report cf_confidence cement

8/9/2019 Report CF_Confidence Cement

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03 January, 2014

Dr. Mahmood Osman Imam

Professor

Department of FinanceFacuty of !usiness "tudies

#ni$ersity of Dha%a

Subject: Submission of report on Corporate Finance.

Dear "ir,

It is my reco&nition to inform you that I too% a &reat peasure in

preparin& the report on 'orporate Finance. I ha$e coected the

annua reports of 'on(dence 'ement )imited for preparin& the

report. Durin& preparin& the report, I ha$e &ained ots of

e*perience contrary to the imited theoretica %no+ed&e on

$arious aspects.

our crafted &uidance made it possi-e for me to prepare this

report successfuy.

ours truy,

aisu /oueID 23003

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Acknowledgement

It is my &reat pri$ie&e to e*press &ratitude to our creator ahfor such &reat opportunity to prepare the report. I aso ha$e to put

our heartened feein&s and &ratitude for the %indness and

assistance that +as pro$ided to me to compete my assi&ned

report as on the topic.

I am deepy inde-ted to Prof. Dr. Mahmood Osman Imam for his

inspirin& and in$aua-e &uidance throu&hout the +or%. I +oud

i%e to than% him for a the ad$ice, encoura&ement, hep ande$erythin& that +e earnt from him. ithout him this report +oud

not ha$e -een possi-e.

aisu /oue

ID 23003

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Table of Contents

Contents

5*ecuti$e "ummary....................................................................................................1

'orporate 6oa........................................................................................................... 2

7auation.................................................................................................................... 4

Financia "tatements, nd naysis............................................................................8

'ost of 'apita and 'apita "tructure.......................................................................19

Di$idend Poicy......................................................................................................... 1:

'5DI; I"< 6DI=6 "'O5 "/55;......................................................................2>

ppendi*.................................................................................................................. 31

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Executive Summar

'on(dence 'ement )imited ?'')@ is the (rst pri$ate sector cement

manufacturin& company in !an&adesh esta-ished in eary A0Bs +ith ha$in&

4,:0,000 MC; annua production capacity at 'hitta&on&. It manufactures

Portand 'omposite 'ement. '') is the (rst I"OA002 certi(ed cement

manufacturin& company in !an&adesh

In this report +e tried to e$auate the (nancia performance of the company

for the ast ($e years -ased on the nnua eport of the company ?2008 to

2011@. !ased on these pu-ished reports +e tried to (nd out $arious (nancia

parameters to (nd out the (nancia status of the company.

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Corporate !oal

"#$: %&at is t&e corporate goal of our 'rm( )o ou t&ink t&e goal

of t&e 'rm is well de'ned( *f t&e goal of t&e 'rm is not stated

anw&ere in t&e annual report t&en w&at do ou t&ink t&e goal of

t&is 'rm s&ould be( Anal+e t&e provision of information in t&e

Annual ,eport in relation to t&e strategic t&inking of a compan in

terms of corporate objectives.

7ision and Mission or &oa reEects an or&aniationGs dedication, hard +or%,

pannin& and commitment for future pannin& and prospect. ;he +hoe

company +or%s as one and e*presses their utimate &oa. ;op e$e

mana&ement to the -asic e$e mana&ement is in$o$ed +ith the $ision. ;he

$ision and mission may not -e stated in the annua report -ut it is acti$ities

and future pan that reEects the $ision and mission of a company. ;he $isionand mission of 'on(dence cement is to -uild corporate image t&roug&

standard product /ualit0 emploee polic and commitment to

innovation1.

It is +e de(ned that the company is tryin& its -est to compete its mission

and +e can (nd it throu&h a cose oo% in the recent (nancia reports and

statement. ;he dedication and continuous eHorts of mana&ement ha$emade the performance of the company &raduay impro$ed. Durin& the year

20102011, 'on(dence cement has earned operatin& pro(t -efore other

income of ;%. 22.02 crore +hie ;%. 3939 crore in 200A2010. ;he 'ompany

has set up 'on(dence 5ectric )imited Kointy +ith 'on(dence "tee )imited

sym-oiin& its prospecti$e &ro+ths. Jamuna !rid&e, "hah manat ?.@

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internationa irport, edisson /ote, upayan 'ity 'entre etc. structures are

carryin& the sym-o of 'on(dence 'ementGs recent e*ceence +hich

su&&ests their eHorts of o-tainin& corporate &oa.

" # 2: %&at is our comment regarding t&e Corporate Social

,esponsibilit 3CS,4 of t&e 'rm( *s ant&ing stated about t&e CS, in

t&e annual report(

'on(dence cement is +e a+are of 'orporate "ocia esponsi-iity +hich

impies that the contri-ution of the company in the socia and en$ironmenta

factors. It is the commitment of de$eopin& poicies to inte&rate responsi-e

practices into daiy -usiness operations.

Environmental Contribution:

;he company is tryin& to set a pant to produce eectricity to miti&ate its o+n

production and contri-ute in the hu&e demand of eectricity in the country.

Its research team is +or%in& to (nd out a process throu&h +hich the

en$ironment +i -e sa$ed from air and +ater poution. ;o reduce the

poution and to maintain the heathy en$ironment for the +or%er the

company impemented modern en$ironmenta friendy machineries.

Social ,esponsibilities:

!esides, economic contri-ution to the country the mana&ement of the

company is a+ays committed for the +efare of the society. 'on(dence

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cement famiy a+ays tries to contri-ute in the socioeconomic proKects in

the country. "uch proKect incudes

•

=atura 'aamity is prominent in our country each and e$ery year.'on(dence cement a+ays tries to -e -eside aHected peope durin&

diHerent natura disasters.

• +ays donates to the primary schoos, hi&h schoos, coe&es,

madrashas, orphana&e, mosues and in the sports.

•

Pro$ide monetary hep to the poor and to the freedom (&hters.

• In the month of amadan sponsor Iftar in the mosue and pro$ide

cothin& to the poor.

• 5$ery year the company arran&es eyecamp and pro$ides free eye

sur&ery.

thou&h the company has not directy mentioned the 'orporate "ocia

responsi-iities in its nnua eport of 2011, -ut in its pro(e of

'on(dence 'ement +e (nd the impication.

