DIVIDEND POLICY ANALYSIS

FOR SUN
PHARMACEUTICALS
Contents
INTRODUCTION.......................................................................................................................... 2
INDEPENDENT VARIABLES.......................................................................................................... 2
Various Independent Variables are:............................................................................................... 3
Dependent Variable.................................................................................................................... 3
REVIEW OF LITERATURE............................................................................................................. 3
NEED AND OBJECTIVE OF THE STUDY......................................................................................... 4
CONCEPTUAL MODEL................................................................................................................. 4
HYPOTEHSIS............................................................................................................................... 5
METHODOLOGY.......................................................................................................................... 5
PROCEDURE OF THE STUDY....................................................................................................... 5
DATA ANALYSIS TOOLS................................................................................................................ 6
Correlation Analysis.................................................................................................................... 6
Backward Multiple Regression Analysis......................................................................................... 6
INDIAN PHARMACEUTICAL INDUSTRY.......................................................................................... 6
Market Size............................................................................................................................... 6
Generic drugs form the largest segment..................................................................................... 6
Increasing investments in the sector.............................................................................................. 7
SUN PHARMACEUTICAL INDUSTRIES LIMITED............................................................................. 7
History..................................................................................................................................... 7
Acquisitions and Joint Ventures............................................................................................... 8
Milestones:............................................................................................................................... 8
DIVIDENDS AND STOCK SPLITS SINCE 2004..............................................................................9
RESULTS AND ANALYSIS............................................................................................................. 9
CORRELATION....................................................................................................................... 10
Pearson correlation was used to find out which variables out of ROA, ROE, EPS, PE, CR, LEV,
LTA have more linear relationship with the DPR i.e. Dividend payout ratio and whether there
is a positive or a negative relation with the DPR. It was found out that................................10
1. DPR had Moderate positive linear relation with ROA, ROE, EPS, PE, CR..........................10
BACKWARD MULTIPLE REGRESSION...................................................................................... 11
TREND ANALYSIS...................................................................................................................... 13
DIVIDEND PAYOUT RATIO................................................................................................. 13
Return On Assets and Dividend Payout Ratio..................................................................13
Earnings per Share and Dividend Per Share....................................................................13
Return On Equity and Dividend Payout ratio...................................................................14
CONCLUSION............................................................................................................................ 14
FUTURE PROSPECTS................................................................................................................. 15
INTRODUCTION

Dividend policy is the set of guidelines a company uses to decide how much of its earnings it will pay out to
shareholders. Some evidence suggests that investors are not concerned with a company's dividend policy
since they can sell a portion of their portfolio of equities if they want cash. This evidence is called the
"dividend irrelevance theory," and it essentially indicates that an issuance of dividends should have little to
no impact on stock price. That being said, many companies do pay dividends, so let's look at how they do
it.
1. Residual Dividend Policy
Companies using the residual dividend policy choose to rely on internally generated equity to
finance any new projects. As a result, dividend payments can come out of the residual or leftover
equity only after all project capital requirements are met. These companies usually attempt to
maintain balance in their debt/equity ratios before making any dividend distributions, deciding on
dividends only if there is enough money left over after all operating and expansion expenses are
met.
2. Dividend Stability Policy
The fluctuation of dividends created by the residual policy significantly contrasts with the certainty of
the dividend stability policy. With the stability policy, quarterly dividends are set at a fraction of yearly
earnings. This policy reduces uncertainty for investors and provides them with income.
3. Hybrid Dividend Policy
The final approach is a combination between the residual and stable dividend policy. Using this
approach, companies tend to view the debt/equity ratio as a long-term rather than a short-term goal.
In today's markets, this approach is commonly used by companies that pay dividends. As these
companies will generally experience business cycle fluctuations, they will generally have one set
dividend, which is set as a relatively small portion of yearly income and can be easily maintained.
On top of this set dividend, these companies will offer another extra dividend paid only when income
exceeds general levels.

