Chemical industry plays a significant role in the economic development of Pakistan. Chemical industry produces various products that are used as a basic output in other countries. The Chlor-Alkali business is named as the subsector of chemical industry. This subsector produces liquid Chlorine, Caustic Sauda, bleaching earth and these products are considered important products of this sector. Caustic Sauda, is produced through the electrolytic process and through this process Chlorine Gas is also obtained. Caustic Sauda is used as a raw material in textile industry and it is also used as an important element for making the soap, vegetable oil refining, paper and board, food processing sugar etc.
During the last year Engro Polymers Chemicals Limited has tried to increase its market share to around 34%, Sitara Chemicals Limited secure 41% market share whereas Ittehad Chemicals drop to 26%. Due to the global economic stress, countries power crises and bad economic condition of the country has put severe pressure on this sector too but
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector despite of these challenges, Chemical manufacturing sector has maintained its positive and confident look.
Fauji Fertilizer Company FFCwas established as a joint collaboration of FaujiFoundadtion and HoldorTopsoe`in the year 1978. FFC then enlarged its production capacity in the years 1982 and 1992 by establishing its new plants. In the year 2002, FFC made one of the big industrial transactions by acquiring Pak Saudi Fertilizer Limited. FFC has got many awards for its declaring exemplary dividends for their investors and by ensuring compliance with codes of Karachi Stock Exchange. FFC has got best presented accounts awards for consecutive 3 years presented by ICMAP and SAFA.
Vision To be the leader in agricultural and industrial sector operating not only in Pakistan but also beyond the boundaries of the countries by producing the diverse range of products and being the socially responsible.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Mission Do not compromise on the quality of the products with exceptional delivery of our services to our valued customer and taking care of our shareholders and making foresee returns on their investment.
Subsidiary Companies FFC has two companies as their associates named as FFC Energy Limited and Fauji Fertilizer Bin Qasim Limited. FFC energy projects include Pakistans 1st wind power projects which have been recently inaugurated on 9th march in the year 2013. FFBL was taken over by Fauji Foundation in the year 2003 which was going to loss earlier but after this FFBL earned huge profits.
Products of FFC FFC is producing many products which are worldwide famous and have good repute for its high quality as these products meet the national and international standards and have taken many certificates which provides the prooffor its best quality.
Sona Urea Sona Urea is one of the most popular and profitable product of FFC. Although this product is made in prills form only by other firm but the real specialty of FFC Sona Urea is that it is being produced in both prill and granular form which are highly soluble.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Sona DAP Sona DAP have the highest amount of nutrition in one bag which saves the transportation and storage cost for its customers. Like Sona Urea it is highly soluble which helps the crops at their initial level.
FFC SOP This fertilizer has the important elements of potash which is the worthy nutrition for the vegetable and plant
Fauji Fertilizer Bin Qasim Limited FFBL initially named as FFC-Jordan Fertilizer Company was built in 17th November, 1993. It was first listed in Stock Exchange in 1996. It was running in crises from its starting till 2001 and witnessed a great loss of 6.5 billion during these years. It started its production again with the new name of FFBL. FFBL working after two years of its operation finally started to earn profits in the year 2004 and also declares its maiden dividends in the same year. Since 2004 high growth in profitability was observed and it was year 2007 which had been the most profitable yearfor FFBL. It also achieved a big milestone of ISO Certification in March, 2006 both of its head office and plant site. FFBL is the subsidiary company of Fauji Fertilizer Company which was formed in 1978 as a private limited company initiated by the Fauji Foundation.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Vision To be the leading organization through focusing on constant quality improving, availing growth opportunities and enhancing the shareholders value.
Mission FFBL believing on the excellence has committed to provide quality products, competitive price and safe and healthy environment for its employees.
Products of FFBL FFBL is currently producing Di-Ammonium phosphate, Ammonia and Urea but it is the sole manufacturer and supplier of its product of Granola Urea.
Granola Urea
Granola Urea is manufactured in the form of white prills and it is packed in polythene bags which are moisture proof. It is the Synthetic Organic Compound which contains 46% nitrogen.
Features Granola Urea the significant edge over the traditional prill urea because of the following characteristics: It can be spread out in the field comfortably
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector It does not settle on the leaves of the crop Greater Granola strength as compared to traditional urea Relatively greater granola size Cheapest among all nitrogenous fertilizer
CHAPTER TWO: DATA ANALYSIS
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector According to the renowned mathematicians the word data analysis means any data that may exist in the shape of characters, numbers, images or any other form and it must have the ability of being accessed and to make comparison to draw conclusion or resolve specific problem. Mathematicians say that data itself has its no meaning unless it is interpreted to have the specific meaning.
Definition Data Analysis is the technique or process of examining, modeling and transforming the data with the aim of developing the useful information. Data analysis can be divided into two parts: 1. Qualitative Data Analysis 2. Quantitative Data Analysis Quantitative data is the data which has the ability to express in the numeric form whereas in opposite to the quantitative data, qualitative data is exhibited in narrative or in verbal form and this type of data is gathered through interviews, questionnaires and also through the focus groups.
Dividend Payout Ratio

