Case Study : A home -brewed tragedy

Project Report
On
REVIVAL PLAN FOR KHAN BAHADR INDS!RIES L!D
By
"us#ta$ Hussa%n K#an ""&''(')
*as%+ Nas%r ""&''(,(
A+%r Dara- ""&&.(/'
Su0+%tted !o
Dr1 Sa2dar A3% Butt
!a03e o2 Contents
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Case Study : A home -brewed tragedy
Table of Contents.................................................................................................................................... 1
INTRODUCTION..................................................................................................................................... 2
Brief History......................................................................................................................................... 2
KBILs Bsiness................................................................................................................................... 2
The Boar! "embers............................................................................................................................ #
R$%I%&L 'L&N (OR KH&N B&H&DUR INDU)TRI$) Lt!.....................................................................*
&nalysis of Cases an! $ffe+t............................................................................................................. *
Com,tation of Ratios to ),,ort Cases an! $ffe+ts &nalysis..........................................................-
"easres for Re.i.al 'lan................................................................................................................... /
(inan+ial "easres.......................................................................................................................... /
O,erational "easre...................................................................................................................... 1#
"ana0erial "easres..................................................................................................................... 11
2eneral "easres.......................................................................................................................... 11
"ar3etin0 4 )ales "easres.......................................................................................................... 1*
HR "easres ................................................................................................................................ 15
)te,s for the &,,ro.al of Re.i.al 'lan............................................................................................... 15
Balan+e )heets for Three 6ears........................................................................................................ 1-
In+ome )tatements for Three 6ears.................................................................................................. 17
IN!RODC!ION
Br%e2 H%story
KBIL was established in 1986 and opened their first account with Dost Ban Ltd in that
year! "heir relationship had been e#cellent till the end of $%%8! Due to the old
relationship& the ban has so far a'oided fro( taing any harsh action against the
co(pany! )owe'er& in line with the *rudential regulation and their own prudence policy&
they suspended booing interest inco(e on their outstanding loan at the end of $%%9
when KBIL (ade their last repay(ent! +ince that ti(e& KBIL has not paid any interest or
loan repay(ent install(ent!
KBIL4s Bus%ness
KBIL is engaged in the (anufacturing of household che(icals! It has three (ain line of
products, detergents& sha(poos and crea(s!
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Case Study : A home -brewed tragedy
Detergents include washing soap& washing powder& toilet soap and washing noodles
etc! "his depart(ent is still -uite profitable!
Shampoos include four (ain lines for (en and wo(en for different types of hair as
well two brands of conditioners! "his depart(ent has been incurring considerable losses
as their brands appear unable to sustain their (aret shares!
Creams include face crea(& sin whitening crea(s& baby crea(s& petroleu(& etc! "his
depart(ent has also started losing (oney recently!
Business is fairly co(petiti'e and entrance barrier for new in'estor is fairly high! But
KBIL ha'e no (areting strategy to introduce new products or reshape e#isting ones that
leads to lose (aret shares and low sales etc! .'en after $/ years in business they had
failed to (ae niche for the(sel'es in the (aret!
!#e Board "e+0ers
After studying the file& 0ahad Khan booed an appoint(ent with the 102 of the
co(pany! )e paid a total of four 'isits to the co(pany office and was able to get an
opportunity to tal to not only the 102 but also the 1hair(an& 1.2 and two other
e#ecuti'e directors of the co(pany!
Mr. Barham khan Bahadur was chair(an of the co(pany and 8$ years old! .'en
though he was technically non-e#ecuti'e chair(an but was still (aing all i(portant
decisions! "he 1.2& 102 and one of the e#ecuti'e directors were his sons& while the
other e#ecuti'e director was his son-in-law! "he co(pany3s board had four e#ecuti'e
directors and three non-e#ecuti'e directors 4including the chair(an5!
Mahtab Khan Bahadur& 67 was the 1.2 but had little interest in the co(pany3s (a8or
decisions because all (a8or decisions were still taen by his father! )e had no
professional -ualification in any discipline of (anage(ent and spent (ost of his ti(e by
signing the papers sent to hi( by other directors or officials!
6$ years old Mr. Bilal Khan Bahadur was the co(pany 102! )e had an 9BA fro(
so(e obscure uni'ersity but had good woring nowledge of his depart(ent!