INDEPENDENT VARIABLES

1. Size - The previous literature assumed that there is a relationship between the firms size and its
dividend policy. The big size companies pay higher dividends and smaller size companies pay less
dividends, as they find it difficult to raise funds, as compared to large companies who have easier
access to the capital market and hence are less dependent on the internal funds, leading to more
capability to pay the dividends. Osobov (2008), Hosami (2007), Aivazian (2003), Al-Twaijry
(2007),Eriotis (2005) Ahmed and Javid (2009), Kuwari (2009) and Olantundun (2000) also
supported the same view. Measure of Size: The Size of the firm is measured by the natural
logarithm of the book value of the firms Total Assets. (Joseph 2001) Size (LTA )=Natural Log of
Total Assets
2. Profitability- Previous researchers have found profitability as one of the most important determinants
of dividend payout policy. However, the results on relationship of profitability and dividend payout
have been mixed. As per the pecking order theory, the firms will prefer to rely more on internal funds
or retained earnings as a result the firms will have a tendency of paying less dividend and hence
having more retained earnings. Hence, the profitable firms will prefer lower dividends. Amidu and
Abor (2006) have maintained that the profitability is highly negative and significantly associated with
the dividend payout, which shows that the firms invest in their assets rather than paying dividends to
shareholders
3. Risk- The P/E ratio implicitly incorporates the perceived risk of a given company's future earnings.
A high P/E suggests that investors are expecting higher earnings growth in the future compared to
companies with a lower P/E (Fama and French 1998, Puckett 1964). Raising dividends reduces the
risk of future cash flows to the stockholder which increases stock price and the PE ratio. High PEs
may be associated with low risk and higher payout ratios, whereas low PEs may be attributed to
high risk and lower payout ratios. Amidu and Abov (2006) a negative relationship is there between
 payout ratio and risk. Measure of Risk: the risk of the company has been measured by Risk=Price
of Share/Earning per share ratio
4. Leverage- The empirical evidence regarding the relationship of leverage with dividend payout is
mixed. The higher the leverage of the firm the lower is the dividend payout; this could be because of
the debt covenants. Rozeff (1982) points out those firms with high financial leverage tend to have
low payout ratios in order to reduce the transaction Mehta 24 costs associated with the external
financing. Similarly Al-Malkawi (2007) confirmed that the firms financial leverage is significantly and
negatively related to its dividend policy, where as Kania and Bacon (2005) have found a significant
positive relationship, bringing out the fact that the firms have higher debt funds to pay off dividends.
Measure of Leverage: the leverage has been measured with the help of following formula
Leverage = Short Term and Long Term Liabilities / Total Shareholders Fund
5. Liquidity- The liquidity or cash flows position is another important determinant of dividend payouts.
The firms with more liquidity are more likely to paydividends as compared to the firms with a liquidity
crunch. Dividend payments depend more on cash flows which reflect the companys ability to pay
dividends. A poor liquidity position means less generous dividends due to shortage of cash. (Kanwal
and Kapoor 2008; Ahmed and Javid 2009). Liquidity has been measured by the following formula
(Kania and Bacon 2005)
LIQUIDITY =Current ratio (Current Assets/Current Liabilities)
Various Independent Variables are:
1. Return On Asset = Net Profit/Total Asset
2. ROE= Net Profit less preference Dividend/ Total Equity
3. EPS= Total Profit/Number of Share
4. PE=Market Price per share/ EPS
5. Current ratio= Current Assets/Current Liabilities
6. Leverage=Total Liabilities/ShareholdersFunds
7. Size= natural Log of Total Assets
Dependent Variable
Dividend Payout Ratio = (Cash Dividend per share/ Net Profit) * 100