5aluation

"#6: %&at is t&e book value of t&e 'rm(

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!oo% $aue is the accountin& $aue of a (rm. It is the tota $aue of the

companyBs assets that sharehoders +oud theoreticay recei$e if a

company +ere iuidated. ;raditionay, a companyBs -oo% $aue is its tota

assets minus intan&i-e assets and ia-iities. 7ery often this $aue refers

to the euity of the sharehoders. !oo% $aue of 'on(dence 'ement )td.

o$er the years is as foo+s

2778 2779 277 27$7 27$$

ook 5alue 9::30A440 :>8A2A938 A4:10:482 10A8A423:0 1149:4:3:0

C&anges354 19A9201A8 A018::3> 14A:33A0: 4:A09000

"#;: %&at is t&e market value of t&e 'rm(

Mar%et $aue of a (rm is the mar%et capitaiation pus the mar%et $aueof de-t. "ometimes it referred to as L;ota mar%et $aue. In the conte*t of

securities, mar%et $aue is often diHerent from -oo% $aue -ecause the

mar%et ta%es into account future &ro+th potentia. !ased on the stoc%

price in the mar%et tota mar%et $aue of 'on(dence 'ement )td. o$er

the years are as foo+s

2778 2779 277 27$7 27$$

A,38>

23A,2>0,000

4,149,988,0:3

4,010,349,444

C&anges3<54

10A883A>:.

98:A092> 3A084280:3 13933093A.3

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3

"#=: >sing ?rice#earnings multiples of t&e industr0 'nd out t&e

price of t&e s&are of our compan.

'on(dence 'ement )td. -eon&s in the cate&ory of 'ement Industry in

Dha%a "toc% 5*chan&e ?D"5@. ccordin& to the atest data of D"5 the

Con'dence Cement @imited3)SE:CBF*)CE


11/59

#sin& these data the price of the share of the (rm is cacuated as :9.33

!D;. 'urrent mar%et price of the share is A9 !D;, +hich indicates that

current mar%et price of the share is -eo+ the a$era&e price of the sector.

"#: Compute FCF to t&e e/uit#&olders over t&e = ears forecasted

periods and discount t&ese free cas& Dows at t&e cost of e/uit

3wit& an average growt& rate4 to arrive at t&e price of t&e stock of

our compan.

;o cacuate the F'F to the euity hoders +e ha$e to forecast the Income

"tatements !aance "heets for the years 2012 to 2019 -ased on the

historica data of the years 20082011. In our forecastin& +e ha$e

considered some assumptions. ;he summary of the assumptions are

discussed -eo+

• ;he "aes e$enue is e*pected to &ro+ at a rate of 29 +hie ;he

'ost of "aes Operatin& 5*penses is e*pected to -e :: 3.3

of "aes respecti$ey.

• =o other Income is forecasted as this amount +as not consistent

and si&ni(cant in the pre$ious years +hie PPF is e*pected to -e .

> of "aes e$enue -ased on historica data.

• ;he Income ;a* rate is e*pected to -e ?!ased on the pre$ious

year@

• $era&e depreciation rate of the Property, Pant 5uipment

?PP5@ is 0.3: of saes re$enue. ccumuated Depreciation is

forecasted -ased on depreciation.

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!ased on these assumptions +e cacuated the net cash Eo+ of the (rm for

the ne*t ($e years.

2778 2779 277 27$7 27$$

)epreciation 20,A>A,849 34,A32,292 4:,A04,88: 89,21>,490

103,2AA,AA:

1.A01 2.:40 4.028 4.434 4.910

27$2 27$6 27$; 27$= 27$

Total Fixed assets2,:33,:23,

2193,0:1,0A3,3

9>3,34A,A3A,4

A:3,942,244,2

9>3,A90,0>4,>

A1

Forecasted CA?E>48,>84,1A

>>>:,>2>,98

A>9A,9A9,1A

2>:1,0A0,11

9>A2,811,A1

A

27$2 27$6 27$; 27$= 27$

Forecasted)epreciation

100,1A9,193

12>,8>A,4>:

1>8,:44,88A

1A:,119,108

24:,991,A>A

3.>93 3.>93 3.>93 3.>93 3.>93

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nd the 'ape* is determined -y the diHerence of the t+o consecuti$e years.

5aluation: In the ne*t section, after forecastin& the !aance "heet and the

Income "tatements, +e ha$e performed $auation of the "toc% Price of the

company -y usin& the F'F5 ?Free 'ash Fo+ to 5uity@ method. ;he main

purpose of this anaysis is to determine the euity $aue of the company.

5nterprise 7aue >0>,9:3,40A

Pus 'ash -aance 23,989,231

)ess 6ross De-t 2>,:A4,92>

5uity 7aue >03,49>,01>

=o of shares outstandin& 2>,000,000.005uity $aue per share 20.14

Financial Statements0 And Analsis

"#8: Anal+e our 'rms be&avior wit& t&e analsis of structure0

conduct and performance of t&e industr to w&ic& our 'rm belong(

'ompany Pro(e

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'on(dence 'ement )imited ?'')@ is the (rst pri$ate sector cement

manufacturin& company in !an&adesh esta-ished in eary A0Bs +ith ha$in&

4,:0,000 MC; annua production capacity at 'hitta&on&. It manufactures

Portand 'omposite 'ement. '') is the (rst I"OA002 certi(ed cement

manufacturin& company in !an&adesh. 'I introduced the concept of uaity

mana&ement system -y -ein& the (rst company in !an&adesh to achie$e

I"O A001 certi(cation in 1AA> and foo+s the poicy of continuous

impro$ement in a its operations.

:.A4 miion and ;%. 3.>3 ?restated@ respecti$ey for the same

period of the pre$ious year.

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'onsiderin& 'ompany is operatin& +ithin an industry +hich is inEuenced -y

the foo+in& forces

•

i$ary amon& the 5*istin& Firms

• ;hreat of =e+ 5ntrants

• ;hreat of "u-stitute Products

!ar&ainin& Po+er of "uppiers

!ar&ainin& Po+er of !uyers

'ement industry has a $ery competiti$e sector in !an&adesh considerin&

the a-o$e facts and the companies ha$e to react $ery sensiti$ey.

