Corporate finance practices of beximco pharmaceuticals limited
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Beximco Pharmaceuticals Limited, established in 1976, is a public limited company focused on producing high-quality pharmaceuticals with a strong emphasis on research and development. The company's corporate goal is to create value for customers and shareholders while engaging in various CSR activities. Financial analysis shows an increasing trend in sales growth and a target price suggesting the company is undervalued relative to its market price.
Corporate finance practices of beximco pharmaceuticals limited
- 2. Names ID Pantho Sarker 20-033 Md. Gulam Kibria 20-075 Ummey Salma 20-125 MD. Al-Amin 20-155 Sheikh Sajid Hasan 20-181
- 4. Now Presenting ….. Pantho Sarker ID: 20-033
- 5. Name of the Company BEXIMCO Pharmaceuticals Limited Status Public Limited Company Industry Pharmaceuticals Year of Establishment 1976 Year of Commercial Production 1980 Registered office Tongi, Gazipur, Bangladesh Authorized Capital BDT 2,000 million Paid Up Capital 1,145.07 million Numbers of the shareholders Around 54,000 Numbers of the employees 2,384 Web Page http://www.beximco-pharma.com Chairman A S F Rahman
- 6. The corporate goal of Beximco Pharmaceuticals Limited is – “ Creating value for all our customers and shareholders”. They are always focused on their strategic and aspirational targets, enabling then to maintain their strong sales growth and achieve milestone events like approval from US Food and Drug Administration (US FDA) Opinion on Corporate goal of Beximco Pharmaceuticals Limited: The value creation for customers is possible for developing and providing high quality drugs to their customers. So, the major focus of this company remains on Research & Development to provide high quality differentiated product to market. Management team is focused to drive sustainable long-term growth and value enhancement of the shareholders value .
- 7. Some CSR activities of the BEXIMCO are mentioned below: CSR Activities Research Project of a professor of the University of Dhaka Supporting the victims of the Rana Plaza Free Medical Campaign Provided free technical support to world renowned research institutes Working together with non-profit organizations who work to improve people's lives Medical Awareness Campaign ARV drugs donation to local NGOs for treating AIDS patients in Bangladesh Supporting to Mobile Alliance for Maternal Action (MAMA) in Bangladesh Provide medical consultation and diagnostic support both for its employees and general people at a nominal cost through FRF Foundation Plays an important part in promoting Maternal and Newborn Health in partnership Support the JAAGO Foundation
- 8. Particular 2012 ( Dec) 2013 (Dec) 2014 (Dec) 2015 (Dec) 2016 (June) Short Term Borrowings (Secured) 1,526,449,91 8 2,776,266,12 5 3,153,121,29 3 3,163,551,47 5 1,109,644,27 0 Long Term Borrowings-Current Maturity (Secured) 572,381,042 652,689,720 536,347,056 566,057,233 763,008,456 Project Loan - Local Banks 568,588,942 652,689,720 536,347,056 530,674,236 444,621,118 Project Loan - BHF Bank, Germany 35,382,997 41,054,236 AB Bank 277,333,102 Interest and PAD Block 3,792,100 Long Term Borrowings-Net off Current Maturity (Secured) 1,336,416,54 5 1,001,325,04 0 608,901,223 477,848,224 1,953,756,20 3 Project Loan - Local Banks 1,336,416,54 5 1,001,325,04 0 608,901,223 156,856,364 Project Loan - BHF Bank, Germany 320,991,860 469,408,422 AB Bank 1,484,347,78 1 Total BV of Debt 3,435,247,50 4,430,280,88 4,298,369,57 4,207,456,93 3,826,408,92