DPR represents amount of dividend paid to shareholder from the firms net income and the remaining amount is retained by the company for meeting its future growth opportunities. Investors who prefer the current income rather than the capital growth of the firm wishes to be given high dividend payout ratio whereas the investors
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector preferring capital growth of the firm are inclined towards low dividend payout ratio. Firms with the high growth opportunities tends to pay or zero dividend to their investor and the firms which are relatively mature pay higher amount of dividends. Dividend payout ratio can be calculated as: Dividend per share Earnings per share
Leverage Ratio
A ratio which tells the companies method of financing and which also tells its ability to meet its financial obligation. There are several different ratios but the most well known ratio is debt to equity ratio. It tells the percentage of debt as compared to the equity of the firm. Debt to equity ratio can be calculated as: Debt Equity
Profitability Ratio
Profitability ratio is a tool to measure the firms ability to generate earnings as compared to cost or expenses which firm have incurred to generate them. The most well known profitability ratio is Return on Assets. Return on Assets (ROA) shows how beneficial a firms assets are in generating revenue. It can be calculated as:
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Net Income Total Firms Assets
Average Tax Rate

This ratio represents the percentage of tax liability of a firm on its profit before tax and remaining amount after paying the tax relates to the investor. The formula of calculating this ratio is: Tax Liability Profit before Tax
Price Earnings Ratio

P/E ratio shows how many times the firms market price as compared to its earnings is. Higher earnings growth is expected by the shareholder in case of high P/E ratio. It is also known as price multiple. It can be calculated as: Market Price of Share Earnings per Share
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Price to Sales Ratio

P/S ratio can be calculated by dividing the share price of the firm to the sales. Smaller ratio (less than 1) of P/S thought to be the good investment which means the investor is paying less for each unit of its sale. It can be calculated as: Market Price of the Share Revenue per Share
Annual Sales Growth