REVIEW OF LITERATURE
The earliest research was undertaken by Lintner (1956, pp. 97-113) who conducted his study on American
companies in the middle 1950s. The study concluded that dividend decision is based upon the current
profitability and in part on the dividends of the previous year. Since then there has been an on-going debate
on dividend policy and the results are mixed. Fama and Babiak (1968) tested the Lintner model on the
dividend data of 392 major North American industrial firms for the years 1946- 1964. Fama and Babiak had
maintained that the firms will try to increase the dividend only when the dividends can be sustained in
future. They concluded that Lintners dividend model has succeeded fairly well in explaining the dividend
changes of Mehta 20 individual firms whereas Wolmaran (2003) did not find any evidence for the Lintner
model in South Africa. Gordon (1959) gave the bird in hand theory. He maintained that the discounted value
of near future dividends is higher than the present value of distant dividends. Gordon argued that the
dividends to be received in future have much uncertainty as compared to the dividends in the near future
since the shareholders would prefer certain returns the stock prices would be higher for the dividend paying
stocks as compared to the companies paying lesser dividends. In 1961, Miller and Modigliani came up with
the dividend irrelevance theory in a perfect market, without taxes and transaction costs. MM argued that the
dividend decision has no impact on the value of the firm so it is an irrelevant decision. The capital gains
would be equivalent to dividends in a perfect market without tax considerations or attached transaction
costs. The MM theory states that shareholder wealth will remain unaffected by dividend policy in that
without tax as a consideration, investors place equal weight in receiving returns as dividends or capital
gains as long as the firms investment policy is not affected by dividend policy (Shapiro 1990). Many
researchers have tried to find out the dividend payout decision and its influence on the value of the firm
given imperfect market conditions. Pettit (1977) studied the clientele effect of dividends. Retired investors
and pension funds, for example, tend to prefer cash income and may therefore want the firm to pay out a
high percentage of its earnings. On the other hand, shareholders in their peak earning years prefer the
reinvestment of cash and low dividend payments. Kania & Bacon (2005) studied the impact of profitability,
growth, risk, liquidity and expansion on the dividend decision/policy of a corporation by analyzing the
financial data of over 10,000 publicly traded firms using Ordinary Least Squares (OLS). The study
 concluded that the dividend payout ratio is significantly affected by the profitability (return on equity), growth
(sales growth), risk (beta), liquidity (current ratio), control (insider ownership) and expansion (growth in
capital spending)

NEED AND OBJECTIVE OF THE STUDY

Dividend Policy of the firm is an important policy for a company as it signals the market about the future
plans and financial health of the company.
A company pays its dividends from the profit it earns, how much should be paid as dividend and how much
should be retained are thus important for the long term growth strategies .
In this study we examine what are the possible factors which might impact the dividend payout ratio for
SUN PHARMACEUTICALS.
The objectives thus are:
1. To determine the factors that significantly impact the dividend payout ratio of SUN
PHARAMCEUTICALS
2. To form a trend line for the dividend paid per share and Dividend Payout Ratio, checking for any
significant deviations from it.
3. In general the impact of adoption of IFRS on dividend payout ratio

CONCEPTUAL MODEL

SIZE

PROFITABI
LITY

RISK DIVIDEND
PAYOUT RATIO

LIQUIDIT
Y
LEVERAG
HYPOTEHSIS
H1: Size of the firm has a significant impact on the dividend payout ratio
H2: Profitability of the firm has a significant impact on the dividend payout ratio of the firm
H3: Risk of the firm has a significant impact on the dividend payout ratio of the firm
H4: Liquidity of the firm has a significant impact on the dividend payout ratio of the firm
H5: Leverage of the firm has a significant impact on the dividend payout ratio of the firm

METHODOLOGY
Data is to be collected for the chosen company since the financial year 2004 upto financial year 2016.
Variables are to be calculated from the information provided in the annual financial statements of the
company and the historical market prices available.
The data collected would be of secondary data in nature.
The collected information would then be subjected to data analysis techniques and conclusions shall be
drawn from them using SPSS software.

PROCEDURE OF THE STUDY

1 First Phase:

Literature was studied in order to gauge a better understanding of the subject and identify possible
variables

Data collection was planned as to how to proceed.

2 Second Phase:

Data was collected from financial statements of the company

3 Third Phase:

Complete data collected in second phase was analyzed.

Findings made and recommendations given.

DATA ANALYSIS TOOLS

Correlation Analysis
This type of analysis allows us to understand the relationship between the two variables and their extent of
dependence on each other and the direction of their dependence (positive or negative). Correlation
Analysis produces a coefficient of correlation, the value and polarity of which conveys the direction and
magnitude of correlation. A departure of two or more variables from mathematical independence can be
termed as correlation in laymans terms.

