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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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