Parimal Pharma Ltd. sold its few brands to another pharmaceutical company namely Areva Ltd. for a sum of ₹ 6,000 crore. Number of options were available to Parimal Pharma Ltd. to deploy these funds to generate profits fo
CS Professional · Capital Commodity and Money Market · PYQS · June 2018
Parimal Pharma Ltd. sold its few brands to another pharmaceutical company namely Areva Ltd. for a sum of ₹ 6,000 crore. Number of options were available to Parimal Pharma Ltd. to deploy these funds to generate profits for the company. A team was constituted to decide and finalize the following proposals: (I) ₹2,000 crore shall be invested in the equity of various companies as a strategic partner. (II) ₹1,500 crore shall be used to provide inter-corporate loans as to provide yield of 12%. (III) ₹1,500 crore shall be used to buy back its own equity shares having face value of ₹10 each at a price of ₹3,000 per share (present market price of ₹2,400 per share) being 10% of the paid up equity share capital of the company by way of tender route wherein promoters also intend to participate. Promoters hold 75% equity shares in the company. (IV) ₹500 crore were allocated to a team which will actively participate in capital and commodity market to generate a return of 15%. Proposal I (a) ₹2,000 core shall be invested in the equity of various companies as a strategic partner: (i) ₹500 crore were invested in a listed company and after one year the investment was sold at a profit of 35%. (ii) ₹1,000 crore were invested in a unlisted company by purchasing 5 crores shares of ₹10 each at a premium of ₹190 each. The company came out with a public offer and all these shares were offered for sale in the public offer at a premium of ₹240 per share. Issue was subscribed and the proceeds were received by the company after deducting a sum of ₹15 crore towards expenditure. (iii) The remaining investment of ₹500 crore was made in PQR Ltd. by purchasing 2 crore shares at an average price of ₹250. These shares were sold in a block deal at the rate of ₹235 per share in the NSE. Calculate the total profit/loss made for the above said activities of investments.
Answer & Explanation:
Proposal I(a)(i) Investment: ₹ 500 Crores Profit @35%: ₹ 175 Crores Proposal I(a)(ii) Bought - 5 Crore Shares @ 200: ₹ 1000 Crores Sold - 5 Crore Shares @ 250 (In a Public Offer): ₹ 1250 Crores Expense Incurred: ₹ 15 Crores Net Received Income: ₹ 1235 Crore Profit Made ₹ 1235-1000 Crore = ₹ 235 Crores Proposal I(a)(iii) Investment in PQR Limited Bought - 2 Crore Shares @ 250: ₹ 500 Crores Sold - 2 Crore Shares @ 235: ₹ 470 Crores Net Loss in the Deal: ₹ 30 Crore Total Profit/Loss Account Profit = ₹ 175 Crore Profit = ₹ 235 Crore Loss = ₹ 30 Crore Net Profit = ₹ 175 (+) 235 (-) 30 = ₹ 380 Crore
Topics: Investment Analysis
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