Capital budgeting is the process used by organizations to determine whether long-term investments are worth pursuing. It involves evaluating investments using formal methods like net present value, internal rate of return, and payback period. Dividend policy refers to a company's decision to retain or distribute profits to shareholders as dividends. Factors that influence dividend policy include stability of earnings, liquidity, needs for additional capital, government policies, taxation, and past dividend rates. Tech Mahindra is an Indian IT services company that provides consulting and services to telecommunications companies globally.

1. Introduction:
Capital budgeting:
Capital budgeting (or investment appraisal) is the planning process used to determine whether
an organisation's long term investments such as new machinery, replacement machinery, new
plants, new products, and research development projects are worth pursuing. It is budget for
major capital, or investment, expenditures.[1]
Many formal methods are used in capital budgeting, including the techniques such as
 Accounting rate of return
 Net present value
 Profitability index
 Internal rate of return
 Modified internal rate of return
 Equivalent annuity
These methods use the incremental cash flows from each potential investment,
or project Techniques based on accounting earnings and accounting rules are sometimes used -
though economists consider this to be improper - such as the accounting rate of return, and
"return on investment." Simplified and hybrid methods are used as well, such as payback
period and discounted payback period.
Dividend policy:
Once a company makes a profit, they must decide on what to do with those profits. They could
continue to retain the profits within the company, or they could pay out the profits to the
owners of the firm in the form of dividends. Once the company decides on whether to pay
dividends, they may establish a somewhat permanent dividend policy, which may in turn
impact on investors and perceptions of the company in the financial markets. What they decide
depends on the situation of the company now and in the future. It also depends on the
preferences of investors and potential investors.
Factors effecting dividend policy:
. Stability of Earnings. The nature of business has an important bearing on the dividend policy.
Industrial units having stability of earnings may formulate a more consistent dividend policy

2. than those having an uneven flow of incomes because they can predict easily their savings and
earnings. Usually, enterprises dealing in necessities suffer less from oscillating earnings than
those dealing in luxuries or fancy goods.
2. Age of corporation. Age of the corporation counts much in deciding the dividend policy. A
newly established company may require much of its earnings for expansion and plant
improvement and may adopt a rigid dividend policy while, on the other hand, an older
company can formulate a clear cut and more consistent policy regarding dividend.
3. Liquidity of Funds. Availability of cash and sound financial position is also an important factor
in dividend decisions. A dividend represents a cash outflow, the greater the funds and the
liquidity of the firm the better the ability to pay dividend. The liquidity of a firm depends very
much on the investment and financial decisions of the firm which in turn determines the rate of
expansion and the manner of financing. If cash position is weak, stock dividend will be
distributed and if cash position is good, company can distribute the cash dividend.
4. Extent of share Distribution. Nature of ownership also affects the dividend decisions. A
closely held company is likely to get the assent of the shareholders for the suspension of
dividend or for following a conservative dividend policy. On the other hand, a company having a
good number of shareholders widely distributed and forming low or medium income group,
would face a great difficulty in securing such assent because they will emphasise to distribute
higher dividend.
5. Needs for Additional Capital. Companies retain a part of their profits for strengthening their
financial position. The income may be conserved for meeting the increased requirements of
working capital or of future expansion. Small companies usually find difficulties in raising
finance for their needs of increased working capital for expansion programmes. They having no
other alternative, use their ploughed back profits. Thus, such Companies distribute dividend at
low rates and retain a big part of profits.
6. Trade Cycles. Business cycles also exercise influence upon dividend Policy. Dividend policy is
adjusted according to the business oscillations. During the boom, prudent management creates
food reserves for contingencies which follow the inflationary period. Higher rates of dividend
can be used as a tool for marketing the securities in an otherwise depressed market. The
financial solvency can be proved and maintained by the companies in dull years if the adequate
reserves have been built up.
7. Government Policies. The earnings capacity of the enterprise is widely affected by the change
in fiscal, industrial, labour, control and other government policies. Sometimes government
restricts the distribution of dividend beyond a certain percentage in a particular industry or in
all spheres of business activity as was done in emergency. The dividend policy has to be
modified or formulated accordingly in those enterprises.