- 9. 3,435.25 4,430.28 4,298.37 4,207.46 3,826.41 17,128.13 18,408.16 19,775.55 20,920.19 23,059.41 20,563 22,838 24,074 25,128 26,886 - 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 2012 ( Dec) 2013 (Dec) 2014 (Dec) 2015 (Dec) 2016 (June) BDT'mn Year BV of Debt, Equity and Firm of Beximco Pharmaceuticals Limited Total Book Value of Firm Total BV of Equity Total BV of Debt
- 10. 3,435.25 4,430.28 4,298.37 4,207.46 3,826.41 17,029.32 16,535.81 21,592.89 32,483.14 32,251.39 20,464.57 20,966.09 25,891.26 36,690.60 36,077.80 - 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 40,000.00 2012 ( Dec) 2013 (Dec) 2014 (Dec) 2015 (Dec) 2016 (June) BDT'mn Year MV of Debt, Equity and Firm of Beximco Pharmaceuticals Limited Total MV of Firm Market Value of Equity Total BV Or MV of Debt
- 11. RELATIVE VALUATION OF BEXIMCO PHARMACEUTICALS LIMITED A method of valuing an asset based on comparing some fundamental characteristics and assessed market value of comparable assets. We have focused on two multiples to assess the market value of Beximco Pharmaceuticals limited - EV/EBITDA Multiple P/E Multiple
- 12. PRICE DETERMINATION USING P/E MULTIPLE Company P/E (TTM) Acme 25.42 Ambee 184.09 Central 34.04 GSK 41.60 Orion 13.09 Pharma aid 62.61 Renata 30.32 Square 25.89 IBN SINA 31.17 Median 31.17 Median P/E based on comparables Price based on P/E (TTM) P/E (TTM) 31.17 EPS of Beximco 5.09 Price 158.54 Price based on P/E multiple
- 13. PRICE DETERMINATION USING EV/EBITDA MULTIPLE Company EV/EBITDA (TTM) Acme 1.87 Ambee 45.55 Central 27.10 GSK 24.80 Orion 15.54 Pharma aid 40.11 Renata 21.33 Square 18.07 IBN SINA 23.39 Median 23.39 Price based on EV/EBITDA(TTM) EV/EBITDA 23.39 EBITDA of Beximco 4,010,279,943 EV 93,804,676,746 Equity value 90,199,389,046 Shares outstanding 405,556,445 Price 222.41 Median EV/EBITDA based on comparables Price based on EV/EBITDA multiple
- 14. FINAL PRICE FROM RELATIVE VALUATION Target price based on relative valuation Method Price Weight EV/EBITDA 222.41 0.3 P/E (TTM) 158.54 0.7 Current market price 100.80 Target price 177.70 Undervalued We have reached the target price through weighted average of the price obtained from P/E and EV/EBITDA multiples.
- 15. Now Presenting ….. Md. Gulam Kibria ID: 20-075
- 16. 2.14 2.32 2.53 2.79 3.90 9.50 9.02 8.97 9.28 11.92 9.35 12.02 15.93 19.47 23.80 0.00 5.00 10.00 15.00 20.00 25.00 2012 2013 2014 2015 2016 Times Years Activity Ratio Inventory Turnover Receivable Turnover Payables Turnover 2.06 2.04 2.48 3.54 3.61 0.58 0.64 0.60 0.63 0.89 0.40 0.43 0.41 0.45 0.64 2012 2013 2014 2015 2016 YEARS Activity Ratio Working Capital Turnover Fixed Asset Turnover Total Asset Turnover
- 17. 2.70 2.67 2.03 1.78 2.86 1.71 1.75 1.38 1.13 1.72 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 2012 2013 2014 2015 2016 Times Years Current & Quick Ratio Current Ratio Quick Ratio 168 165 160 149 107 0 20 40 60 80 100 120 140 160 180 2012 2013 2014 2015 2016 Days Years Cash Conversion Cycle
