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 in the 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 is Rs.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.

DISINVESTMENT
Disinvestment refers to the action of an o r g a n i z a t i o n o r t h e g o v e r n m e n t i n s e l l i n g o r 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 innovative opportunities 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 company

The 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 crore through 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.

IMPACT OF DISINVETNMENT ON BHEL :Profitability (PBDIT/Sales) before and after disinvestment:

Profitability: Hypothesis: ROSA > ROSB Hypothesis is accepted as ROSA ROSB = + 0.0191 Pre disinvestme nt Period (1986-1991) Post disinvest Period (1992-2000) 0.155 2 0.180 0.132 3 0.170 0.121 6 0.161 0.156 6 0.187 0.154 8 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 - LEVB = (-0.146) 0.501 0.430 0.417 0.455 0.462 Pre disinvestment Period (19861991) 0.590 0.548 0.463 0.400 0.306 0.130 0.052 0.063 0.211 Post disinvestment Period (19922000) Hypothesis is accepted as LEVA

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 disinvestment without creating a condition of inflation in the economy.

(Rs crore)

Balance sheet
Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08

Sources of funds
Owner's fund Equity share capital Share application money Preference share capital Reserves & surplus 489.52 24,883.69 489.52 19,664.32 489.52 15,427.84 489.52 12,449.29 489.52 10,284.69

Loan funds
Secured loans Unsecured loans Total 123.43 25,496.64 163.35 20,317.19 127.75 16,045.11 149.37 13,088.18 95.18 10,869.39

Uses of funds
Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments 9,729.62 5,409.83 4,319.79 1,324.63 461.67 8,049.30 4,648.82 3,400.48 1,762.62 439.17 6,579.70 4,164.74 2,414.96 1,550.49 79.84 5,224.43 3,754.47 1,469.96 1,212.70 52.34 4,443.03 3,462.21 980.82 658.47 8.29

Net current assets

Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total 60,669.93 41,279.38 19,390.55 25,496.64 61,214.87 46,499.95 14,714.92 20,317.19 44,515.53 32,515.71 11,999.82 16,045.11 38,743.86 28,390.68 10,353.18 13,088.18 33,463.46 24,241.65 9,221.81 10,869.39

Notes:
Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity sharesoutstanding (Lacs) 461.67 2,424.33 24476.00 439.17 2,324.26 4895.20 79.84 2,538.13 4895.20 52.34 2,546.25 4895.20 8.29 1,673.19 4895.20