'on(dence 'ement )td. is $ery a+are of this competition and respondin&

accordin&y. ;he company has spent a ot money in the pre$ious year to

introduce ne+ technoo&ies and repacement of od machineries and the

resuts of these measures are reEected in the ast t+o years (nancia

performances of the company.

"#9: Evaluate t&e 'rms 'nancial condition of t&e recent 've ears

using t&e ratios like 3a4 li/uidit 3C,0 ",40 3b4 eGcienc H activit

3AI, period0 *nventor period0 TAT0 operating and cas& ccle0 3c4

solvenc 3debt e/uit ratio0 debt to total asset0 debt service

coverage ratio 3d4 pro'tabilit 3?


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;he (rmGs (nancia condition on the -asis of anaysis of recent ($e year

annua report and the diHerent ratios of the (rm are N

A4 @i/uidit ratio

*nternal @i/uidit,atios

2778 2779 277 27$7 27$$

'urrent atio 1.2A1.0

81.42 1.>A 1.23

Ruic% atio 0.:: 0.88 1.04 0.A: 0.8:

'ash atio 0.810.9

00.:3 0.88 0.94

Current ,atio

;he hi&her the current ratio, the more iuid or so$ent (rm, and it has

enou&h current assets to co$er its short term o-i&ation. "o, +e can concude

that the iuidity position of 'on(dence is a$era&e.

"uick ,atio or Acid#Test ,atio

;he hi&her the uic% ratio, the more iuid or so$ent (rm, and it has enou&h

current assets to co$er its short term o-i&ation. From the uic% ratio of the

company it can -e said that the company is not in a &ood position.

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4 EGcienc and activit

*nternal @i/uidit,atios

2778 2779 277

27$7 27$$

ccounts ecei$a-e ;urno$er

19.2:

13.A2

12.>1 1>.12 18.4>

$era&e 'oection Period 22.12

2>.:>

2:.8: 23.:2 20.93

Operatin& cyce:>.98

83.43

A1.8> 102.80 A:.0A

ccounts Paya-e ;urno$er

:1.09

>92.91

131.4A 19A.29 39.:1

$era&e Payin& Period 4.44 0.94 2.84 2.13 A.8:

'ash 'yce:1.23

82.8A

:A.01 100.>: ::.31

perating EGcienc

,atios2778 2779 277 27$7 27$$

Fi*ed sset ;urno$er0.9

40.80 0.98 0.83 0.:9

'urrent sset ;urno$er2.0

92.1: 1.:: 2.03

10.A:

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;ota sset ;urno$er0.4

A0.>3 0.4A 0.>4

00.90

Average Collection ?eriod

;he coection period indicates the ineSciency of the (rmGs coection poicy

-y sho+in& ho+ on& it ta%es for accounts recei$a-e to -e ceared. ;he

actua $aue of these ratios reEects the (rmGs credit poicy. ;he o+er the

num-er, the uic%er the coection of money. ;he C turno$er or a$&.coection of C of 'on(dence 'ement Mis )td. is steady o$er the ast >8

years.

*nventor Turnover ,atio

;he in$entory ratios measure ho+ uic%y in$entory is produced and sod.

In$entory turno$er commony measure the acti$ity or iuidity of a (rm. ;he

ratios are aHected -y the perish a-iity of the (nished &oods. ;he in$entory

turno$er of the (rm is not $ery &oodoo%in& for the ast fe+ years, +hich is

not a &ood si&n for the company.

Total Assets Turnover

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;his ratio is intended to indicate ho+ eHecti$ey a (rm is usin& a of its

assets. /i&her the ratio indicates the (rmGs eSciency in usin& (*ed asset.

;he ;; of 'on(dence 'ement )td is in a$era&e of 9:. It is &ood for the

(rm and (rm is in ri&ht truc% to use its asset.

perating ccle

Operatin& cyce is the time inter$a -et+een the arri$a of in$entory stoc%

and the date +hen the cash is coected from recei$a-es. ;he en&th of the

operatin& cyce is eua to the sum of the en&ths of the in$entory and

accounts recei$a-e periods. )o+er operatin& cyce is -etter for the company.

!ut the (rmGs operatin& cyce is hi&h and it increasin& in the ast fe+ years

-ecause of increase of in$entory period.

Cas& ccle

In &enera, cash cyce is the time -et+een cash dis-ursement and cash

coection. ;he cash cyce -e&ins +hen cash is paid for materias and ends

+hen cash is coected from recei$a-es. ;he cash Eo+ time ine consists of

an operatin& cyce and a cash cyce. ;hou&h the operatin& cyce of the

company is hi&h, the cash cyce of the company is aso hi&h. It is not &ood

for the (rm.

C4 Solvenc ratio

Financial ,iskI@everage,atios

2779 277 27$7 27$$ 27$2

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De-t to ;ota sset atio 0.1: 0.23 0.1A 0.19 0.14

De-t5uity atio 0.90 0.91 0.4: 0.49 0.49

5ndofear "toc% Price 0.30 0.38 0.3A 0.34 0.31

Other Performance atios

5arnin&s Per "hare ?5P"@ 2.88 1.>0 9.:9 8.3A >.2A

PriceC5arnin&s atio 0.11 0.2> 0.09 0.0> 0.09

)ebt to E/uit ,atio

;he hi&her the de-teuity ratio, the &reater the e$e of (rm (nancin& that is

pro$ided -y its creditors and the o+er the e$e of its (nancin& pro$ided -y

its sharehoder. 'on(dence 'ement )td. has de-teuity ratio ess than 1.

It indicate (rm has o+er portion of de-t than euity.

)ebt to Total Asset ,atio

;he de-t to tota asset ratio is the ratio of the tota de-t in the (rm, -oth

on&term and shortterm to tota asset, +here asset is the sum of de-t and

stoc%hoderGs euity. 'on(dence 'ement )td. has de-ttota asset ratio

$ery o+. It indicate (rm has o+er portion of de-t than tota asset.

