ABOUT ONGC

ONGC Videsh Limited (OVL), the wholly-owned subsidiary of Oil and Natural Gas Corporation Ltd. (ONGC), has registered a production of 9.433 MMTOE in 2010-11, surpassing the earlier peak production of 8.870 MMTOE of oil and oil equivalent gas in 2009-10. This records highest ever oil & gas production from the overseas assets of OVL so far and sets a milestone in its journey for the quest for oil and gas acreages abroad including acquisition of fields, exploration, development, production, transportation of oil and gas.

VISION & MISSION

To be global leader in integrated energy business through sustainable growth, knowledge excellence and exemplary governance practices. World Class
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Dedicated to excellence by leveraging competitive advantages in R&D and technology with involved people. Imbibe high standards of business ethics and organizational values. Abiding commitment to safety, health and environment to enrich quality of community life. Foster a culture of trust, openness and mutual concern to make working a stimulating and challenging experience for our people. Strive for customer delight through quality products and services.

Intergrated In Energy Business

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Focus on domestic and international oil and gas exploration and production business opportunities. Provide value linkages in other sectors of energy business. Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership

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Retain dominant position in Indian petroleum sector and enhance India's energy availability.

Dividend Policy
The term dividend refers to that part of profits of a company which is distributed by the company among its shareholders. It is the reward of the shareholders for investments made by them in the shares of the company. The investors are interested in earning the maximum return on their investments and to maximize their wealth. A company, on the other hand, needs to provide funds to finance its long-term growth. If a company pays out as dividend most of what it earns, then for business requirements and further expansion it will have to depend upon outside resources such as issue of debt or new shares. Dividend policy of a firm, thus affects both the long-term financing and the wealth of shareholders. As a result, the firms decision to pay dividends must be reached in such a manner so as to equitably apportion the distributed profits and retained earnings. Since dividend is a right of shareholders to participate in the profits and surplus of the company for their investment in share capital of the company, they should receive fair amount of the profits. The company should, therefore, distribute a reasonable amount as dividends (which should include a normal rate of interest plus a return for the risks assumed) to its members and retain the rest for its growth and survival.

DIVIDEND DECISION AND VALUATION OF FIRM :

The value of the firm can be maximized if the shareholders wealth is maximized. There are conflicting views regarding the impact of dividend decision on the valuation of the firm. According to one school of thought dividend decision does not affect the share-holders wealth and hence the valuation of the firm. On the other hand, according to the other school of thought, dividend decision materially affects the shareholders wealth and also the valuation of the firm. We have discussed below the views of the two schools of thought under two groups:
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The Relevance Concept of Dividend or the Theory of Relevance.

The Irrelevance Concept of Dividend or the Theory of Irrelevance

The Relevance Concept of Dividends:

According to this school of thought, dividends are relevant and the amount of dividend affects the value of the firm. Walter, Gordon and others propounded that dividend decisions are relevant in influencing the value of the firm. Walter argues that the choices of dividend policies almost and always affect the value of the enterprise. The Irrelevance Concept of Dividend:

The other school of thought propounded by Modigliani and Miller in 1961. According to MM approach, the dividend policy of a firm is irrelevant and it does not affect the wealth of the shareholders. They argue that the value of the firm depends on the market price of the share; the dividend decision is of no use in determining the value of the firm.

TYPES OF DIVIDEND POLICY :

The various types of dividend policies are discussed as follows: 1. Regular Dividend Policy Payment of dividend at the usual rate is termed as regular dividend. The investors such as retired persons, widows and other economically weaker persons prefer to get regular dividends. A regular dividend policy offers the following advantages.
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It establishes a profitable record of the company. It creates confidence amongst the shareholders. It aids in long-term financing and renders financing easier. It stabilizes the market value of shares. The ordinary shareholders view dividends as a source of funds to meet their day-today living expenses. If profits are not distributed regularly and are retained, the shareholders may have to pay a higher rate of tax in the year when accumulated profits are distributed.