78 years old Mr. Asad Khan Bahadur was co(pany3s production director! )e had a
degree in (echanical engineering and had wored in the co(pany since its inception!
"he weaest lin in the board was Shahnawaz Raja, the co(pany3s (areting director
and chair(an3s son-in-law! )e had 8oined the co(pany about fi'e years ago and brought
about a nu(ber of unnecessary changes in product (i#! 0ahad Khan found hi( arrogant
and non recepti'e to good ad'ice& a total (isfit for his position!
C#a%r+an4s V%e5s 6Barham khan Bahadur7
:hen 0ahad han ased the chair(an as to what was the board of directors doing to
arrest the decline of the co(pany& the chair(an first response was that the situation was
not really all that bad! :hen 0ahad Khan showed hi( the analysis of the co(pany3s
perfor(ance& he si(ply put the bla(e on ;o't! rather his and other (anage(ent
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Case Study : A home -brewed tragedy
inefficiency! "he inefficiency of (anage(ent and leadership can be easily found by the
chair(an3s state(ent<
="he co(pany can turn around -uite easily only if 9ahtab 41.25 taes greater interest
and +hahnawa> 49areting Director5 taes lesser interest in its affairs?! "his state(ent
also shows the lac of coordination a(ong depart(ents& chain of co((and and
responsibilities etc!
CEO4s V%e5s 6Mahtab Khan Bahadur7
"he 1.2 told to 0ahad Khan as<
:e ha'e been paying our worers regularly& all of our utility bills are paid on ti(e& our
production has ne'er stopped for of raw (aterial& and we ha'e ne'er had a worers
strie! But he does not now about the ground realities that 0ahad Khan re(inded hi(!
:hy co(pany has negati'e e-uity@ It had not shown any profit for the last fi'e years! Its
ban loan was o'erdue and also its current ratio was less than %!6 etc!
Product%on D%rector4s V%e5s 6Mr. Asad Khan Bahadur)
Asad Khan told to 0ahad Khan that the co(pany3s (achines had already ser'ed their
useful life! Bottling and labeling plant is now -uite outdated and needs i((ediate
replace(ent! 2ur standby generators can sustain only 7%A of our production! Due to low
production le'el& cost is going up but sales 'olu(e going down! 1ost of power produced
by in house generators is (ore than double the tariff payable to ;o't! owned power
supplying co(pany! 0ew worers who had reached or were pass the retire(ent age but
chair(an had allowed the( to continue in e(ploy(ent! "hese worers are unnecessary
strain on the co(pany and can be easily replaced by (uch cheaper and (ore efficient
younger worers!
!#e La+ents o2 CFO 6Mr. Bilal Khan Bahadur)
102& Bilal Khan Bahadur told to 0ahad that there was no coordination between the
directors and e'eryone see(ed to be taing decisions without consulting anyone else! Bo
cash planning and (anage(ent because +hahnawa> get che-ues prepared and signed
without infor(ing 102! All the directors were =A? signatories to the ban account while
the chief accountant and cost accountant were the =B? signatories! *ersonal finance of the
co(pany is not too bad and the fa(ily can in'est (ore e-uity! 0loating the co(pany at
the stoc e#change to raise (ore e-uity is not possible in gi'en state of financial
state(ents!
"ar8et%n9 D%rector4s V%e5s 6Shahnawaz Raja)
"he last director with who( 0ahad Khan had a one to one (eeting was +hahnawa> Ca8a&
the co(pany3s (areting director! )e ad(itted that despite of his hea'y e#penditures on
sales pro(otion& two of the product lines of the co(pany were (aing losses and do not
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Case Study : A home -brewed tragedy
show any scope of reco'ery! "hese should be discontinued and replaced by the newer
products! But chair(an and the finance director are not willing to spend the (oney that
will be re-uired for the product de'elop(ent and (areting launch!
REVIVAL PLAN FOR KHAN BAHADR INDS!RIES Ltd
Ana3ys%s o2 Causes and E22ect
Operat%ona3 S%c8ness
Causes Effects
2utdated *lant and 9achinery
4Operating at 65% of its full capacity5
)igher product cost per unit& low producti'ity&
fre-uent breadowns& high (aintenance cost
:ea *roducts
Low sales& higher (areting e#penditures& price
cutting& higher discounts& loss of (aret shares
etc!