Backward Multiple Regression Analysis

This analysis allows us to measure the extent of the effect of each independent variable on the dependent
variable. In case of more than one independent variable, the individual effect of each variable in isolation as
well as in combination with other variables can be ascertained. The result is a regression equation that
includes each of the independent variables and the dependent variable.
 Backward Multiple Regression is an advanced technique which removes insignificant variables step by step
and improves the model making it the best possible

INDIAN PHARMACEUTICAL INDUSTRY

The Indian pharmaceuticals market is the third largest in terms of volume and 13th largest in terms of value,
as per a report by Equity Master. India is the largest provider of generic drugs globally with the Indian
generics accounting for 20 per cent of global exports in terms of volume. Of late, consolidation has become
an important characteristic of the Indian pharmaceutical market as the industry is highly fragmented.
India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of
scientists and engineers who have the potential to steer the industry ahead to an even higher level.
Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immuno
Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

Market Size
The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and
2020, will outperform the global pharma industry, which is set to grow at an annual rate of 5 per cent
between the same period!. The market is expected to grow to US$ 55 billion by 2020, thereby emerging as
the sixth largest pharmaceutical market globally by absolute size, as stated by Mr Arun Singh, Indian
Ambassador to the US. Branded generics dominate the pharmaceuticals market, constituting nearly 80 per
cent of the market share (in terms of revenues).
India has also maintained its lead over China in pharmaceutical exports with a year-on-year growth of 11.44
per cent to US$ 12.91 billion in FY 2015-16, according to data from the Ministry of Commerce and Industry.
Imports of pharmaceutical products rose marginally by 0.80 per cent year-on-year to US$ 1,641.15 million.

Generic drugs form the largest segment

With 70 per cent of market share (in terms of revenues), generic drugs form the largest segment of
the Indian pharmaceutical sector.
India supply 20 per cent of global generic medicines market exports in terms of volume, making the
country the largest provider of generic medicines globally and expected to expand even further in coming
years
Over the Counter (OTC) medicines and patented drugs constitute 21 per cent and 9 per cent,
respectively, of total market revenues of US$ 20 billion

Increasing investments in the sector

The Indian pharmaceuticals market increased at a CAGR of 17.46 per cent during 2005-16 with the
market increasing from US$ 6 billion in 2005 to US$ 36.7 billion in 2016 and is expected to expand at a
CAGR of 15.92 per cent to US$ 55 billion by 2020.
By 2020, India is likely to be among the top three pharmaceutical markets by incremental growth
and sixth largest market globally in absolute size.
Indias cost of production is significantly lower than that of the US and almost half of that of Europe.
It gives a competitive edge to India over others.
SUN PHARMACEUTICAL INDUSTRIES LIMITED
SUNPHARMA is an Indian multinational pharmaceutical company headquartered in Mumbai,
Maharashtra that manufactures and sells pharmaceutical formulations and active pharmaceutical
ingredients (APIs) primarily in India and the United States. The company offers formulations in various
therapeutic areas, such as cardiology, psychiatry, neurology, gastroenterology and diabetology.
History

Sun Pharmaceuticals was established by Mr. Dilip Shanghvi in 1983 in Vapi with five products to treat
psychiatry ailments. Cardiology products were introduced in 1987 followed by gastroenterology products in
1989. Today it is the largest chronic prescription company in India and a market leader in psychiatry,
neurology, cardiology, orthopedics, ophthalmology, gastroenterology and nephrology.

The 2014 acquisition of Ranbaxy will make the company the largest pharma company in India, the largest
Indian pharma company in the US, and the 5th largest speciality generic company globally.

Over 72% of Sun Pharma sales are from markets outside India, primarily in the US. The US is the single
largest market, accounting for about 50% turnover;in all, formulations or finished dosage forms, account for
93% of the turnover. Manufacturing is across 26 locations, including plants in the US, Canada, Brazil,
Mexico and Israel. In the US, the company markets a large basket of generics, with a strong pipeline
awaiting approval from the U.S. Food and Drug Administration (FDA).[4]

The Indian pharmaceutical industry has become the third largest producer in the world in terms of volumes
and is poised to grow into an industry of $20 billion in 2015 from the current turnover of $12 billion. In terms
of value India still stands at number 14 in the world.

In 2009 Sun Pharma's Caraco Pharmaceutical's plant in Detroit was closed due to unsanitary conditions
resulting in the seizure of $20 million of drugs by the FDA for contamination issues.

Acquisitions and Joint Ventures

Sun Pharma has complemented growth with select acquisitions over the last two decades. Sun acquired a
number of respiratory brands from Natco Pharma. Other notable acquisitions include Phlox Pharma (2004),
a formulation plant at Bryan, Ohio and ICN, Hungary from Valeant Pharma and Able Labs (2005), and
Chattem Chemicals (2008). In 2010, the company acquired a large stake in Taro Pharmaceuticals,

amongst the largest generic derma companies in the US, with operations across Canada and Israel. The
company currently owns ~ 69% stake in Taro,for about $260 million.

