SAMVAD: International Journal of Management

Open Access Open Access  Restricted Access Subscription Access

An Application of Dividend Discount Model to Telecom Service Companies of India


Affiliations
1 The Maharaja Sayajirao University of Baroda, Vadodara, India
 

Purpose: The paper aims at applying the single period dividend discount model to ascertain the intrinsic value of the select telecom service companies of India. It also investigates the association between the intrinsic value of select companies' stocks and profitability measures like, ROE, ROCE and net profit.

Design/Methodology/Approach: A descriptive and an analytical research design are used in the study. The secondary data relating to stock price, beta values, dividend per share and financial ratios were culled from CAPITALINE database. The study covers the nine year time period ranging from 2006 to 2014. The data relating to the risk free rate were taken from the Reserve bank of India website. A stepwise multiple regression analysis is used to examine the relationship between intrinsic value per share and ROE, ROCE and net profit.

Findings: The study finds that Tata Communications Ltd recorded highest mean intrinsic value during the study period. The results of stepwise multiple regressions suggest that ROCE is statistically significantly related to intrinsic value per share. ROE and net profit are found to be statistically insignificant while explaining variation in the intrinsic value of the sample companies' stocks. Implications: The results of the study imply that by maximizing ROCE managers can enhance the intrinsic value of the company's stock. This will compel managers to focus more on ROCE that in turn will maximize the operational efficiency.


Keywords

Intrinsic Value, ROCE, ROE, Net Profit.
User
Notifications
Font Size

  • Bollerslev, T. & Hodrick, R. (1995). Financial Market Efficiency Tests. In: Pesaran, M. & Wickins M. (editors), The Handbook of Applied Econometrics I - Macroeconomics.

  • Donaldson, R. & Kamstra, M. (1996). Using Dividend Forecasting Models to Reject Bubbles in Asset Prices: The Case of the Crash of 1929, Review of Financial Studies, 9, 333-383.

  • Fairfield, P. (1994). P/E, P/B and the Present Value of Future Dividends. Financial Analysts Journal, 23-31.

  • Fama, E. & French, K. (1988). Dividend Yields and Expected Stock Returns, Journal of Financial Economics, 22, 3-25.

  • Francis, J. (1986). Investments, 4th ed. New York: McGraw-Hill.

  • Gordon, M. & Eli, S. (1956). Capital Equipment Analysis: The Required Rate of Profit, Management Science, 3(1), 102-110.

  • Gottwald, R. (2012). The use of the dividend discount model to measure stock price volatility, Journal of Interdisciplinary Research, 24-26.

  • Ivanovski, Z., Nadica I., & Narasanov, Z. (2015). Application of Dividend Discount Model Valuation at Macedonian Stock-Exchange. UTMS Journal of Economics, 6(1), 147–154.

  • Rappaport A. (1986). The Affordable Dividend Approach to Equity Valuation. Financial Analysts Journal, 42(4), 52-58.

  • Schreiner, A. (2007). Equity Valuation Using Multiples: An Empirical Investigation. (Doctoral Dissertation). Retrieved from http://verdi.unisg.ch/www/edis.nsf/SysLkpByIdentifier/3313/$FILE/dis3313.pdf


Abstract Views: 442

PDF Views: 153




  • An Application of Dividend Discount Model to Telecom Service Companies of India

Abstract Views: 442  |  PDF Views: 153

Authors

Bhargav Pandya
The Maharaja Sayajirao University of Baroda, Vadodara, India

Abstract


Purpose: The paper aims at applying the single period dividend discount model to ascertain the intrinsic value of the select telecom service companies of India. It also investigates the association between the intrinsic value of select companies' stocks and profitability measures like, ROE, ROCE and net profit.

Design/Methodology/Approach: A descriptive and an analytical research design are used in the study. The secondary data relating to stock price, beta values, dividend per share and financial ratios were culled from CAPITALINE database. The study covers the nine year time period ranging from 2006 to 2014. The data relating to the risk free rate were taken from the Reserve bank of India website. A stepwise multiple regression analysis is used to examine the relationship between intrinsic value per share and ROE, ROCE and net profit.

Findings: The study finds that Tata Communications Ltd recorded highest mean intrinsic value during the study period. The results of stepwise multiple regressions suggest that ROCE is statistically significantly related to intrinsic value per share. ROE and net profit are found to be statistically insignificant while explaining variation in the intrinsic value of the sample companies' stocks. Implications: The results of the study imply that by maximizing ROCE managers can enhance the intrinsic value of the company's stock. This will compel managers to focus more on ROCE that in turn will maximize the operational efficiency.


Keywords


Intrinsic Value, ROCE, ROE, Net Profit.

References