- 18. 47.25% 46.12% 45.55% 46.28% 46.09% 23.77% 22.16% 21.58% 21.99% 22.25% 14.20% 13.39% 13.64% 15.07% 14.71% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 2012 2013 2014 2015 2016 Profitability Ratio (Return on Sales) Gross Profit Margin Operating Profit Margin Net Profit Margin 9.59% 9.45% 8.80% 9.83% 14.31% 5.73% 5.71% 5.56% 6.74% 9.46% 10.74% 10.18% 10.04% 11.35% 16.58% 7.70% 7.63% 7.73% 9.34% 12.78% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 2012 2013 2014 2015 2016 Profitability Ratio (Return on Investment) Operating Return on Asset Return on Asset Return on Total Capital Return on Equity PROFITABILITY RATIO
- 19. 14.91% 18.02% 15.65% 14.51% 12.28% 16.71% 19.40% 17.85% 16.74% 14.23% 20.06% 24.07% 21.74% 20.11% 16.59% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 2012 2013 2014 2015 2016 Solvency Ratio (Debt Ratios) Debt to Asset Ratio Debt to Capital Ratio Debt to Equity Ratio 3.60 3.80 4.00 4.20 4.40 4.60 4.80 2012 2013 2014 2015 2016 4.11 4.45 4.06 4.46 4.73 Times Years Interest Coverage
- 20. Now Presenting ….. Ummey Salma ID: 20-125
- 21. 1.00 1.09 0.93 0.68 0.75 0.00 0.20 0.40 0.60 0.80 1.00 1.20 2012 2013 2014 2015 2016 Times Years Book Value to Market Value Ratio 0.89 0.85 0.94 1.27 1.16 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2012 2013 2014 2015 2016 Times Years TOBIN's Q Ratio
- 22. Beximco Pharma DuPont Analysis 2 Factor Decomposition Particulars 2012 2013 2014 2015 2016 ROA Net Income/ Average Total Assets 5.73% 5.71% 5.56% 6.74% 9.46% Leverage Average Total Assets/ Average Shareholders Equity 1.34 1.34 1.39 1.39 1.35 ROE Net Income/ Average Shareholders Equity 7.70% 7.63% 7.73% 9.34% 12.78% 3 Factor Decomposition Particulars 2012 2013 2014 2015 2016 Net Profit Margin Net Income/ Revenue 14.20% 13.39% 13.64% 15.07% 14.71% Asset Turnover Revenue/ Average Total Assets 0.40 0.43 0.41 0.45 0.64 Leverage Average Total Assets/ Average Shareholders Equity 1.34 1.34 1.39 1.39 1.35 ROE Net Income/ Average Shareholders Equity 7.70% 7.63% 7.73% 9.34% 12.78% 5 Factor Decomposition Particulars 2012 2013 2014 2015 2016 Tax Burden Net Income/ EBT 0.69 0.67 0.72 0.84 0.81 Interest Burden EBT/ EBIT 0.87 0.90 0.87 0.82 0.82 EBIT Margin EBIT/ Revenue 24% 22% 22% 22% 22% Asset Turnover Revenue/ Average Total Assets 0.40 0.43 0.41 0.45 0.64 Leverage Average Total Assets/ Average Shareholders Equity 1.34 1.34 1.39 1.39 1.35 ROE Net Income/ Average Shareholders Equity 7.70% 7.63% 7.73% 9.34% 12.78%
- 23. Sensitivity of Return on Equity (ROE) Sensitivity Factor Coefficient of Variation Asset Turnover 4.28 Tax Burden 2.16 Leverage 1.58 Interest Burden 1.51 EBIT Margin 1.04 Ways to Improve ROE •Improve Asset Turnover •Reduce Tax Burden •Increase Leverage Factor •Reduce Interest Burden •Increase EBIT Margin
- 24. Particulars 2012 2013 2014 2015 2016 Trend ANALYSIS OF FINANCIAL LEVERAGE ROCE Comprehensive Income/CSE 7.70% 7.63% 7.73% 9.34% 12.78% RNOA OI AFTER TAX/NOA 0.1049 0.1054 0.1111 0.1243 0.1494 FLEV NFO/CSE 0.0033 -0.0302 -0.0569 -0.0437 0.0799 NBC NFE/NFO 8.5005 -0.8591 -0.4829 -0.5810 0.4193 SPREAD RNOA-NBC -8.3956 0.9646 0.5940 0.7052 -0.2699 FLEV*SPREAD -0.0279 -0.0291 -0.0338 -0.0309 -0.0216 ROCE RNOA+FLEV(RNOA-NBC) 7.70% 7.63% 7.73% 9.34% 12.78% TRUE TRUE TRUE TRUE TRUE First-Level Breakdown Particulars 2012 2013 2014 2015 2016 Trend ANALYSIS OF OPERATING LEVERAGE RNOA OI AFTER TAX/NOA 10.49% 10.54% 11.11% 12.43% 14.94% ROOA OI+II on OL/OA 0.0953 0.0952 0.0966 0.1060 0.1333 OLLEV OL/NOA 0.2124 0.2266 0.3103 0.3256 0.1929 OLSPREAD ROOA-STBR 0.0453 0.0452 0.0466 0.0560 0.0833 OLLEV*OLSPREAD 0.0096 0.0102 0.0145 0.0182 0.0161 RNOA ROOA+OLLEV(ROOA-STBR) 10.49% 10.54% 11.11% 12.43% 14.94% TRUE TRUE TRUE TRUE TRUE Second-Level Breakdown Particulars 2012 2013 2014 2015 2016 Trend Profit Margin OI/SALES 19.41% 17.94% 18.48% 19.17% 18.57% Asset Turnover SALES/NOA 0.540491 0.5876 0.6008521 0.6481 0.804521 RNOA PM*ATO 10.49% 10.54% 11.11% 12.43% 14.94% TRUE TRUE TRUE TRUE TRUE Third-Level Breakdown