Annual sales Growth represents the average increase in the sales in the current year as compared in the last year. The positive value of this ratio represents the increase in sales as compared to previous years whereas the negative value suggests the decrease in sales compared to previous year. Change in Sale (current year previous year) Previous Years Sale
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Lucky Cement Company Limited
Table 1 Dividend Payout Ratio of LCL YEAR 2008 2009 2010 2011 2012 DPS 0 4 4 4 6 EPS 9.84 14.21 9.7 12.28 20.97 DPS EPS 0 28% 41% 33% 29%
0.5 0.4 0.3 0.2 0.1 0 0 2008 2009 28%
41% 33% 29%
2010
2011
2012
Figure2. Dividend payout ratio of LCL Interpretation This figure represents that Dividend payout ratio of LCL ranged from 41% to 33%. LCL has paid same amount of dividend during the year 2009, 2010 and 2011 whereas its earnings per share had a downfall in the year 2010 as compared to the year
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector 2009 but again it rises to 12.28 in the year 2011. It was the year 2012 when LCL witnessed highest EPS and DPR 20.97 and 29%. This ratio also represents that LCL is retaining more than declaring dividends. Table 2 Leverage Ratio of LCL YEAR Total Debt(000) 2008 2009 2010 2011 2012 15583651 15140390 13214320 13437026 7369496
Equity(000) 18655423 23251972 25095929 27772829 33261745
Debt Equity 0.84 0.65 0.53 0.48 0.22
1.00 0.80 0.60 0.40 0.20 0.00
0.84 0.65 0.53 0.48 0.22
2008
2009
2010
2011
2012
Figure3. Leverage ratio of LCL Interpretation Debt to Equity ratio of LCL ranges from 0.22 to 0.84 during the year 2008 to 2012. It was highest in 2008 with Debt to Equity ratio of 0.84. After 2008, Debt to Equity has shown the decreasing trend in the every next year and finally it reaches to 0.22 in the year 2012 which means LCL is focusing on equity financing.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 3 Profitability Ratio of LCL
YEAR 2008 2009 2010 2011 2012
EBIT(000) 3076 7217 4243 5161 9010
Total Assets(000) 34239 38392 38310 41210 40631
EBIT Total Assets 9% 19% 11% 13% 22%
25% 20% 15% 10% 5% 0% 2008 2009 2010 2011 9% 19% 11% 13%
22%
2012
Figure4. Profitability ratio of LCL Interpretation Profitability ratio of LCL ranges from 9% to 22%. It was lowest in 2008 with the value of 9% then it follows the increasing trend and reaches to 22% which means that LCL was at the peak in 2012 as it was getting the highest ROA in that year.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 4 Average Tax Rate of LCL YEAR 2008 2009 2010 2011 2012 Tax liability(000) 85394 156744 195697 260175 333225 PBT(000) 230652 517700 341751 432052 832397 Tax liability PBT 0.37 0.30 0.57 0.60 0.40
0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 2008 2009 0.37 0.30
0.57
0.60 0.40
2010
2011
2012
Figure5. Average tax rate of LCL Interpretation Average Tax Rate of LCL ranges between 0.60 to 0.40 it was at the lowest in 2008 and 2012 and highest in 2010 and 2011 which means that LCL pay 60% tax on its profits.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 5 Cash from Operations of LCL YEAR Cash from Operations (M) 2008 1225 2009 6515 2010 5267 2011 4074 2012 9375
10000 8000 6000 4000 2000 0 2008 2009 2010 2011 1225 6515 5267 4074
9375
2012
Figure6. Cash from operations of LCL Interpretation LCL managed to increase its cash from operations in the every next year from the year 2008 to 2012. It is only 1225M in 2008 but it reaches to 9375M in 2012. It increases more than 650% from the year 2008 to 2012.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 6 Price Earnings Ratio of LCL
YEAR 2008 2009 2010 2011 2012
Market Price per Share 97.93 58.53 62.14 70.84 115.39
EPS 9.84 14.21 9.7 12.28 20.97
Market Price per Share EPS 9.95 4.12 6.41 5.77 5.50
12.00 10.00 8.00 6.00 4.00 2.00 0.00
9.95 6.41 4.12
5.77
5.50
2008
2009
2010
2011
2012
Figure7. Price earnings ratio of LCL Interpretation P/E ratio of LCL ranges from 4.12 to 9.95. It was highest in 2008 with the value of 9.95 which suggest that firm was not earning as efficiently as it was earning in the later period when compared to the share price of the firm and P/E ratio was at the peak in the year 2009 which means firm was earning well as compared to the share price in that particular year.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 7 Price to Sales Ratio of LCL Market Price per Share YEAR 2008 97.93 2009 58.53 2010 62.14 2011 70.84 2012 115.39
Revenue Per Share 52.44 81.42 75.79 80.46 103.05
Market Price per Share Revenue Per Share 1.87 0.72 0.82 0.88 1.12
2.00 1.50
1.87
1.12 1.00 0.50 0.00 2008 2009 2010 2011 2012 0.72 0.82 0.88
Figure8. Price to sales ratio of LCL Interpretation P/S ratio of LCL ranges from .72 to 1.87. It is usually considered ideal when it is below 1 because in this situation investor pays less for every extra unit sold. In the year 2008, it is very high which means it is not an ideal situation for the investor and after this year investor is paying less for a single unit sold.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 8 Annual Sales Growth of LCL YEAR Increase in Sales 2008 4436018 2009 9372825 2010 -1821911 2011 1508726 2012 7305016 Annual Sales Growth 35% 55% -7% 6% 28%
60% 50% 40% 30% 20% 10% 0% -10% -20% 2008 35%
55%
28%
6% 2009 2010 -7% 2011 2012
Figure9. Annual sales growth of LCL Interpretation The above graph shows that there is a percentage increase in sale of LCL is the very next year except the year 2010 in which sale decreased by 7% when compared to previous year and it was highest in the year 2009 which is 55%.
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Attock Cement Pakistan Limited

