Term Paper Fm Upload

8/8/2019 Term Paper Fm Upload

1/20

TERM PAPEROF

Financial management

ON

Comparative study of capital

structure of: BHEL and tata

steel ltd.

SUBMITTED TO:

SUBMITTED BY:

Ms. Swati Goyal

TARUN KUMAR

INSTRUCTOR- Financial MBA-

IB

Management ROLL

NO:A12


2/20

(MGT-517) REDG

NO:10903728


3/20

AcknowledgementNo serious and lasting achievement or success one

ever achiever without the friendly guidance and

cooperation of many people involved in the work.

Foremost of all, I express my gratitude to the

almighty for his blessings and for vesting wisdom in

all wishes.

I am also thankful to my subjectteacher SWATI GOYAL mam who has helped me a lot

each and every time when I had some default. Words

are not sufficient to register my sincere to my loving

parents for their deep affection and unabated

inspiration that really kept me going. They were and

unending source of strength and perseverance during

the course of the studys place my thanks to all thosewho spread their time and made it convenient for me

to complete the research. Last but not the least, I also

wish to red cord my gratitude for any person or

persons my memory has failed to recall, who

rendered his/her/their support and services.

Yours obediently,

TARUN KUMAR

Roll no. A12


4/20

Sec.1906

REG no.10903728

Capital structureThe term capital structure refers to the percentage of capital

(money) at work in a business by type. Broadly speaking,

there are two forms of capital: equity capital and debt capital.

Each has its own benefits and drawbacks and a substantial

part of wise corporate stewardship and management is

attempting to find the perfect capital structure in terms of

risk / reward payoff for shareholders. This is true for Fortune

500 companies and for small business owners trying to

determine how much of their startup money should come

from a bank loan without endangering the business.

Equity Capital:This refers to money put up andowned by the shareholders (owners). Typically, equity

capital consists of two types: 1.) contributed capital, whichis the money that was originally invested in the business inexchange for shares of stock or ownership and 2.) retainedearnings, which represents profits from past years thathave been kept by the company and used to strengthenthe balance sheet or fund growth, acquisitions, orexpansion.Many consider equity capital to be the most expensive typeof capital a company can utilize because its "cost" is thereturn the firm must earn to attract investment. Aspeculative mining company that is looking for silver in aremote region of Africa may require a much higher returnon equity to get investors to purchase the stock than a firm


5/20

such as Procter & Gamble, which sells everything fromtoothpaste and shampoo to detergent and beauty products.

Debt Capital: The debt capital in a company's

capital structure refers to borrowed money that is at workin the business. The safest type is generally consideredlong-term bonds because the company has years, if notdecades, to come up with the principal, while payinginterest only in the meantime.Other types of debt capital can include short-termcommercial paper utilized by giants such as Wal-Mart andGeneral Electric that amount to billions of dollars in 24-hourloans from the capital markets to meet day-to-day workingcapital requirements such as payroll and utility bills. Thecost of debt capital in the capital structure depends on thehealth of the company's balance sheet - a triple AAA ratedfirm is going to be able to borrow at extremely low ratesversus a speculative company with tons of debt, which mayhave to pay 15% or more in exchange for debt capital.

Other Forms of Capital: There are actuallyother forms of capital, such as vendor financing where acompany can sell goods before they have to pay the bill tothe vendor, that can drastically increase return on equitybut don't cost the company anything. This was one of thesecrets to Sam Walton's success at Wal-Mart. He was oftenable to sell Tide detergent before having to pay the bill toProcter & Gamble, in effect, using PG's money to grow hisretailer. In the case of an insurance company, thepolicyholder "float" represents money that doesn't belongto the firm but that it gets to use and earn an investmenton until it has to pay it out for accidents or medical bills, inthe case of an auto insurer. The cost of other forms of

capital in the capital structure varies greatly on a case-by-case basis and often comes down to the talent anddiscipline of managers.


