Corporate Finance - 1

Group Assignment
Report on

“CAPITAL STRUCTURE ANALYSIS”

Bharat Forge Ltd. & Bharat Petroleum Corporation Ltd.
Submitted by:
Group No: 7
Name Roll Number
Mrigank Rai 191131
Nihar Parikh 191132
Nikita Vyas 191133
Prabhjot Kaur 191134
Pratik Malviyia 191135

Section: A
Batch: MBA – FT (2019-2021)
Institute of Management, Nirma University
Date of Submission: 5th December, 2019
 ACKNOWLEDGEMENT

We would like to express our sincere gratitude to Director M. Mallikarjun and Professor Deepak
Danak for the continuous guidance and support without which the Analysis Report could not have
been completed successfully.

We would also like to take the opportunity to thank the Library Resource Centre of IMNU for giving
us access to resources required for the successful completion of the project.

Page 2 of 15
 TABLE OF CONTENTS

Sr No. Title Page No

1 Capital Structure 4

2 Calculation: Cost of Market Return 5

Calculation: Risk Free Rate of 10 Year Government
3 6
Bond

4 Calculation: Cost of Equity (using CAPM) 7

5 Calculation: Cost of Debt (using Tax Benefit) 13

6 WACC 14

7 Undertaking 15

Page 3 of 15
 CAPITAL STRUCTURE

BHARAT FORGE LTD.

(in million)

2019 2018 2017

Equity 931.27 931.27 465.48

Other Equity 53050.94 45211.53 29202.9

Total Equity 53982.21 46142.8 29668.38

Term Loan 14181.59 9098.02 7903.47

Debt Equity ratio 0.026 0.197 0.266

Under debt, term loan includes secured as well as unsecured loans. Under total equity: share capital,
reserves and premium is involved. Here, the company prefers to finance its operations more through
wholly-owned funds instead of taking debt, as the debt equity ratio is less than 1 in all three years.

BHARAT PETROLEUM CORPORATION LIMITED

(in crore)

2019 2018 2017

Equity 1966.88 1966.88 1311.25

Other Equity 34770.8 32164.61 28357.13

Total equity 36737.68 34131.49 29668.38

Term Loan 23628.57 14758.22 13776.44

Debt equity ratio 0.643 0.432 0.464

Bharat petroleum corporation has debt equity ratio nearly equal to 0.5, which means that the
company is investing nearly same amount in both equity and debt.

Page 4 of 15
 CALCULATION

COST OF MARKET RETURN

RM: 11.73 (Using Nifty last five-year data)

Page 5 of 15
 CALCULATION

RISK FREE RATE OF 10 YEAR GOVERNMENT BOND

Average Risk Free Rate, Rf = 7.201

Page 6 of 15
 CALCULATION

COST OF EQUITY CALCULATION USING CAPM MODEL

BHARAT FORGE LTD.

BETA (CAPM)

FY 2016-17 FY 2017-18 FY 2018-19

1.17 1.31 1.22

RETURN ON STOCK

Ri = Rf + β (Rm – Rf)
FY 2016-17 FY 2017-18 FY 2018-19
Ri = 7.201+(1.17)(11.73-7.201) Ri = 7.201+1.31(11.73-7.201) Ri = 7.201+1.22(11.73-7.201)
Ri = 12.4999 Ri = 13.1339 Ri = 12.7263

Page 7 of 15
Screenshot showing the calculation of Beta using Excel Sheet

Screenshot for FY 2016-17, showing Beta using Ace Equity

Page 8 of 15
Screenshot for FY 2017-18, showing Beta using Ace Equity

Screenshot for FY 2018-19, showing Beta using Ace Equity

Page 9 of 15
 BHARAT PETROLEUM CORPORATION LTD.

BETA (CAPM)

FY 2016-17 FY 2017-18 FY 2018-19

0.90 0.95 1.54

RETURN ON STOCK

Ri = Rf + β (Rm – Rf)
FY 2016-17 FY 2017-18 FY 2018-19
Ri = 7.201+0.90(11.73-7.201) Ri = 7.201+ 0.95(11.73-7.201) Ri = 7.201+ 0.95(11.73-7.201)
Ri = 11.2771 Ri = 11.5035 Ri = 14.1756

Page 10 of 15
Screenshot showing the calculation of Beta using Excel Sheet

Screenshot for FY 2016-17, showing Beta using Ace Equity

Page 11 of 15
Screenshot for FY 2017-18, showing Beta using Ace Equity

Screenshot for FY 2018-19, showing Beta using Ace Equity

Page 12 of 15
 CALCULATION

COST OF DEBT CALCULATION USING TAX BENEFIT

Interest Rate: As per Axis Bank for a AA rated company.

Taken as 8.5%

Tax Rate: Calculated using Profit & Loss Statement of respective financial years.

Taken as 34.94%

Effective Rate = 8.5(1-0.3494) = 5.53%

BHARAT FORGE LTD.

COST OF DEBT

Rb = Interest Rate (1 – Tax Rate)

FY 2016-17 FY 2017-18 FY 2018-19
1.16 Mn 0.91Mn 1.15Mn

BHARAT PETROLEUM CORPORATION LTD.

COST OF DEBT

Rb = Interest Rate (1 – Tax Rate)

FY 2016-17 FY 2017-18 FY 2018-19
1.75 Cr. 1.67 Cr. 2.16 Cr

Page 13 of 15
 WACC

WACC = Rs(S/S+B) +Rb(B/S+B)

BHARAT FORGE LTD.

2016-2017 2017-2018 2018-2019

(A)Debt 7903.47 9098.02 14181.59
(B)Equity 465.48 931.27 931.27
(C)Total Sources
(D)Cost of Debt 1.16 Mn 0.91 Mn 1.15 Mn
(E)Cost of Equity 12.49% 13.13% 12.72%
WACC =
11.03 11.88 11.23
[(A/C)*D]+[(B/C)*E]

BHARAT PETROLEUM CORPORATION LTD.

2016-2017 2017-2018 2018-2019

(A)Debt 13776.44 14758.22 23628.57
(B)Equity 1311.25 1966.88 1966.88
(C)Total Sources 15087.69 16725.1 25595.45
(D)Cost of Debt 1.75 Cr 1.67 Cr 2.16 Cr
(E)Cost of Equity 11.27% 11.50% 14.17%
WACC =
9.45 9.70 10.79
[(A/C)*D]+[(B/C)*E]

Page 14 of 15
 UNDERTAKING

To Whom It May Concern:

We, Mrigank Rai, Nihar Parikh, Nikita Vyas, Prabhjot Kaur and Pratik Malviyia hereby declare that
this assignment is our original work and is not copied from anyone/anywhere. If found similar to
other sources, we shall take complete responsibility of the action, taken thereof by the concerned
faculty.

Group No. : 7
Section : A
Batch : MBA – FT (2019-2021)
Date : 5th December, 2019

Signature

Name Mrigank Rai Nihar Nikita Vyas Prabhjot Kaur Pratik Malviyia
Parikh
Roll No 191131 191132 191133 191134 191135

Page 15 of 15