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)ebt Service Coverage ratio

Interest payments pus repayments of principa to creditors, that is,

retirement of de-t. De-t ser$ice is interest payments pus repayments of

principa ?that is, retirement of de-t@. ;he de-t ser$ice co$era&e ratio

measures the ris%. ;he o+er the ratio, the &reater the ris% to -oth enders

and o+ners, the &rater the ratio and o+er the ris%. 'on(dence 'ement

)td. has a o+er trend in this ratio -ut the scenario is chan&in& for the ast

t+o years.

)4 ?ro'tabilit

perating?ro'tablit ,atios

2778 2779 277 27$7 27$$

6ross Pro(tMar&in

11.89 1.A3 1:.:3 13.88 14.03

Operatin& Pro(tMar&in A.:3 1.10 1:.82 11.:0 12.9A

=et Pro(t Mar&in 1A.41 111.9> 14.14 19.:9 14.39

eturn on ;otassets ?O@

2.33 1.23 >.:4 8.>4 >.30

eturn on 5uity

?O5@30.>0 38.0: 3:.>: 34.39 30.9:

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perating ?ro't


23/59

E4 A38>23A,2>0,00

04,149,988,

0:34,010,349,

444

!7CM7 244.:3 >00.99 3A9.2: 29.4: 2:.90

M7C!7 0.41 0.20 0.2> 3.8: 3.>0

;O!I= R 0.12 0.08 0.10 1.30 1.08

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the -etter (nancia performance of the company and the recent hi%e in the

share mar%et of the country.

?IE ratio

;he priceCearnin&s ratio is commony used to assess the o+nerGs appraisa of

the share $aue. ;he e$e of this ratio indicates the de&ree of con(dence

that ha$e in the (rmGs future performance. ;he hi&her the PC5 ratio, the

&reater the in$estor con(dence. ;he PC5 ratio of the company is in increasin&

trend, so the sharehoder shoud ha$e con(dence on the company.

" ,atio 3TobinJs " ,atio4

o+ R ?-et+een 0 and 1@ means that the cost to repace a (rmBs assets is

&reater than the $aue of its stoc%. ;his impies that the stoc% is

under$aued. 'on$ersey, a hi&h R ?&reater than 1@ impies that a (rmBs stoc%

is more e*pensi$e than the repacement cost of its assets, +hich impies that

the stoc% is o$er$aued. ;his measure of stoc% $auation is the dri$in& factor

-ehind in$estment decisions. Initiay the R ratio +as much o+er for our

company. !ut no+ it +as Kust a-o$e t+o years earier +hich indicates the

share $aue of the (rm +as propery $aued in the mar%et. !ut in the ast

(nancia year it increased to a $ery hi&her e$e.

"#: ?repare 've#factor )u ?ont Analsis for t&e 'rm. *f ou want to

increase t&e ,E w&at ma be our course of actions( Suggest

speci'c actions.

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e ha$e conducted the >factor DuPont anaysis. ;he DuPont naysis

pro$ides us the foo+in& resuts

)u?ont Analsis 2778 2779 277 27$7 27$$

=et IncomeC"aes 4.8: 2.31 11.:1 14.01 :.:>

"aesC;ota ssts 4:.:4 >3.19 4A.42 >3.:0 >A.A>

;otassetC'ommon 5uity 328.A2 29A.98 2>A.18

2A1.01

32>.A2

O5 8.9> 3.32 1>.12 21.A3 18.2:

U ;he Operatin& Pro(t Mar&in has &ot a uite sta-e $aue around 131>.

!ut in the ast year it increased to 21.01

U ;he ;ota sset ;urno$er has an o$era increase in the ast se$en years

from >9.3> to the pea% $aue of :A.42 in the year 2011.

U ;he product of the a-o$e t+o ratios is the 5!I;C;ota sset +hich

e*perienced uite a sta-e ran&e from year 2009 to 2010. !ut this $aue

increased si&ni(canty in 2011.

U ;he Interest 5*pense ate has a mi*ed condition o$er the ast se$en years

+ithin the ran&e of 3.1A9.9:.

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U !y su-tractin& the ater one from the former one +e (nd =!;C;ota sset

+hich +as $ery hi&h in ast year. !ut it +as +ithin the ran&e of 24.> in

the pre$ious years.

U ;he Financia )e$era&e mutipier has an o$era sta-e for the ast se$en

years from 190 to 203.3. ;he reason is that most of the interestin&

-earin& oan is of short term. ;he on& term oan is -asicay the ease

o-i&ation.

U ;he product of these t+o ratios is =!;C'ommon 5uity +hich +as sta-e

for the years -ut increased si&ni(canty in the ast year.

U ;he ;a* etention ate has a uite sta-e ran&e from the o+est $aue of

around :>.

U Finay, as a resut of the increased $aue of =!;C'ommon 5uity in the ast

t+o years and the sta-e ran&e of ;a* etention ate the O5 increased

si&ni(canty in ast t+o years.

=o+, from our anaysis +e can dra+ a concusion that O5 is hi&hy

dependin& on the operatin& Pro(t Mar&in ?OPM@ and the ;ota sset ;urno$er

?;;@ ratio. ;o increase the O5 +e ha$e to increase the OPM ;; and

decrease (nancia e$era&e mutipier.

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Cost of Capital and Capital Structure

"#$7: %&at is t&e compans cost of e/uit( %&at is its cost of

debt( %&at is t&is companJs current cost of capital 3&urdle rate4(

;he cost of euity can -e cacuated -y foo+in& some steps. the

cacuations are sho+n in detai in the ppendi*. ;he summaried process is

as foo+s

Step#$: Calculating t&e :.

Step#2: Calculating t&e Stock ,eturn Series: In the ne*t step +e ha$e

cacuated the return series for 'on(dence 'ement )td. -y usin& the

Monthy 'osin& Prices for the same period.