In 2011, Sun Pharma entered into a joint venture with MSD to bring complex or differentiated generics to
emerging markets (other than India).
In 2012, Sun announced acquisitions of two US companies: DUSA Pharmaceuticals, a dermatology device
company; and generic pharma company URL Pharma. In 2013, the company announced an R&D joint
venture for ophthalmology with the research company, Intrexon.

On 6 April 2014, Sun Pharma announced that it would acquire 100% of Ranbaxy Laboratories Ltd, in an all-
stock transaction, valued at $4 billion. Japan's Daiichi Sankyo held 63.4% stake in Ranbaxy. After this
acquisition, Sun Pharma emerged to be the largest pharmaceutical company in India, the largest Indian
Pharma company in the US,and the 5th largest generic company worldwide.

In December 2014, the Competition Commission of India approved Sun Pharma's $3.2 billion bid to buy
Ranbaxy Laboratories, but ordered the firms to divest seven products to ensure the deal doesn't harm
competition.

In March 2015, Sun Pharma announced it had agreed to buy GlaxoSmithKline's opiates business in
Australia to strengthen its pain management portfolio

Milestones:
1983 Sun Pharma begins operations in Kolkata with 5 psychiatry based products, first with 2 people
and then with a 10 employee team. Year 1 turnover Rs. 1 million. Within a year, the marketing effort is
expanded to cover all eastern states. A compact manufacturing facility for tablets/capsules is set up at Vapi.

1988 With the launch of the brands Monotrate and Angizem, the first few cardiology products are
launched. We feature for the first time in a market audit by the prescription tracking company, ORG* at rank
107th with 0.1% market share.
1989 Exports to neighbouring countries begin.
1991 The company's turnover is Rs. 9.74 cr, and market rank is 70th.
1993 SPARC, the first research center, is inaugurated by His Excellency Shri K. R. Narayanan, the Vice
President of India.
1994 After an IPO in October, it got listed on the major stock exchanges in India. The offering is
oversubscribed 55 times. A dosage form plant at Silvassa starts production. Major expansion at the plant in
Vapi is completed. For the first time, a brand from the company, Monotrate, features among the top 250
pharma brands in the Indian market. Experimenting with a focused marketing approach, a separate
division, Synergy, is carved out to market Psychiatry/ Neurology products.
1995 Its first API plant at Panoli starts production.
A new division, Aztec, now renamed Azura, is begun for cardiology products, with a further reallocation of
products across divisions. Inca, a new division to market critical care medication to intensive care units
begins operations. International marketing is strengthened with offices in Ukraine and Belarus.
1996 An APImanufacturing unit at Ahmednagar, the first of the our acquisitions, is bought from Knoll
Pharma. An equity stake is also picked up in Gujarat Lyka Organics Ltd., a manufacturer of Cephalexin
Active with a USFDA approval for the intermediate, 7ADCA. At the close of the year, we rank 27th with 2
products among the country's top selling 300 pharma brands. Product registrations are now in place across
24 countries.
1997 It begin the first of its international acquisitions. As part of a technologyforequity agreement, a
stake is acquired in a generic dosage form manufacturer; the Detroitbased Caraco Pharm Labs.
1998 A basket of brands, which include several in the respiratory/asthma area, are acquired from Natco
Pharma. Its new formulation plant at Silvassa commences operations.
1999 Rank moves within the top 10 in the domestic market. For a quick entry in ophthalmology, Milmet
Labs is merged into Sun Pharma. The Cephalexin API manufacturer Gujarat Lyka Organics is merged with
Sun Pharma.
2000 Ranked 5th among all companies in the domestic market on a monthly basis. Pradeep Drug
company, a Chennai based API manufacturer is merged with Sun Pharma.
2004 Sun Pharma acquires common stock and options from 2 large shareholders of Caraco, increasing
stake to over 60% from 44% at a total outlay of about $42 million.
Sun Pharma acquires a Cephalosporin Actives manufacturer, Phlox Pharma, with European approval for
cefuroxime axetil amorphous.
2006 Announced the demerger of innovative business with pipelines, people, equipment and funding, into
a new company.
2007 Completed the demerger of the innovative business, with requisite legal and regulatory approvals.
SPARC ltd, the new company, is listed on the stock exchanges in India, the first pure research company to
be so listed.
2008 In November 2008, it along with its subsidiaries, acquired 100% ownership of Chattem Chemicals,
Inc.,a narcotic raw material importer and manufacturer of controlled substances with a approved facility in
Tennessee. This will offer vertical integration for its controlled substance dosage form business in the US.
2014 April 6, 2014 Sun Pharmaceutical Industries and Ranbaxy Laboratories announced that they have
entered into definitive agreements pursuant to which Sun Pharma will acquire 100% of Ranbaxy in an all
stock transaction.
DIVIDENDS AND STOCK SPLITS SINCE 2004
08-Sep-2016 1.00 Dividend
21-Oct-2015 3.00 Dividend
11-Sep-2014 1.50 Dividend
19-Sep-2013 2.50 Dividend
29-Jul-2013 2: 1 Stock Split
14-Aug-2012 4.25 Dividend
02-Sep-2011 3.50 Dividend
25-Nov-2010 5: 1 Stock Split
09-Sep-2010 13.75 Dividend
21-Aug-2009 13.75 Dividend
25-Aug-2008 10.50 Dividend
15-Mar-2007 6.75 Dividend
06-Sep-2006 5.50 Dividend
19-Sep-2005 3.75 Dividend
10-Dec-2004 3.25 Dividend
27-May-2004 2: 1 Stock Split