However, it must be remembered that regular dividends can be maintained only by companies of long standing and stable earnings. A company should establish the regular dividend at a lower rate as compared to the average earnings of the company.

2. Stable Dividend Policy The term stability of dividends means consistency or lack of variability in the stream of dividend payments. In more precise terms, it means payment of certain minimum amount of dividend regularly. A stable dividend policy may be established in any of the following three forms. Constant dividend per share: Some companies follow a policy of paying fixed dividend per share irrespective of the level of earnings year after year. Such firms, usually, create a Reserve for Dividend Equalisation to enable them to pay the fixed dividend even in the year when the earnings are not sufficient or when there are losses. A policy of constant dividend per share is most suitable to concerns whose earnings are expected to remain stable over a number of years. Figure given below shows the behavior of dividend in such policy.

Constant pay out ratio: Constant pay-out ratio means payment of a fixed percentage of net earnings as dividends every year. The amount of dividend in such a policy fluctuates in direct proportion to the earnings of the company. The policy of constant pay-out is preferred by the firms because it is related to their ability to pay dividends. Figure given below shows the behavior of

dividends when such a policy is followed.

Stable rupee dividend plus extra dividend: Some companies follow a policy of paying constant low dividend per share plus an extra dividend in the years of high profits. Such a policy is most suitable to the firm having fluctuating earnings from year to year. 3. Irregular Dividend Policy Some companies follow irregular dividend payments on account of the following:
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Uncertainty of earnings. Unsuccessful business operations. Lack of liquid resources. Fear of adverse effects of regular dividends on the financial standing of the company.

4. No Dividend Policy A company may follow a policy of paying no dividends presently because of its unfavourable working capital position or on account of requirements of funds for future expansion and growth. 5. Residual Dividend Policy When new equity is raised floatation costs are involved. This makes new equity costlier than retained earnings. Under the Residual approach, dividends are paid out of profits after making provision for money required to meet upcoming capital expenditure commitments.

FINANCIAL STATEMENTS OF ONGC

BALANCE SHEET OF ONGC AS ON 31ST MARCH 2010 Particulars Sources of funds Shareholders funds Share Capital Reserves and surplus Loan funds Unsecured loans Deferred tax liability Liability for abandonment cost Total Application of funds Fixed assets (Gross Block) Less:- depreciation and impairment Net block Capital WIP Producing Properties Gross Cost Less:- depletion and impairment Net producing properties Exploration/ development Investments Current Assets &Loans And Advances Inventories Sundry debtors Cash & bank balance Deposit with scheduled bank Other current assets Loans and advances Less Current Liabilities Provisions Net current assets Miscellaneous Expenditure Total As at 31st march 2010 (RS IN MILLIONS) As at 31st march 2009

21388.87 851437.15 872826.02 49.75 89182.13 164006.68 1126064.58 715537.79 559052.77 156485.02 102413,54 843112.16 440290.04 402822.12 55496.83

21388.87 765965.28 787354.15 267.35 78022.35 160089.65 1025733.50 613556.05 509412.32 104143.73 116964.57 757297.13 395717.19 361579 50687.37

46785.72 30586.37 108279.29 74031.06 6333.05 271697.74 537713.23 120875.63 74124.02 194999.65 342713.58 8413.16 1126064.58

40606.71 40838.04 121405.48 69556.64 13548.86 260043.83 545999.56 104252.80 70798.18 211050.98 334948.58 6506.10 1025733.50

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31St MARCH, 2010
(RS. IN MILLIONS) 2009-10 2008-09 INCOME Gross Sales Less:-Excise duty Net sales Other income 6,02,048.19 2,185.42 5,99,862.77 41866.86 6,41,729.63 6,39,477.08 3,494.11 6,35,982.97 53,122.72 6,89,105.69