Step#6: Finding t&e eta: ;hen +e ha$e cacuated the 'o$ariance-et+een the Mar%et eturn "eries and the eturn "eries for the (rm and the

7ariance of the Mar%et eturn. !y di$idin& the 'o$ariance -y 7ariance +e

ha$e found the !eta. ;his is presented in the foo+in& ta-e ?Detaied

'acuations are sho+n in ppendi*

Pa&e 23


28/59

$& Monthy eturn ?M@ V 7.722$8

Mar%et eturn ?7m@ V 2.$K

is% Free ate ?7f@ V .=7K

'o$ ?Mar%et, enata@ V 7.7776$=

7ar ?W@ V 7.7;=;6;

X V 7.776


29/59

%ACC L .99K

)iscount ,ate0 k L .99K

Pa&e 2>


30/59

)ividend ?olic

" # $$: %&at is t&e last 've ears dividend pattern of t&e 'rm(

Di$idend poicy refers to the poicy cha%ed out -y companies re&ardin& the

amount it +oud pay to their sharehoders as di$idend. ith pro(t ma%in& comes

the uestion of utiiin& the pro(t &ainfuy. ;he companies ha$e t+o options

+ith them

• ;hey can retain these pro(ts +ithin the company

• ;hey can pay these pro(ts in the form of di$idends to their sharehoders

;he di$idend poicy to -e adopted -y the company is -ased on these t+o

options. Once this is sorted out, a permanent di$idend poicy can -e put into

pace. ;hese poicies shape the attitude of the in$estors and the (nancia mar%et

in &enera to+ards the concerned company. ;he poicies are decided accordin&

to the current and future (nancia positions of the company. ;he preference and

orientation of the in$estors are aso ta%en into account.

;he di$idend poicy acts as a si&na for in$estors for &au&in& the future earnin&possi-iities as e*pected -y the mana&ement of the company. ;he di$idend

poicies are directed to+ards attractin& in$estors to their company. ;his is

termed as the cientee eHect. ;he (rms that hod -ac% free cash Eo+s are esser

in $aue than those (rms, +hich ao+ free cash Eo+s and pay di$idends from

them.

;here are uite a fe+ impediments to companies payin& di$idends to their

sharehoders. "ome of these constraints are as foo+s

• 'onsideration of ta*es• 'onsideration of returns

• 'ontractua constraints

• 'ash Eo+ constraints

• )e&a constraints

Once a company ma%es a pro(t, they must decide on +hat to do +ith those

pro(ts. ;hey coud continue to retain the pro(ts +ithin the company, or they

Pa&e 29


31/59

coud pay out the pro(ts to the o+ners of the (rm in the form of di$idends. Once

the company decides on +hether to pay di$idends, they may esta-ish a

some+hat permanent di$idend poicy, +hich may in turn impact on in$estors

and perceptions of the company in the (nancia mar%ets. hat they decide

depends on the situation of the company no+ and in the future. It aso depends

on the preferences of in$estors and potentia in$estors.

Di$idend poicies are the re&uations and &uideines that companies de$eop and

impement as the means of arran&in& to ma%e di$idend payments to

sharehoders. 5sta-ishin& a speci(c di$idend poicy is to the ad$anta&e of -oth

the company and the sharehoder. In order to ma%e sure the poicy is +or%a-e,

a company shoud de$eop a $ia-e poicy and then run this poicy throu&h a

num-er of test scenarios in order to determine +hat impact the di$idend poicy

+oud ha$e on the operation of the -usiness.

Tpes of )ividends

Di$idend refers to cash distri-utions of earnin&s

$. Cas& dividends

;hese are the most common and are usuay paid four times a year.

2. Stock dividends

"toc% di$idends are not true di$idends in that a distri-ution of stoc% does notaHect the $aue of the (rm or the +eath of the sharehoder. ;hese di$idends are

paid out of ;reasury stoc%.

6. Stock split

"imiar to a stoc% di$idend. ;he ="5 reuires share distri-utions of ess than

2> to -e treated as stoc% di$idends.

;. S&are repurc&ases

;he company repurchases the stoc%. "harehoders pay ta* ony on the capita&ains portion. "ame eHect as a re&uar di$idend as cash )575" the corporation.

Tpes of )ividend ?olic

Stick )ividends

Pa&e 28


32/59

Sticky dividend policy is a poicy +herein (rms pay out a reati$ey consistent

and &eneray risin& amount of di$idends in the form of speci(c amounts. ;hey

are considered Lstic%yL in the sense that once -e&un, it is diScut to o+er the

di$idend +ithout sendin& a si&na of impendin& doom.

,esidual )ividend ?olic

Residual dividend policy is a poicy +herein the di$idend recei$ed each period is

e*acty as the a-e impiesT it is the residua or eft o$er amount after a

accepta-e in$estments ha$e -een funded. ;he cash Eo+ for the period is

compared (rst to the ist of a$aia-e positi$e net present $aue proKects.

ProKects are accepted to the point +here the ne*t proKect +oud either ha$e a

ne&ati$e =P7 or a rate of return -eo+ the cost of capita. ny cash Eo+

remainin& after these in$estments are made is then paid out to the sharehoder

as a di$idend on the &rounds that it is not needed -y the (rm to purchase assets

and sharehoders shoud recei$e the funds so they can pursue aternati$e

in$estments.

Constant paout polic

'onstant payout poicy &uars a&ainst o$erpayments as +e as underpayments

of di$idend and mana&ement cannot pay di$idend if there is no pro(t and it

cannot +ithhod them +hen pro(ts are earned.

From the sharehoders $ie+point, this method in$o$es uncertainty and

irre&uarity in re&ard to the e*pected di$idend.

Stable )ividend ?olic

Payment of a speci(c t%. Di$idend each year, or periodicay increasin& the

di$idend at a constant ratethe annua t%. Di$idend is reati$ey predicta-e -y

in$estors.G

s a rue, sta-e di$idends impy more certainty than $aria-e di$idends, thus a

o+er reuired rate of return and a hi&her (rm $aue. "o it is this di$idend poicy

most (rm fa$or.

)ast ($e year di$idend pattern of the (rm

Pa&e 2:


33/59

ear 'ash "toc%

2008 1>.00

200: 10!