Table 1 Dividend Payout Ratio of ACPL YEAR 2008 2009 2010 2011 2012
DPS 1.50 5.00 5.00 4.04 8.50
EPS 6.03 17.24 11.74 7.09 16.59
DPS EPS 25% 29% 43% 57% 51%
60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 25% 29% 43%
57% 51%
2011
2012
Figure10. Dividend payout ratio of ACPL Interpretation Dividend Payout ratio of ACPL ranges from 25% to 57% during the year 2008 to 2012. ACPLs D/P ratio was lowest in 2008 which was only 25% it then increases to 29% in the next year with EPS of 17.24. In 2010 ACPL declares same amount of DPS
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector when its EPS was low as compared to previous year. It was the year 2011 when LCL declares highest D/P ratio of 57% which came down a little in the next year to 51%. This ratio also indicates that ACPL is retaining healthy amounts out of its profits. Table 10 Leverage Ratio of ACPL YEAR 2008 2009 2010 2011 2012 Debt(M) 2339368 2194934 1663490 1944737 2272590 Equity(M) 3531579 4777867 5395914 5798914 6628893 Debt Equity 0.66 0.46 0.31 0.34 0.34
0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00
0.66 0.46 0.31 0.34 0.34
2008
2009
2010
2011
2012
Figure11. Leverage ratio of ACPL Interpretation Debt to equity ratio of ACPL ranges from 0.31 to 0.66. It was highest in 2008 after that it gradually came down to 0.46 and then 0.34 which is showing that ACPL is
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector more focusing on equity financing than debt financing while managing its capital structure. Table 11 Profitability Ratio of ACPL
YEAR 2008 2009 2010 2011 2012
EBIT(M) 2047 1059 1466 2108 829
Total Assets(M) 8901 7743 7059 6973 5871
35% 30% 25% 20% 15% 10% 5% 0% 2008 2009 2010 14% 23% 21%
30%
14%
2011
2012
Figure12. Profitability ratio of ACPL Interpretation This graph represents Profitability ratio of ACPL ranges from 14% to 30% during the last five years. It was 23% in 2008 and at the lowest point in the very next year
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector 2009 and then it had a rise in 2010 and 2011 and then it went down to 14% in 2012 which means that ACPL was only earning 14% on its assets. Table 12 Average Tax Rate of ACPL
YEAR 2008 2009 2010 2011 2012
Tax liability(M) 57.706 595.354 422.091 382 942.439
PBT(M) 675 1989 1388 1034 2035
Tax liability PBT 0.09 0.30 0.30 0.37 0.46
0.50 0.40 0.30 0.20 0.10 0.00 2008 2009 2010 2011 0.09 0.30 0.30 0.37
0.46
2012
Figure13. Average tax rate of ACPL Interpretation Average Tax Rate of ACPL ranges from 0.09 to 0.46. In the year 2008 Average Tax Rate was just 0.09 which means ACPL was paying only 9% as a tax liability on its Profit before Earnings and this percentage was highest in the year 2012. In the year 2012
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector ACPL pays 46% on its profit before earnings. Table 13 Cash from Operations of ACPL
YEAR 2008 2009 2010 2011 2012
Cash from Operations (M) 437835 1923312 1362311 305498 1760520
2500000 2000000 1500000 1000000 500000 0 2008 2009 2010 2011 2012 437835 305498 1923312 1362311 1760520
Figure14. Cash from operations of ACPL Interpretation This graph represents the high variability of Cash from Operations during the year 2008 to 2012. It was lowest in the year 2011 with the value of 305498 and highest in the year 2009 with the value of 1923312.
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Table 14 Price Earnings Ratio of ACPL
YEAR 2008 2009 2010 2011 2012
Market Price per Share 77 70 66 49 81
EPS 6.03 17.24 11.74 7.9 16.59
14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00
12.77
5.62 4.06
6.20 4.88
2008
2009
2010
2011
2012
Figure15. Price earnings ratio of ACPL
Interpretation This figure represents that P/E ratio ranges from 4.06 to 12.77. In 2008 P/E ratio was 12.77 which means that share price of ACPL was 12.77 times more than the EPS, which is not certainly a favorable situation as far as investor is concerned. P/Eratio is low in the years 2009 and 2012.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 15 Price to Sales Ratio of ACPL Market Price per Share Revenue Per Share 0.52 0.59 0.75 0.50 1.40
YEAR 2008 2009 2010 2011 2012
Market Price per Share 77 70 66 49 81
1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2008 2009 2010 2011 0.52 0.59 0.75 0.50
1.40
2012
Figure16. Price to sales ratio of ACPL Interpretation This figure represents that P/S ratio is high in the year 2012 which is 1.40 which means that investor is paying 1.40 times more for every unit sold while it is favorable in the years 2008, 2009 and 2010 as the investor is paying less for every unit sold
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 16 Annual Sales Growth of ACPL Annual Sales Growth 133% -20% -10% -89% 488%
YEAR 2008 2009 2010 2011 2012
Increase in Sales 6078000 -2084000 -886000 -6817000 4150000
600% 500% 400% 300% 200% 100% 0% -100% -200% 2008 2009 2010 2011 2012
Figure17. Annual sales growth of ACPL Interpretation This figure represents that percentage sale is increasing in the years 2012 and 2008. In the year 2012 ACPLs sale is increasing almost 500 times comparing to the last year. It has the decreasing trend in the years 2009, 2010 and 2011 with the value of 20%, 10% and 89% respectively.
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Fauji Fertilizer Bin Qasim Limited