3. 8. Taxation Policy. High taxation reduces the earnings of he companies and consequently the
rate of dividend is lowered down. Sometimes government levies dividend-tax of distribution of
dividend beyond a certain limit. It also affects the capital formation. N India, dividends beyond
10 % of paid-up capital are subject to dividend tax at 7.5 %.
9. Legal Requirements. In deciding on the dividend, the directors take the legal requirements
too into consideration. In order to protect the interests of creditors an outsiders, the
companies Act 1956 prescribes certain guidelines in respect of the distribution and payment of
dividend. Moreover, a company is required to provide for depreciation on its fixed and tangible
assets before declaring dividend on shares. It proposes that Dividend should not be distributed
out of capita, in any case. Likewise, contractual obligation should also be fulfilled, for example,
payment of dividend on preference shares in priority over ordinary dividend.
10. Past dividend Rates. While formulating the Dividend Policy, the directors must keep in mind
the dividend paid in past years. The current rate should be around the average past rat. If it has
been abnormally increased the shares will be subjected to speculation. In a new concern, the
company should consider the dividend policy of the rival organisation.
11. Ability to Borrow. Well established and large firms have better access to the capital market
than the new Companies and may borrow funds from the external sources if there arises any
need. Such Companies may have a better dividend pay-out ratio. Whereas smaller firms have to
depend on their internal sources and therefore they will have to built up good reserves by
reducing the dividend pay out ratio for meeting any obligation requiring heavy funds.
12. Policy of Control. Policy of control is another determining factor is so far as dividends are
shareholders and therefore, declare a dividend at low rate. Because by adding new
shareholders they fear dilution of control and diversion of policies and programmes of the
existing management. So they prefer to meet the needs through retained earing. If the
directors do not bother about the control of affairs they will follow a liberal dividend policy.
Thus control is an influencing factor in framing the dividend policy.
13. Repayments of Loan. A company having loan indebtedness are vowed to a high rate of
retention earnings, unless one other arrangements are made for the redemption of debt on
maturity. It will naturally lower down the rate of dividend. Sometimes, the lenders (mostly
institutional lenders) put restrictions on the dividend distribution still such time their loan is
outstanding. Formal loan contracts generally provide a certain standard of liquidity and
solvency to be maintained. Management is bound to hour such restrictions and to limit the rate
of dividend payout.
14. Time for Payment of Dividend. When should the dividend be paid is another consideration.
Payment of dividend means outflow of cash. It is, therefore, desirable to distribute dividend at
a time when is least needed by the company because there are peak times as well as lean
periods of expenditure. Wise management should plan the payment of dividend in such a
manner that there is no cash outflow at a time when the undertaking is already in need of

4. urgent finances.
15. Regularity and stability in Dividend Payment. Dividends should be paid regularly because
each investor is interested in the regular payment of dividend. The management should, inspite
of regular payment of dividend, consider that the rate of dividend should be all the most
constant. For this purpose sometimes companies maintain dividend equalization Fund.

5. Background of the company:
Tech Mahindra is part of the US $8.25 billion Mahindra Group, in partnership with British
Telecommunications plc (BT), one of the world’s leading communications service providers. Focused
primarily on the telecommunications industry, Tech Mahindra is a leading global systems integrator and
business transformation consulting organization. Tech Mahindra has recently expanded its IT portfolio
by acquiring the leading global business and information technology services company, Mahindra
Satyam (earlier known as Satyam Computer Services).
Tech Mahindra’s capabilities spread across a broad spectrum, including Business Support Systems (BSS),
Operations Support Systems (OSS), Network Design & Engineering, Next Generation Networks, Mobility
Solutions, Security consulting and Testing. The solutions portfolio includes Consulting, Application
Development & Management, Network Services, Solution Integration, Product Engineering,
Infrastructure Managed Services, Remote Infrastructure Management and BPO. With an array of service
offerings for TSPs, TEMs and ISVs, Tech Mahindra is a chosen transformation partner for several leading
wireline, wireless and broadband operators in Europe, Asia-Pacific and North America.
Tech Mahindra has successfully implemented more than 15 Greenfield Operations globally and has
over 126 active customer engagementsmostly in the Telecom sector. The company has been involved in
about 8 transformation programs of incumbent telecom operators.
In the Telecom sector, Tech Mahindra has niche and proven domain expertise, distinctive IT skills,
research and development, innovative delivery models and approach to off-shoring. Company’s
solutions enable clients to maximize returns on IT investment by achieving faster time to market,
reduced total cost of ownership resulting into high levels of customer satisfaction. Tech Mahindra’s
achievements have been recognized by various industry analysts, forums and clients – winning several
prestigious awards and accolades.
Tech Mahindra has a global footprint through operations in more than 25 countries with 17 sales offices
and 13 delivery centers. Assessed at SEI CMMi Level 5, Tech Mahindra's track record for value delivery is
supported by over 34, 200 professionals who provide a unique blend of culture, domain expertise and in
depth technology skill sets. Its development centers are ISO 9001:2008 & BS7799 certified.

