INTRODUCTION:

As the objective of firm should be directed towards the maximization of

the value of the firm, the capital structure decision should be examined from the
point of its impact on the value of the firm. If the value of the firm can be affected
by capital structure, which maximize the market value of the firm there exist
conflicting theories on the relationship between capital structure and value of the
firm. Capital structure decisions are significant finance decisions of the corporate
firms in that they Influence the return as well as the risk of equity shareholders.
That there exist close nexus between optimum/judicious debt and the market
value/valuation of the firm is well recognized in literature of finance. While the
excessive use of debt may endanger the very survival of the corporate firms, the
conservative policy may deprive its equity holders the advantage of dept as a
cheaper source of finance to magnify their rate of return. Following such an overconservative policy runs counter the basic objective of financial decision making
to maximize the wealth of equity holders.
Apart from financial risk return consideration, non-financial factors are
also likely to be very decisive in designing capital structure of the corporate
famous for instance use of dept, unlike equity doesnt dilute the controlling power
of existing owners in brief, debt is not an unmixed blessing and, hence a dilemma
for the corporate finance manager.

ASSUMPTIONS:
1

Firms employ only two types of capital.

The form has a policy of paying 100% dividends.

The corporate and personal income taxes do not exist.

The operating profits (EBIT) are not expected to grow.

The total assets are given and do not change.

Business risk is constant over time and is assumed to be independent of

its capital structure.

IMPORTANCE OF CAPITAL STRUCTURE

1. Capital structure is a combination of equity , preference shares and
debentures . all of these are used in financing the firms assets
2. The mix of capital structure is very useful of the firm
3. The long-term fixed interest bearing debt and preference share
capital along with equity share or used to analyze the financial
leverages

4. The capital structure cannot affect the total earnings of a firm but it
can affect the share of earnings available for equity share holders.

DEFINITIONS AND SYMBOLS

BASIC SYMBOLS
S=total market value of equity.
B=total market value of debt.
I=total interest payment.
V=total market value of the firm. (V=S+B)
NI=net income available to equity holder.

BASIC DEFINITIONS
1.

Cost of debt (Ki)=I/B

Value of debt (B)=I/Ki

2. cost of equity capital (Ke)=(D1/Po)+g(if there is income tax)

Where D1=net dividend;

Po=current market price of share

g= br (r=rate of return)
(If there is no IT) ke= (E1(X)N)=(EBIT-I orNI)/s
i. per share basis(Po)=E1/Ke
ii. Total basis(s)=PoN=(EBIT-1)/Ke

Weighted average cost of capital

Ko=W1K1+W2K2 (W1, W2 are relative weight)
(or)
Ko=(I+NI)/V=EBIT/V
Where V=EBIT/Ko

SORUCEOFDATA:
The study is mainly based on the secondary data obtained for last 5 year.
The data is calculated from the annual reports of ZUARI CEMENT and other
printed material available from the company.
Only secondary data is collected for the purpose of the study. The
secondary data consists of extracted financial statement from the company records
to a possible extent for the period.

THE FIELDS OF STUDY:

The study was conducted at NTPC Company in financial department.

SCOPE OF THE STUDY:

A study of capital structure involves an examination of long term

sources that a company taps in order to meet its requirements of finance. The
scope of the study is confines to sources that NTPC. Has tapped

Determinants of capital structure

1. Cost of borrowings (CB): when the cost of borrowing increases,
the deep Sentence on borrowed funds is likely to decline. As a result, the
leverage ratio is expected to have a negative relationship with the cost of
borrowing. The cost of borrowing can be measured as total interest payment as
percentage of total borrowing of the firm.

2. Cost of equity (CE): If the cost of equity increases, the firm is likely
to depend more on debt then equity capital. Therefore, the leverage ratio can be
expected

to be an increasing function of the cost of equity. This variable can be

measured as the ratio of dividend payment to share capital of the company.

3. Size of the firm (SZ): It has the been suggested by a number of

authors that the

size of the firm is likely to be positively related to

have leverage ratio. The rationale behind this view is provided by Warner (1977),
and Ang chua and McConnell (1982). They have argued that the ratio of direct
bankruptcy costs to to have firms value decreases has the value of firms is said to
be neglibibleit is also argued that the larger firms are more diversified and they
have easily access to capital markets, and borrow more favorable interest rates.
Also chung (1993) argued that the large firms have lower agency costs associated
with the asset substitution and under investment problems which mostly arise from
the conflicting interests of shareholders? Further, the similar firms are more likely
to be

liquidated when they are in financial distress. All such

considerations

suggest a positive relationship between the firm sizes is measured as the volume of
total assets of firms and the leverage ratio.

4. Profitability (PR): Myers (1977), Myers (1984) suggested that the

firms prefer retained earnings as their main source of financing. Their second
preference is for debt Financing followed by new equity issued, which might be
due to the significant

transaction cot of issuing new equity. It is suggested that

the observed capital

structure of the firm would reflect the cumulative

requirements for external financing. An unusually profitable firm with a slow

growth rate3 will end up with an unusually low leverage ratio compared with a

slow growth rate will end up with an operatives. On the other hand, an
unprofitable firm in the same industry will end up

with a relatively high leverage

ratio. The profitability of the firm enables it to use retained earnings over external
finance and therefore, one should expect a negative association between the
profitability of the firm and its debt ratio. Barton and Gordon (1988) have also
argued that a firm with high rates would maintain a relatively lower debt level
because of its ability to finance itself with internally generated funds. This is
consistent with the proportion that the management of firm desire flexible and
freedom from the excessive restrictions often associated with debt covenants.
Hence our hypothesis is that the profitability of the firm. This can be measured as
the ratio of operating income to total assets, be negatively related to the debt level
of the firm

5. Growth Rate (GR): The growing firms need more funds. The greater
the future need for the funds, the more likely that the firm will earnings or issue
debt. A firm is expect to rely on debt financing to rely on debt financing to
maintain its debt ratio as its equity increases due to the large retention of earnings.
Thus the firms debt level and growth rate are expected to have a positive
relationship. This variable can be measured as the annual growth rate is expected
to have a positive relationship. This variable can be measured as the annual growth
rate of total assets of the company.

6. Collateral value of Assets (CVA): some capital structure

theories have argued that the type of assets owned by the firm affects its capital
structure choice. Scott (1977) has suggested that by selling the secured debt, the
firms can increase the value of their equity by taking away the wealth without
payment, from their existing unsecured debtors. By issuing debt secured by assets,
the firm can avoid higher interest costs and high issuing cost. For these reasons the
firms with assets that can be used as collateral may be expected to issue more
debt. Therefore, the collateral value attribute can be one of the determinants of
capital structure of the firm. This variable can be measured as the ratio of accounts
receivable plus net fixed assets to total assets, and it can be expected to be
positively related with the leverage ratio.

7. Liquidity (LQ): Liquidity rations are mostly used to judge a firms

ability to meet its short term obligations. The liquidity ratio may have

conflicting effects on the capital structure decisions of the firm first; the
firms with higher liquidity rations might have relatively higher debt rations.
This is due to greater ability to meet short-term obligations. Form this
viewpoint one should expect appositive relationship between the firm
liquidity position and its debt ratio. However, the firms with greater liquid
assets may use these assets to finance their investments. If this happens
there will be a negative relationship between the firms liquidity ratio and
the debt ratio. We include the liquidity as the arguments in our capital
structure determination model. It is measured as the ratio of current assets to
current liabilities and the direction of its effects on capital structure is
allowed to be empirically determined.
8. Non-debt Tax Shields (NDTS): DeAndelo and Masulis

(1980) presented a model of optimal capital structure that incorporated

the impact of corporate taxes personal taxes and non-debt related
corporate tax shields such as depreciation, investment tax credits, etc.
they argued that to use less borrowed capital. NDTS= [operating
income interest payments-(tax payments/corporate tax rate)]/total
assets. The relationship between the non-debt tax shields and leverage
ratio can be expected to be negative.
THEORIES OF CAPITAL STFUCTURE
Different kinds of theories are have been
1. Net Income Approach (NI).
2. Net operating Income Approach (NOI).
3. The Traditional Approach
4.

