Business Case Studies, Financial Management & Corporate Finance Case Study, Banking, Dividend Discount Model

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Financial Management & Corporate Finance Case Study

Case Title:

Indian Banking Sector: Pricing the Stock through Dividend Discount Model

Publication Month & Year : July 2009

Authors: Mora Sowjanya & D. Satish

Industry: Financial Services


Case Code: FM0010

Teaching Note: Available

Structured Assignment: Available

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This case study was primarily written to understand the practicality of Dividend Discount Model (DDM) in valuing a stock price.There are various approaches for valuing the price of a stock and one of the most popular approaches is the DDM. It provides a means of developing an explicit expected return for the stock market. Besides, it is used to estimate the attractiveness of a security relative to its universe and is principally applied to stock selection. Further, the case study analyses the dividend trends in the Indian banking sector. It includes an evaluation of the share price of three banking companies–Housing Development Finance Corporation Limited Bank (HDFC), Punjab National Bank (PNB) and State Bank of India (SBI) through DDM and attempts to answer the following questions –Do the share price calculated through DDM and the share price prevailing in the market remain same? If no, then what are the reasons for such differences? What are the different factors that affect the dividend payouts of the companies?

Pedagogical Objectives:

  • To understand the background of the Indian banking sector
  • To analyse the various forms of valuing the price of a stock
  • To analyse the application of Dividend Discount Model in valuing the price of a stock.

Keywords : Dividends; Miller and Modigliani Model; Dividend Discount Model; Indian Banking Sector; Earnings Per Share; Dividend growth rate; Equity Valuation; Financial Management Course Case; Course Case Maps; Course Case Packs; Finance for Managers; Managerial Finance; Business Finance; Corporate Finance; Financial Management Course Case Pack; MBA; Financial Management; Principles of Financial Management

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