EXPENDITURE (Increase)/decrease in stock Purchases Production, transportation, selling and distribution expenditure Depreciation, Depletion, Amortization and Impairment Financing costs Provisions and write-offs Adjustments relating to prior period (net) Profit Before Tax and Extraordinary Item Extraordinary Item Profit Before Tax Provision for Taxation - Current tax(including wealth tax Rs.22.50 million, previous year Rs. 20.00 million) - Earlier years - Deferred tax - Fringe Benefit Tax Profit After Taxation Surplus at beginning BALANCE AVAILABLE FOR APPROPRIATION APPROPRIATIONS Proposed dividend Interim dividend Tax on dividend Transfer to General Reserve Balance carried to Balance-sheet

(1,180.38) 139.31 2,43,199.46 1,46,431.88 144.23 2,974,01 182.69 3,91,891.20 2,49,838.43 2,49,838.43 7,12,02.50 (199.41) 1,11,59.78 1,67,675.56 0.13 1,67,675.69

(811.02) 85166.03 2,32,438.87 1,19,541.97 1,189.17 11,665.77 765.31 4,49,956.10 2,39,149.59 657.73 2,39,149.59 7,90,70.00 (5540.19) 4314.36 700.00 1,61,263.15 0.95 1,61,264.10

32,083.09 38,499.71 11,615.61 85,477.00 0.28 1,67,675.69

29,944.22 38,499.71 11,632.04 81,188.00 0.13 1,61,264.10

Earnings per Equity Share- Basic and Diluted(Rs) (Face value Rs 10/- per share) -before extraordinary items (net of tax) After extraordinary items

78.39 78.39

75.19 75.40

FINANCIAL HIGHLIGHTS OF 5 YEARS AT A GLANCE

PARTICULARS PAT

(Rs. in millions)
2006-07 156429 71.66 2005-06 144308 98.22

EPS (BEFORE
EXTRAORDINARY ITEMS) EPS (AFTER EXTRAORDINARY ITEMS)

2009-10 167676 78.39

2008-09 161263 75.19

2007-08 167016 78.09

78.39

75.40

78.09

73.14

101.20

DIVIDEND(IN %) BV OF SHARE DIVIDEND AMOUNT (INTERIM AND FINAL ) NO .OF SHARES CURRENT RATIO DEBT EQUITY
RATIO

330 404 70583

320 365 68444

320 327 68444

310 287 66305

450 376 66305

2138872530 2.30:1 0.00006:1 886413

2138872530 2.26:1 0.0003:1 780848

2138872530 2.47:1 0.001:1 699435

2138872530 2.77:1 0.001:1 614099

142593992 3.08:1 0.002:1 535934

NET WORTH

DATA REGARDING EPS (EARNINGS PER SHARE) AND DPS (DIVIDEND PER SHARE )
           

(RS. In millions) Year 2005-06 2006-07 2007-08 2008-09 2009-10 EPS 98.22 71.66 78.09 75.19 78.39 DPS 44.99 30.99 31.99 31.99 32.99

Chart of comparison between EPS and DPS

120 100 80 60 40 20 0 2005-06 2006-07 2007-08 2008-09 2009-10 EPS DPS

INTERPRETATION
y y y y y Both EPS and DPS are growing at same rate As such there is consistency in EPS and DPS, they have maintained balance in declaring dividend , it is declared within particular range In 2005, shareholding was 1425933992 equity shares, so EPS and DPS are high compared to further years Till 2005 the earning was distributed among lesser shares compared to post bonus scenario In 2006, 712938538 bonus shares were issued and share holding pattern changed to 2138872530

DATA REGARDING DIVISON OF DIVIDEND ON THE BASIS OF PERIOD (INTERIM AND FINAL)

Years 2005-06 2006-07 2007-08 2008-09 2009-10

INTERIM 35648.35 38499.66 38499.66 38499.66 38499.66

FINAL 28518.68 27805.31 29944.22 29944.22 32083.09

Chart of comparison between INTERIM and FINAL

45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2005- 06 2006- 07 2007- 08 2008- 09 2009- 10 INTERIM FINAL