Modigliani and Miller Approach(MM)

1.Net Income Approach: This approach introduced by Durand. A

firm can minimize weighted average cost of capital and increase the value of the
firm and share value in the market.
This approach is based upon the following assumptions:

i.

The cost of debt is less than the equity.

ii.

They are no taxes.

iii.

The risk percentage of investors is not changed by the use of

debt.

0.1

ke

cost
of
capital 0.05

Ka

Degree of leverage
The reasons for assuming cost of debt is less than the cost of equity are
that interest rates are lower than divided rates due to element of risk and
the benefit of tax as the interest is a deductible expense.
The total market value of a firm on the basis of NI is:
V=S+D
V=Total market value of firm
S=Total market value of equity shares (or)NI/Equity
capitalization rate.
D= market value of debt.
Weighted Average cost of capital can be calculated as:
Ko=EBIT/V

2.Net Operating Income Approach:

this theory

suggested by Durand, It is opposite to the NI approach. Here change in

the capital structure of a company does not effect in the market value of
the firm and the weighted cost of capital remain constant whether the
debt equity mix is 50:50 or 20:80 or 0:100.this theory presumes that:

i)

The market capitalizes the value of the firm as a whole.

ii)

The business risk remains constant.

iii)

There are no corporate taxes.

The value of the firm can be determined as: V=EBIT/Ko

Ko=Overall cost of capital

Ke(0/0)

Ko(0/0)
Ki(0/0)
O

Leverage & cost of capital (Noi) 000

The Market value of equity is:
S=V-D
S=market value of equity shares
V=Total market value of firm
D=Total market value of debt
3. The Traditional Approach: The traditional approach also known,
as Intermediate Approach is a compromise between the two extremes of net
income approach and net operating income approach. According to this theory, the
value of the firm can increase initially or the cost of capital can be decreased by
use more debt as the debt is cheaper source of funds than equity. Thus, a proper

debt equity mix reach the capital structure. When the increased cost of equity
cant be offset by the advantage of low cost debt Thus the overall cost of capital
according to this theory, decrease up to a certain point remains more are less
unhinged for moderate increase in debt thereafter, and increase or rises beyond a
certain point

Ke

Traditional Approach

4. Modigliani-Miller (MM) Approach:

The MM thesis relating to the relationship between capital structures, cost
of capital of capital and valuation is akin to the NOI approach, in other words,
does not

provide operational justification for the irrelevance of the Capital

structure. The MM proportion supports the NOI approach relating to the

independence of the capital of the degree leverage level of debt-equity ratio.

(0/0)Ko
In
(Rs)

Degree of Leverage (B/V) Vo

Basic Proportions:
1)

The Overall cost of capital (Ko) and the value of the firm (V) are

independent of
2)

the capital structure.

Ke is equal to the capitalization rate of a pure equity stream plus a

premium for financial risk to the difference to the pure equity capitalization (Ke)
time the ratio of debt to equity.
3)

The cut off rate for investment purposes is completely independent of the
way in

which an investment is financed.

Assumptions:
a)

Perfect capital market: The implication of a

perfect capital market is that.
Securities are infinitely divisible;
Investors are free to buy/sell securities;
Investors can barrow without restriction;
There is no transactions cost;

Investors are rational;

b)

Given the assumptions of perfect information and rationality.

c)

Business risk is equal among all firms with in similar operating

environment.

Capital structure planning and policy.

Introduction: Capital structure refers to the mix of long-term of source of
the funds, such as debentures, long-term debt and preference shares. Some
companies do not plan their capital structure they may face considerable
difficulties in raising funds to finance their activities. May also fail to economize
the use of their funds

Features of an appropriate capital structure:

The

capital should be planned generally keeping in view the interest of the equity
shareholders and the financial requirements of a company. The equity

shareholders, being the owners of the company an appropriate capital structure

should have the following features:

Return
Risk
Flexibility
Capacity
Control
Approaches to establish capital structure:
There are 3 most common approaches to decide about a firms capital structure

1. EBIT-EPS APPROACH

For analyzing the impact of

For determining the impact of

debt on EPS.
2. VALUATION APPROACH
debt on the
Shareholders value.

3. CASH FLOW APPROACH:

For analyzing the firms ability to

serve debt.

Practical

Considerations

in

determining

capital

structure:
Concern for dilution of control.
Desire to maintain operating flexibility.
Ease of marketing capital Inexpensively.
Capacity for economics of scale.
Agency costs.

OBJECTIVES
The main objectives of capital expenditure or construction of budget included the
following:
(i) To assess the requirement of funds in the long term (i.e. over a time span of 15
years) as well on a short term basis (i.e. Monthly/Quarterly requirement) so that
mobilization of funds and its deployment for capital expenditure can be timely

planned prior to the commencement of physical activity and thereby ensure the
availability of funds at the most appropriate costs.
(ii) To prepare annual budgets in such a manner that Managers at various levels in
the organization carry out periodical exercises to identify physical targets in
respect of each work or responsibility centre and derive monthly targets or
programmes and cash flows to achieve the physical targets.
(iii) To introduce and operate responsibility accounting by which Managers are
responsible for achievement of specified targets with the resources allocated for
the purpose.
(iv). To bring about effective co-ordination of all activities of the organization
(v). To establish a close link between physical progress and monetary outlay
(vi).To Provide a basis for plan allocation and budgetary support by the Govt.
SCOPE OF PROJECT
The capital Structure will cover the following schemes:
(i) Approved and ongoing Projects
Greenfield and expansion Projects that are approved by the GOI before the start of
the current five- year plan period and are under construction.
(ii) New approved projects
The projects approved by the GOI during the course of the current five year plan
period.
(iii) New Unapproved Projects
The projects for which preliminary expenditure related to site investigations,
feasibility studies, expenditure for obtaining clearances/permits and initial
payments for development of infrastructure and land for Projects have been taken
up and are being posed for approval of GOI.
(iv) Commissioned Power Stations
All capital addition schemes for commissioned and existing power stations like
construction/ raising of Ash Dyke, installations of additional plant and systems,
adding facilities at township, administrative office, Environment action Plan
schemes and Energy conservation schemes, Ash utilization, balancing equipments,
etc.
(v) Power Stations under Renovation and Modernization
Schemes of Renovation and Modernization undertaken for NTPCs own Stations
as well as stations taken over by NTPC
(vi). Investment in Joint Ventures

Proposals of investment in Joint Ventures

(Vii) Research & Development Budgets
Capital expenditure for establishment or construction of R&D Laboratories and
facilities
(viii) Miscellaneous Bought out Assets (MBOA) Budget
Construction Budget for MBOA items for operating stations (for projects under
construction MBOA budget forms a part of the capital budget as a non-DCO item)
(ix) Survey and Investigation
These are studies which are essential for identification of site, preliminary survey
and soil investigation and other studies which are required for preparation of
feasibility reports for submission to CEA for approval.
METHOD USED TO ANALYZE DATA
According to the nature of expenditure, the budget outlays for Approved and
Ongoing Schemes, new approved Schemes and New Unapproved Schemes are
classified as under:
(i) Direct Capital Outlay
This represents all costs directly identifiable with capital works and includes cost
of land (including rehabilitation and resettlement expenditure), infrastructure
facilities, civil (including material consumption), mechanical, electrical works,
township, MGR, Construction Tools & Plants and other construction facilities. The
budget provision is to be made against each work head listed below:
a) System: Represents major components of the project. Composite contracts that
contain multiple systems have also to be categorized as separate systems to
facilitate monitoring of expenditure and progress in respect of such contracts. For
e.g. Construction Township with all infrastructure facilities is one system.
b) Budget Head: Represents major classification of works in each system. Ex.
Residential Buildings, Service Buildings, Roads, Drains etc., in Township are
major classification of works.
c) Work Head: Representing specific individual work. For e.g.. Out of
Residential Buildings, we may have classification of A, B, C, D type quarters.
Further under each type there may be multiple contracts.
(ii) Commissioning Expenses
All direct expenses for running of individual units up to the date of commercial
operation, including fuel costs, startup power, chemicals and lubricants,

consumption and anticipated sale of energy during trial run are to be indicated
under this head.
(iii) Construction Materials
The stocks of construction material (or free issue material) are shown in this
Budget. All purchases are initially to be shown under this Head. The consumption
of materials should be valued at budgeted cost for calculating the
accretion/discretion and should be reflected in the stock of Construction Stores.
Any variance in material cost on account of the difference between the issue price
and contract price should be provided for in the DCO along with the consumption
cost.
(iv). Technical Consultancy
Payment to technical consultants identifiable with various plant and systems such
as MGR, coal handling, C&I, Prime Consultants and Retainer Consultants are to
be included in this head. All incidental expenses payable to consultants based on
contractual obligations and statutory payments, if any payable in respect of foreign
consultancy payments should also be provided under this head.
(v) Training & Recruitment\
The first part of this budget is to consist of expenses for training covering both inhouse development programmers and external training programmers for all
employees. The expenditure to be incurred for Trainees on the rolls of the
Company should also be reflected in this Budget Head. The second part consists
of expenses for recruitment such as advertisement, interview expenses, TA to
candidates etc.
(vi). Incidental Expenditure during Construction
Employee Cost
These comprise of salaries, DA, incentives, wages, allowances, contribution to PF
and other funds and welfare expenses such as LTC, medical reimbursement,
canteen subsidy etc. The provision for arrears of salary should be shown
separately.