6. Company history:
History
Tech Mahindra was incorporated as a joint venture between Mahindra & Mahindra and British
Telecom plc in 1986 under the name of ‘Mahindra British Telecom’. Later, the name was
changed to ‘Tech Mahindra’, to reflect the diversification and growth of the client base and the
increased breadth of our service offerings.
Milestones
1986 Incorporation in India
1987 Commencement of Business
1993 Incorporation of MBT International Inc., the first overseas subsidiary
1994 Awarded the ISO 9001 certification by BVQI
1995 Established the UK branch office
2001 Incorporated MBT GmbH, Germany incorporated
Re-certified to ISO 9001:1994 by BVQI
2002 Assessed at Level 5 of SEI CMM by KPMG
Incorporated MBT Software Technologies Pte. Limited, Singapore
2003 Re-certified to ISO 9001:2000 by RWTUV
2005 Certified to BS 7799-2:2002 (Information Security Management Framework) by RWTUV now known as TUV Nord
Acquired Axes Technologies (India) Private Limited, including its US and Singapore subsidiaries
Assessed at Level 5 of SEI CMMI by KPMG
2006 Name changed to Tech Mahindra Limited Assessed at Level 5 of SEI People-CMM (P-CMM) by QAI India
Raised Rs 4.65 billion ($100 million) from a hugely successful IPO to build a new facility in Pune, to house about 9,000
staff
Formed a JV with Motorola Inc. under the name CanvasM
2007 Acquired iPolicy Networks Private Limited
Launched the Tech Mahindra Foundation to address the needs of the underprivileged in our society, especially
children

7. 2009 With Satyam acquisition, Tech Mahindra is well positioned to be a leader in the broader IT services space, serving a
wide array of industry verticals like banking and financial services, manufacturing, energy and utilities in addition to
telecom
2010 AT&T 2010 Supplier Award for outstanding performance & service to AT& T and its affiliates
Expands footprint in Latin America

8. Literature review:
1. Institutional Holdings and Payout Policy
MICHAELY, RONI
This paper examines the relation between institutional holdings and payout policy in U.S. public
firms. We find that payout policy affects institutional holdings. Institutions avoid firms that do
not pay dividends. However, among dividend-paying firms they prefer firms that pay fewer
dividends. Our evidence indicates that institutions prefer firms that repurchase shares, and
regular repurchasers over nonregular repurchasers. Higher institutional holdings or a
concentration of holdings do not cause firms to increase their dividends, their repurchases, or
their total payout. Our results do not support models that predict that high dividends attract
institutional clientele, or models that predict that institutions cause firms to increase payout.
2. Corporate Dividend Policy: The Views of British Financial Managers.
Dhanani, Alpa
Using a survey approach, this paper examines the importance and relevance of the various
theories of dividend policy for UK companies. Further, it evaluates the extent to which
corporate characteristics such as size and industry influence managerial responses to the
survey. In general, the results support dividend hypotheses relating to signalling and ownership
structure, in preference to those about capital structure and investment decisions and agency
issues. At a more detailed level, the cross sectional analysis reveals important differences
between managers’ responses, based on company size, industry sector, growth opportunities,
ownership structure and information asymmetry
3. FOCUS ON PRESENT STATUS AND DETERMINANTS OF DIVIDEND PAYOUT POLICY:
ATHENS STOCK EXCHANGE IN PERSPECTIVE
Papadopoulos, Dimitrios L.1
Charalambidis, Dimitrios P.
In this paper we investigate the present status and determinants of dividend policy of firms
listed in the Athens Stock Exchange. We find that: a) payout policy is subjected to minor
changes through years, b) most firms distribute no special dividends, c) differences between
dividend policy of retail firms and that of industrial firms are minor, d) the variables used
explain only a small proportion of dividend policy's variability and e) cash flow is the main
determinant of dividend policy.