Table 17 Dividend Payout Ratio of FFBL
DPS YEAR 2008 2009 2010 2011 2012 2.85 4.00 6.55 10.00 4.50
EPS 3.1 4.05 6.97 11.53 4.64
DPS EPS 92% 99% 94% 87% 97%
100% 95% 90%
99% 97% 94% 92% 87%
85% 80% 2008 2009 2010 2011 2012
Figure18. Dividend payout ratio of FFBL Interpretation This figure represents the D/P ratio for FFBL from 87% to 99%. During the year 2008, FFBLs EPS is only 3.1 and its D/P ratio is 92%. It was the year 2009 in which FFBL declared maximum dividend out of its earning. In the year 2012 FFBL declared 97% dividend out of its earnings. This ratio is suggesting that the FFBL had consistently
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector declared maximum dividend compared to the earnings which shows that FFBL is not retaining much from its profits.
Table 18 Leverage Ratio of FFBL YEAR 2008 2009 2010 2011 2012 Debt(000) 36285300 25565281 23125960 26540582 28073000 Equity(000) 10486000 10660000 12210000 13636000 12631000 Debt Equity 3.46 2.40 1.89 1.95 2.22
4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00
3.46 2.40 1.89 1.95
2.22
2008
2009
2010
2011
2012
Figure19. Leverage ratio of FFBL Interpretation This figure represents that FFBL has variability in its Debt to Equity ratio. This ratio was highest in the year 2008 which is 3.46 which represents debts are 3.46 times
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector more than the equity. These results show that FFBL is focusing more on debt financing, while maintaining its capital structure. Table 19 Profitability Ratio of FFBL YEAR 2008 2009 2010 2011 2012 EBIT(M) 7197 7268 10619 17258 8291 Total Assets(M) 46772 36225 35336 40176 40704 EBIT Total Assets 15% 20% 30% 43% 20%
50% 40% 30% 30% 20% 20% 10% 0% 2008 2009 2010
43%
20%
15%
2011
2012
Figure20. Profitability ratio of FFBL
Interpretation This ratio represents that in the year 2008, FFBL was earning 15% on its Assets and this ratio shows the positive trend for the next 3 years and then came down to 20% from 43% in the year 2012.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 20 Average Tax Rate of FFBL YEAR 2008 2009 2010 2011 2012 Tax liability(M) 1505 2024 3171 5403 2131 PBT(M) 4405 5808 9685 16170 6469 Tax liability PBT 0.34 0.35 0.33 0.33 0.33
0.36 0.35 0.35 0.34 0.34 0.33 0.33 0.32 0.32
0.35 0.34 0.33 0.33 0.33
2008
2009
2010
2011
2012
Figure21. Average tax rate of FFBL Interpretation This figure indicates that FFBL is paying 34% as a tax liability on its Profits before Tax. This ratio increases in the very next year to 35% and then remains 33% for the next three years.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 21 Cash from Operations of FFBL YEAR 2008 2009 2010 2011 2012 Cash from Operations (M) -9557 20744 7388 8354 1443
25000 20000 15000 10000 5000 0 -5000 -10000 -15000 2008 -9557
20744
7388
8354 1443
2009
2010
2011
2012
Figure22. Cash from operations of FFBL Interpretation This figure represents that FFBLs cash flow is negative in the year 2008 and highest in the next year with the value of 20744M. It then decreases to 7388M and then it increases in the next year to 8354M. It was the year 2012 when it decreases to 1443M.
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Table 22 Price Earnings Ratio of FFBL
YEAR 2008 2009 2010 2011 2012
EPS 3.1 4.05 6.97 11.53 4.64
9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00
8.31 6.45 5.13 4.16 3.68
2008
2009
2010
2011
2012
Figure23. Price earnings ratio of FFBL Interpretation This figure represents that in the year 2008, FFBLs share price was 4.16 times more than its earnings. This ratio is low in 2011 with the value of 3.68 which is favorable for the investor point of view because investor is earning more by investing low amounts.
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Table 23 Price to Sales Ratio of FFBL
YEAR 2008 2009 2010 2011 2012
Market Price per Share Revenue Per Share 0.45 0.66 0.77 0.71 0.75
1.00 0.80 0.60 0.40 0.20 0.00 2008 2009 2010 2011 2012 0.45 0.77 0.66 0.71 0.75
Figure24. Price to sales ratio of FFBL Interpretation This figure represents that FFBLs P/S ratio ranges from 0.45 to 0.77.In the year 2008 P/S ratio is 0.45 which represent that investor is paying less for the unit sold by the FFBL. In the year 2009, this ratio increases to 0.66 and then further increases in the next year. Overall during these 5 years P/S ratio was under 1 which is favorable to investor point of view.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 24 Annual Sales Growth of FFBL YEAR 2008 2009 2010 2011 2012 Increase in Sales 14578000 9914000 6522000 12612000 -7958000 Annual Sales Growth 119% 37% 18% 29% -14%
140% 120% 100% 80% 60% 40% 20% 0% -20% -40%
119%
37%
18%
2008 2009 2010
29%
2011
2012 -14%
Figure25. Annual sales growth of FFBL