Other Establishment Expenses (net of income)

These include the other expenses incidental to construction i.e. Repair and
Maintenance for buildings, construction equipment during construction, vehicle
running expenses, office rent, power charges payable to outside agencies, LC
charges, cost of drawings, travelling expenses, printing and stationery,

communication expenses, advertisement for tenders are major items falling in this
category.
(vii) Miscellaneous Bought out Assets (MBOA)
MBOA items include vehicles, furniture and fixtures, office and other equipment,
hospital and medical equipment, misc. assets of township, lab Manual on
Construction Budget 7 equipment, canteen equipments, miscellaneous tools,
LAN /Satcom, and loans to employees. In case of loans to employees, the net fund
requirement is to be projected. Necessary justification for the items proposed in
MBOA budget should be made and disclosed in the format.
(viii) Borrowing Costs
Interest on loans and bonds, upfront fee, agency commission, guarantee
commission, commitment charges and any other charges/ fees and expenses
payable towards rising of loans, which are accrued/paid and to be capitalized
during the construction period has to be estimated and included in this budget.
(ix) Working Capital Margin
The requirement of working capital comprising of inventory of fuel, spares,
consumables, operation and maintenance expenses and sundry debtors (as per the
prescribed norms) anticipated during budget period to the extent of 25% are to be
considered in the budget.
(x) Accretion/Discretion to Net Current Assets
Apart from direct capital outlay and expenses, cash flows related to movement of
current assets and current liabilities (such as EMD, Cash
Deposits, Tax Deduction at source, etc) should be included in this budget.

LIMITATION
It has been found that following are the reasons for difference between budgeted
estimate (BE) and actual expenditure (AE):
NTPC, being a public sector, the decision making process is very
complicated and thus time taking. Any decision involves many authentic
persons/committee.
Organization doesnt has its own database for the estimation of
work/material and its price thus it is comparatively tough to prepare a
good estimates for budget
NTPC, being a govt. organization has to go by natural justice & provide
equal opportunity to all the suppliers. Due to which it is difficult to predict

time involved in such processes, which is a very important factor

influencing budget estimate.
Some factors are unpredictable while making estimation of budget:

Poor infrastructure of roadways due to which it takes long time for

material to reach Project Station

Poor whether also hampers work related to construction.

LITERATURE REVIEW
(i) Review of Budget at Project Level
The budget proposals prepared by EIC/Contract Services should be reviewed by
Project Budget Committee and then forwarded to the Corporate Centre for
approvals. Budget projections should be realistic and should reflect the action plan
accurately. The revised estimates should be used for small corrections and large
variations from the budget estimates should be avoided. The key factors that
would be decisive in achieving the budget utilization should be discussed and
reported in the forwarding note for information of the authorities.
(ii) Pre-Budget Approvals and Sanctions
The Budget Proposals in case of approved and ongoing projects should be as per
the approved cost estimates including revisions, if any, thereof. The capital
expenditure for proposals such as Renovation and Modernization schemes, Capital
Additions, MBOA, Environment protection schemes, Ash Utilization Schemes,
R&R Schemes, Hospital facilities, school facilities to be incurred for
commissioned projects shall have an in principle clearance/approvals as the case
may be by Corporate Finance before such proposals are taken into Budget
Estimates. Similarly, budget provisions for new unapproved projects should be in
accordance with the advance expenditure approved by the Board/GOI as the case
maybe. The proposals in such cases should be for the amounts and as per the terms
and conditions already approved.
The proposals should always confirm to the Approved Cost Estimates and in case
where the cost of completion is expected to vary action should be initiated for
necessary approvals of the competent authority as per Delegation of Powers /
guidelines on the subject.
(iii) Phasing of Outlays
The outlays proposed should be phased with adequate care and should match the
physical progress projected throughout the year. As the financial outlays are linked

with physical performance, matching outlays should be projected corresponding to

the physical performance. The phasing of outlay should be done with utmost care
since it facilitates resource planning at corporate level and release of funds from
time to time.
(iv). Responsibility-wise Budget Preparation and Review
The preparation of Budgets should be initiated at the grass root level and EIC wise
documentation of the budget estimates should be done in addition to the Budget
compilation in Budget Formats. The Direct Capital Outlay is to be identified EIC
wise/HOD wise and should be accordingly monitored and reviewed at the
projects.

INDUSTRY & COMPANYPROFILE

INDUSTRY BACKGROUND

Way back in 1947, India had a power generating capacity of a meager 1,362
Megawatt (MW). There was power shortage in rural areas, and only a few of the
urban centers had electricity. The process of generation and distribution of power
was mainly carried out by the private players at that time. Post-independence,
electricity was made subject to the concurrent jurisdiction of the State and the
Central Governments. Eventually, the Electricity (Supply) Act, 1948 of India
created the institutional framework under which the industry started taking shape.
This particular framework was retained until recently when the Act was modified
as the Electricity Act, 2003. This Act resulted in the creation of State Government
Agencies that were bestowed with the responsibility to generate, transmit and
distribute electricity within each state.
During the mid-1970s, it was realized that relying only on the State Electricity
Boards (SEBs) for power development was resulting in acute shortage of power
and large inter-state imbalances. This was particularly seen in the light of the
uneven distribution of coal and hydroelectric resources across the country. In order
to cater to the increasing demands of the states, the central Government increased
its role in the generation and development of power. National Thermal Power
Corporation (NTPC) and National Hydro Power Corporation Ltd. (NHPC) were
created in the year 1975 by the Central Government in order to establish thermal
and hydro electricity generating plants. During the same year, the Central Electric
Authority (CEA) was formed to establish a uniform national power policy. In the
year 1992, the Power Grid Corporation India Limited (POWEGRID) was
established aimed at constructing, operating and maintaining inter-state and
interregional transmission systems. Today, these entities are collectively known as
the Central Power Sector Utilities (CPSUs) and are directly accountable to the
Ministry of Power (MoP). The other entities that are under the direct control of the
MoP are the Power Finance Corporation (PFC) and the Rural Electrification
Corporation. The Power Trading Corporation of India Limited (PTC) was
established in the year 1999 to allow the surplus power supplies to be efficiently
traded. The PTC is promoted by NTPC, POWERGRID, NHPC and PFC.
In order to supplement the public sector investments, the Government of India
(GoI) took major steps in the year 1991 in an attempt to attract private investments
in the power sector. It allowed 100 percent foreign ownership of the power

generating assets and also provided assured returns, a five-year tax holiday, and
low equity requirements. In case of some private generators, the SEBs provided
counter guarantees against non-payment of dues. But all these reforms too did not
address the ailing financial health of the SEBs and the shortage of power
continued to exist. The transmission and distribution losses were quite high due to
inadequate metering, obsolete equipment and various theft related incidents. In
order to provide an innovative incentive package to the states for the purpose of
restructuring the power operations, the Government introduced the Accelerated
Power Development and Reforms Program (APDRP) in the fiscal 2001. The
primary objective of the program was to bring down the losses of the SEBs at least
by 10 percent. The Government also introduced the scheme of One Time
Settlement of Outstanding Dues that helped in the settlement of the SEBs payable
to the CPSUs. It also set-up a system that facilitated the full payment of
subsequent billings.