RESULTS AND ANALYSIS

CORRELATION

Pearson correlation was used to find out which variables out of ROA, ROE, EPS, PE, CR, LEV, LTA have
more linear relationship with the DPR i.e. Dividend payout ratio and whether there is a positive or a
negative relation with the DPR. It was found out that
DPR had Moderate positive linear relation with ROA, ROE, EPS, PE, CR
Low Negative Correlation with LEV
Moderate negative relation with LTA
Results of LTA i.e. SIZE of the firm was found out to be significant with .038 sig value.
BACKWARD MULTIPLE REGRESSION

Backward Multiple Regression is used to give the best model by eliminating insignificant
variables stepwise and providing the most significant model. In this case the most significant
model comes out to be model 6 with 0.031 level of significance.
This technique removes insignificant variables and continually improves the data.
The final model is capable of explaining 50% of variation in the model .

Coefficients
a

Unstandardized Standardized
Model Coefficients Coefficients t Sig.
Std.
B Error Beta
1 (Constant
-30.866 221.101 -.140 .894
)
ROA -
-7.783 5.869 -2.737 1.32 .242
6
 ROE 2.588 3.179 1.501 .814 .453
EPS 1.15
.955 .831 .625 .302
0
PE 1.98
3.597 1.808 1.591 .103
9
CR 2.02
9.686 4.774 .735 .098
9
LEV -
-137.056 51.242 -2.191 2.67 .044
5
LTA 8.613 22.403 .228 .384 .716
2 (Constant 1.77
53.225 29.963 .126
) 6
ROA -
-7.876 5.432 -2.770 1.45 .197
0
ROE 2.811 2.895 1.629 .971 .369
EPS 1.25
.758 .605 .496 .257
2
PE 2.97
3.047 1.023 1.348 .025
9
CR 2.22
8.902 3.999 .675 .068
6
LEV -
-131.872 45.791 -2.108 2.88 .028
0
3 (Constant 1.79
28.668 15.994 .116
) 2
ROA -
-2.852 1.642 -1.003 1.73 .126
7
EPS 1.01
.585 .576 .383 .344
6
PE 3.07
3.121 1.016 1.381 .018
3
CR 8.354 3.942 .634 2.119 .072
LEV -
-98.685 30.340 -1.577 3.25 .014
3
4 (Constant 1.90
30.302 15.944 .094
) 0
ROA -
-1.588 1.074 -.559 1.47 .177
9
PE 2.89
2.752 .950 1.217 .020
6
CR 1.90
7.246 3.796 .550 .093
9
LEV -
-88.230 28.597 -1.410 3.08 .015
5
5 (Constant 1.22
17.516 14.254 .250
) 9
PE 2.43
1.786 .734 .790 .038
2
CR 1.21
4.000 3.295 .303 .256
4
LEV -
-55.145 18.955 -.882 2.90 .017
9
6 (Constant 2.54
28.583 11.215 .029
) 9
PE 3.00
2.108 .701 .932 .013
8
LEV -
-54.630 19.394 -.873 2.81 .018
7
As we move forward , the most insignificant variables get removed with every step and the
significance of model improves. In the last model the Price Earnings ratio and leverage are to
be the most significant independent variables .
The resultant model is :
Dividend Payout ratio = 28.53 + 2.108PE 54.630LEV .

