Dividend And Retention Policies Finance Essay

Dividend And Retention Policies Finance Essay

Tata Steel Ltd is the universes 10th largest steel company and the universes 2nd most geographically diversified steel manufacturer. The company is a diversified steel manufacturer with major operations in India, Europe and South East Asia. They have fabricating units in 26 states and a presence in 50 European and Asiatic markets. The company together with their subordinates, engages in the industry and sale of steel merchandises in India and internationally. They offer hot and cold rolled spirals and sheets, galvanized sheets, tubings, wire rods, building rebars and bearings. The company besides involves in prospecting, discovering, and excavation Fe ore, coal, ferro metal, and other minerals ; planing and fabrication workss and equipment for steel, oil and natural gas, energy and power, excavation, railroads, ports, air power, and infinite industries ; and agricultural implements. Further, they offers alumina, dolomite, and massive furnace linings, every bit good as silicon oxide furnace linings for coke ovens and the glass industry ; manufactures bricks ; sponge Fe balls and mulcts ; and axial rotations for applications in incorporate steel workss, power workss, and authorities batch, every bit good as paper, fabric, and nutrient processing sectors. Tata Steel ‘s operations are grouped under six Strategic Business Units include Bearings Division, Ferro Alloys and Minerals Division, Agrico Division, Tata Growth Shop ( TGS ) , Tubes Division and Wire Division. They have introduced several branded steel merchandises, including Tata Steelium ( the universe ‘s first branded Cold Rolled Steel ) , Tata Shaktee ( Galvanised Corrugated Sheets ) , Tata Tiscon ( rebars ) , Tata Pipes, Tata Bearings, Tata Structural, Tata Agrico ( manus tools and implements ) and Tata Wiron ( galvanised wire merchandises ) . Tata Steel Ltd was incorporated in the twelvemonth 1907 with the name Tata Iron & A ; Steel Company Ltd. In the twelvemonth 1911, the company commenced the operations of the first Blast Furnace or the ‘A ‘ Blast Furnace. In December 2, 1911, the fist pits were obtained and the first dramatis personae of hog Fe was produced. In they ear 1912, the first metal bar of steel rolled out of the Sakchi Plant and in October 1912, the Bar Mills started their commercial production. Besides, the B Blast Furnace became operational during the twelvemonth. In the twelvemonth 1918, India ‘s first steel ( coke ) works was established in Jamshedpur. In the twelvemonth 1925, the New Rail Mill, Merchant Mill and Sheet Mill went into operation. In the twelvemonth 1931, they opened a learner store. In the twelvemonth 1941, they started industry of particular steel for war intent. They produced a broad assortment of particular steels required for defence intents including armored autos called ‘Tatanagars ‘ . In the twelvemonth 1943, Howrah Bridge was constructed from steel supplied by the company. In the twelvemonth 1955, the company signed an understanding with Kaiser Engineers for two million tonne enlargement programme. In the twelvemonth 1980, they started the first stage of the four-phased modernization programme. In the twelvemonth 1984, the company introduced BOF steelmaking, which could bring forth liquid steel in 40 five proceedingss when it took the old unfastened fireplace furnaces, near to five hundred under the first stage of modernization. During the twelvemonth 1984-85, Indian Tubes Company Ltd was amalgamated with the company. The 2nd stage of modernization was in the twelvemonth 1988, which concentrated mostly on the iron-making country. During the twelvemonth 1993-94, the company commissioned the Hot Strip Mill with the capacity of one million metric ton per annum which was the company ‘s 3rd modernization programme. In the twelvemonth 2000, the company inaugurated the 1.2 million metric tons Cold Rolling Mill Complex as a first measure towards enlargement and modernization. In January 2, 2004, The Indian Steel Wire Products Company was acquired at Jamshedpur. In June 4, 2005, the company signed an MoU for puting up a five-million metric ton per annum Greenfield integrated steel