COMPANY HISTORY

On 7th November 1975, National Thermal Power Corporation Private Limited

(NTPC), a private limited company, 100 percent owned by the Government of
India was incorporated under the Companies Act, 1956. On September 30th 1976,
the word Private was deleted and the company was renamed National Thermal
Power Corporation Limited. Later, in accordance to the shareholders resolution,
on September 30th 1985, the company was converted from a private limited
company to a public limited company as per the provisions of the Companies Act,
1956. After the incorporation, the company went on to become not only the largest
utility of the country but also the leading power utility of international standard.
The installed capacity of the company as on 31st March 2005 was 23,749 MW
through its 13 coal based (19,480 MW), 7 gas/liquid fuel based (3955 MW) and 3
joint venture (coal based) projects (314 MW). NTPC generated 191,557 million
units (Mus) of electricity in 2004-05 including 2447 Mus generated by its joint
venture companies. Exhibit 1 provides a detailed summary of the same.
Exhibit 1

Source: NTPC, Annual Report.

Exhibit 2
Region

Number

of

Installed

Capacity

Western
Northern
Eastern
Southern
Total
JVs
Grand Total

Coal
2
5
4
2
13
3
16

Stations
Gas/Liquid Fuel Total
2
4
4
9

4
1
3
7
20

3
7
23

(MW)
Coal
Gas/Liquid Fuel
4360
1293
5620
2312
5900

3600
350
19480 3955
314

19794 3955

Total
5653
7932
5900
3950
23435
314
23749

Source: NTPC, Draft Red Herring Prospectus.

The chronological sequence of the companys major events is summarized in
Exhibit 3.
Exhibit3:MajorEventsoftheCompanysinceIncorporation
IncorporationofNTPC.
TakeoverofmanagementoftheBadarpurproject.
Thefirst200MWunitatSingraulicommissioned.

1975
1978
1982

1986
1987
1988
1989

1990
1992

ThefirstdirectforeigncurrencyborrowingforNTPCa
consortiumofforeignbanksledbyStandardCharteredMerchant
BankextendsaloanofGBP298.41millionfortheRihandproject.
NTPCestablishesacenterforeducationatPowerManagement
Institute,Delhi.
ThetransmissionlinebasedonHVDC(HighVoltageDirect
Current)technology,
commissionedforpowertransmissionfromRihandtoDelhi.
SingrauliprojectreceivesWorldBankloanofRs.150millionUSD
through
GovernmentofIndia.
NTPCsynchronizesitsfirst500MWunitatSingrauli.
NTPCbecomesoneofthefirstPSUstoissuebondsinthedebt
market.
NTPCcrossesthe5000MWinstalledcapacitymark.
NTPCraisesfirstsyndicatedJapaneseloanof30billionJPY.
ConsultancydivisionofNTPCislaunched.
Firstunit(88MW)ofNTPCsfirstgasbasedcombinedcyclepower
plantatAnta,
Rajasthancommissioned.
NTPCbuildsupatotalinstalledcapacityof10000MW.
FirstacquisitionbyNTPCofFerozeGandhiUnchaharThermal
PowerStation
(2x210MW)fromUttarPradeshRajyaVidyutUtpadanNigamof
UttarPradesh.
PursuanttolegislationbytheParliamentofIndia,thetransmission
systemsowned
bythecompanyweretransferredPowerGridCorporationofIndia
Ltd.

CompanywastransferredtoPowerGridCorporationofIndia
Limited.
1993
1994

1997

1998
1999

2000
2002

2003
2004

Forthefirsttime,IBRDextendsdirectloanofUS$400millionto
NTPCunder
timesliceconceptforitsprojects.
NTPCachieves15000MWofinstalledcapacity.
NTPCdeclaresadividendofRs.650millionforthefirsttime.
JhanorGandhar(Gujarat)becomesthefirstthermalpowerstationto
have
commissionedanintegratedLiquidWasteTreatmentPlant(LWTP).
NTPCwasidentifiedbytheGOIasoneoftheNavratnapublic
sectorundertakings.
Achieves100billionunitsgenerationinoneyear.
AconsortiumofforeignbanksledbySumitomoBank,HongKong
extends
foreigncurrencyloanof5billionJapaneseYenforthefirsttime
withoutGoI
guarantee.
CommissionedthefirstNaphthabasedplantatKayamkulamwitha
capacityof
350MW.
NTPCsDadrithermalpowerproject,UttarPradeshadjudgedthe
bestinIndia
withaPLFof96.12percent.
Dadri,UttarPradeshcertifiedwithISO14001onOctober7.
NTPCtakesupconstructionofahydroelectricpowerprojectof
800MWcapacity
inHimachalPradesh.
ThreewhollyownedsubsidiariesofNTPCviz.,NTPCElectric
SupplyCompany
Limited,NTPCHydroLimitedandNTPCVidyutVyaparNigam
Limitedwere
incorporated.
NTPCsetsupESP(ElectrostaticPrecipitators)atTalcherSTPP.
NTPCexceedsthe20000MWinstalledcapacitymark.
NTPCundertakesdebtrestructuring.Raisesfundsthroughbonds
(SeriesXIIIth
andXIVth)forprepaymentofhighcostGoIloans.
TheawardofcontractforthefirstSuperCriticalThermalPower
PlantatSipat.
Reachedatotalinstalledcapacityof22249MWwiththeTalcher
UnitVgetting
synchronizedonMay13.
NTPCFerozeGandhiUnchaharThermalstationachievesarecord
PLFof
87.43percentupfrom18.02percentinFebruary92whenitwastaken
overby
NTPC.
LICextendscreditfacilityforRs.70billionRs.40billioninthe
formof
unsecuredloansandRs.30billionintheformofbonds.
NTPCmakesitsdebutissueofeurobondsamountingtoUS$200

millioninthe
internationalmarket.
Source:VariousNewspaperClippings.
ORGANIZATION STRUCTURE
NTPC has four subsidiaries, namely, NTPC Vidyut Vyapar Nigam Limited
(NVVN), NTPC Hydro Limited (NHL), NTPC Electric Supply Company Limited
(NESCL) and Pipavav Power Development Company Limited (PPDCL). NVVN,
a wholly owned subsidiary of the company, was incorporated on 1st November
2002. It was primarily set up to carry out power trading by purchasing all forms of
electrical power from resource including imports from abroad and also to sell such
power to the various customers including the SEBs and to bulk customers in India
and abroad.
NHL, another wholly owned subsidiary of the company was established on
December 12th 2002 with the main objective of developing small and medium
hydroelectric power projects with capacity up to 250 Megawatt. NESCL is another
wholly owned subsidiary of NTPC that was incorporated on August 21 2002, with
the objective of entering into business of distribution and supply of electrical
energy. The fourth wholly owned subsidiary of NTPC named PPDCL was
incorporated on December 20 2001, as a consequence of presidential directive
from the GoI to set up a company for the purpose of acquiring land and the
developing infrastructure for setting up power projects in the state of Gujarat.
Apart from the wholly owned subsidiaries, the company has also entered into
several joint ventures where it has a considerable stake. These JVs include, Utility
Powertech Limited, NTPC Alstom Power Services Private Limited, Power Trading
Corporation of India Limited, NTPC Tamil Nadu Energy Corporation Limited,
NTPC SAIL Power Corporation Limited and Bhilai Electric Supply Co. Private
Limited. (The detailed structure of the companys organizational framework is
summarized in Exhibit 4.)
Exhibit 4: Corporate Structure
National Thermal Power
Corporation Limited

100%
Pipavav Power
Development

100%

100%

100%
NTPC

NTPC Electric
Supply Co.Ltd.

NTPC Vidyut
Vyapar
Nigam

Hydro
Ltd.

Ltd.
Co. Ltd.

50%

50%

8%

50%

50%

50%

NTPC
Utility

Power

NTPC

NTPC

Bhilai

Trading

Tamilnadu

SAIL
Power

Electric

Corporation Energy Co.

of
India

Co.

Supply Co.

Ltd.