- 25. Particular 2016 (June) Weight Interest Rate Short Term Borrowings (Secured) 1,109,644,270 0.29 Long Term Borrowings-Current Maturity (Secured) 763008456 0.20 Project Loan - Local Banks 444,621,118 0.12 12.25% Project Loan - BHF Bank, Germany 41,054,236 0.01 3.83% AB Bank 277,333,102 0.07 13% Long Term Borrowings-Net off Current Maturity (Secured) 1,953,756,203 0.51 Project Loan - BHF Bank, Germany 469,408,422 0.12 3.83% AB Bank 1,484,347,781 0.39 13% Total BV of Debt 3,826,408,929 Cost of Debt, 𝑲 𝒅 7.88% AB Bank's Lending rate Oct-17 Term Loan to large & medium scale industry (average) 13% Working Capital to Large & Medium Scale Industry 12.5% Particular 2012 2013 2014 2015 2016 June Interest rate on Project loan -local banks 13% - 15.5% 13% -15.5% 13% -15.5% 13%-14.5% 11.5%- 13% Interest rate on the Project Loan from BHF Bank, Germany is 6 month’s USD LIBOR +2.25%
- 26. The formula to calculate cost of equity using CAPM model is- 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 = 𝑅𝑓 + 𝛽(𝑅 𝑚 − 𝑅𝑓) 𝑅𝑓 = the cut of yield of 364 days treasury bill of Bangladesh Bank issued on 18/09/2017 𝛽𝑖 = 𝐶𝑜𝑣 (𝑅 𝑚,𝑅 𝑖) 𝑉𝑎𝑟(𝑅 𝑚) = 0.003487313 0.002788213 =1.250734338 Adjusted beta = (1.250734338*2/3) + 1*(1/3) = 1.167156226 𝑪𝒐𝒔𝒕 𝒐𝒇 𝒆𝒒𝒖𝒊𝒕𝒚, 𝐾𝑒 = 𝟒. 𝟐𝟖% + 𝟏. 𝟏𝟔𝟕𝟏𝟓𝟔𝟐𝟐𝟔 𝟖. 𝟎𝟗% − 𝟒. 𝟐𝟖% = 𝟖. 𝟕𝟑% Market Return 0.67% Market Return - Yearly 8.09%
- 27. The formula to calculate WACC is as follows- 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐾 𝑤𝑎𝑐𝑐 = 𝐾𝑒 × 𝑊𝑒 + 𝐾 𝑑 × 𝑊𝑑 (1 − 𝑇) = 8.73% × 0.91 + 7.88% × 0.09 (1 − 0.25) = 8.47% The weighted average cost of capital of Beximco Pharmaceuticals Limited is 8.47%. Tax rate, 𝑇 (Statutory rate) 25% Market price BDT 100.2 Number of shares 405,566,445 Market value of equity BDT 40637757789 Book or market value of debt 4,039,552,765 Weight – equity, 𝑊𝑒 0.91 Weight –debt, 𝑊𝑑 0.09
- 28. Now Presenting ….. Md. Al-Amin ID: 20-155
- 29. Annual GDP 195.08 Billion USD GDP Growth Rate 6.9% (ADB Forecast, FY17) Total Export Target 37.0 Billion USD FOREX Reserve 32.09 Billion USD RMG Export Target 30.3 Billion USD
- 30. Inflation Rate Trend: Decreasing Export Growth: Decreasing 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 2012 2013 2014 2015 2016 Inflation 3.85% 7.54% 7.00% 6.19% 5.52% 3.85% 7.54% 7.00% 6.19% 5.52% Years Inflation Rate
- 31. Pharmaceuticals Industry Overview Highly Concentrated Industry Last 10 year’s sales revenue swelled up to 177.42 85% of the industry is driven by generic drugs Highly Regulated Industry Porter’s Five Forces Analysis High High Low High High
- 32. Particulars 2016 A 2017 E 2018 E 2019 E 2020 E 2021 E EBIT 4,228,735,313 4,492,323,206 4,764,639,572 5,041,537,639 5,319,097,229 Tax rate 25.43% 25.43% 25.43% 25.43% 25.43% EBIT (1-tc) 3,153,310,664 3,349,864,587 3,552,927,214 3,759,406,353 3,966,378,781 Plus: Depreciation 945,578,143 1,048,771,156 1,118,324,354 1,229,132,294 1,384,821,743 Less: Capital investment 2,001,230,352 2,290,408,138 2,632,194,292 3,038,042,460 3,522,292,946 Less: Change in WC 844,273,653 814,893,969 863,848,269 1,339,344,979 1,716,509,128 FCF 1,253,384,802 