works in the Jagdalpur territory of Chhattisgarh. In July 2005, they formed a joint venture with Blue Scope Steel Ltd, Australia for quoted steel fabricating installation. In July 21, 2005, the company acquired bets in the Australian coal mines. In August 2005, the company set up Met coke fabricating installation in West Bengal. In September 19, 2005, the company signed an MoU with the Government of Jharkhand for puting up a 12-million metric tons per annum Greenfield integrated steel works in the Manoharpur and Chandil countries of Jharkhand. In December 14, 2005, they signed definite understanding with Cementhai Keeping Company to get portions and invest equity in the Milennium Steel, Thailand. Besides, the name of the company was changed from Tata Iron & A ; Steel Company Ltd to Tata Steel Ltd with consequence from May 19, 2005. In the twelvemonth 2006, the company inaugurated India ‘s first automated Jigging and Hydrocyclone Plant, with a 1.6 MTPA throughput, at Noamundi Iron Mines. They commenced the work on Ferro Chrome Plant by geting Rawnet Ferrous Industries Pvt Ltd, in Orissa, a Ferro Alloys works with a capacity of 50,000 tpa of high C chrome. They set up a Joint Venture Company with Larsen and Toubro Ltd for developing an all conditions modern deep H2O port in the province of Orissa on the Eastern Coast of India. Tata NYK Shipping Pte Ltd, a joint venture transporting company between the company and Nippon Yusen Kabushiki Kaisha was set up to provide to dry and interrupt bulk lading and besides the transportation activities. In August 7, 2006, the company inaugurated the Roll Forming and Pre-Engineered Building Facilities of Tata Bluescope Ltd at Pune. In April 2, 2007, the company acquired Corus Europe ‘s 2nd largest steel manufacturer for consideration of USD 12 Billion, which made Tata Steel the 6th largest steel manufacturer globally and the second-most geographically diversified steel manufacturer in the universe. They besides entered into an understanding for geting commanding equity interest in two turn overing Millss located in Haiphorg, Vietnam. Besides, they signed a joint venture understanding with Riversdale Mining for Mozambique coal undertaking. In December 2007, the company and SODEMI ( province owned company for mineral development ) entered into joint venture understanding for the development of Mount Nimba Iron ore sedimentations in Ivory Coast ( West Africa ) . In January 2008, the company and the members of the Al Bahja Group, a taking concern house of Oman entered into a Joint Venture Agreement for the development of the Uyun Limestone deposits at Salalah in the Sultanate of Oman. Besides, they entered an understanding with Steel Authority of India Ltd ( SAIL ) to set up a 50:50 joint venture company for coal excavation in India. In February 2008, they opened their 4th retail mercantile establishment, ‘steeljunction ‘ at Behala. During the twelvemonth 2008-09, the company completed the enlargement of petroleum steel capacity to 6.8 mtpa as portion of their enlargement programme. Besides, they commissioned Sinter Plant No. 4, the ‘H ‘ Blast Furnace and the Continuous Caster No. 3 at LD Shop-1 during this enlargement stage. In June 16, 2008, the company and their entirely owned subordinate, Rawmet Ferrous Industries Ltd entered into an understanding with Jasper Industries Pvt Ltd for set up a coal based power works of 2 X 67.5 MW capacity in Orissa. In September 2008, the company through their subordinates signed a Heads of Agreement memoranda with New Millennium Capital Corporation ( NML ) , a Canadian listed excavation company taking to develop Fe ore undertakings in Northern Quebec, Labrador and Newfoundland states. As portion of the restructuring of the abroad retentions, the company transferred their interest in Tata Steel ( Thailand ) Public Company Ltd to Tata Steel Global Holdings Pte Ltd. The company subscribed 35,88,022 rights portions of Tayo Rolls Ltd and accordingly, Tayo Rolls Ltd has become a subordinate of the Company with consequence from December 01, 2008. In October 22, 2009, the company and Mineral and Metal Trading Company Ltd signed an understanding to set up a 74:26 joint venture company for geting, development