6/20

Seeking the Optimal Capital Structure

Many middle class individuals believe that the goal in life is tobe debt-free . When you reach the upper echelons of finance,

however, that idea is almost anathema. Many of the mostsuccessful companies in the world base their capital structureon one simple consideration: the cost of capital. If you canborrow money at 7% for 30 years in a world of 3% inflationand reinvest it in core operations at 15%, you would be wiseto consider at least 40% to 50% in debt capital in your overallcapital structure.Of course, how much debt you take on comes down to howsecure the revenues your business generates are - if you sell

an indispensable product that people simply must have, thedebt will be much lower risk than if you operate a theme parkin a tourist town at the height of a boom market. Again, this iswhere managerial talent, experience, and wisdom comes intoplay. The great managers have a knack for consistentlylowering their weighted average cost of capital by increasingproductivity, seeking out higher return products, and more.

To truly understand the idea of capital structure, you need totake a few moments to read Return on Equity: The DuPontModel to understand how the capital structure represents one

of the three components in determining the rate of return acompany will earn on the money its owners have invested init. Whether you own a doughnut shop or are consideringinvesting in publicly traded stocks, it's knowledge you simplymust have.

BHEL


7/20

MANAGEMENT:

1 Mr.B P Rao Chairman and Managing director

2 Mr.O P Bhutani Director 3 Mr.Atul Saraya Director

4 Mr.S Ravi Director

5 Mr.C S Verma Director (Finance)

6 Mr.Anil Sachdev Director (Human Resources)

7 Mrs.Reva Nayyar Non Official PartTime Director

8 Mr.V K Jairath Non Official PartTime Director

9 Mr.M A Pathan Non Official PartTime Director

10 Mr.Ashok Kumar Basu Non Official PartTime Director

11 Mr.Shekhar Datta Non Official PartTime Director

12 Mr.Rajiv Bansal Part Time Official Director

13 Mr.Saurabh Chandra Part Time Official Director

HISTORY:

BHEL is the largest engineering and manufacturing enterprisein India in the energy-related/infrastructure sector. BHELmanufactures over 180 products under 30 major productgroups and caters to core sectors of the Indian Economy viz.,

Power Generation & Transmission, Industry, Transportation,Telecommunication, Renewable Energy, etc.

1972 - In July the Operations of all the four plants wereintegrated.

1974 - In January Heavy electrical (India) Ltd was merged withBHEL.For the manufacture of a wide variety of products, thecompany has developed technological infrastructure, skillsand quality to meet the stringent requirements of the power

plants, transportation, petro chemicals, oil etc

1982 - BHEL also entered into power equipments, to reduceits dependence on the power sector. So, it developed thecapability to produce a variety of electrical, electronic and


8/20

mechanical equipments for all sectors, including transmission,transportation, oil and gas and other allied industries.

1991 - On 24th December converted into a public Limitedcompany

1992 -- Between January to February the companydisinvested 489,52,000 equity shares of Rs.10 each. - Duringthe year, 10 thermal sets, 2 gas sets and 11 hydro sets werecommissioned

1994 - During the year the company established Asia's largestfuel evaluation test facility at Tiruchi

1996 - This year company handed over 100th ElectricLocomotive to Indian Railway. And 250th Hydro set installedat Dhupdal-1, successfully syncronised and handed over the30 MW Fr.6 Gas turbine at Wadi Al Jizzi, Oman

1997 -The public sector Bharat Heavy Electricals Ltd (BHEL)has won the national best exporter award for 1995-96,instituted by the Engineering Export Promotion Council, of theeighth consecutive year, from Madurai.

2005- BHEL has bagged its largest-ever commercial order ofRs 90.58 crore for the supply of automated storage andretrieval system (ASRS) against stiff national andinternational competition.

2006- Bechtel signs Dabhol agreement with BHEL . BHEL hasraised its research & development spend to Rs 238 croreduring fiscal 2006-07, up from Rs 152 crore last year.

2008- Bharat Heavy Electricals (BHEL) gets Rs 14.74 billioncontract from the government controlled NTPC.

2009-- Bharat Heavy Electricals on June 12 said it has baggeda Rs 4,015-crore from Hindalco Industries for supplying


9/20

boilers, turbines and generators at its 900-MW captive powerplant in Orissa.

2010- Bharat Heavy Electrical Limited (BHEL), Indian powerequipment maker, has bagged orders valued at Rs 900 crorefrom Oil and Natural Gas Commission (ONGC) in order tosupply six on-shore oil rigs.