9. 4. Ben Naceur, Samy1 sbennaceur@lycos.com
Goaied, Mohamed1
Belanes, Amel
The authors study the dividend policy of 48 firms listed on the Tunisian Stock Exchange during
the period 1996–2002. The study tests whether or not managers of Tunisian listed firms smooth
their dividends. Moreover, the study outlines the main determinants that may drive the
dividend policy of Tunisian quoted firms. To answer the first question, we use Lintner's model in
a dynamic setting. The results clearly demonstrate that Tunisian firms rely on both current
earnings and past dividends to fix their dividend payment. However, the study shows that
dividends tend to be more sensitive to current earnings than prior dividends. To find out the
determinants of dividend policy, dynamic panel regressions have been performed. First,
profitable firms with more stable earnings can afford larger free cash flows and thus pay larger
dividends. Furthermore, they distribute larger dividends whenever they are growing fast.
However, neither the ownership concentration nor the financial leverage seems to have any
impact on dividend policy in Tunisia. Also, the liquidity of stock market and size negatively
impacts the dividend payment. The results are somewhat robust to different specifications
5. Dividend Policy and Reputation.
Gillet, Roland1,2
Lapointe, Marc-André3 marc-andre.lapointe2@USherbrooke.ca
Raimbourg, Philippe1,4
We examine the role of reputation when firms use dividends to signal their profitability. We
analyze a signaling model in which reputation plays no role in equilibrium. We then show that
taking reputation into account as a link between sequential dividend decisions makes it possible
to endogenize signaling costs and obtain a separating equilibrium. Lastly, we use the
reversibility hypothesis and assume that in each period, managers can reverse their choices in
terms of dividend distribution. We find that in most cases, the signaling equilibrium becomes
unstable, causing any dividend signaling policy to become difficult to implement.

10. Objectives of study:
 Dividend policy of Tech Mahindra Ltd.
 Why falling DPS?
 Why falling DPR?
 Effects of the recent Satyam deal on the company capital budgeting decisions
 Future of the riskiness of the firm

11. Research Methodology and tools used:
Data collection is from secondary sources like capitaline, reuters finance, moneycontrol.com etc
Tools that we are using are as follows:
Single factor Regression:
In statistics, regression analysis includes any techniques for modelling and analyzing several
variables, when the focus is on the relationship between a dependent variable and one or
moreindependent variables. More specifically, regression analysis helps us understand how the
typical value of the dependent variable changes when any one of the independent variables is
varied, while the other independent variables are held fixed. Most commonly, regression
analysis estimates the conditional expectation of the dependent variable given the independent
variables — that is, the average value of the dependent variable when the independent
variables are held fixed. Less commonly, the focus is on a quantile, or other location
parameter of the conditional distribution of the dependent variable given the independent
variables. In all cases, the estimation target is a function of the independent variables called
the regression function. In regression analysis, it is also of interest to characterize the variation
of the dependent variable around the regression function, which can be described by
a probability distribution.