INTERPRETATION
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It is seen that company declares both interim and final dividend The amount of interim dividend is more compared to final dividend Both are maintaining a balance at a constant rate

DIVIDEND PAYOUT RATIO 

     

Year Dividend Payout (in %) 2005-06 45.80 2006-07 43.25 2007-08 40.97 2008-09 42.55 2009-10 42.08 Chart of Dividend payout ratio

Dividend Payout (in %)

47 46 45 44 43 42 41 40 39 38 2005-06 2006-07 2007-08 2008-09 2009-10 40.97 43.25 42.55 42.08 Dividend Payout (in %) 45.8

INTERPRETATION
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Out of total earnings, looking at figures it seems that company pays nearly half of the earnings as dividend

There has been no deviation, as consistency is maintained, the dividend amount of all the years fall in the range of 40% to 45%

DATA REGARDING RETAINED EARNINGS (Rs. in millions) Retained Earnings 71191 79999 86940 81187 85477

Year 2005-06 2006-07 2007-08 2008-09 2009-10

DIVIDEND DECLARED IN CURRENT YEAR:y y The company paid an interim dividend on Rs. 18 per share (180%) In Dec, 2009 the BOD have recommend a final dividend of Rs. 15 per share (150%) making the aggregate dividend at Rs. 33 per share (330%) as compared to Rs. Per share (320%) paid in 2008-09. y The total dividend will absorb Rs 70,583 million, besides Rs 11,616 million as tax on dividend which is historically the highest dividend payout by the company.

Market Trend ONGC v/s BSE sensex

STOCK OPTIONS:The company has not issued any stock options to its directors/employees.

TRANSFER OF UNPAID/UNCLAIMED DIVIDEND AMOUNT TO INVESTOR EDUCATION AND PROTECTION FUND (IEPF):During the year under report, an amount of Rs 3,744,255 and Rs 3,88,213 pertaining to unpaid dividend for the financial year 2001-02 and 2002-03 (int.) reserve was transferred to the IEPF set up by the Central Government. This is in accordance with the sections 205A and 205C of the companys Act, 1956 requiring transfer of dividend remaining unclaimed and unpaid for a period of 7 years from the due date to the IEPF. Unclaimed final dividend for the year2002-03 (Final) is due for transfer to IEPF on or before 28th Oct 2010. All shareholders, whose dividend is unpaid, are requested to lodge their claim with M/s Karvy the RTA by submitting an application before 30th 30th sep, 2010 since no

claim will lie against the company or the IEPF once the dividend amount is deposited in IEPF. Given below are the proposed dates for transfer of the unclaimed dividend to IEPF by the company during this and next calendar year.

F.Y. 2002-03 Final 2003-04 Interim Final

Date of declaration 29.09.2003 04.02.2004 29.09.2004

Proposed date for transfer to IEPF 28.10.2010 03.03.2011 28.10.2011

CONCLUSION
ONGC is a public sector enterprise, with a large shareholding by president of India and it is rated in fortune 500 companies list it is a growing company, which not only looks at the profitable investments but also follows a constant dividend policy ensuring a regular return to investors, retained earnings are utilized for profitable investments and trust of shareholders is also attained. Apart from this company has also issued bonus shares along with dividend in 2005.

Bibliography
y Source: - http://www.ongcindia.com/, accessed on 17th April, 2011.

Source: http://www.ongcindia.com/%5Cdownload%5CCorp%20Sust%20Report%5 CONGC_Sustainability_Report_2009-10.pdf, accessed on 17th April, 2011.

Source: http://www.ongcindia.com/download/AnnualReports/Annual_Report_2008_09.pdf, accessed on 17th April, 2011. Source: - http://www.ongcindia.com/profile_new.asp, accessed on 17th April, 2011.

Source: http://www.ongcindia.com/%5Cdownload%5CCorp%20Sust%20Report%5C Annexure.pdf, accessed on 17th April, 2011.