1,293,333,636 1,175,209,006 611,151,208 112,398,449 Cost of capital 8.47% 8.47% 8.47% 8.47% 8.47% Year 1 2 3 4 5 PV of discount factor 0.9219 0.8499 0.7835 0.7223 0.6659 PV of FCF 1155489621 1099192664 920788706 441443546 74845973 Summation of PV of FCF 3,691,760,510 Terminal growth rate 1.8% Terminal value 1141953306.68 PV of terminal value 760,425,142 Enterprise value 4,452,185,652 Less: Interest bearing debt 4,396,039,400 Equity value 56,146,252 Number of shares outstanding 405,566,445 Value per share 138.44
- 33. OPTIMAL CAPITAL STRUCTURE OF BEXIMCO PHARMACEUTICALS LIMITED Optimal capital structure for a company refers to the mix of debt and equity of the company at which the value of the firm is maximized We have followed two approaches to determine the optimal capital structure of Beximco pharmaceuticals limited- Peer company analysis Quantitative analysis 14.23% 85.77% Current capital structure of Beximco Pharmaceuticals limited Debt Equity
- 34. PEER COMPANY ANALYSIS We have calculated Debt to capital ratios of peer companies of Beximco pharmaceuticals limited and selected the median value as the optimal capital structure- Particulars Book value of debt Book value of equity D/E D/C Beximco 3,826,408,929 23,056,412,409 0.1660 14.234% Central 210,384,974 1,631,717,942 0.1289 11.4209% GSK 9,600,000 2,585,803,000 0.0037 0.3699% Orion 5,759,216,467 17,216,126,018 0.3345 25.0669% Pharma aid 12,860,664 132,445,394 0.0971 8.8507% Renata 3,005,218,454 10,543,077,114 0.2850 22.1815% Square 2,693,932 40,557,494,698 0.0001 0.0066% Median 0.1289 11.4209% Based on peer company analysis the optimal capital structure should be 11% debt and 89% equity.
- 35. Now Presenting ….. Sheikh Sajid Hasan ID: 20-181
- 36. QUANTITATIVE ANALYSIS Based on this method we have calculated WACC for varying levels of debt to equity ratio and tried to determine the optimal capital structure for Beximco pharmaceutical limited- Interest Coverage ratio Estimated bond rating Spread over ratings >8.50 AAA 0.05% 6.50 - 8.50 AA 0.10% 5.50 - 6.50 A+ 0.15% 4.25 - 5.50 A `0.50% 3.00 - 4.25 A- 0.55% 2.50 - 3.00 BBB 0.60% 2.00 - 2.50 BB 0.65% 1.75 - 2.00 B+ 0.70% 1.50 - 1.75 B 2.50% 1.25 - 1.50 B- 3.00% 0.80 - 1.25 CCC 4.00% 0.65 - 0.80 CC 5.00% 0.20 - 0.65 C 6.50% < 0.20 D 8.00% Calculation of marginal cost of debt We have assigned arbitrary ratings for different level of interest coverage ratio based on our assumption Unlevering the current Beta calculated on the basis of CAPM Selecting the desired Debt to equity ratio Levering the Beta based on new Debt to equity ratio and calculating cost of equity using CAPM Calculation of marginal cost of equity
- 37. OPTIMAL CAPITAL STRUCTURE BASED ON QUANTITATIVE ANALYSISWd We D/E Unlevered beta (βu) Levered beta (βL) Average tax rate (T) Cost of equity(Re) Cost of debt(R d) WACC 0.00 1.00 0.00 1.11 1.11 0.25 0.09 0.00 0.0852 0.10 0.90 0.11 1.11 1.21 0.25 0.09 0.06 0.0843 0.14 0.86 0.17 1.11 1.25 0.25 0.09 0.08 0.0860 0.20 0.80 0.25 1.11 1.32 0.25 0.09 0.08 0.0864 0.30 0.70 0.43 1.11 1.47 0.25 0.10 0.08 0.0874 0.40 0.60 0.67 1.11 1.67 0.25 0.11 0.08 0.0891 0.50 0.50 1.00 1.11 1.95 0.25 0.12 0.09 0.0915 0.60 0.40 1.50 1.11 2.37 0.25 0.13 0.11 0.1040 0.70 0.30 2.33 1.11 3.06 0.25 0.16 0.14 0.1229 0.80 0.20 4.00 1.11 4.45 0.25 0.21 0.18 0.1523 0.90 0.10 9.00 1.11 8.63 0.25 0.37 0.23 0.1944 Based on this method the optimal capital structure for Beximco pharmaceuticals limited is 10% debt and 90% equity