BALANCE SHEET OF BHEL:

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Sources Of Funds

Total Share Capital 244.76 244.76 244.76 489.52 489.52

Equity Share Capital 244.76 244.76 244.76 489.52 489.52

Share Application Money 0 0 0 0 0

Reserves 5,782.13

7,056.62

8,543.50

10,284.69

12,449.29

Revaluation Reserves 0 0 0 0 0

Net worth 6,026.89

7,301.38

8,788.26

10,774.21

12,938.81

Secured Loans 500 500 0 0 0

Unsecured Loans 36.98 58.24 89.33 95.18 149.37

Total Debt 536.98 558.24 89.33 95.18 149.37

Total Liabilities 6,563.87

7,859.62

8,877.59

10,869.39

13,088.18

Application Of Funds

Gross Block 3,628.50

3,821.62

4,134.61

4,443.03

5,224.43

Less: Accum. Depreciation 2,584.7

0

2,839.7

9

3,146.3

1

3,462.2

1

3,754.4

7Net Block 1,043.8

0981.83 988.3 980.82 1,469.9

6Capital Work in Progress 98.12 191.27 306.58 658.47 1,212.7

0Investments 8.95 8.29 8.29 8.29 52.34


10/20

Inventories 2,916.11

3,744.37

4,217.67

5,736.40

7,837.02

Sundry Debtors 5,972.14

7,168.06

9,695.82

11,974.87

15,975.50

Cash and Bank Balance 1,392.86

1,483.97

2,068.91

1,511.02

1,950.51

Total Current Assets 10,281.11

12,396.40

15,982.40

19,222.29

25,763.03

Loans and Advances 1,921.33

4,186.27

5,517.59

7,366.17

4,616.67

Fixed Deposits 1,785.01

2,650.01

3,740.00

6,875.00

8,364.16

Total CA, Loans & Advances 13,987.45

19,232.68

25,239.99

33,463.46

38,743.86

Deffered Credit 0 0 0 0 0

Current Liabilities 7,248.99

8,905.14

11,957.32

16,632.97

23,415.10

Provisions 1,325.45 3,649.32 5,708.25 7,608.68 4,975.58Total CL & Provisions 8,574.4

412,554.46

17,665.57

24,241.65

28,390.68

Net Current Assets 5,413.01

6,678.22

7,574.42

9,221.81

10,353.18

Miscellaneous Expenses 0 0 0 0 0

Total Assets

6,563.88

7,859.61

8,877.59

10,869.39

13,088.18

Contingent Liabilities 609.68 769.95 976.05 1,673.19

2,546.25

Book Value (Rs) 246.24 298.31 359.06 220.1 264.32

CAPITAL STRUCTURE:

Capital

Structure

Period Instrume

nt

Authorized

Capital

Issued

Capital

- P A I D U P -

From To (Rs. cr) (Rs. cr) Shares

(nos)

Face

Value

Capit

al

2008 2009 Equity

Share

214.75 214.75 4895200

00

10 214.7

5


11/20

2007 2008 Equity

Share

214.75 214.75 4895200

00

10 214.7

5

2006 2007 Equity

Share

214.75 214.75 2447600

00

10 214.7

5

2005 2006 Equity

Share

214.75 214.75 2447600

00

10 214.7

5

2004 2005 Equity

Share

214.75 214.75 2447600

00

10 214.7

5

2003 2004 Equity

Share

214.75 214.75 2447600

00

10 214.7

5

2002 2003 Equity

Share

214.75 214.75 2447600

00

10 214.7

5

ANALYSIS OF CAPITALSTRUCTURE(BHEL):

As capital structure shows the company position in form ofcapital investment, how company has managed their sourcesof investment and how they have managed for the capital.

It can be clearly said from the given capital structure of thecompany, that the company has issued equity shares in orderto raise the capital for different ventures, proposed in future.

The only change is in the number of shares issued by thecompany from 244760000 to 489520000. Company has notissued any debentures for raising capital, this means theposition of the company is quite healthy and companydoesnt need any loans further from the market. Theinvestment made by the company is sufficient for thecompany venture in order to meet their capital requirements.

The equity share capital in the year 2008-09 has almostbecome double which means company has issued more

equity share(almost double,244.76 to 489.52)in number inorder to raise capital. The reason behind this can be somenew projects that company might have bagged or expansionthat company is planning in near future for which it needcapital.