200A 20! 10.00

2010 1>! 2>.00

2011 20! 20.00

Z'onsiderin& Face $aue of share t%.10

From the a-o$e ta-e, +e can see that 'on(dence 'ement )td. has -een

foo+in& a steady di$idend poicy since 2000 +hich indicated that company

has paid neary a (*ed percenta&e of net earnin&s per share as di$idend. It is

aso o-ser$ed that 5P" and percenta&e of Di$idend is increasin&

simutaneousy o$er the year. "o it indicates a si&n of sta-e di$idend poicy.

$2: ?repare a Table on t&e computation of t&e following parameters over

t&e 've recent ears in order to assess t&e dividend polic of t&e 'rm:

)?S 3Cas& )iv. per s&are and stock div. per s&are40 E?S0 )?,0 CF per

s&are0 FCF per s&are0


34/59

;he ta-e is sho+n in the foo+in& pa&e. =o+, etGs ha$e a oo% on the -rief

re$ie+ of the items on the ta-e.

•

Fi$e recent yearGs di$idend poicy and other parameters

Fiscal Mear 277#2778 2778#2779 2779#277 277#27$7 27$7#27$$

'ash di$.Cshare 1> 10.010.00,20!

2>.00,1>!

20.00,20!

"toc% di$.Cshare 100

5P" 2.88 3$.=74 .9 8.6 =.2

DP :A.11 8A.33 :9.88 >33.31 4>.32

O'FC"hare :.44 ?23.8>@ 8:.>2 31.92 2.44

F'FC"hare 11.22 12.91 11.>2 1:.8> 3.31

?Mar%et Price@ MP >8.A: 113.:: 13A.A: 342.40 A:.8:

PC5 ratio of theIndustry

:>.00 :>.00 A0.28 A>.91 :4.AA

!7C"hare 39.22 4>.1> 4>.39 33.98 30.>:

eser$eC"hare 9.22 2.91 1.>2 1:.8> 3.31

5C"hare 0.41 1.20 1.32 :.>> 3.93

"ustaina-e &ro+thrate

0.1: 0.>4 0.>A 4.09 29.44

Pa&e 30


35/59

From this parameter +e can measure the di$idend poicy of the (rm.

• Di$idend per "hare ?DP"@ ;his company mainy pro$ides cash

di$idend. nd the di$idend is paid on the face $aue of the share. !ydi$idin& Di$idend Decared -y Diuted "hare +e ha$e found the DP".

• 5arnin&s per "hare it has -een cacuated -y di$idin& the 5arnin&s

after ta* -y the Diuted "hares.

• Operatin& 'ash Fo+ and Free 'ash Fo+ per "hare are cacuated -y

di$idin& each of them -y the Diuted "hare. ;he 'acuations are sho+nin ppendi*.

• M7 !7 are the ear 5nd Mar%et Price Face 7aue per share for

'on(dence 'ement )td.

• PC5 mutipes for -oth the 'ompany and the Industry ha$e -een

presented in the ta-e. ;he Industry PC5 mutipes ha$e -een cacuated

-y +ei&htin& the companyPC5 mutipes those -eon& in this particuar

Industry. ;he cacuations are sho+n in the ppendi*.

• eser$e etain 5arnin&s per "hare are cacuated simpy -y di$idin&

the ;ota eser$e etained 5arnin&s -y the =o. of shares.

• "ustaina-e 6ro+th ate has -een cacuated -y mutipyin& the O5

+ith One minus DP. ;hat means 6 V O5Z ?1DP@.

• ;he InEation and 6DP 6ro+th ate ha$e -een coected from

+++.inde*mundi.com

Pa&e 31

http://www.indexmundi.com/http://www.indexmundi.com/


36/59

" # $6:


37/59

Current )ividend ?attern

;he 'ompany has the foo+in& di$idend pattern in the ast > years.

Mear 2778

"ince the company has an increasin& trend of earnin&s in the recent past

and aso in the year ?the company earned a net pro(t of !D; >2.9: miion

durin& year 2008, the !oard of Directors recommended )T $= per share

di$idend or a tota of )T 29=.62 million for a of its sharehoders.

Mear 2779

;hou&h durin& this year the company posted net oss +hich is !D; 2:.4>

miion, the !oard of Directors recommended $7K stock bonus pershare di$idend or a tota of !D; $7.$2 million for a of its sharehoders

to attract them.

Mear 277

;his year the net pro(t increase si&ni(canty, -y increasin& trend of saes

and cost reduction. /o+e$er, the !oard of Directors recommended )T

$7 per share and stoc% di$idend of 20 or a tota of )T 28.$2 for a

of its sharehoders.

Mear 27$7

=et pro(t after ta* increased radicay in this year, posted A0 &ro+th. ;o

share the -oomin& earnin&s +ith the share hoders, the !oard of Directors

recommended )T;7 per share di$idend ?2> 'ash and 1> "toc%@ or a

tota of )T $06;7.$2 million for a of its sharehoders.

Mear 27$$

;he company has -een a-e to hod the positi$e trend in its income and

earned a net pro(t of !D; 1A:.22 miion durin& the year. 'onsiderin& the

Pa&e 33


38/59

situation the company decared )T ;7 di$idends ?20 'ash and 20

"toc%@ per share or a tota of )T $0;.7 million for a the

sharehoders.