*ower Load shedding
Low production& fre-uent breadowns& low sales&
failure to deli'er the product ti(ely in (aret
Low sustainability In-house ;enerator )igh cost of product per unit& low production&
stoc wastage& etc!
Bo production (anuals
Lac of stoc (anage(ent& false in'oices& high
cost of in'entory& low profits etc!
+upply 1hain )iccups *roduction disruption& higher cost& poor -uality
of inputs& failure to deli'er products in (arets in
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Case Study : A home -brewed tragedy
ti(e etc!
F%nanc%a3 S%c8ness
Causes Effects
Dnproducti'e In'est(ent
480% shares in a subsidiary5
+hares in non-core subsidiary leads to loss of inco(e on
in'est(ent& cost of borrowed funds for such in'est(ents
etc!
Accrued Interest
Bloced :oring 1apital Low stoc of raw (aterial& higher recei'ables& high cost
of short ter( borrowing etc!
Lac of 1ash (anage(ent
*roble(s in a'ailing opportunities& pay(ents& salaries of
e(ployees &di'idend pay(ents etc!
:rong balances of assets "oo low le'el of current assets leads to difficulties in
production& proble( in raw in (aterial stocs as well
recei'ables etc!
I(proper use of resources
9ore (oney spent on poorer seg(ents leading to o'erall
deterioration in profit and cash flows!
"ar8et%n9 S%c8ness
Causes Effects
Dnattracti'e *roduct Low sales& high (areting and ad'ertising cost&
low profits etc!
+trong 1o(petitor
)igh (areting cost& high custo(ers switching&
low (aret shares etc!
I(proper Distribution
*roble( in deli'ering products ti(ely in (aret&
increase in cost& loss of custo(ers& (aret shares
etc
I(proper pricing strategy
Low sales& loss of custo(ers& lower re'enues etc
)igh Ad'ertise(ent .#penditures
without niche (aret!
:astage of resources& failure in positioning the
products& low sales& lower profits etc!
HR S%c8ness
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Case Study : A home -brewed tragedy
Causes Effects
:ea "op 9anage(ent
Leads to Lac of control& no coordination& i(proper use of
resource& inefficiency of (anagers etc!
1entrali>ed Decision 9aing
Low participation of worers& i(proper decision (aing&
i(proper response about facts about sales and production
by low le'el (anage(ent etc!
Bo Line of Authority
Lac of reporting& no chec and balance& i(proper use of
resources& lac of responsibilities etc!
2'er age worers Inefficient wor& low production& low sales& wastage of
ti(e& high salaries etc!
Co+putat%on o2 Rat%os to Support Causes and E22ects Ana3ys%s
Rat%o Ana3ys%s .((, .(&( .(&& .(&. Industry A:91
6&7 L%$u%d%ty Rat%os
1urrent Catio 1!/$ %!9/ %!66 %!E6 1!6%
Fuic Catio %!89 %!67 %!E6 %!17 1!$%
B:1 Catio %!$% -%!%1 -%!$6 -%!/8 %!9%
6.7 Pro2%ta0%3%ty Rat%os
;* 9argin E8A 1$A 1EA 1%A 6%A
B* 9argin -16A -E7A -E7A E%A
C2A -%!11 -%!E$ -%!E8 -%!6E %!E%
6'7 Co:era9e Rat%os
Interest 1o'er -1!18 -E!96 -E!76 -E!69 E!7%
6/7 E22%c%ency; Act%:%ty Rat%os
In'entory turno'er in ti(e E!$8 7!1$ 7!8$ $!6%
In'entory turno'er in days 111 89 /6 176
AGC turno'er in ti(e E!E7 7!%% 6!/6 E!%%
1ollection *eriod 1%9 91 67 1$$
AG* turno'er in ti(e $!6E $!17 1!96 E!$%
*ay(ent *eriod 177 1/% 18/ 117
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Case Study : A home -brewed tragedy
2perating 1ycle $$1 18% 1E9 $68
1ash 1on'ersionG:1G1ash 1ycle /6 9 -78 167
0i#ed Assets Dtili>ation Catio 1!11 1!1/ 1!17 1!%6 E!%%
Catios of KBIL regarding li-uidity& efficiency and profitably are clearly indicating that
co(pany is in financial distress! "heir current ratio is less the %!6 which (eans that
cannot (eet their short ter( obligations fro( currents assets!;* ratio also shows the
decline in the gross profits o'er the period! And B* ratio shows that co(pany bearing
accu(ulated losses and these losses eeps on increasing!