Pvt. Ltd.

Pvt. Ltd.

Alstom

Powertech

Power

Ltd.

Services

Ltd.

Pvt. Ltd.
NTPCs SHARE IN THE INDIAN POWER SECTOR
As at the end of March 2005, the companys installed capacity was around 19.79
percent of the total installed capacity of the country and the company contributed
27.09 percent of the total power generated in the country during the fiscal 200405. When the contribution of the joint venture companies were included, the
companys share of installed capacity stood at 20.06 percent and at 27.51 percent
of the total power generated in the country. (Exhibit 5)

CAPITAL STRUCTURE
Liquidity Management
NTPC is dependent on both internal as well as external sources of funds to provide
liquidity and to fund its capital requirements. Traditionally, the company has
funded its capital expenditures with internally generated funds, equity
contributions by the Government and debt. The company entered into long-term
borrowing in the form of bank loans or bonds that are denominated either in
Rupees or foreign currencies. As on March 31 2013, the company had cash and
cash equivalent of Rs. 66,351 million that represented an increase of Rs.42,457

million in the fiscal 2013. Till March 2014, the total investment of NTPC stood at
Rs.51,9881.1 million. The detailed break up of the same is provided in the Exhibit
6.
Exhibit 6
Sl. No. Sources of Funds
1.

2.

INR Million

Funds from GoI

Equity Share Capita:
Loans from GoI:
Grant-in-Aid:

119217.6
82454.6
36730.3
32.7

Bonds issued in domestic market

Loans

from

domestic

44,805.8

financial

3.

institutions

91,901.4

4.

Foreign loans

119,600.7

Internal resources including share

5.

premium
Total

144,355.6
519,881.1

The company has been accepting deposits from the public to cater to the working
capital requirement. The deposits as of 31 March 2014, were Rs.4,166 million,
generated from 2222 depositors.

INITIAL PUBLIC OFFER

In an effort to raise external funds, the company came out with an Initial Public
Offer (IPO) in October 2013 that comprised 432.915 million equity shares that
constituted 5.25% of the post issue capital. The Government, that held 100%
equity in the company also its offer for the sale of the entire share capital base.
The price of the issue was fixed at Rs.62 per share. The response to the issue was
overwhelming and was oversubscribed by 13.14 times. The total amount raised
from the issue was Rs.235,241 million. An amount worth Rs.181,560 million was
refunded after retaining the proceeds that totaled Rs.53.681 million. A total of
Rs.26,840.7 million was credited to the Government account towards the sale of
the holding in NTPC and Rs.29,840 million was retained by the company towards
share capital and share premium. The shares were listed on the NSE and the BSE
on November 05, 2013.

DIVIDENDS
Dividends of the company are approved at the annual general meeting of the
shareholders based on the recommendations of the board. Exhibit 7 provides the
details as to the dividend payment of the company in the previous years.
Exhibit 7: Details of Dividend Payment
Fiscal 2014 Fiscal 2013 Fiscal 2012 Fiscal 2011
Face value of equity shares 10

10

10

1,000

Dividends (Rs. million)

19,790

10,823

7,080

7,079

Dividend tax

2680

1,387

395

Dividend per equity share

2.40

1.39

0.91

90.61

24.0

13.9

9.1

9.1

Dividend rate approximate

(%)

Note: A stock split was initiated in the year 2011; as a result each equity share of
Rs.1000 was divided into 100 equity shares of Rs.10 each.
FUNDING PATTERN
As has been stated earlier, NTPC is a Government owned company, where the
Government of India holds 89.50 percent of the equity. The company was initially
formed with an authorized share capital of Rs.1,250 million that stood at
Rs.100,000 million as on 31st March 2013. The paid-up equity capital as on that
date was Rs.82,455 million that includes a 73796.3 million contribution by the
GoI and Rs.8658.4 million held by the public, employees and Qualified
Institutional Buyers (QIBs). The growth of the authorized capital, share capital,
and reserve and surplus is summarized in Exhibit 8.
Exhibit 8

DEBT STRUCTURE
As stated earlier, the company relies on both Rupee and foreign currency
denominated borrowings. A significant portion of the companys capital has been
in the form of foreign currency loans from multilateral agencies such as the World
Bank and the Asian Development Bank. These loans are guaranteedbytheGoI.
Oflate,itisobservedthatthecompanyhasincreaseditsrelianceontheRupeeand
foreigncurrencydenominatedcommercialborrowings.Thesearemainlyinthe
form of export credit for imported equipments/syndicated loans and domestic
borrowingsinRupeesintheformofloansandbonds.Thecompanyhasboth
secured and unsecured borrowings out of which the secured borrowings are
mainlyintheformofRupeedenominatedbonds.(SeeExhibit9)
Exhibit9
DebtProfile
(INRbn.)

2005

2006

2007

2008

2009

2010 2011 2012 2013 1H14

Secured

33.2

32.7

30.0

30.5

24.3

19.7

16.5 41.2

Unsecured

70.3

64.0

59.2

65.9

76.5

78.4

99.4 90.9 108.7 105.9

Banks/FI

44.7

40.5

40.2

55.7

64.8

68.1

85.2 99.1 107.5 105.0

NonBank

57.8

56.2

49.0

40.7

36.0

29.9

30.6 33.0

47.1 46.5

4.3

3.5

3.0

2.4

7.7

16.5

27.1 43.2

57.7 57.3

38.8

32.7

27.7

36.9

40.9

35.9

42.7 40.7

36.1 34.2

1.6

4.3

9.4

16.4

16.3

15.7

15.5 15.2

13.7 13.4

Govt.ofIndia

29.0

29.6

28.6

26.9

26.1

24.7

21.9

GOIGuaranteed

40.1

34.4

23.1

30.9

28.7

26.9

35.6 39.8

40.4 30.2

PrivatePI/K
Market

28.9

26.6

20.5

13.8

9.9

5.2

8.7 31.6

46.1 45.6

ForeignCurrency

40.3

37.0

37.1

53.3

57.1

51.6

58.2 55.9

58.6 56.9

IndianRupees

62.2

59.8

52.1

43.1

43.6

46.4

57.7 76.3

95.9 94.5

102.5

96.7

89.2

96.4

100.8

Secured

31.4

33.8

33.7

31.6

24.1

20.0

14.2 31.2

29.7 30.1

Unsecured

68.6

66.2

66.3

68.4

75.9

80.0

85.8 68.8

70.3 69.9

Banks/FI

43.6

41.9

45.0

57.8

64.3

69.5

73.6 75.0

69.5 69.3

IndianBanks/FI
Int'lBanks
WorldBank

TotalDebt

1.4

45.8 45.5

1.0

0.9

98.0 115.8 132.2 154.5 151.5

%Total

NonBank

56.4

58.1

55.0

42.2

35.7

30.5

26.4 25.0

30.5 30.7

4.2

3.7

3.4

2.5

7.6

16.8

23.4 32.7

37.3 37.8

IntlBanks

37.8

33.8

31.1

38.3

40.6

36.6

36.9 30.8

23.3 22.6

WorldBank

1.6

4.5

10.6

17.0

16.1

16.0

13.3 11.5

8.9

8.9

Govt.ofIndia

28.2

30.6

32.0

27.9

25.9

25.2

18.9

0.6

0.6

GoIGuaranteed

39.1

35.5

25.9

32.1

28.5

27.4

30.8 30.1

26.1 25.9

PrivatePIJK
Market

28.1

27.5

22.9

14.4

9.8

5.3

7.5 23.9

29.8 30.1

Foreign
Currency

39.3

38.2

41.6

55.3

56.7

52.7

50.2 42.3

37.9 37.6

47.3

49.8 57.7

62.1 62.4

IndianBanks/FI

IndianRupees
TotalDebt

60.7

61.8

58.4

44.7

43.3

100.0

100.0

100.0

100.0

100.0

1.1

100.0 100.0 100.0 100.0 100.0

NTPC has maintained low levels of debt and at the same time good debt coverage
ratios since the year 1990 considering the fact that the company witnessed rising
capital outlays and modest outflows of cash. In the FY04, the net debt to EBITDA
was 1.8 that remained at a level or below 2.1 since 1998. At the same time the
EBITDA/ net interest was 6.1 that remained above 6.0 in the last five years.
(Exhibit 10)
Exhibit 10: National Thermal Power Corporation Limited Financial
Summary
INRbn