Pa&e 34


39/59

C,E)*T ,*SN !,A)*B! SC,E SOEET

Credit ,isk !rading


40/59

Bumeric !rade !rade S&or

t

Score

1 "uperior "#PFuy cash co$ered, secured-y 6o$ernmentCInternationa!an% 6uarantee

2 6ood 6D :>Y

3 ccepta-e ''P ;

8>:4

4 Mar&inaCatchist

M6C)

9>84

> "peciaMention "M

>>94

9 "u-standard "" 4>>4

8 Dou-tfu DF 3>44

: !adC)oss !) [3>

Score Calculation S&eet 3Considering 'rst ear4

Pa&e 39


41/59

Criteria%eig

&t?arameter

Score

Actual?arameter

Scorebtained

A. Financial ,isk =7K

A#$ @everage $7K

1.1 De-t5uity ?*@ ;imes

> [ 0.2> * >.00 1.>3 6.2=

;ota )ia-iities to ;an&i-e =et +orth

0.29\ to 0.3>*

4.>0

0.39\ to 0.>0*

4.2>

0.>1\ to 0.8>*

4.00

0.89\ to 1.2>*

3.>0

1.29\ to 2.00*

3.2>

2.01\ to 2.>0*

3.00

2.>1\ to 2.8>*

2.>0

] 2.8>\ 0.00

1.2 De-t;ota sset?*@ ;imes

> [ 0.2>\ >.00 0.14 =

;ota )ia-iity to ;otassets

0.29\ to 0.3>*

4.>0

Pa&e 38


42/59

0.39\ to 0.>0*

4.2>

0.>1\ to 0.8>*

4.00

0.89\ to 1.2>*

3.>0

1.29\ to 2.00*

3.2>

2.01\ to 2.>0

*

3.00

2.>1\ to 2.8>*

2.>0

] 2.8>\ 0.00

A#2 @i/uidit $7K

2.1'urrent atio ?*@;imes >

] 2.84\ >.00 1.23 6.=

'urrent ssets to 'urrent)ia-iities

2.>0\ to 2.84*

4.>0

2.00\ to 2.4A*

4.2>

1.>0\ to 1.AA*

4.00

1.10\ to 1.4A*

3.>0

0.A0\ to 1.0A 3.2>

Pa&e 3:


43/59

*

0.:0\ to 0.:A

*

3.00

0.80\ to 0.8A*

2.>0

[ 0.80\ 0.00

2.2 Ruic% atio ?*@;imes >

] 2.00\ >.00 0.10 7

Ruic% ssets to 'urrent)ia-iities

1.8>\ to 2.00*

4.>0

1.>0\ to 1.84*

4.2>

1.2>\ to 1.4A*

4.00

1.00\ to 1.24*

3.>0

0.8>\ to 0.AA*

3.2>

0.>0\ to 0.84*

3.00

0.2>\ to 0.4A*

2.00

)ess than0.2>\

0.00

A#6 ?ro'tabilit 27K

Pa&e 3A


44/59

3.1 Operatin& Pro(tMar&in ?@

> ] 2> >.00 10.A1 2.=

?Operatin& Pro(tC"aes@ W100

23 to 2> 4.>0

20 to 22 4.00

18 to 1A 3.>0

14 to 19 3.2>

11 to 13 3.00

: to 10 2.>0

[ : 0.00

Criteria%eig

&t?arameter

Score

Actual?arameter

Scorebtained

3.2 =et Pro(t Mar&in?@

> ] 1>.00 >.00 :.:> 6.2=

?=et Pro(tC"aes@ W 100 13 to 1> 4.>0

11 to 12 4.00

A to 10 3.>0

8 to : 3.2>

> to 9 3.00

3 to 4 2.>0

Pa&e 40


45/59

[ 3 0.00

3.3 etrun on sset > ] 30 >.00 >.30 2.=

?=et Pro(tC;ota sset@ W100

29 to 30 4.>0

22 to 2> 4.00

1: to 21 3.>0

14 to 18 3.2>

: to 13 3.00

> to 8 2.>0

[ > 0.00

3.4 eturn on 5uity > ] 1>.00 >.00 >8.9A =

?=et Pro(tC;ota 5uity@ W100

13 to 1> 4.>0

11 to 12 4.00

A to 10 3.>0

8 to : 3.2>

> to 9 3.00

2 to 4 2.00

[ 2 0.00

Pa&e 41


46/59

A#; Coverage $7K

4.1 Interest 'o$era&e

?\@ ;imes

> ] 2.00\ >.00 11.48 =

1.>1\ to2.00\

4.00

5arnin& -efore interest ta* ?5!I;@

1.2>\ to1.>0\

3.00

Interest on de-t 1.00\ to1.24\

2.00

[ 1.00\ 0.00

4.2 De-t "er$ice'o$era&e

> ] 2.00\ >.00 13.A1 =

5!I;DC?;otaInterestY'M);D@

1.>1\ to2.00\

4.00

1.2>\ to1.>0\

3.00

1.00\ to1.24\

2.00

[ 1.00\ 0.00

Total Score# Financial

,isk

=7.7

7

6=.77

. usinessI *ndustr,isk

$9K

Pa&e 42


47/59

#$ Si+e of usiness ?in!D; crore@

4 ] 90.00 4.00 22408A14.>9 ;

"ie of the -orro+erBs-usiness measured -ythe most recent yearBstota saes. Prefera-yaudited num-ers.

30.00 N >A.AA 3.>0

10.00 N 2A.AA 3.00

>.00 A.AA 2.00

2.>0 4.AA 1.00

[ 2.>0 0.00

#2 Age of usiness 3 ] 10 ears 3.00 9 2

=um-er of years the-orro+er is en&a&ed inthe primary ine of -usiness

9 10 ears 2.00

2 > ears 1.00

[ 2 ears 0.00

#6 usiness utlook 2 Fa$ora-e 2.00 Fa$ora-e 2

'ritica assesment of medium term prospectsof industry, mar%et shareand economic factors.

"ta-e 1.>0

"i&hty#ncertain

1.00

'ause for

'oncern

0.00

Criteria%eig

&t?arameter

Score

Actual?arameter

Scorebtained

#; ,aw


48/59

Partiay importdependent

1.00

Fuy importdependent

0.>0

"carce 0.00

#= *ndustr !rowt& 3 "tron& ?10Y@ 3.00 "tron& ?10Y@ 6

6ood ?]> 10@

2.00

Moderate ?1>@

1.00

=o 6ro+th?[1@

0.00

#


49/59

C. More than 10years

>.00 9N10 years 6

;ota en&th of e*perienceof the seniormana&ement in thereated ine of -usiness.

9N10 years 3.00

1N> years 2.00

=o e*perience 0.00

C#2 Trackrecord 2 7ery 6ood 2.00 Moderate $

eputation, commitment,trac%recrod of on+ers in-usiness.