12/20

TATA STEEL LTD.:

Management:

1 Mr.R N Tata Chairman, Non Ind & Non Exe Director 2 Mr.Subodh Bhargava Ind. Non-Executive Director

3 Mr.Jacobus Schraven Ind. Non-Executive Director

4 Mr.Suresh Krishna Ind. Non-Executive Director

5 Mr.Nusli N Wadia Ind. Non-Executive Director

6 Mr.S M Palia Ind. Non-Executive Director

7 Mr.Andrew Robb Ind. Non-Executive Director

8 Mr.H M Nerurkar Managing Director

9 Mr.Ishaat Hussain Non Exe.Non Ind.Director

10 Dr.Jamshed J Irani Non Exe.Non Ind.Director

11 Mr.Kirby Adams Non Exe.Non Ind.Director

12 Mr.B Muthuraman Non Executive Vice Chairman

HISTORY:

1907 - The Tata Iron and Steel Company Limited was formedin 1907 at Mumbai. The Company manufactures rails,fishplates, bars, light structurals, heavy structurals, plates,black sheets, galvanised sheets, tin bars, sleeper bars,sleepers, blooms, billets, sheet bars, wheels, tyres and axles,

skelp and strip, and special steels tools such as picks,beaters, hammers and shovels and red-oxide, coal tar,sulphate of ammonia, etc.

1919 - During the year 7,00,000 second pref. shares ofRs.100 each issued at par. 6181 second pref. sharesforfeited.

1954 - During the year, 8750 defd. shares of Rs.30 eachconverted into 292,500 equity shares of Rs.75 each. 642,500

bonus equity shares issued in prop. 1:1.

1956 - During the year 12,85,000 right equity shares issued inprop.1:1, and a premium of 30 per share.


13/20

1959 - 12,142 rights share subscribed for 11,524 bonusequity shares allotted in prop. 1:1.

1960 - During the year 3,75,000 A IInd pref. & 6,18,372 equityshares offered in prop. 1:2 & 1:5. (Arrears: 29,625.)

1961 - During the year 1,330 A, IInd pref. shares and 2,959No. of equity shares were subscribed for. Arrears Rs.840.

1967 - In March 14,69,722 bonus equity shares issued inprop. 2:5. Arrears Rs.136.

1973 - With effect from 1st April, the wholly ownedsubsidiary, West Bokaro Ltd., was amalgamated with the

company.

1980 - Tata Steel and ACC signed a long-term agreement,valid up to the end of 1991, whereby the slag from thegranulation plant could be taken by ACC.

1990 - In November, the 80-tonne energy optimising furnaceset up with Korf Technology was commissioned.

1991 - During the year Company acquired a 100% export-

oriented ferro-chrome manufacturing unit of OMC Alloys Ltd.from the Orissa State Government at a total cost of 156crores. It is located at Bammpal, Orissa, and has a capacity toproduce 50,000 tonnes per annum of ferro-chrome.

- The decentralisation of imports and the dismantling of Statemachinery in the said area enabled the Company to make aforay into the inward trading of steel and steel-relatedproducts through the formation of a new `Agencydepartment.'

1992 - During March, the new 500 t.p.d oxygen plant wascommissioned. In November the new one million tonnecapacity `G' blast furnace was commissioned.


14/20

2001 - Tata Iron and Steel Company Ltd. is the recipient ofNational Award for Excellence in Corporate Governance forthe year 2000.

2003 -Tata Iron & Steel co. Ltd. entered in to a powerdistribution business. Tisco has began distributing power in

Jamshedpur.

-Tisco gets lenders proposal to acquire Neelachal Ispat NigamLimited (NINL)

-Tata Steel signed an agreement with its consortium partnersfor setting up its titania project in Tamil Nadu.

2004 -Tata Steel April-Dec output of crude & saleable steelover 3 million tonnes

-Tata Steel gets Petroleum Conservation Research Associationaward for energy conservation

-Tata Steel breaks JV with Veolia Water

-Swosti group takes over Tisco property at Gopalpur.

2005 -Tata Iron and Steel Company Ltd signs Joint VentureAgreements with Iranian Mines and Mining IndustriesDevelopment and Renovation Organization to join them inproposed steel-making projects and mining operations inIran.