- 38. OPTIMAL CAPITAL STRUCTURE FOR BEXIMCO PHARMACEUTICALS LIMITED Based on the previous two method we have decided to take the average of the two methods as the optimal capital structure- 14.23% 85.77% Current capital structure of Beximco Pharmaceuticals limited Debt Equity 10.50% 89.50% Optimal capital structure for Beximco pharmaceuticals limited Debt Equity Why go for higher equity financing? As being a defensive company and having lower correlation with market the cost of equity is significantly lower for Beximco pharmaceuticals limited. Peer companies operating in the industry also follow similar capital structure.
- 39. DIVIDEND POLICY OF BEXIMCO PHARMACEUTICALS LIMITED Dividend payment pattern of Beximco pharmaceuticals limited- 15% 10% 10% 0% 0% 5% 5% 5% 15% 21% 0% 5% 10% 15% 20% 25% 2016(18 months) 2015 2014 2013 2012 Dividend payment pattern Cash dividend Stock dividend Beximco pharmaceuticals pays stable amount of dividend on a cumulative basis (Cash and Stock) Before 2013 Beximco pharmaceuticals mostly paid stock dividends.
- 40. DETERMINATION OF DIVIDEND POLICY THOUGH KEY PARAMETERS 2.1 1.5 1.5 1.5 2 4.33 4.01 4.15 5.06 7.27 48.49% 37.41% 36.10% 29.65% 27.51% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 0 1 2 3 4 5 6 7 8 9 10 2012 2013 2014 2015 2016 Amountintaka year Dividend per share and Earnings per share and dividend payout ratio DPS EPS DPR 7.95 7.11 7.87 8.81 11.56 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 2012 2013 2014 2015 2016 Amountsintaka Year OCF per share Dividend per share of is stable even though the earnings per share has varied over the years. Decreasing payout ratio and increasing EPS implies Beximco wants to pay stable dividends regardless of earnings. Increasing OCF per share implies improving earnings from core operations and earnings quality. Better dividend paying capability
- 41. 5.78 4.86 4.47 4.13 3.75 19.33 19.13 20.84 22.49 26.42 0.00 5.00 10.00 15.00 20.00 25.00 30.00 2012 2013 2014 2015 2016 Year Reserve and retained earnings per share Reserve per share RE per share DETERMINATION OF DIVIDEND POLICY THOUGH KEY PARAMETERS 3.04 1.42 -0.13 0.18 7.73 2.10 1.50 1.50 1.50 2.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00 2012 2013 2014 2015 2016 Amounts in taka Year FCFE and dividend per share DPS FCFE per share As a manufacturing company its has no statutory requirements for reserves. High amounts of Retained earnings per share imply strong solvency and better capability to observe shocks and pay dividends FCFE per share implies how much the company can afford to pay dividends where as DPS shows how much it pays. Even though FCFE per share was negative in 2012 it paid stable dividends From this analysis we can confirm that Beximco pharmaceutical limited follows a “Stable dividend policy”
- 42. ANALYSIS OF DIVIDEND POLICY AND MANAGEMENT PERFORMANCE The amount Beximco could have afforded to pay- Average FCFE per share – Tk 2.45 The amount Beximco actually paid- Average Dividend per share – Tk 1.72 Firm pay out too little as- FCFE > Dividend How managers are doing with the excess cash? Average ROE = 9.04% Average return on capital = 11.78% Cost of equity=8.73% WACC = 8.32% ROE>Cost of equity ROC > WACC Managers have good history of project choice and likely in the future. So managers should be given the flexibility to keep cash and set dividends