Moderate 1.00

Poor 0.>0

Mar&ina 0.00

C#6 Second@ineISuccession

3 eady"uccession

3.00 "uccession inuestion

7

"uccession+ithin 12years

2.00

"uccession+ithin 23

years

1.00

"uccession inuestion

0.00

C#; Team %ork 2 7ery 6ood 2.00 Moderate $

Pa&e 4>


50/59

Moderate 1.00

Poor 0.>0

e&uar'onEict

0.00

Total Score#


51/59

)#2 CollateralCoverage 3?ropert@ocation4

4 CM onMunicipacorporationCPrime rea

property

4 CM onMunicipa

corporationCPrime rea

property

;

Appendix

Pa&e 48


52/59

Pa&e 4:


53/59

alance S&eet

Description 2008 200: 200A 2010 2011

Current Assets

In$entories 181,833,19

A

1>A,3A8,1A

1

182,414,A1

2324,:12,4

38

414,4A4,9:3

"tores and spares 98,823,21

:::,323,39

8A8,099,24

:113,813,A

84

12:,3:>,4:A

!oo% de-ts 118,:28,9:

8

14>,3:8,A0

8

18>,0>8,48

012A,:>8,:

42

231,91>,420

d$ance, deposits and prepayments

133,A93,33

1

131,::2,A2

2

1>:,803,A8

2238,>02,A

0A

4:1,:1A,9AA

Other recei$a-es 13,2:2,A9A

19,193,12A

1:,401,:99

2>,121,901

33,>AA,8A>

'ash and cash eui$aents 30,888,4:

822,A1A,8:

124,:93,88

:40,>>>,:3

1

>A,>12,2A9

Total Current Assets =6=067809$

=;078;028

;0=7902;

9;80=6208

$0$6$06=0;8

Fixed AssetIBon CurrentAssets

Property, Pant andeuipment

:4>,234,A3

A

:>4,102,A:

:

:>9,2>2,49

4

1,>>A,>>3,3

22

1,:8:,198,>82

Pa&e 4A


54/59

'apita +or% in Pro&ress 2A:,283,43

4

332,009,03

1

39>,2:1,92

>141,A91 :3,44>

Intan&i-e ssets >49,A91,>0

>

>22,0A9,A>

8

4A0,A80,:3

A994,01A,1

01

3,233,:94

In$estment at cost 31,32>,000

41,32>,000

A:,20:,A80

123,:39,A90

824,A12,912

Total Bon Current Assets $082$08

;0989

$08;0=6

708

$09$708$

6099

206;80==

$06;;

20706

80;6

Total Assets 202=80$72086

206$607=0286

20;=802220$;;

60$=079;0$$7

6086808=80$;7

Current @iabilities

'reditors and accuras A8,083,1A

:>:,909,8>

3>:,0:4,9:

232,299,39

2

12,882,104

"hort term oan 2>:,32A,49

A

41:,>A0,:3

A

2A9,2:1,>>

>292,3>2,8

08

3:1,32:,8>0

'urrent portion of )on& termoans

12,000,000

2,143,A04 8,4A>,AAA :,8>8,183 >2,32>,8A2

Pro$ision for ta*ation 49,>00,00

049,>00,00

0

101,000,00

01A,199,99

8

294,1>9,998

Pa&e >0


55/59

)ia-iities for other Finance 400,A0>,8:

0

918,13>,88

0

>98,030,:>

824,4:2,>4

9

A8,>4>,0:>

Pro$ision for ta*ation 49,>00,00

049,>00,00

0

101,000,00

01:>,000,0

00

10:,2:A,::>

Total Current @iabilities ;$607208

=2=09;$0;

;==060268

=62072=0;=;

$0;$90292

Bon#current liabilities

)on& ;erm )oan"ecured 902,>:4,91>

44A,8>8,90:

1,032,933,110

9>>,94>,834

>0:,88:,090

DeHered ;a* )ia-iities 1:2,9>9,AA8

211,21A,090

22>,842,A42

302,:9>,>04

42>,1:8,902

Total @ong Term @iabilities

8:>,241,912 990,A89,99: 1,2>:,389,0>2 A>:,>11,23: A33,A9>,992

Total @iabilities ;$607208

=2=09;$0;

;==060268

=70=770687

=2802620$==

S&are&olderJs E/uit H

@iabilities

"hare capita 18A,322,000

22:,22:,000

288,134,000

329,040,000

384,A49,000

"hare Premium

Pa&e >1


56/59

323,>:9,A82

>49,>::,9A0

>49,>::,9A0

9>:,0:A,>4A

9>:,0:A,>4A

6enera eser$e 10>,:8:,200

10>,:8:,200

10>,:8:,200

10>,:8:,200

10>,:8:,200

,etained earnings 8A,>22,29:

?22,89>,2>3@

1:,>08,>:2

8,A34,931 8,A34,931

Total e/uit attributable toe/uit &olders of t&ecompan

990670;;7

9=802068

;90$790;82

$0780;20697

$0$;09;90697

Total @iabilities HS&are&oldersJ E/uit

$0$7202$20$78

$0696088$0$66

$0;760;8;087

$07;0;;208=7

$08;07970=6=

=um-er of 'ommon "hares 1A,000,000

1A,000,000

20,A00,000

32,904,000

38,4A4,900

=7C"hare 33.08 39.0A :A.>9 8A.32 98.08

Pa&e >2


57/59

Pa&e >3


58/59


59/59

Total current

assets >3>,308,:91 >94,084,2A8 949,>0:,249 :48,>32,899

1,131,3>A,9

48

Total Current@iabilities 413,A02,998 >2>,:41,4A9 4>>,399,238 >32,02>,4>4 A19,41:,2:2

C, 1.2A 1.08 1.42 1.>A 1.23

B%C 121,40>,1A4 3:,232,:01 1A1,142,00A 31>,>08,312 214,A41,39>

2778 20779 277 27$7 27$$

Total Fixed assets1,821,8A4,:

8:1,84A,>30,A8

91,:10,813,:

A:2,348,>>1,3

442,909,3A8,4

A3

CA?E 28,839,0A: 91,1:2,A22 >39,:38,449 2>:,:49,14A

1.>A 3.3: 22.:8 A.A3

report cf_confidence cement

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