30
31
Sep. Mar.
2013 13

31
Mar.
12

31
Mar.
11

31
Mar.
10

31
Mar.
09

31
Mar.
08

31
Mar.
07

31
Mar.
06

Income Statement
Revenues

105.6 198.4 194.5 178.3 193.5 164.1 140.2 124.2 101.4

Revenue Growth

20.5

2.0

9.1

7.9

17.9

17.1

12.8

22.6

21.6

EBITDA

27.3

49.2

57.1

50.7

69.0

61.6

54.9

49.3

39.3

EBIT

17.7

28.7

41.4

36.9

44.9

40.2

35.0

31.9

24,6

Interest Incurred

5.4

10.9

9.5

7.8

9.4

9.4

9.8

12.7

11.1

Net Income

23.4

52.6

36.1

35.4

37.3

34.2

28.2

21.5

16.8

Cash and
Equivalents

71.8

66.4

23.9

13.7

12.0

24.2

23.5

18.6

19.2

Total Assets

607.0 596.3 493.4 450.5 423.6 401.8 354.5 306.1 279.5

Balance Sheet

Short-term Debt

2.1

1.7

Senior Long-term
Debt

150.6 153.5 130.7 93.9

Subordinated Debt 0.9

1.0

1.6

1.4

1.8

21.9

1.7

2.8

2.9

2.9

3.6

73.3

74.7

69.6

60.6

67.2

24.7

26.1

26.9

28.6

29.6

103.5 99.3

92.1

100.3

Total Debt

153.5 156.2 133.8 117.6 99.8

Common Equity

378.9 355.5 315.1 286.5 258.2 229.1 201.5 178.8 161.4

Total Capital

532.5 511.7 448.9 404.1 358.0 332.6 300.8 271.0 261.7

Cash Flow
CF from
Operations
Change Op
Working K

44.1

60.5

74.9

62.7

73.4

62.3

53.4

45.0

3.2

3.6

15.8 21.1 18.4 2.9

7.1

2.4

8.9

Net Cash Op
Activities

47.3

56.9

59.1

55.2

50.9

36.0

Capital
Expenditure

30.6 46.7 32.9 30.8 25.4 36.9 27.0 18.8 9.2

Financing Cost

5.4

10.0 9.2

8.9

9.9

9.8

10.8 13.9 10.9

Equity Raised

0.0

0.0

0.0

0.0

0.0

1.0

1.7

1.4

0.7

Dividends

0.0

3.5

11.1 8.2

4.3

7.6

7.2

5.5

4.4

Other

3.1

23.3

11.9 9.8

38.3 20.7 14.1 6.7

2.0

Net Debt Dec/(Inc) 8.2

20.0

5.9

Net Free Cash

Flow

41.6

87.8

69.4

3.5

2.3

7.5

10.2

16.2 15,2 24.6 3.1

10.0

8.9

13.0

9.8

EBITDA/Revenues 25.9

24.8

29.4

28.4

35.7

37.5

39.2

39.7

38.8

EBIT/Revenues

16.7

14.5

21.3

20.7

23.2

24.5

25.0

25.7

24.2

Net
Income/Revenues

22.2

26.5

18.6

19.9

19.3

20.9

20.1

17.3

16.6

31
Mar.

31
Mar.

6.7

16.2 8.4

70.5

Profitability

INRbn

30
Sep.

31
Mar.

31
Mar.

31
Mar.

31
Mar.

31
Mar.

31
Mar.

2013

13

12

11

10

09

08

07

06

5.0

4.5

6.0

6.5

7.3

6.6

5.6

3.9

3.5

EBITDA/Net 13.3
Interest

6.1

8.9

30.9

13.6

11.4

7.7

4.8

4.1

Total Debt
EBITDA

2.8

3.2

2.3

2.3

1.4

1.7

1.8

1.9

2.6

Debt/EBITDA3.0

1.6

1.9

2.1

1,3

1.3

1.4

1.5

2.1

30.5

29.8

29.1

27.9

31.1

33.0

34.0

38.3

Credit Ratios
EBITDA/Inter
est

Net

Total
/Total
Capital

Debt
28.8

The company has substantial forex debts that are mostly denominated in US$.
Since most of the debts are in unhedged state, forex exposures can pose substantial
material risk to the company. The company is aware of such risks and has thus
reduced its forex risks in the last five years from 57 percent in year of all debts to
38 percent in 1H05. At the same time, the forex risks have been reduced by the
strengthening of the Indian Sovereign bonds by the Fitch ratings. In the past, the
company had a record of borrowing substantial funds from official sources such as
the GoI, the IBRD and the ADB. The GOI has also guaranteed around 25 percent
35 percent of NTPCs debts historically. It is worth mentioning here that the
international borrowings in the past were covered by the GOI guarantees. The
company enjoyed both the repeat lenders and a growing roster of international
banks in its syndicated facilities that comprised over 50 international banks from
Asia, US, Japan and Europe. In an attempt to diversify the funding process and
develop self-sustaining funding capabilities, the company reduced the share of the
GoI guaranteed debt in its debt structure from a level of 39 percent of total debt in
FY 96 to around 26 percent in 1H05. It has also phased out borrowings from the
GoI and the World Bank from 41 percent of total debt in FY 01 to around 9
percent in 1H05. The company has successfully tapped both the international
equity and debt markets in the past that started with an international issue of US$

200million and an IPO listing 10.5 percent of its shares. This helped the
companys access to the capital markets and further strengthen its funding
capabilities. Exhibit 11 provides a detailed understanding of debt, along with the
applicable currencies that mature or in respect of which payment is due in the
fiscal years as mentioned.
Exhibit 11
Currency

Fiscal
2005

Rupees
Euro

Fiscal
2007

Fiscal
Fiscal
2008-2011 2002
onwards

Total

7859.5 11480.0

12065.7

41511.7

2969.5

95886.4

30.1

8.0

8.2

0.0

54.2

Japanese Yen 3987.6 4053.6

4600.4

9761.2

59826.8

82229.4

US$

28.1

302.7

87.5

470.6

25.5

Fiscal
2006

8.0

26.8

ISSUANCE OF THE EURO BONDS

In March 2013, NTPC made its initial issue of Euro Bonds to the tune of US$ 200
million in order to finance the capital expenditure of its ongoing as well as the new
projects. The bonds carried a coupon of 5.5 percent per annum payable half yearly
and to be redeemable at par on March 10 2011. The bonds received considerable
response from the international investors and attracted around 79 accounts. The
distribution of the investors was wide. The Asian investors accounted for 45
percent of the proceeds, the European investors for 47 percent and the balance of 8
percent went to the US offshore accounts. With the issue of these bonds, the
company was successful in tapping a new investor base that was at that time
unexplored under the conventional syndicated loans market dominated by the
commercial foreign banks. Apart from the banks contribution of 32 percent of the
loans of the bonds, the asset managers contributed the largest chunk by
subscribing to 39 percent of the bonds. The balance was contributed by the
pension and insurance funds that comprised 17 percent and retailers contributing
the rest 12 percent.
DOMESTIC BORROWINGS

As a part of NTPCs debt management strategy, to take the complete advantage of

the falling interest rates in the domestic markets, the company prepaid a
considerable portion of its high cost loans from the Government of India and as a
consequence saved interest payments to the extent of Rs.5.28 billion over the
remaining tenure of those bonds. The company renegotiated the interest rates for
high cost loans drawn by it. The estimated savings on the balance life of the loan
amounts to Rs.1100 million. It has also tied up the line of credit facility of Rs.70
billion with Life Insurance Corporation (LIC) of India in the form of unsecured
term loans worth Rs.40 billion and bonds worth Rs.30 billion. This amount is
available for meeting the capital expenditure and could be drawn over 4 years with
the tenure of the facility being 20 years.
CREDIT RATING
NTPC appointed several reputed credit rating agencies to provide impartial ratings
to its bonds. The primary among them was CRISIL (Credit Rating and Investment
Services of India Ltd.). The company was appointed to rate NTPCs domestic
bonds, fixed deposits and commercial paper issues. CRISIL gave a AAA rating
to bond issued during March 2014 that indicates a high degree of safety in
payment of interest and principal. The fixed deposits have been provided a rating
of FAAA indicating the highest order of safety in payment of interest and
principal. The commercial papers were rated as P1 that indicted a strong degree
of safety in payment of interest and principal. Exhibit 12 provides a summary of
the same.
Exhibit 12: CRISILs Rating Rationale National Thermal Power
Corporation Limited
Rs.5 Billion Bond Issue