12. Objective one: To study the dividend policy of the company:
In studying the dividend policy of the company we have used the data about the dividend yield
of the company and the expected profits. We have regressed the difference between the
expected and actual profit and the dividend yeild.
The regression table( between BSE IT data and APATM):
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.979952
R Square 0.960305
Adjusted R
Square 0.940458
Standard
Error 3.233353
Observation
s 4
ANOVA
Significan
df SS MS F ce F
505.840 48.3846
Regression 1 505.8409 9 5 0.020048
10.4545
Residual 2 20.90914 7
Total 3 526.75
Coefficien Standard Lower Upper Lower Upper
ts Error t Stat P-value 95% 95% 95.0% 95.0%
- 0.91987 24.3924 - 24.3924
Intercept -0.66198 5.823014 0.11368 2 -25.7164 3 25.7164 3
6.95590 0.02004 8.04730 1.89647 8.04730
X Variable 1 4.971887 0.714772 8 8 1.896472 3 2 3

13. The regression table( between BSE data and APATM):
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.996324
R Square 0.992661
Adjusted R
Square 0.988992
Standard
Error 1.390258
Observation
s 4
ANOVA
Significan
df SS MS F ce F
522.884 270.529
Regression 1 522.8844 4 6 0.003676
1.93281
Residual 2 3.865635 8
Total 3 526.75
Coefficien Standard Lower Upper Lower Upper
ts Error t Stat P-value 95% 95% 95.0% 95.0%
4.72889 0.04192 0.81331
Intercept 9.023103 1.908077 9 6 0.813311 17.2329 1 17.2329
16.4477 0.00367 5.01472 2.93509 5.01472
X Variable 1 3.974907 0.241668 8 6 2.935093 2 3 2
Analysis:
 Dividend policy of Tech Mahindra is based upon this model
 Regressing the difference between actual and expected rate of growth with the dividend yield
gives R square > 99%
 Thus the dividend policy is based upon the difference between actual and expected rate of
growth
 The model given supports the fact that more than 99% of the change in the dividend yeild is
because of the difference between the expected and actual return

14. Objective two: To study the effect of the Satyam acquisition:
Regression table between the beta levered and beta unlevered after the deal:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.721445
R Square 0.520483
Adjusted R Square -2
Standard Error 0.045873
Observations 1
ANOVA
df SS MS F Significance F
Regression 4 0.004568 0.001142 2.17086 #NUM!
Residual 2 0.004209 0.002104
Total 6 0.008777
Standard Upper Low
Coefficients Error t Stat P-value Lower 95% 95% 95.
Intercept -2.2
X Variable 1 0.18
X Variable 2 0.23
X Variable 3 0.559587 0.184909 3.026282 0.094041 -0.236012621 1.355187 -0.2
X Variable 4 0.352294 0.239106 1.473384 0.278555 -0.676494057 1.381083 -0.6

15. Regression table between the beta levered and beta unlevered before the deal:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.721445
R Square 0.520483
Adjusted R Square -2
Standard Error 0.045873
Observations 1
ANOVA
df SS MS F Significance F
Regression 4 0.004568 0.001142 2.17086 #NUM!
Residual 2 0.004209 0.002104
Total 6 0.008777
Standard Upper Low
Coefficients Error t Stat P-value Lower 95% 95% 95.
Intercept -2.2
X Variable 1 0.18
X Variable 2 0.23
X Variable 3 0.559587 0.184909 3.026282 0.094041 -0.236012621 1.355187 -0.2
X Variable 4 0.352294 0.239106 1.473384 0.278555 -0.676494057 1.381083 -0.6
Analysis:
 The beta of the company post the Satyam deal is not a good measure to determine the
cost of equity.
 The unlevered beta cannot be used to evaluate projects in any form of capital budgeting
 The soon due share swap and merger between TechM and Mahindra Satyam would
depend more on the market cap of the companies
The beta levered of the firm has a very close relationship with the profit margin of Satyam.

16. Appendix 1:
1200
1000
800
600 pat
no. of shares
400
200
0
1 2 3 4
Appendix 2:
90
80
70
60
50
dps
40
eps
30
20
10
0
1 2 3 4

17. Appendix 3:
122.6
122.4
122.2
122
121.8
121.6
no. of shares
121.4
121.2
121
120.8
120.6
1 2 3 4
Appendix 4:
50
45
40
35
30
25
Series1
20
15
10
5
0
1 2 3 4