Interpretation
This figure represents that FFBLs Sales Growth increased by 119% in the year 2008 and it then came down to 37%. In the year 2012, P/S ratio is in negative which shows that sales has decreased in the year2012 as compared to previous year.
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Fauji Fertilizer Company Limited

Table 25 Dividend Payout Ratio of FFC YEAR 2008 2009 2010 2011 2012 DPS 13.75 13.15 13 20 15.5 EPS 5.13 6.94 8.67 17.68 16.38 DPS EPS 123% 105% 95% 94% 95%
140% 120% 100% 80% 60% 40% 20% 0%
123% 105% 95% 94% 95%
2008
2009
2010
2011
2012
Figure26. Dividend payout ratio of FFC Interpretation This graph represents that D/P ratio of FFC ranges from 94% to 123%. In 2008, FFC D/P ratio was 123% which indicates that FFC declared more dividends than its earnings. This ratio is also high in the year 2009 while it was low in the subsequent years.
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Table 26 Leverage Ratio of FFC
YEAR 2008 2009 2010 2011 2012
Debt(M) 19633.75 25469.14 35239.51 32460.69 34790.80
Equity(M) 12285 13082 15447 23070 26096
Debt Equity 1.60 1.95 2.28 1.41 1.33
2.50 2.00 1.50 1.00 0.50 0.00 2008 2009 1.95 1.60
2.28
1.41
1.33
2010
2011
2012
Figure27. Leverage ratio of FFC
Interpretation This graph indicates that FFC has more debt in its capital structure for all of its five years it was lowest in the year 2012 with the value of 1.33 whereas it was highest in the year 2010 with the value of 2.28 which represent that FFC have debts more than two times of its capital.
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Table 27 Profitability Ratio of FFC
YEAR 2008 2009 2010 2011 2012
EBIT(000) 9689 12473 15620 29977 30437
Total Assets(000) 31919 38552 43060 55531 60887
60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 30% 32% 36%
54%
50%
2011
2012
Figure28. Profitability ratio of FFC Interpretation This figure represents that Profitability Ratio of FFC ranges from 30% to 54%. It is lowest in the year 2008 which is only 30% which indicates that FFCs assets are able to produce its earnings to only 30%. This ratio has increased in the subsequent years and went to 54% in the year 2011 and went down in the year 2012.
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Table 28 Average Tax Rate of FFC
YEAR 2008 2009 2010 2011 2012
Tax liability(M) 3516 4234 5281 10674 10118
PBT(M) 10041 13057 16310 33166 31021
Tax liability PBT 0.35 0.32 0.32 0.32 0.33
0.36 0.35 0.34 0.33 0.32 0.31 0.30
0.35
0.32
0.32
0.32
0.33
2008
2009
2010
2011
2012
Figure29. Average tax rate of FFC Interpretation This figure represents that FFC is paying more amount of tax as compared to its PBT in the year 2008. This ratio remains constant for the next three consecutive years and then it went high a bit in the year 2012.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 29 Cash from Operations of FFC
YEAR 2008 2009 2010 2011 2012
Cash from Operations (M) 8166 8919 14768 19557 18646
25000 20000 15000 10000 5000 0 2008 2009 2010 2011 2012 8166 8919 14768 19557 18646
Figure30. Cash from operations of FFC Interpretation This above graph shows the cash generated through the operating activities ranges from 8166M to 19557M. It is lowest in the year 2008 and highest in the year 2011.
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Table 30 Price Earnings Ratio of FFC
Market Price per Share 2008 2009 2010 2011 2012 58.73 102.93 125.86 149.54 117.14
EPS 5.13 6.94 8.67 17.68 16.38
16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2008 11.45
14.83
14.52
8.46 7.15
2009
2010
2011
2012
Figure31. Price earnings ratio of FFC Interpretation The above graph represents that P/E ratio of FFC ranges from 7.15 to 14.83. P/E ratio of FFC decreased considerably in the years 2011 and 2012 which shows that it is a good sign for investor point of view because in these years investor is earning more on their investment.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 31 Price to Sales Ratio of FFC Market Price per Share Revenue Per Share 0.95 1.93 1.90 2.30 2.01
Market Price per Share 2008 2009 2010 2011 2012 58.73 102.93 125.86 149.54 117.14
2.50 2.00 1.50 1.00 0.50 0.00 2008 2009 2010 0.95 1.93 1.90
2.30 2.01
2011
2012
Figure32. Price to sales ratio of FFC Interpretation It can be clearly seen that P/S ratio is lowest in the year 2008 which is a favorable situation for investor point of view but d it started to increase in the subsequent years and finally went to 2.30 in the year 2011.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Table 32 Annual Sales Growth of FFC Increase in Sales 2164 5570 8711 10347 19102 Annual Sales Growth 8% 18% 24% 23% 35%
2008 2009 2010 2011 2012
40% 35% 30% 25% 20% 15% 10% 5% 0%
35% 24% 18% 8% 23%
2008
2009
2010
2011
2012
Figure33. Annual sales growth of FFC
Interpretation Annual Sales Growth of FFC is increased in the every next year it was just 8% in the year 2008 and then went to 18% in the next year and finally reaches to 35% in the year 2012 which indicates that in 2012 sales grow 35% as compared to the sale in the year 2011.
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Comparison of Cement and Chemical Sectors
Dividend Payout Ratio