AAA (Reaffirmed)

Rs.5 Billion Bond Issue

AAA (Reaffirmed)

Rs.15 Billion Bond Issue

AAA (Reaffirmed)

Rs.5 Billion Bond Issue

AAA (Reaffirmed)

Fixed Deposit Program

FAAA (Reaffirmed)

Rs.2.5 Billion Commercial Paper Program

P1+

Another agency ICRA (Investment and Credit Rating Agency) assigned LAAA
on the companys bonds that provided similar indications as to the credit
worthiness of the company. Exhibit 12 provides a summary of the same.
Exhibit 13: NTPC: Key Financial Indicators
31.03.04

31.03.03

31.03.02

Met Sales

189.37

190.21

177.87

Operating Income

189.75

19137

178.58

Operating Profit before Depreciation, Interest and Tax 38.18

5287

50.66

Profit after Tax

52.61

36.08

35.40

Equity Capital

78.13

78.1300

78.13

Net Worth

355.50

315.04

286.45

Profit after Tax/Operating Income (%)

27.73%

18.35%

19.82%

Profit before Interest and Tax/

(Total Debt + Net Worth) (%)

13,01%

9.82%

10.84%

8,31

8.31

Operating Profit before Depreciation, Interest and

Tax/Interest and Finance Charges (Times)

5.13

Net Cash Accruals/Total Debt (Percent)

39,24%

33.21%

36,40%

Total Debt/Net Worth (Times)

0.43

0.42

0.40

Current Ratio (Times)

1.57

3.45

272

In the year 2013, S&P (Standards and Poors) was given the responsibility to rate
NTPCs foreign currency corporate bonds. S&P provided a positive outlook on the
same. NTPCs Euro Bond issue of US$ 200 million that ended in March 2013 was
provided BB ratings. This rating was further revised to BB+ as on February
2014.
CASH FLOWS IN NTPC
Cash Generated from Operations
NTPC generated a total of Rs.58,118 million from its operating activities in the
fiscal 2013. The company had a net profit before tax and a prior period adjustment
of Rs.41,547 million. The companys net cash from operating activities reflects
that non-cash items depreciation was to the tune of Rs.20,246 million, a total of
Rs.5,835 million for provision and Rs.1,320 million in deferred revenue on
account of advance against depreciation. The cash from operating activities
excludes the interest income to the tune of Rs.18,769 million on bonds issues
under the on time settlement scheme. Changes in the assets and liabilities that had
a current period cash flow impact consisted mainly of increase in the working
capital of Rs.643 million that is composed of increase in trade and other
receivables that was offset in part by an increase in trade payables. The net cash
from operating activities also reflects a net amount of Rs.2,722 million for direct
taxes paid less the income tax recoverable. For the year ending March 31, 2014,
the net cash from operating activities also reflects a net amount of Rs.51,018
million for direct taxes paid less the income tax reversible.
INVESTING ACTIVITIES
The company had used net cash in investing activities to the tune of Rs.24,597
million in the fiscal 2004. This mainly reflected expenditures on fixed assets of
Rs.46,654 million, and receipt of interest income from the bonds issues under the
companys tripartite agreement amounting to Rs.22,984 million. The bonds were
to be allotted in the fiscal 2002 but were actually issued at a later date. For the
year ending March 31, 2005, the net cash used in investing activities was Rs.64,
611 million.
FINANCING ACTIVITIES
In the fiscal 2013, the companys cash flow from operating activities was Rs.8,873
million. It raised Rs.37,949 million of new borrowings. The borrowings included
Rs.8,862 million worth 5.5 percent bonds due to mature in the year 2014. The
bonds were denominated in US dollars and were the first bonds that the company

sold in the Eurobond market. The domestic borrowings included Rs.7,000 million
in denominated bonds and Rs.17,344 million in term loans. In the fiscal 2013, the
company repaid Rs.15,578 million of its borrowings and paid interest of
Rs.10,023 million. The final dividend paid during the same period was Rs.3,080
million.
CAPITAL EXPENDITURES
The company incurs capital expenditures mainly for installation of new capacity
and expansion of existing capacity. The capital expenditure of NTPC in the fiscal
2011, 2012 and 2013 was Rs.31,366 million, Rs.32,906 million and Rs.46,654
million respectively. The company also intends to invest some portion of its
budgeted expenditure in its subsidiaries and joint ventures in connection with their
expansion plans. The primary objective of the issue was to utilize the proceeds for
the expansion of the companys generation capacity through the following six
identified projects:
1. The Rihand Super Thermal Power Project, Stage II.
2. Vindhyachal Super Thermal Power Project, Stage III.
3. Khalgaon Super Thermal Power Project, Stage II.
4. Sipat Super Thermal Power Project, Stage I.
5. Sipat Super Thermal Power Project, Stage II.
6. Feroze Gandhi Unchahar Thermal Power Project, Stage III.
These identified projects include the expansion of the existing thermal power
plants as well as the establishment of new thermal power plants that is expected to
increase the power generation capacity by 6,690 MW. The projects are proposed
to be funded with debt and equity in the ratio of 70:30. The equity component of
the identified project was decided to be funded by a combination of internal
accruals of the company and the proceeds of the fresh issue. The details pertaining
to the same are provided Exhibit 14.

Exhibit 14: Financing of Identified Projects

1.
2.
3.
4.
5.
6.

Approved cost of the identified project

268,243
Amount spent as on August 31st 2013
41,079
Remaining Cost (12)
227,164
Undrawn domestic debt facilities as on 31st 2013
91,800
Undrawn foreign debt facilities as on 31st 2004
16,295
Aggregate undrawn debt facilities as on 31st 2013 (3 + 4) 108,095
Excess of remaining cost over aggregate undrawn debt
facilities

119,069

The company further proposed to finance the excess of remaining cost over
aggregate undrawn debt facilities through further debt, net proceeds of its fresh
issue and Internal accruals to the extent required. During the previous years, the
company had incurred a considerable expenditure on the said projects. The
expenditures being capital intensive, were subjected to proper appraisal before
deployment of capital. The appraisals were done by independent agencies namely
ICICI and IDBI. The details of the capital expenditure pertaining to the projects
are provided in Exhibit 15.
Expenditure incurred as on
Project

31st
August

2013

(Rs.

millions)
The Rihand Super Thermal Power Project, Stage II
Vindhyachal Super Thermal Power Project, Stage III
Khalgaon Super Thermal Power Project, Stage II
Sipat Super Thermal Power Project, Stage I
Sipat Super Thermal Power Project, Stage II
Feroze Gandhi Unchahar Thermal Power Project, Stage III

18,477
7,224
5,009
6,168
3,135
1,066

Total

41,079

INDUSTRY OUTLOOK
Though it is true that the electricity generation capacity has witnessed an upward
trend in the recent years, the demand for electricity in the country is significantly
higher than the available supply. In the fiscal 2013, there was an energy shortage

in

of approximately 7.1 percent of the total energy requirement and 11.2 percent of
peak demand requirement. Exhibit 16 reveals the gap between the total
requirements for electricity as against the total amount of electricity that was made
available from the fiscal 2010 to fiscal 2014.
Exhibit 16: Actual Power Supply Position
Fiscal Year

Requirement

Availability

Surplus /Deficit (+/)

(Million units)

(Million units)

(Million units) (Million units)

2010

480,430

450,494

29,836

6.2%

2011

507,216

467,400

29,816

7.8%

2012

52,537

483,350

39,817

7.5%

2013

545,983

497,890

48,093

8.8%

2014

559,264

519,398

39,866

7.1%

Source: Ministry of Power Report, 2012-2013, CEA Executive Summary, March

2014: CEA Annual Report, 2012-2013.
With such huge power requirement, NTPC has the strong potential of increasing
its market share in the years ahead. The companys turnover and its operating
profits can grow at a significant rate. With strong financial position and power
generating capacities, it is to be seen as to how the company fares in the future.