Interest con'erge ratio shows that co(pany earning less than cost of debt that (eans
there is a proble( of using a'ailable resources! "he acti'ity or efficiency ratios are
indicating that co(pany has proble(s related to stoc& recei'ables and (aing pay(ents
to the suppliers due to shortage of cash and no proper (anage(ent regarding debtors and
in'entory!
F%nanc%a3 d%stress "ode3 6<=score "ode37
Rat%os Weights Ratios
:1G"A 1!$ -%!/8 -%!97
C!.G"A 1!7 %!%% %!%%
.BI"G"A E!E -%!6% -1!67
9H.GBHD %!6 %!%% %!%%
+alesG"A 1 1!66 1!66
Z-Score =&1(&
0inancial distress (odel is clearly showing that co(pany is in financial distress because
I-+core of the co(pany is less than 1!81 that is cut point for banruptcy! In a nutshell we
can say that all the ratios and financial distress (odel are clear indicators of KBIL3s
banruptcy and the need for re'i'al! :e thin this co(pany can be re'i'ed because the
de(and of household che(icals is not that (uch declining but (anage(ent of the
co(pany does not paying attention in co(pany3s affairs! If we tae so(e (easures
regarding finance& (areting& (anage(ent and operations then in two to three years
KBIL can be profitable!
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Case Study : A home -brewed tragedy
"easures 2or Re:%:a3 P3an
"he re'i'al plan for KBIL enco(pass financial (easures& operational (easures&
(anagerial (easures& (areting (easures and )C (easures! .ach of these (easures is
discussed in turn<
F%nanc%a3 "easures
1o(pany can re'i'e if KBIL tae following financial (easures<
a. Restructuring of Equity
i. Realuation o! assets
"he co(pany3s fi#ed assets include a piece of land which is still shown in the balance
sheet at cost of Cs!$% (illion but its currently (aret 'alue is Cs!$$8 (illion as per
professional assess(ent! If co(pany re'alues their fi#ed assets by restructuring e-uity
then assets can be up-'alued by debiting assets account with Cs! $%8 (illion and
crediting the restructuring account with Cs!$%8 (illion!
The accounting treatment will be as follows:
All figures in millions of rupees
Fixed Assets A/C (Dr.) 208
Restructuring A/C (Cr.) 208
This amount of Rs.208 million will reduce the accumulated losses as:
All figures in millions of rupees
Accumulated losses from previous years (74!00"
Revaluation #ain $y restructuring 208!00
Net losses (535.00)
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Case Study : A home -brewed tragedy
Ceduction in accu(ulated losses& will results in reduction of negati'e e-uity fro(
balance sheet and increase in the 'alue of total assets!
ii. "nje#ting !resh e$uit% b% !amil%
If the fa(ily in'ests a (ini(u( of Cs!1$% (illion as additional capital then co(pany can
be re'i'ed& because<
:hen they will in'est that (uch a(ount as we suggest& the accu(ulated losses
fro( balance sheet could be o'erco(e! "his reduction in accu(ulated losses will
lead to positi'e e-uity!
"hrough in8ecting that (uch a(ount they can gi'e confidence to ban for re'i'al
and can de(and for write off of accrued interest and o'erdrafts as well as
con'ersion of a part of debt into e-uity!
If they do so then in co(ing years they can go for further capital through floating
shares by listing co(pany at stoc e#change because the picture of financial
state(ents will be feasible through i(ple(enting our suggestions! "hat new capital
fro( floating shares will help the( for e#pansion of business! But in current
situation they cannot get listed because their financial reports are unfeasible!
The accounting treatment will be as follows:
All figures in millions of rupees
Cas% A/C (Dr.) &20
Capital A/C (Cr.) &20
This amount of Rs.120 million will reduce the accumulated losses as:
All figures in millions of rupees
Accumulated losses after revaluation (''!00"
Additional Capital $y Family &20!00
Net losses (415.00)
iii. Can#ellation o! Shares
If KBIL cancelled 6 (illion shares out of E6 (illion then nu(ber of outstanding shares
can be reduced but that ha'e no effect on e#isting shareholders because cancellation of
shares in about the sa(e way as bonus shares are issued! "his reduction in outstanding
shares will be results in increase of .*+ in co(ing years after re'i'ing the KBIL!