-Tata Steel has signed a memorandum of understanding withNippon Steel Corporation of Japan for its proposed 6 milliontonne per annum steel plant in Kalinganagar, in Jajpur districtof Orissa .

2006 -Tata steel sets up Jiggling and hydro-cyclone plant

-Tata Steel signs JV Agreement with Tata Power to set upcaptive power plants.


15/20

2007 -Tata Steel enters into Share Purchase Agreement withRawmet Ferrous Industries.

-Tata Steel completes 6.2bn acquisition of Corus Group plc.

2008 - Tata Steel gets the Best Establishment Award by thePresident of India, Mrs. Patibha Patil - Tata Steel has signed acontract with CMI FPE Ltd for supply of 6 High reversing coldmill to set up a 200,000 MT p.a. TMBP CRM#2 project in TCIL.

Tinplate Company of India Limited (TCIL) in association withTata Steel is set to double the production capacity of tinplate.TCIL has recently started operations of a 200,000 MT p.a.second tinning line and Tata Steel will supply the inputrequired for the tinning line through its CRM#2 project.

-Tata Steel has concluded an alliance pact with the Al BahjaGroup of Oman for the development of the Uyun limestonedeposits at Salalah in the Sultanate of Oman

2009-- Tata Steel, through its subsidiary, Tata Steel GlobalMinerals Holdings has entered into Joint Venture Agreementon 6th November 2009 with New Millennium Capital Corp.

- Tata Steel wins Golden Peacock Award for Corporate Social

Responsibility -Tata Steel - Corus signs Share PurchaseAgreement with Klesch for sale of aluminum smelters -TataSteel - Corus signs MoU on Teesside sale with Marcegagliaand Dongkuk -Tata Steel enters into Joint Venture Agreementwith New Millennium, Canada.

BALANCESHEET OF TATA STEEL LTD.

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09Sources Of Funds

Total Share Capital 553.67 553.67 580.67 6,203.30 6,203.45

Equity ShareCapital 553.67 553.67 580.67 730.78 730.79

Share ApplicationMoney 0 0 147.06 0 0


16/20

Preference ShareCapital 0 0 0 5,472.52 5,472.66

Reserves 6,506.25 9,201.63 13,368.42 21,097.43 23,501.15

RevaluationReserves 0 0 0 0 0

Networth 7,059.92 9,755.30 14,096.15 27,300.73 29,704.60

Secured Loans 2,468.18 2,191.74 3,758.92 3,520.58 3,913.05

Unsecured Loans 271.52 324.41 5,886.41 14,501.11 23,033.13

Total Debt 2,739.70 2,516.15 9,645.33 18,021.69 26,946.18

Total Liabilities 9,799.62 12,271.45 23,741.48 45,322.42 56,650.78

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Application Of Funds

Gross Block 13,085.07 15,407.17 16,029.49 16,479.59 20,057.01

Less: Accum.Depreciation 5,845.49 6,699.85 7,486.37 8,223.48 9,062.47

Net Block 7,239.58 8,707.32 8,543.12 8,256.11 10,994.54

Capital Work inProgress 1,872.66 1,157.73 2,497.44 4,367.45 3,487.68

Investments 2,432.65 4,069.96 6,106.18 4,103.19 42,371.78

Inventories 1,872.40 2,174.75 2,332.98 2,604.98 3,480.47

Sundry Debtors 581.82 539.4 631.63 543.48 635.98

Cash and BankBalance 246.68 288.35 446.51 465 463.58

Total CurrentAssets 2,700.90 3,002.50 3,411.12 3,613.46 4,580.03

Loans andAdvances 2,234.96 1,994.46 4,025.95 34,582.84 5,884.61

Fixed Deposits 0.04 0.04 7,234.84 0.04 1,127.02Total CA, Loans &Advances 4,935.90 4,997.00 14,671.91 38,196.34 11,591.66