and operation of mines and processing of minerals and metals. During the fiscal twelvemonth 2009-10, Hooghly Met Coke and Power Company Ltd was amalgamated with the company with consequence from April 1, 2009. The building of a repositing shed and a edifice for a power having sub-station had started at one corner of the works country. They increased the production capacity of Crude Steel from 61,10,000 metric tons to 68,00,000 metric tons, Salable Steel from 58,40,000 metric tons to 65,00,000 metric tons and Welded Steel Tubes from 2,84,000 metric tons to 2,88,000 metric tons. In October 2009, the company entered into understanding with MMTC Limited, a Cardinal Government project and established a joint venture company for geting, developing and runing mines and processing of minerals and metals. In November 2009, they signed a Joint Venture Agreement with NML, to progress the development of the DSO Project. In January 2010, the company entered into an MoU with NMDC Ltd, to research the possibility of acquisition, geographic expedition and development of mines, extraction and processing of minerals, puting up incorporate steel workss and other concerns of common involvement. In April 6, 2010, the company entered in an MoU with Nippon Steel Corporation ( NSC ) , Japan for puting up a Continuous Annealing and Processing Line at Jamshedpur, India with 0.6 mtpa capacity. In June 2010, the company subscribed to a private arrangement of Canadian $ 20 million by NML pursuant to which Tata Steel Global Minerals Holding Pte Ltd holds a 27.4 % interest in NML. In June 2010, the company and Tata Metaliks Ltd entered into an MoU with the Government of Karnataka in June 2010 for puting up an integrated steel works of 3 mtpa in Agadi and Boodagatti small towns of Haveri District, Karnataka. In August 2010, the company ‘s subordinate Corus UK Ltd and Sahaviriya Steel Industries Public Company Ltd ( SSI ) signed an MOU which sets out the range of a possible dealing whereby SSI would get from Corus the Teesside Cast Products ( TCP ) concern in a dealing valued at about USD 500 million. Tinplate Company of India Ltd became a subordinate of the company with consequence from April 01, 2011, consequent to increase in the company ‘s shareholding in the Tinplate Company of India Ltd from 42.88 % to 59.45 % . This addition is due to automatic and mandatory transition of 3 % to the full exchangeable unsecured bonds of Rs 100 each held by the company into equity portions on April 01, 2011. In April 2011, the company and Krosaki Harima Corporation ( KHC ) signed unequivocal understandings to invest KHC as a strategic spouse in Tata Refractories Ltd ( TRL ) . Under this agreement, KHC will get 51 % equity interest out of TSL ‘s current 77.46 % interest in TRL. As per the strategy of merger, Centennial Steel Company Ltd, a entirely owned subordinate company was amalgamated with the Company with consequence from September 27, 2011. In January 2012, the company secured a contract from Siemens Wind Power to provide 25,000 tones of profiled steel home base for air current towers. Tata Steel will present 25,000 tones of profiled home base ( cut into the coveted form ) between April and September 2012. The company is implementing an enlargement undertaking at Jamshedpur Works to increase its rough steel capacity from 6.8 million metric tons per annum to 9.7 million metric tons per annum. The installations under this undertaking are scheduled to be completed in FY 2011-12. Simultaneously, the Company is implementing a few other major capital strategies at Jamshedpur which include Coke Plant Battery No. 11, Coke Dry Quenching at Coke Ovens Batteries 5, 6 & A ; 7 and a new factory for bring forthing Full Hard Cold Rolled ( FHCR ) coils. The company is besides puting up a Continuous Annealing and Processing Line at Jamshedpur with a capacity of 0.6 mtpa under a joint venture company with Nippon Steel Corporation ( NSC ) , Japan. The line will bring forth automotive cold rolled Florida at merchandises and turn to the demands of Indian automotive clients for highgrade cold rolled steel sheets. The preliminary work on the 6 mtpa greenfield steel works at Kalinganagar, Odisha is in advancement.