Data Analysis & Interpretation

Ratios analysis on eleven selected companies has been conducted for five years 20102014. All the tables below show the trend of these companies each year.
Table 1 Koldam (HEPP)

Debt to equity ratio

Debt to total asset
Interest coverage ratio
stock price

2014

2013

2012

2011

2010

0.34
0.3
4.1
9.8

0.71
0.4
4.8
15

0.89
0.5
7.7
19.05

1.54
0.6
4.3
19.475

2.05
0.7
3.5
13.475

Figure1
Koldam (HEPP)
25

Debt to equity ratio

20
15

Debt to total asset

10

Interest coverage ratio

5
0

2014

2013

2012

2011

2010

Stock price

Figure 1 shows that stock price of the company was maximum in 2011 where debt to equity and
debt to total assets decreased as compared to the previous year. It is obvious as companies risk
decreased

that year which attracted

the market. Next three years contradicts this tradition

trend. The reason for this unusual trend may be because of political and economical
instability of the country. Stock price in 2014 was minimum as all the ratios were less than the
ratios in 2011.

Table 2 Loharinag Pala (HEPP)

Debt to equity ratio

Debt to total asset
Interest coverage ratio
stock price

2008

2007

2006

2005

2004

1.03
0.5
0.3
25.555

0.58
0.4
4.3
40.35

0.71
0.4
9.9
64.625

0.84
0.5
21.1
81.25

0.52
0.3
31
62.65

Stock price is maximum in 2011 and it is minimum in 2014. it is also observed that interest
coverage ratio is minimum in 2014 which shows positive relation between interest and stock price
of the company.

Negative relation has been observed between debt and stock price of the

company.
Table 3 Tapovan Vishnu gad (HEPP)

2014

2013

2012

2011

2010

Debt to equity ratio

0.66

0.7

0.65

0.61

0.45

Debt to total asset

0.4

0.41

0.39

0.38

0.31

Interest coverage ratio 5.39

12.69

55.9

104

55.6

stock price

82.9

73.55

71.05

48.4

68.69

Fluctuation has been observed in interest coverage ratio each year which lead to the
fluctuation in stock price of the company Whereas debt to equity and debt to total assets remained
consistent throughout five years showing no significant change Stock price of the company was
maximum in 2013 i.e. 82.9 and minimum in 2010 i.e. 48.4.
Table 4 NTPC Power

2014

2013

2012

2011

2010

Debt to equity ratio

2.71

2.86

2.72

1.51

1.09

Debt to total asset

0.73

0.74

0.73

0.6

0.52

Interest coverage ratio 0.66

1.05

4.7

10.2

7.1

stock price

53

59.5

53.5

34.75

42.5

Company enjoyed highest stock price in 2012 where debt to equity ratio, debt to total asset and
interest coverage ratio were 2.72, 0.73 and 4.7 respectively. A consistent trend has been observed
throughout regarding debt to equity and debt to total assets.

Table 5 Thermal Power Station

Debt to equity ratio

Debt to total asset
Interest coverage ratio
stock price

2014

2013

2012

2011

2010

0.73
0.4
0.9
57.985

0.53
0.3
4.7
78.825

0.78
0.4
8.7
84.775

0.93
0.5
8
80.675

0.85
0.5
6
50.225

Interest coverage ratio is maximum in 2012 so as stock price of the company. Figure 5 shows
positive relationship between stock price and interest of the company. Other ratios are consistent
each year, not showing big fluctuation. In 2012 debt to equity and debt to total assets are on
average of these five years.
Table 6 DANDOT CEMENT
2008

2007

2006

2005

2004

Debt to equity ratio

Debt to total asset
Interest coverage ratio
stock price

8.47
0.89
-1.44
22.215

5.34
0.84
-1.55
18.05

3.85
0.79
1.7
11.25

3.61
0.78
0.1
9.975

4.67
0.82
-0.7
7.275

Figure6
Dandot Cement
25

Debt to equity ratio

20

Debt to total asset

15
10
5

Interest coverage ratio

stock price

-5

2008

2007

2006

2005

2004

Above table 6 shows positive relation between debt and stock price as debt to equity and debt to
total assets is maximum in 2008 which resulted maximum stock price of the company in
these five years.

Table 7 GHARIBWAL CEMENT

Debt to equity ratio

Debt to total asset
Interest coverage ratio
stock price
Figure 7

2008

2007

2006

2005

2004

3.74
0.7
-1.2
16.695

3.26
0.7
-2
12.925

0.7
0.3
5.2
12.2

0.75
0.3
2.6
14.45

1.88
0.7
2.1
10.25

20
Debt to equity ratio
15
Debt to total as set
10
5

Interes t coverage ratio

stock pric e

-5

2008

2007

2006

2005

2004

Stock price of the company is maximum in 2008 as compared to any other year. Positive relation
has been observed between debt and stock price. Above table shows that debt to equity and debt
to total assets are maximum in 2008 which increased stock price of the company i.e. 16.695.
Table 8 KOHAT CEMENT

Debt to equity ratio

Debt to total asset
Interest coverage ratio
stock price

2008

2007

2006

2005

2004

2.27
0.7
0.7
33.825

1.51
0.6
1.2
41.55

0.35
0.26
20.2
56.65

0.53
0.35
25.2
70.025

0.83
0.45
17.2
53.325

It is evident from the graph above table 8 that stock price of Kohat Cement was maximum in
2005 where interest coverage ratio is maximum as compared to any other year. It is minimum in
2008, which decreased the stock price of the company and lead it to the most minimum level.
This shows the positive impact between interest and stock price. Similarly comparing debt
to equity ratio and debt to total assets we observed that they are maximum in 2008 where stock
price decreased to minimum level comparing with other years. It shows negative impact.

Figure 8
Kohat Cement
80

Debt to equity ratio

Debt to total asset

60
40

Interest coverage ratio

stock price

20
0
2008

2007

2006

2005

2004

Table 9 PIONEER CEMENT

2008

2007

2006

2005

2004

Debt to equity ratio

2.57

2.83

2.36

2.86

6.84

Debt to total asset

0.57

0.69

0.65

0.67

0.87

0.5

5.7

4.3

2.2

26.95

38.1

36.175

14.1

Interest coverage ratio -0.39

stock price
Figure 9
Pioneer Cement
50

10

40

30

-10

20

27.865

2008 2007

2006 2005 2004

Debt to equity ratio

Debt to total asset

Interest coverage ratio

stock price

Debt to equity is observed consistent in last four years it was maximum in 2004 where the stock
price of the company was minimum. Interest gave a positive impact on stock price as it was
maximum in 2006 which lead to stock price to the maximum level. High level of fluctuation is
observed in interest coverage ratio in the past five years which fluctuated its stock price.
Table 10 LUCKY CEMENT

Debt to equity ratio

Debt to total asset
Interest coverage ratio
stock price

2008

2007

2006

2005

2004

0.84
0.5
19.2
73.885

1.75
0.64
4.1
88.2

2.34
0.7
31.8
71.9

1.88
0.65
56.8
62.275

0.63
0.39
90.6
32.65

Lucky Cement
100

Debt to equity ratio

80

Debt to total asset

60
40
20

Interest coverage ratio

stock price

2008 2007 2006 2005 2004

Unusual trend has been observed between interest and stock price of the company. It is seen that
interest coverage ratio is maximum in 2004 and stock price is minimum as compared to 2007
where interest is minimum and stock price is maximum. Debt to equity and debt to total asset
gave a positive impact on stock price as in 2004 both are minimum and in 2006 they are
maximum which increased stock price.
Table 11 MAPLE LEAF CEMENT

2008

2007

2006

2005

2004

Debt to equity ratio

2.13

1.61

1.53

0.66

0.92

Debt to total asset

0.68

0.62

0.61

0.4

0.48

0.6

5.8

1.8

18.3

28.575

35.325

31.1

Interest coverage ratio 0.25

stock price
Figure11
Maple Leaf Cement

11.65

40
30
20
10
0
2008

2007

2006

2005

2004