CASE: THE ANANDNAGAR ELECTRIC COMPANY

The Anandnagar Electricity Board (AEB) privatised in

2000 and came to be known as Anandnagar
Electricity Company (AEC). Privatisation was intended
to pave way to the company to improve performance
and raise much needed finances from the capital
market. The demand for electricity has always
exceeded the supply, as the state government did
not have enough funds to spend on capital
expenditure to create the required power generation
capacities. AEC would be now required to make
sufficient investment to increase power generation
capacity in order to meet ever increasing demand for
electricity. AEC management stated that being a
private
sector
company,
it
shall
maximise
shareholders return.
At the time of its privatisation, a large private sector
financial institution valued the company at Rs 4,000
million. The issue of ordinary shares raised this
money. The merchant bank division of the financial
institution helped the public issue of ordinary shares,
par value Rs 10 each, sold at a premium of 100 % for
Rs 20 each. The issue was oversubscribed, and on
the very first day of trading, the market price of
share reached a value of Rs 35.
AEC has been in operation for three years as a
private sector company. Table below provides select
financial and operating data of the companys
operation for the period 2001-2004. The financial
data for 2001 are for the last year of the government
ownership of the company. As a private sector
company, AEC has paid in dividend in accordance
with the policy stated in the prospectus.
The Central Electricity Board regulates the prices and
oversees the activities of the privatised electricity
companies. The demand for electricity in Anandnagar
has grown at the rate of 4% per annum.
Questions
1. What changes, if any, do you expect in the
objectives of the company after privatisation and
why?
2. Who are the companys stakeholders? Has the
company been able to fulfil their objectives?

Revenues
Operating Profit
Taxes
Profit before
depreciation &
tax
Profit after tax
Dividends
Wages
and
Salaries
Total assets
Capital
Expenditure
Debtors
Creditors
Directors
Emolument
Employees
P/E ratio
Consumer
Price
Index

2001

2002
Pvt

2003
Pvt

2004
Pvt

13500
810
160
900

14250
1100
200
960

17500
1,790
300
1030

19500
2,730
400
1190

650
200
3000

900
320
3000

1490
600
2700

2330
900
2600

3000
500

3600
900

4500
1750

5750
2250

6000
4500
30

3200
2400
70

3000
2300
80

3600
2400
100

32000

31400
10.5
102.7

30500
12
105.8

30100
11.5
107.4

100

CASE: THE ANANDNAGAR ELECTRIC COMPANY

The Anandnagar Electricity Board (AEB) privatised in
2000 and came to be known as Anandnagar
Electricity Company (AEC). Privatisation was intended

to pave way to the company to improve performance

and raise much needed finances from the capital
market. The demand for electricity has always
exceeded the supply, as the state government did
not have enough funds to spend on capital
expenditure to create the required power generation
capacities. AEC would be now required to make
sufficient investment to increase power generation
capacity in order to meet ever increasing demand for
electricity. AEC management stated that being a
private
sector
company,
it
shall
maximise
shareholders return.
At the time of its privatisation, a large private sector
financial institution valued the company at Rs 4,000
million. The issue of ordinary shares raised this
money. The merchant bank division of the financial
institution helped the public issue of ordinary shares,
par value Rs 10 each, sold at a premium of 100 % for
Rs 20 each. The issue was oversubscribed, and on
the very first day of trading, the market price of
share reached a value of Rs 35.
AEC has been in operation for three years as a
private sector company. Table below provides select
financial and operating data of the companys
operation for the period 2001-2004. The financial
data for 2001 are for the last year of the government
ownership of the company. As a private sector
company, AEC has paid in dividend in accordance
with the policy stated in the prospectus.
The Central Electricity Board regulates the prices and
oversees the activities of the privatised electricity
companies. The demand for electricity in Anandnagar
has grown at the rate of 4% per annum.
Questions
1. What changes, if any, do you expect in the
objectives of the company after privatisation and
why?
2. Who are the companys stakeholders? Has the
company been able to fulfil their objectives?

Revenues
Operating Profit
Taxes
Profit before
depreciation &
tax
Profit after tax
Dividends
Wages
and
Salaries
Total assets
Capital
Expenditure
Debtors
Creditors
Directors
Emolument
Employees
P/E ratio
Consumer
Price
Index

2001

2002
Pvt

2003
Pvt

2004
Pvt

13500
810
160
900

14250
1100
200
960

17500
1,790
300
1030

19500
2,730
400
1190

650
200
3000

900
320
3000

1490
600
2700

2330
900
2600

3000
500

3600
900

4500
1750

5750
2250

6000
4500
30

3200
2400
70

3000
2300
80

3600
2400
100

32000

31400
10.5
102.7

30500
12
105.8

30100
11.5
107.4

100