DIVIDEND AND RETENTION POLICY OF Tata Steel Ltd.

The house ‘s dividend determination has in the last 10 to fifteen old ages received considerable attending from fiscal analysts and academics.Divergent positions have been expressed and it is understood that the contention has non been resolved, although the deficiency of new writing on the topic in resent times may take one to reason that tha argument is deadlocked.

A dividend is a payment made by a company to its stockholders.

A company can retain its net income for the intent of re-investment in the concern operations ( known as maintained net incomes ) , or it can administer the net income among its stockholders in the signifier of dividends.

A dividend is non regarded as an outgo ; instead, it is considered a distribution of assets among stockholders. The bulk of companies keep a constituent of their net incomes as maintained net incomes and administer the remainder as dividend.

The different types of dividends include:

Particular dividend:

Normally, public companies declare their dividends on a specific agenda ; nevertheless, they besides have the option to declare a dividend at any clip. This type of dividend is referred to as a particular dividend.

Cash Dividends

Firms distribute as hard currency dividends a certain per centum of one-year net incomes in payout rates. Munition

The day of the month of declaration

It is the day of the month a declaration to pay hard currency dividends to shareholders of record on a specific hereafter day of the month is approved by the board of managers. At that day of the month the house incurs a liability motivating the acknowledgment of a short-run debt-Dividends Collectible and the debit to either Retained Net incomes or Cash Dividend Declared.

The ex-dividend day of the month

It is the day of the month the stock stops selling with dividends attached. The period between the day of the month of declaration and the ex-dividend

day of the month is used by the house to update its shareholders ‘ leger.

The day of the month of record

It is the day of the month at which the shareholders calculating in the shareholders ‘ leger are entitled to the hard currency dividend. No entry is required.

The day of the month of payment

It is the day of the month at which the house distributes the dividend cheques and eliminates the dividend collectible as a liability.

Property Dividends

Firms may elect to declare a “ belongings dividend ” that is collectible in nonmonetary assets instead than declaring a hard currency dividend. Because a belongings dividend can be classified as a “ non-reciprocal nonmonetary transportation to proprietors ” , the belongings distributed is restated at just market value at the day of the month of declaration and a addition or loss is recognized.

Stock dividend:

Given in the signifier of bonus portions or stocks of the publishing company or a subordinate company. Normally, they are offered on the footing of a prorata allocation

( 1 ) Regular Dividend.

By dividend we mean regular dividend paid yearly, proposed by the board of managers and approved by the stockholders in general meeting. It is besides known as concluding dividend because it is normally paid after the finalisation of histories. It sis by and large paid in hard currency as a per centum of paid up capital, say 10 % or 15 % of the capital. Sometimes, it is paid per portion. No dividend is paid on calls in progress or calls in arrears. The company is, nevertheless, authorised to do commissariats in the Articles forbiding the payment of dividend on portions holding calls in arrears.

( 2 ) Interim Dividend.

If Articles so permit, the managers may make up one’s mind to pay dividend at any clip between the two Annual General Meeting before finalising the histories. It is by and large declared and paid when company has earned heavy net incomes or unnatural net incomes during the twelvemonth and managers which to pay the net incomes to stockholders. Such payment of dividend in between the two Annual General meetings before finalising the histories is called Interim Dividend. No Interim Dividend can be declared or paid unless depreciation for the full twelvemonth ( non proportionally ) has been provided for. It is, therefore, , an excess dividend paid during the twelvemonth necessitating no demand of blessing of the Annual General Meeting. It is paid in hard currency.

( 3 ) Stock-Dividend:

Companies, non holding good hard currency place, by and large pay dividend in the signifier of portions by capitalising the net incomes of current twelvemonth and of past old ages. Such portions are issued alternatively of paying dividend in hard currency and called ‘Bonus Shares ‘ . Basically there is no alteration in the equity of stockholders. Certain guidelines have been used by the company Law Board in regard of Bonus Shares.

( 4 ) Scrip Dividend. Scrip dividends are used when net incomes justify a dividend, but the hard currency place of the company is temporarily weak. So, stockholders are issued portions and unsecured bonds of other companies. Such payment of dividend is called Scrip Dividend. Shareholders by and large do non like such dividend because the portions or unsecured bonds, so paid are worthless for the stockholders as managers would utilize merely such investing is which were non. Such dividend was allowed before passing of the Companies ( Amendment ) Act 1960, but thenceforth this unhealthy pattern was stopped.