Increase in .*+ will also attract new share capital through potential shareholders by
sending positi'e signal in (aret!
The accounting treatment will be as follows:
All figures in millions of rupees
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Case Study : A home -brewed tragedy
(%are Capital A/C (Cr.) )0
Restructuring A/C (Cr.) )0
i. &resh issue o! shares
In the year $%16 co(pany can get listed because the picture of financial state(ents will
be feasible after i(ple(entation of gi'en suggestion! If co(pany get listed then can raise
(ore capital of Cs! 9% (illion by floating new share 49&%%%&%%%J1% Cs per share5 to
e#pand their business in near future!
The accounting treatment will be as follows:
All figures in millions of rupees
Cas% A/C (Dr.) *0
(%are Capital A/C (Cr." *0
b. Divestent of non!core subsi"iary
In current scenario the subsidiary co(pany is gi'ing Cs!6 (illion di'idend per year! If
KBIL sold the subsidiary co(pany& as per professional assess(ent it can be sold at Cs!E6
(illion today! "he cost of subsidiary is 6% (illion and on sale& co(pany will bear a loss
of Cs! 16 (illion but that will be one ti(e loss!
"he co(pany can in8ect a su( of Cs!16 (illion out of Cs!E6 (illion 4cash recei'ed fro(
sale of subsidiary5 in B9C 4Balancing& 9oderni>ing and Ce'i'al of *lant5 to i(pro'e the
production capacity! Because& according to 0ahad Khan the old plant is currently
operating at 66A of its full capacity and can be i(pro'ed by B9C that needs at least
Cs!16 (illion! "hrough in8ection of Cs! 16 (illion in B9C also increase the fi#ed assets
in balance sheet!
By i(pro'ing production capacity there will be two positi'e effects as follows<
"he nu(ber of units produced would increase and i(pro'ed sales!
+econdly& decrease in cost of production through Balancing& 9oderni>ing and
Ce'i'al of *lant!
Ce(aining Cs!$% (illion 435M!5M5 could be used in i(pro'ing products& research K
de'elop(ent and also in sale pro(otion acti'ities to i(pro'e sales that lead to
profitability!
The accounting treatment will be as follows:
All figures in millions of rupees
Cas% A/C (Dr!" '
+oss from (ale of (u$sidiary (Dr." &'
(ales of (u$sidiary A/C (Cr." '0
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Case Study : A home -brewed tragedy
c. Debt Restructuring
". "nterest Relie!
KBIL can re-uest for interest relief on following grounds<
As we will in8ect up to Cs! 1$% (illion as additional capital in business if ban write off
the accrued interest and o'erdrafts of the pre'ious years!
+econdly& ban can also no(inate one or two non e#ecuti'e director in board if they
write off the interest and o'erdrafts of the pre'ious years!
"". Conersion o! 'art o! (oan into )$uit%
KBIL can re-uest to ban that to co'ert a part of debt into e-uity! 1on'ersion of debt to
e-uity is beneficial for both parties3 ban and KBIL as<
By con'erting Cs!$%% (illion out of $$6 (illion into e-uity then e#isting shareholder3s
control o'er the co(pany is diluted and they (ay no longer be able to run the co(pany
independently! "he share of ban in the co(pany will be up to E$ A of total share capital
after con'erting loan into e-uity as calculated in table gi'en below! 0or co(pany
perspecti'e it is also beneficial because ban will be act as a watch dog after appointing
their non e#ecuti'e director! In result of diluted control of e#isting shareholders the
decisions lie selling of 'ans at its boo 'alue as well as in'est(ents in risy pro8ects can
be controlled!
'aid up Share Capital *+,-,,,-,,,
Cancelled Share Capital 60,000,000
Sub Total 300,000,000
Capital Inectin! "# $amil# 120,000,000
Con%ersion into &'uit# 200,000,000
.otal 'aid up Share Capital +/,-,,,-,,,
Share of "an( in total Capital )2*
". #nstitution of $#% to i&rove "ocuentation &roce"ure
If KBIL install 9I+ then they can get ti(ely infor(ation on current financial
perfor(ance& co(parisons of budgeted and actual figures pro'ided by different
depart(ents& tracing in'entory& billing& sales records and payroll data etc!
"hrough 9I+ 1o(pany can i(pro'e custo(er relationship (anage(ent& hu(an resource
planning etc! In short (anage(ent infor(ation syste( will helped in (aing accurate
and ti(ely decision!