Hence the Hypothesis H3 and H5 comes out to be true .

TREND ANALYSIS
DIVIDEND PAYOUT RATIO

Dividend Payout Ratio (NP) (%)

120
100
80
Dividend Payout Ratio (NP) (%)
60
Linear (Dividend Payout Ratio
40 (NP) (%))
20
0
-20 2015 2013 2011 2009 2007 2005
2016 2014 2012 2010 2008 2006 2004
-40
-60

Dividend Payout Ratio had more or less constant until 2013 where in it witnessed a sharp
increase and a greater fall just the next year , and finally started rising in 2016. The overall
trend has been decreasing in nature. Looking at the trend line the major deviations occurred
since 2011, and has started reducing from 2016.
 Return On Assets and Dividend Payout Ratio
120

100

80

60

40 ROA
20 DPR

0
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
-20

-40

-60

Return On Assets and Dividend Payout ratio witness similar trends , however a lag seem to be
present and a multiple effect of change in ROA on DPR .in 2008 ROA increased and a
corresponding increase In DPR can be seen in the next period. A fall in ROA in 2013 lead to a
fall in DPR in 2014 Again a sharp increase for the year 2012-2013 and a sharp fall in 2013-
2014.

Earnings per Share and Dividend Per Share

EPS and DPS

70

60 61.65

50 48.96
43.39 Basic EPS (Rs.)
40 Linear (Basic EPS (Rs.))
32.52 Dividend / Share(Rs.)
30
24.84 26.56
Linear (Dividend / Share(Rs.))
20
16.4 16.83
13.413.75
13.75
10 10.5
6.755.5
3 1.5 5 4.253.5 3.753.25
0 1
2015
-4.5 -6.1 2013 2011 2009 2007 2005
2016
-10 2014 2012 2010 2008 2006 2004
-13.7
-20

DPS and EPS show similar trends , however the magnitude of change is less in DPS and more
in EPS. EPS has more fluctuations than DPS .
 Return On Equity and Dividend Payout ratio
120

100

80
Dividend Payout Ratio (NP)
60 (%)
Linear (Dividend Payout Ratio
40 (NP) (%))
R = 0.61
20 Return on Networth / Equity
(%)
0 Linear (Return on Networth /
2015 2013 2011 2009 2007 2005 Equity (%))
-20
2016 2014 2012 2010 2008 2006 2004
-40

-60

Dividend Payout ratio and Return on Net worth seem to be correlated with each other ,
however similar to other indices lag exists between change in ROE and DPR. This is most
visible from 2013 as we can see the sharp rise and fall of DPR. The general trend is declining
for both the variable

CORPORATE EVENTS AND DIVIDEND PAYOUT RATIO

While looking at the trends , most visible change in DPR comes for the period 2012-2014, this
is attributed to:

crossing of 2 Billion revenue mark in 2011 which lead to higher DPR in 2012
acquisitions of DUSA Pharmaceuticals and generic division of URL Pharmaceuticals in
USA. This lead to immediate decline in ROA and ROE and a subsequent impact on the
dividend pay out ratio which fell sharply the next year.

CONCLUSION

Our Correlation and Regression analysis showed us that Dividend payout Ratio is significantly
affected by RISK (Price earning ratio) and Leverage .
However when we examine the data through time series analysis, we observe that other
variables might also be affecting the Dividend Payout Ratio but not in the same period, the
effect is visible after one time period. This is the probable reason significant correlation or
regression was not found as they are linear in nature.

FUTURE PROSPECTS

The scope of the study can be broadened to other companies for the same industry to
arrive at a industry wise general results.
The same study can be done across various industries to do a cross industry analysis
Time lag effect should be attempted to incorporate in the regression model.