( 5 ) Bond Dividends. In rare cases, dividends are paid in the signifier of unsecured bonds or bounds or notes for a long-run period. The consequence of such dividend is the same as that of paying dividend in scrips. The stockholders become the secured creditors is the bonds has a lien on assets ( 6 ) Property Dividend. Sometimes, dividend is paid in the signifier of plus alternatively of payment of dividend in hard currency. The distribution of dividend is made whenever the plus is no longer required in the concern such as investing or stock of finished good turfs. But, it is, nevertheless, of import to observe that in India, distribution of dividend is allowable in the signifier of hard currency or fillip portions merely. Distribution of dividend in any other signifier is non allowed.

Factors impacting divided determination or determiners of divided determination

The fiscal direction has to take a determination sing the distribution of dividend. These are two possible ways of covering with the distribution of net income. The net income should either be retained in the concern or distributed to the stockholders. Retained net income plays an of import function in the hereafter growing and enlargement of the endeavor, because these are internal beginnings of funding and do non affect flotation costs and legal formalities. As such the company will follow the policy of residuary or inactive ( lesser ) distribution, so far it can productively put its maintained net incomes as a beginning of internal funding. The term residuary distribution here means the declaration of dividend out of the net income remaining left after internal funding of the company.

The dividend may be declared as higher rates if the purpose of the company is to increase the value of portions. The dividend determination is besides affected by the penchant of stockholders. Let us now discuss the factors finding divided determinations:

( 1 ) Financial demand of the company: – If the company has profitable investing chances in the endeavor itself it will declare divided at lower rates. Meeting long-run fiscal demand out of its ain resources is ever in the involvement of the company, because it is cheaper due to absence of flotation costs and legal formalities.

Higher divided will declared by the companies holding few long-run investing chances.

( 2 ) Handiness of financess: – The liquidness of a company or handiness of hard currency resources is premier consideration in divided determination. The greater the liquidness of a company, the greater is its ability to pay dividend. The liquidness of the company is strongly influenced by the house ‘s investing and funding determinations. The investing determination determines the rate of plus enlargement and the house ‘s demand for financess and the funding determination determines the manner in which this demand will be financed.

( 3 ) Stability of dividends: – It is ever in the involvement of the company, investors and stockholders to follow the policy of stable dividend, because it resolves the uncertainness in the head of investors and satisfies their for current income. Fiscal establishment besides like companies, declaring dividend on a regular basis at stable rates. No company would wish to disregard investing by fiscal establishments. In these fortunes the company may follow one of the three following policies:

A.Constant dividend per portion or changeless dividend rate: – Harmonizing to this policy dividend is declared at changeless rate every twelvemonth. The rate may be increased if new degree of net income is earned.

B.Constant wage out ratio: – Dividend at fixed per centum of earning is paid every twelvemonth. As net incomes go on fluctuating every twelvemonth, so the dividend besides fluctuates.

C.Constant dividend per portion plus excess dividend: -Under the policy, minimal dividend per portion is fixed. In instance of excess net incomes, excess dividend may be declared. Investors are unbroken satisfied with the auxiliary dividend. Excess dividend may be taken as interior

( 4 ) Preferences of stockholders: – Stockholders are proprietors of the company, so their penchants must be given due consideration. Small, retired and salaried people prefer regular income. They are interested in stable and regular dividend. Affluent investors are interested in capital addition. They are prepared to predate their current income over the expected higher income.

( 5 ) Capital market consideration: – Companies can raise their extra financess either by issue of portions or by retaining their net income. If the capital market is favourable the company will raise financess by issue of portions and declare dividends at higher rates. In instance the capital market is unfavourable, the company will travel in for maintained net incomes and declare dividends at lower rates.