1o(pany can highlight its strength and weanesses due to the presence of re'enue
reports& e(ployees3 perfor(ance etc! It will also help in planning through abo'e
infor(ation! 1ost of 9I+ can be (anaged fro( the additional funds pro'ided by fa(ily
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Case Study : A home -brewed tragedy
as well as re(aining cash fro( sales of subsidiary after (eeting B9C& sales pro(otion
acti'ities and C K D for i(pro'ing product -uality etc!
Operat%ona3 "easure
2perational area is the lifeblood of co(pany because sales and profitability depends upon
operational efficiency of business! It could be i(pro'ed by (ini(i>ing the cost of raw
(aterial& wor in process (aterial and finished products through B9C and other
operational (easures as follows<
a. 'alancing( o"erni)ation an" revival of &lant ('$R)
According to Asad Khan Bahadur 4*roduction director5 bottling and labeling plants is
now outdated and needs i((ediate replace(ent! As discussed in financial (easures& the
balancing& (oderni>ing and re'i'al of plant can be done through the funds recei'ed fro(
sales of subsidiary! If co(pany uses only Cs!16 (illion then the capacity of plant can be
increase up to 96A -1%%A that is currently operating at 66A! "hrough B9C the
operational efficiency of the co(pany can i(pro'ed that leads to increase in sales and
profitability in future!
b. C*ange of &o+er source
"he current source of power in co(pany is generator but standby generator can sustain
only 7%A of production as per infor(ation of Asad Khan Bahadur! And 'olu(e of sales
is also not high to warrant purchase of (ore generators! And i(portant thing is that the
cost of power produced by in house generators is (ore than double the tariff payable to
the go'ern(ent owned power supplying co(pany! "his state(ent clearly indicate that
co(pany should change the power source fro( generator to go'ern(ent owned power
supplying co(pany to lower the o'erheads cost! "his will also i(pro'e the operational
efficiency of the co(pany!
c. ,ro"uction Control easures
0or proper (anage(ent and controlling of increasing production cost& co(pany should
rewrite its production (anuals through follow ways<
*roper procedures and docu(entation
+toc coding and identification
Herifying stoc through regular stoc taing
+etting stoc chec points
1#
Case Study : A home -brewed tragedy
"ana9er%a3 "easures
0ollowing are the (anagerial (easures can be taen to re'i'e the co(pany fro( this
situation<
"he 1.2 49r! 9ahtab Khan Bahadur5 and (areting director (ust lea'e the
e#ecuti'e position because both are the biggest contributor to the co(pany3s poor
situation!1.2 is taing little interest in the co(pany3s all (a8or decisions which
were still taen by his father and ! +econdly& (areting director 4+hahnawa> Ca8a5
also failed in his area of (areting the products and also gets che-ue prepared and
signed without the nowledge of 102 because all the directors are the =A?
signatories to the ban!
"he ban should appoint one or (ore non-e#ecuti'e directors on the co(pany
board!
"he chair(an of audit co((ittee (ust be no(inated by ban non-e#ecuti'e
directors to i(pro'e to the perfor(ance of the co(pany!
"he ban also ased for personal guarantee fro( the directors& so that the tae
interest in co(pany affairs and wor efficiently!
"he ban should force for the appoint(ent of the new 1.2!
"he co(pany did not appear to ha'e any real (iddle le'el (anage(ent! "here
should be proper (iddle le'el (anage(ent and decisions should also decentrali>e
in nature! Due to this coordination a(ong worers& (iddle (anage(ent and top
(anage(ent can be i(pro'ed!
>enera3 "easures
a. #nvestent ,olicy
:e thin KBIL should in'est in the B9C of fi#ed assets up to the depreciation a(ount
fro( the year $%16 after starting the profits! Because depreciation is non-cash e#pense
and suppose to be as idle cash with co(pany up to the a(ount of depreciation! *roper
B9C of plants and (achinery will reduce the brea downs in production process that is
the bac bone of increase in sales and profitability!
b. -+ners*i& %tructure
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Case Study : A home -brewed tragedy
If ban con'ert the part of debt into e-uity and also write off the accrued interest as well
as o'erdraft then fa(ily can willing to in8ect (ore e-uity up to Cs!1$% (illion as
discussed abo'e! "hrough these changes in balance sheet of co(pany& the ownership
structure will be also changed and beneficial for both the parties, ban will be the partner
and can appoint one or two non e#ecuti'e directors and through diluted control of
e#isting shareholders the decisions lie selling of 'ans at its boo 'alue as well as
in'est(ents in risy pro8ects can be controlled& that is beneficial for KBIL!
