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GROUP MEMBERS ANURADHA DAIWADNYA BHAVIN DHOLAKIA RADHESHYAM GUPTA KANCHAN PARAB POOJA PARDESHI KAJAL SHAH MAMTA TIWARI
14 17 19 51 52 72 83
Introduction
The Industrial Reconstruction Corporation of India (IRCI) was established in 1980s to provide financial assistance to sick units In 1985 the Sick Industrial Companies (Special Provisions) Act 1985, was enacted, where interested companies were invited to takeover, lease or amalgamate the sick company into itself Increasing number of sick, private textile mills which were nationalized became part of the National Textile Mills
During 1980s Govt of India had set up The Industrial Reconstruction Corporation of India (IRCI) to provide financial assistance to Sick Units, to enable them to revive under their then existing structure
Later it was converted to The Industrial Reconstruction Bank of India (IRBI), to carry the same function under a different mould
Meaning
The companies Act defines a Sick Company as one:
Which has accumulated losses in any financial year equal to 50 percent or more of its average net worth during four years immediately preceding the financial year in question,
or Which has failed to repay its debts within any three consecutive quarters on demand for repayment by its creditors
Causes of Sickness
Managerial deficiencies
ProductionImproper location
Wrong technology
Managerial deficiencies FinanceWrong Capital Structure Bad investment decisions Weak budgetary control Poor management of receivables Bad cash planning and control Strained relationship with the suppliers of capital
Managerial deficiencies PersonnelIneffective leadership Bad labour relations Over Staffing Irrational compensation structure
Managerial Deficiencies MarketingInaccurate demand projection Improper product mix Wrong product positioning Poor customer service High distribution costs
Symptoms of sickness
Delay or default in payment to suppliers Irregularity in bank A/C Delay or default in payment to banks & FI Non-submission of information to banks & FI Frequent requests to banks & FI for additional credit Decline in capacity utilization Poor maintenance of plant & machinery
Cont
Low turnover of assets Accumulation of inventories Inability to take trade discount Excessive turnover of personnel Extension of accounting period Resort to creative accounting which seeks to present a better financial picture than what it really is Decline in the price of equity shares & debentures
Prediction of Sickness
Two types of analysis:
Univariate analysis
Multivariate analysis
Univariate Analysis
In Univariate analysis, an attempt is made to predict sickness on basis of single financial ratios
In a path-breaking study W.H.Beaver compared the financial ratios of a sample of 79 failed firms with 79 non-failed firms
His analysis suggested that many of the ratios employed by him showed the power to signal an impending failure
Multivariate analysis
Multivariate analysis seeks to predict industrial sickness using a methodology that considers combined influence of several variables
CASE STUDY
For nearly over 6 decades, NCL has been one of the pioneers in cable manufacturing industry
It produces a wide range of power, control, instrumentation & telecom cables & provides a spectrum of engineering services & executes turnkey projects Established in 1942, the US$ 67 million Nicco Group is a widely respected Indian industrial powerhouse
NICCOs PRODUCT
Aircraft & Air Field Cables Fire Retardant Low Smoke Cables (FRLS) Automobile Cables Oil Rig Cables Copper Conductors Cables For Cranes Elevator Cables (lift Cables) Furnace & High Temperature Cables Marine Cables Power Cables
NICCO BATTARIES LTD(NBL) amalgamated with NICCO Corporation LTD (NCL) with effect from 1 April 1994 as per amalgamation scheme
In amalgamation scheme entire undertaking of NBL shall be transferred to NCL & transferee company i.e. NCL shall issue & allot share holder of NBL share in transferor company in proportion of 2 share of face value of Rs.10 each of the transferee company for 13 equity share of face value Rs.10
The rehabilitation Cum amalgamation scheme envisages settlement of dues of the bank & institution, payment to pressing creditors besides capital expenditure of Rs 163 lakhs
A) Cost of the scheme Capital expenditure Settlement of dues of the banks Payment of unsecured loans from Payment of pressing creditors Margin money for working capita TOTAL B) Means of finance Promoters contribution out of internal accruals of NCL Benefit under section 72 A of IT Act,1961 TOTAL
(Rs in lakhs) 163.00 619.00 20.00 18.00 57.00 877.00 (Rs in lakhs) 477.00 400.00 877.00
The scheme for amalgamation of NBL, with NCL was under section 72A of the IT Act,1961 and shall be effective from 1 April ,1994
The carried forward accumulated loss of NBL is estimated at Rs 1896 lakhs as on 31 March 1994
The estimated tax set off at the current rates of IT Act , 1961 is restricted to Rs. 400 lakhs
Dilution of competition in the market Actual or a potential competitor, may get eliminated Efficient & growing medium or small-sized undertaking May exercise a market power to the detriment of its customers & suppliers
The rehabilitation of sick unit is an important aspect for economic growth of the country
In the above case of NCL & NBL we can say that share exchange ratio is 2 : 13 & cost of scheme is Rs 877 lakhs which is large amount for merger
From this we can conclude that merger of NBL was requirement of time & now it contributes major part of share of NCL