By making comparison of both sector companies ratio many differences can be analyzed in both sectors which indicate that both sectors have different approach regarding the dividend policy.Firstly, D/P ratio of both sector is analyzed which shows following results:
1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 LCL ACPL 2010 FFBL 2011 FFC 2012
Figure34.Comparison of dividend payout ratio of cement and chemical sector Explanation This graph compares the D/P ratio for all the four companies of both sectors. This clearly indicates that Cement Sector is more focused on retaining the bigger part of its profits rather than declaring them as dividend whereas Chemical Sector is opposite to Cement Sector and focused more on declaring the dividends of almost 90% of its profits
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector as dividend. These results clearly show that Cement Sectors main emphasis on internal financing.
Leverage Ratio
Leverage ratio is another ratio which is analyzed for both of the sectors, which again shows dissimilarities for these sectors and these differences are shown by the following trend lines.
4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2008 2009 2010 2011 2012
LCL ACPL FFBL FFC
Figure35.Comparison of leverage ratio of cement and chemical sector Explanation The above graph represents the capital structure of both the sectors which clearly indicates that Cement Sectors companies are more focused on equity financing and thats why its debt to equity ratio remains under 1and in the every next year it is decreasing. While Chemical Sector companies are focused on debt financing and its value is always above 1 and sometimes it is more than 2.
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Profitability Ratio
Profitability ratio is another ratio which also has dissimilarities between the both sector and these differences can be seen in the following graph:
60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 2012 LCL ACPL FFBL FFC
Figur36.Comparison of profitability ratio of cement and chemical sector Explanation The above graph of profitability ratio shows that this ratio is high in Chemical Sector as compared to Cement Sector which means that Chemical Sectors assets are more efficient to produce the earnings.
Price Earnings Ratio

P/E ratio is another determinant of D/P ratio and this factor is too considerably different in these two sectors. It is well explained by the trend lines which are given below:
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20.00 15.00 10.00 5.00 0.00 2008 2009 2010 2011 2012 LCL ACPL FFBL FFC
Figure37.Comparison of price earnings ratio of cement and chemical sector Explanation From the above graph it is cleared that P/E ratio is low in Cement Sector whereas it is high in Chemical Sector which means investor pays less for earning in Cement Sector and pays high in Chemical Sector.
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CHAPTER THREE Conclusion

The main purpose of this project is to comparatively examine the Cement Sectors dividend policy. After discovering the determinants of dividend payout ratio, different ratios were applied to both sectors companies which are named as LCL, ACPL, FFBL and FFC. The results of these ratios considerably differ in Cement and Chemical Sector. By matching the dividend payout ratio of both sectors it is discovered that both have different approach while declaring its dividend out of profits, as the Cement Sector is more inclined to retain its profits and declaring only moderate part as dividend out of its profits. Unlike the Cement Sector, Chemical Sector pay more amount of dividends out of its profits. This conclude that Cement Sector is considering internal source of financing while the Chemical Sector is more focused on attracting its prospect investor and retaining the current investor. As far as Leverage ratio of both sectors is concerned, dissimilarities are also there, as their priorities are different while structuring their capital structure. Cement Sector is concerned to have more equity financing as compared to Chemical Sector because its main concern is to rely upon debt financing more than the equity. When ROA ratio of both sectors is analyzed then is noticed that ROA of Chemical Sector is far better than the Cement Sector. After determining the P/E ratio it was also discovered that both sectors suggest that P/E ratio is low in Cement Sector while it is high in Chemical Sector.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector Bibliography