( 6 ) Legal limitations: – The companies act has laid down certain limitations sing payment of dividend. The company can utilize its current net incomes or past net incomes after supplying for depreciation for the payment of dividend. The company can non pay dividend out of its paid up capital.

Company will hold to fulfill itself, whether it has sufficient hard currency to do payment of dividends. The company is future required to do payment of involvement before dividends are paid.

( 7 ) Information value: – The company should be cognizant of the possible impact of dividend determination on rating of its portions. Most companies look at the dividend wage out ratios of other companies in the industry, peculiarly those holding about the same growing. Investor ‘s outlook besides plays an of import function in dividend determination. If investor ‘s outlook is for high dividend wage out so company should take that into history while doing a dividend determination. On the other manus, if investor expects a high market value of portions so company may make up one’s mind for low dividend payout for future enlargement programs.

( 8 ) Borrowing capableness: – The adoption capableness of a steadfast affects dividend determination in the sense that high dividend payout is possible with greater adoption capableness and vice-versa. This ability to borrow can be in the signifier of recognition or a revolving recognition from the bank or merely the informal willingness of a fiscal establishment to widen recognition. The big and more established a company ; the better is its entree to capital markets.

Issue for bonus portions: – Sometimes the company can besides publish bonus portions, known as stock dividend in topographic point of doing payment of dividend in hard currency, It increases the figure of portions and the capital base of the company, it keeps investors happy, The issues of fillip portions is an built-in portion of dividend policy.

Dividend s Declared

Announcement Date

Effective Date

Dividend Type

Dividend ( % )

Remarks

18/05/2012

16/07/2012

Concluding

120 %

26/05/2011

04/07/2011

Concluding

120 %

27/05/2010

12/07/2010

Concluding

80 %

25/06/2009

06/07/2009

Concluding

160 %

26/06/2008

18/07/2008

Concluding

160 %

AGM

17/05/2007

08/06/2007

Concluding

155 %

155 % Dividend ( 130 % for the twelvemonth 2006-07 and particular dividend of 25 % on juncture of the Cenetenary twelvemonth of the company. )

15/05/2006

26/05/2006

Concluding

130 %

AGM

19/05/2005

07/06/2005

Concluding

130 %

AGM

07/05/2004

08/06/2004

Concluding

100 %

AGM

08/05/2003

09/06/2003

Concluding

80 %

AGM

30/05/2002

28/06/2002

Concluding

N.A. %

Nil Final Dividend

02/04/2002

28/05/2002

Interim

40 %

08/05/2001

Concluding

50 %

AGM

23/03/2000

Interim

40 %

20/05/1999

Concluding

40 %

AGM & A ; Dividend

22/05/1998

Concluding

40 %

23/05/1997

Concluding

45 %

Dividend Declared

Dividend which was given to stockholder of Tata Steel Ltd.

Directors have recommended a dividend of Rs. 7/- per Equity Share ( last twelvemonth Rs. 13/- per Equity Share on pre fillip portion capital ) for the fiscal twelvemonth ended March 31, 2010, amounting to Rs. 2,430 crore ( inclusive of revenue enhancement of Rs. 346 crore ) one of the highest of all time payout by any private sector domestic company. The dividend will be paid to members whose names appear in the Register of Members as on May 11, 2010 ; in regard of portions held in dematerialised signifier, it will be paid to members whose names are furnished by National Securities Depository Limited and Central Depository Services ( India ) Limited as good proprietors.

The dividend payout for the twelvemonth under reappraisal has been formulated in conformity with the Company ‘s policy to pay sustainable dividend linked to long term public presentation, maintaining in position the Company ‘s demand for capital for its growing programs and the purpose to finance such programs through internal accumulations to the upper limit.

Bonus portion paid to Tata Steel Ltd.

Announcement Date

Bonus Ratio

Record Date

Ex-Bonus Date

07/06/2004

1: 2

12/08/2004

11/08/2004

11/09/1987

2: 5

11/09/1981

2: 5

11/09/1967

2: 5

11/09/1959

1: 5

11/09/1954

1: 1