Deffered Credit 0 0 0 0 0

Current Liabilities 4,247.43 4,552.39 6,349.24 6,842.26 8,965.76

Provisions 2,648.56 2,361.44 1,930.46 2,913.52 2,934.19

Total CL &Provisions 6,895.99 6,913.83 8,279.70 9,755.78 11,899.95

Net CurrentAssets -1,960.09 -1,916.83 6,392.21 28,440.56 -308.29

MiscellaneousExpenses 214.82 253.27 202.53 155.11 105.07

Total Assets 9,799.62 12,271.45 23,741.48 45,322.42 56,650.78

ContingentLiabilities 2,983.05 3,872.34 7,185.93 9,250.08 12,188.55

Book Value (Rs) 127.56 176.26 240.31 298.78 331.68


17/20

CAPITAL STRUCTURE:

Period Instrum

ent

Authoriz

edCapital

Issue

dCapital

- P A I D

U P -

From To (Rs. cr) (Rs.cr)

Shares(nos)

FaceValue

Capital

2008 2009 EquityShare

214.75 214.75

730592471

10 214.75


214.75 214.75

730584320

10 214.75

2006 2007 EquityShare 214.75 214.75 580472856 10 214.752005 2006 Equity

Share214.75 214.7

5553472856

10 214.75


214.75 214.75

553472856

10 214.75


214.75 214.75

367771901

10 214.75


214.75 214.75

367771901

10 214.75

ANALYSIS OF CAPITAL STRUCTUREOF TATA STEEL LTD.:

Tata steel Ltd. is one of the renowned companies of India. Thedata of company shows its stable and sound position in theindustry. Tata steels has also equity shares in order to raisecapital. From the table shown above it can seen thatcompany has issued shares in year 2003-04 and then again in

year 2006-07. The equity share capital of company has raisein year 2007-08 from 580.68 to 730.78. This can be becauseof some future projects or new ventures that company isplanning. From the history of the company it can be said that

TATA STEEL LTD. has acquired COROUS group for which it


18/20

need capital which they have arranged by issuing moreshares.

PROS & CONS:

Investing in shares is a complex task, with good points andbad points. The stock market, buying and selling shares, canbe very lucrative or it can cost you all of your money. Beforeyou invest, take the time to understand both the good pointsand bad points of this type of investing before you sink yourmoney into it. Below is a list of the various pros and cons ofinvesting in shares.

Pros: Investing in stocks can be very lucrative. If you were one

of the investors in Google last year, before the marketfell, you would have made a substantial return on yourmoney. Goggle's stock rose, and was one of the onlystocks to do so, more that 400% in just a few months.

Different stocks carry a varied amount of risk, allowingyou do diversify more easily. You are able to study eachcompany's performance over a certain period of timeand decide whether the average return of thosecompanies, as compared to the risk involved meets yourparticular needs. If you only have a small amount toinvest, your ability to diversify is limited.

Shares generally have a low entry and exit cost. Becauseeach stock is individually priced you can buy just a fewof a high priced stock, and have lower risk with a provencompany or many shares of a low priced stock,increasing your risk but giving you more control.

Stocks are liquid assets, which means that you can buyand sell them at will.

Cons:


19/20

Investing in shares requires a great deal of knowledgeand experience. Going it alone, at least initially, caneasily be disastrous. A wise new investor will hire a goodfinancial advisor to assist them. This is an added

expense however. Stocks have very little transparency. A margin call can wipe out your investment.

If you sell your stock within a year of purchase, you aresubject to a tax of about 30%. If you stocks, during theperiod that you have held them show substantial profitthis isn't a problem. If your stocks either remained stableor took a loss and you sell you will also suffer not onlythe loss of the stock but a substantial tax as well.

Every investor has different investment needs. Investing inshares is an excellent option but know the advantages anddisadvantages before you invest and measure them againstyour particular financial plans.

CONCLUSION:

TATA STEEL LTD. and BHEL. Both companies are of

different sectors, and companies are one of best companiesin their field. The financial position of both the companies isvery sound. Both companies have not issued any debenturesfor raising fund for their projects. This shows that companiesare moving safely without taking any risk for raising funds.

They have issues equity share for which they are not liable topay returns to the investors every year. By analyzing the datait can be said that the goodwill of the companies is very goodin the eyes investor, thats why companies raised their capitalonly from equity shares and not from debenture. Also both

companies are moving safely but not raising their long termdebts. Their market standing is very good, and they do notfind it difficult in raising their equity share capital .


20/20

Term Paper Fm Upload

Documents

Transcript of Term Paper Fm Upload