Annual report. (n.d.). Retrieved September 11, 2013, from Fauji Fertilizer Company Limited: http://www.ffc.com.pk/uploads/docs/ar_c2012.pdf Aivazian, V., & Booth, L. (2001). Do Firms In Emerging Markets Follow Different Dividends Policies from those in the US. 1-26. Annual report 2012. (n.d.). Retrieved September 12, 2013, from Lucky Cement: http://www.lucky-cement.com/?option=com_content&view=article&id=102%3Afinancialreports&Itemid=60 Baker, H. P. (2009). Determinants of Corporate Dividend Policy. Finance Pract Educ. BEN-DAVID, I. (2010). Dividend Policy Decision . Hamilton. Economic Survey of Pakistan. (2011). Cement Sector. Economic survey of Pakistan. (2011). Chemical Secor in Pakistan. Economic Survey of Pakistan . Financial Results. (n.d.). Retrieved September 15, 2013, from Fauji Fertilizer Bin Qasim Limited: http://www.ffbl.com/fin_reports/annual%202012.pdf Gill, A., Biger, N., & Tibrewala, R. (2010). Determinants of dividend payout ratio: Evidence from United States. 8-14. HK, B., & GE, P. (2000). Determinants of Dividends Policy. 29-40. J.J.Adefila, D. (2009). THE EFFECT OF DIVIDEND POLICY ON THE MARKET PRICE OF SHARES IN NIGERIA. 1-10.
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June,2012. (n.d.). Retrieved September 8, 2013, from Falcon Cement: http://www.attockcement.com/file/1405086Anual12.pdf M, A., & Abor. (2008). Determinants Dividend Payout Ratio . 1-9. Mayers. (2002). The determinants of corporate dividend policy. 105-10. Ministry of Finance. (n.d.). Pakistan Economic Survey . Retrieved September 17, 2013, from Economic Survey of Pakistan: http://www.finance.gov.pk/fiscal_main.html Moradi, M., Salehi, M., & Shahnaz. (2009). FACTORS AFFECTING DIVIDEND POLICY. 4562. RW, M. (2007). Corporate investment and Dividend Decision. 82-85.
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Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

ABBREVIATIONS & ACRONYMS

(P/E Ratio) (P/S Ratio)

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Traditional Approach of Dividend Decision

Lucky Cement 21%

DG Khan Cement 16% Maple Leaf Kohat Cement Cement 9% 5%

Bestway Cement 12%

Figure1.Cement industry market share

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

CHAPTER TWO: DATA ANALYSIS

Dividend Payout Ratio

Average Tax Rate

Price Earnings Ratio

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Price to Sales Ratio

Annual Sales Growth

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Lucky Cement Company Limited

0.5 0.4 0.3 0.2 0.1 0 0 2008 2009 28%

41% 33% 29%

Equity(000) 18655423 23251972 25095929 27772829 33261745

Debt Equity 0.84 0.65 0.53 0.48 0.22

1.00 0.80 0.60 0.40 0.20 0.00

0.84 0.65 0.53 0.48 0.22

YEAR 2008 2009 2010 2011 2012

EBIT(000) 3076 7217 4243 5161 9010

Total Assets(000) 34239 38392 38310 41210 40631

EBIT Total Assets 9% 19% 11% 13% 22%

YEAR 2008 2009 2010 2011 2012

Market Price per Share 97.93 58.53 62.14 70.84 115.39

EPS 9.84 14.21 9.7 12.28 20.97

12.00 10.00 8.00 6.00 4.00 2.00 0.00

9.95 6.41 4.12

Revenue Per Share 52.44 81.42 75.79 80.46 103.05

6% 2009 2010 -7% 2011 2012

Comparative Analysis of Dividend Policy of Cement and Chemical Sector

Attock Cement Pakistan Limited

DPS 1.50 5.00 5.00 4.04 8.50

EPS 6.03 17.24 11.74 7.09 16.59

DPS EPS 25% 29% 43% 57% 51%

0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00

0.66 0.46 0.31 0.34 0.34

YEAR 2008 2009 2010 2011 2012

EBIT(M) 2047 1059 1466 2108 829

Total Assets(M) 8901 7743 7059 6973 5871

EBIT Total Assets 23% 14% 21% 30% 14%

YEAR 2008 2009 2010 2011 2012

Tax liability(M) 57.706 595.354 422.091 382 942.439

PBT(M) 675 1989 1388 1034 2035

Tax liability PBT 0.09 0.30 0.30 0.37 0.46

YEAR 2008 2009 2010 2011 2012

Cash from Operations (M) 437835 1923312 1362311 305498 1760520

Comparative Analysis of Dividend Policy of Cement and Chemical Sector