Dinvestment in Bhel Assingment

7/31/2019 Dinvestment in Bhel Assingment

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ASSINGMENT NO:-1 OF MANAGERIAL ACCOUNTING

DINVESTMENT IN BHEL

Introduction:-

Bharat Heavy Electricals Limited(BHEL) in terms of turnover

is a huge engineering and manufacturing companies in India. It was established inthe year 1964 . Since 1971- 72 company has been earning enormous profit

continuously. BHEL is heavy electrical equipment industry in India.

BHEL is the 12th

largest in the world in terms of power

equipment manufacturer. It ranked 9th

most innovative company in the world by

US business magazine Forbes in the year 2011.It has been exporting its power and

industrial segments products and services since 40 years. Over 75 countries the

global reference of BHEL is spreaded.

It is engaged in the design, engineering, manufacture,

construction, testing, commissioning and servicing of a wide range of products and

services for the core sectors of the economy, viz. Power, Transmission, Industry,

Transportation, Renewable Energy, Oil & Gas and Defence. It consists of near

about 15 manufacturing divisions, two repair units, four regional offices, eight

service centers, also it has eight overseas offices and 15 regional centres. At

present BHEL is operating 150 projects sites across India and abroad.

FINANCIAL HIGHLIGHTS: In 2011-12 the profit earned before tax isRs.10302 crore and in 2010-11 it was Rs.9005 crores. And the profit earned

after tax in 2011-12 is Rs.7040 crore and in 2010-11 it was Rs. 6011 crores. A

growth of about 17.1% compared to the previous year has been witnessed.


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DISINVESTMENT

D i s i n v e s t m e n t r e f e r s t o t h e a c t i o n o f a n

o rg an iz a t io n o r th e go ve rn me nt in s e l l i ng or liquidating an asset

or subsidiary. In simple words, disinvestment is the withdrawal of capitalfrom a

country or corporation.

The major factors that take place under disivestment are

OWNERSHIP CHANGES

EXPROPRIATION

NATIONALIZATION

SALES OF ASSESTS

LIQUIDATION AND DOMESTIC ECONOMIC RECESSION

Disinvestment is caused when profits or returns from innovativeopportunities are in plenty of those from exiting projects in the current.

Withdrawing of capital done from a corporation is disinvestment or

divestiture.The action of an organization or government selling or government

selling or liquidating an asset is also termed as disinvestment.

Disinvestment of 5% made by the companyThe government was facing financial deficit and they could not find any

financial sources to raise the funds. The share prices of the company were also

falling down. So they came up with the idea of 5% stake disinvestment in

BHEL as a part of Centres ambitious programme to mop up rs 40000 crorethrough public sector . Ten % of the disinvested shares would be reserved for

employees.

Initially government had 67.72 % stake in BHEL company and

after the disinvestment of 5% stake government was left with 62.72%

shareholdings. Governments main aim behind disinvesting 5% stakes was to

raise the funds by giving 5% shares to the private sectore as the private sectore

investment would bring the desired amount of money to the government.

The share auction was a very comfortable option for the

government as it requires less time, less paperwork, less cost and give early profits.

BHEL also approved the split shares having a face value of Rs 10 into five shares

of Rs 2 each. The BHELs board did not approve of 10% disinvest because it

would have given lots of power in the hands of private sectore which would be

risky so they approved of only 5% disinvestment.


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IMPACT OF DISINVETNMENT ON BHEL :-

Profitability (PBDIT/Sales) before and after disinvestment:

Profitability:

Hypothesis: ROSA > ROSB

Hypothesis is accepted as ROSAROSB = + 0.0191

Pre

disinvestme

nt Period

(1986-1991)

0.155

2

0.132

3

0.121

6

0.156

6

0.154

8

Post

disinvest

Period

(1992-2000)

0.180 0.170 0.161 0.187 0.220 0.18

6

0.16

3

0.15

7

0.07

8

After the disinvestment their was an increase in the profitability in

accordance to BHEL . Post disinvestment time means of returns on sales ratio is

appreciably higher than the similar ratio of pre disinvestment time.

Leverage (Debt/ Asset) before and after disinvestment:

Hypothesis: LEVA > LEVB Hypothesis is accepted as LEVA

- LEVB = (-0.146)

Pre

disinvestment

Period (1986-1991)

0.501 0.430 0.417 0.455 0.462

Post

disinvestment

Period (1992-

2000)

0.590 0.548 0.463 0.400 0.306 0.130 0.052 0.063 0.211


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The debt-equity ratio is lower in post disinvestment, and the smame ratio displays

an increase in cost of debt after dilution of government equity. Also a reduction in

leverage is found after disinvestment

The funds of the company started rising after the disinvestmentwithout creating a condition of inflation in the economy.


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(Rs crore)

Balance sheet

Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08

Sources of funds

Owner's fund

Equity share capital 489.52 489.52 489.52 489.52 489.52

Share application money - - - - -

Preference share capital - - - - -

Reserves & surplus 24,883.69 19,664.32 15,427.84 12,449.29 10,284.69

Loan funds

Secured loans - - - - -

Unsecured loans 123.43 163.35 127.75 149.37 95.18

Total 25,496.64 20,317.19 16,045.11 13,088.18 10,869.39

Uses of funds

Fixed assets

Gross block 9,729.62 8,049.30 6,579.70 5,224.43 4,443.03

Less : revaluation reserve - - - - -

Less : accumulated depreciation 5,409.83 4,648.82 4,164.74 3,754.47 3,462.21

Net block 4,319.79 3,400.48 2,414.96 1,469.96 980.82

Capital work-in-progress 1,324.63 1,762.62 1,550.49 1,212.70 658.47

Investments 461.67 439.17 79.84 52.34 8.29

Net current assets

Current assets, loans & advances 60,669.93 61,214.87 44,515.53 38,743.86 33,463.46

Less : current liabilities & provisions 41,279.38 46,499.95 32,515.71 28,390.68 24,241.65

Total net current assets 19,390.55 14,714.92 11,999.82 10,353.18 9,221.81

Miscellaneous expenses not written - - - - -

Total 25,496.64 20,317.19 16,045.11 13,088.18 10,869.39

Notes:

Book value of unquoted investments 461.67 439.17 79.84 52.34 8.29

Market value of quoted investments - - - - -

Contingent liabilities 2,424.33 2,324.26 2,538.13 2,546.25 1,673.19

Number of equity sharesoutstanding (Lacs) 24476.00 4895.20 4895.20 4895.20 4895.20


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Dinvestment in Bhel Assingment