Ownership Structure
2013
Total +aid up Share Capital 620,000,000 100*
,an( 200,000,000 )2*
$amil# -20,000,000 68*
2015
Total +aid up Share Capital 62.,000,000 100*
,an( 200,000,000 )2*
$amil# -20,000,000 6/*
0eneral +u"lic .,000,000 1*
"ar8et%n9 ? Sa3es "easures
a. Reforulation of ,ro"ucts
If co(pany focus on reshaping the two products sha(poo and crea( through i(pro'ing
-uality as well as new pacaging then sale can be i(pro'ed! "hey should not re(o'e any
of the product because custo(ers prefer the 'ariety rather one brand!
b. Ret*in. &ricing &olicy
"here are two i(portant areas to i(pro'e the sales, price and -uantity! Fuantity can be
i(pro'ed by B9C as we suggest before! +econdly& price should be according to the
co(petitors in (aret!
c. #&rove &rootion activities
1urrently co(pany has poor pro(otional acti'ities and the place(ent of products is also
not good because their (areting (anager did not now about (areting strategies! "hey
need (ore pro(otion in $%1E for sales because in initial stage they should (ae
awareness of their product in (aret!
". #&rove "istribution &olicy
1urrently co(pany is distributing through a distribution co(pany and they are charging
huge trade discount! KBIL need to launch their products through direct (areting and
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Case Study : A home -brewed tragedy
negotiated other distribution co(pany up to $%17 and then in ne#t year when earn so(e
profit& they can go for forward integration by purchasing distributors!
e. $ass ,ro"uction
"hrough B9C the production capacity of KBIL will be i(pro'ed and then they can go
for (ass production and econo(ies of scales to get co(petiti'e edge!
f. Researc* an" Develo&ent
"his is the ey area in which KBIL should focus (ore because -uality of the product can
only be i(pro'ed if co(pany has research and de'elop(ent depart(ent! By following
our gi'en suggestions the co(pany can (ae (oney for research and de'elop(ent
e#penditures!
HR "easures
a. Hiring new staff
KBIL (ust hire so(e new staff to i(pro'e the efficiency and reduction in cost because
old worers are (ore e#pensi'e and also wor inefficiently!
b. Middle Management
"here should be (iddle (anage(ent to perfor( specific functions lie planning&
(areting& finance& )C and CKD!
c. !r"ers participati!n in decisi!n ma"ing
"here should be worers participation in decision (aing to i(pro'e the coordination
and -uality of the decisions! :e thin worers ha'e (ore infor(ation regarding day to
day acti'ities of operations and sales then top (anage(ent so if they will in'ol'e their
worers in decision (aing the results will be better!
Steps 2or t#e Appro:a3 o2 Re:%:a3 P3an
0ollowing are the i(portant steps regarding appro'al fro( all staeholders before
i(ple(entation of re'i'al plan<
)$uit% holders0 0or e-uity restructuring the appro'al of the e-uity holders should be
taen which are fa(ily& ban after con'erting debt into e-uity and general public!
Debt holders 1Bank)0 "he appro'al of ban is also necessary because ban is (a8or
contributor for re'i'al of the co(pany!
.rade Creditors0 "he appro'al of trade creditors is necessary because they are
pro'iding inputs for the business!
Management0 9anage(ent appro'al is also i(portant because they are running the
co(pany and there should be changes in (anage(ent and that cannot be done with the
consent of (anage(ent
S)C'0 1o(pany is yet to be incorporated, hence for the legal re-uire(ent the appro'al
of +.1* is i(portant!
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Case Study : A home -brewed tragedy
Sto#k )2#hange0 In $%16 co(pany will be listed in stoc e#change so the appro'al of
stoc e#change is necessary before i(ple(entation of the re'i'al plan!
0ro( abo'e gi'en suggestions following are the budgeted inco(e state(ents and balance
sheets<
Ba3ance S#eets 2or !#ree @ears
1-
Case Study : A home -brewed tragedy
Inco+e State+ents 2or !#ree @ears
17