Operating Efficiencies of Power Sector Companies of India

1. NTPCL
2. NHPCL
3. Tata Powers
Faculty: Dr. Sandeep Goyal
Section - B
Group 9

Table of Contents
No:

Power Sector
I. Electric Grid
3-6
The Sources of Power in India
II. Value Chain of Power sector
6-7
III. Government Policy and Regulations
7-8
The Electricity Act, 2003
IV. Recent developments and factors affecting Power sector
8-13
Coal Block Allocations 2015
Coal Security in India
UMPP New Bidding Guidelines
National Smart Grid Mission
Microgrids
V. Impact Analysis Union Budget 2014-15
13-15
VI. Company Profile
15-21
NTPCL
NHPCL
Tata Power
Vii. Operating Efficiency
21-27

Page

I. Electrical Grid
It is an interconnected network used for delivering electricity from
suppliers to consumers.
It is comprised of following components:
1. Power plant
2. Transmission lines
3. Distribution system
Power plants generate power, step it up to higher voltage and put it on
transmission lines. The transmission lines carry power over long distances
and deliver it to the distribution companies. These companies step down
the voltage and transport the power over distribution lines and deliver it
to the end consumers. At consumer end, the power is stepped down
further to service voltage level. India is divided into five regional grids
Northern, Southern, Western, Eastern and North-Eastern. All the five grids
are integrated into a National grid. Southern grid was the last grid to be
integrated in early 2014 there by achieving one nation, one grid.
The Sources of Power in India

This is a detailed table of various sources of power in India and

distribution among the centre, state and private players.

Thermal power plants

These plants burn fuel, mostly coal, to produce heat, which is later
converted into electricity. The choice of fuel for thermal power plants
depends on the plant size, cost and availability of various fuels at the
location. Total installed capacity of thermal plants in India is 172286.09
MW.

Hydro power plants

In hydroelectric power plants, water falling from a height runs the turbine,
which coupled with the electric generator helps generate electricity. The
Installed capacity of hydroelectricity is 40730.09 MW in India, whereas the
potential is around 1,50,000 MW
Nuclear Power
A Nuclear Power Plant is a thermal power station in which the heat source
is one or more nuclear reactors. A nuclear reactor is a device to initiate
and control a sustained nuclear chain reaction. In the process, heat is
generated which is then used to generate electricity. The fuel used is
generally enriched uranium or thorium. India has 4780 MW of installed
capacity of Nuclear power.
Renewable Energy Sources
Renewable energy sources like sun; wind, geothermal and biomass are
used for generating power. These are gaining significance and great
research is being undertaken for their development. These are important
for the energy security of our country. India is amongst the top 5 countries
in terms of wind power generation and the company Suzlon is amongst
the top 5 in wind turbine manufacturing.

Region-wise & Source-wise split-up

II.

Value Chain Analysis of the power sector in India

Prior to 2003 the market was characterized by vertical integration with the
state electricity boards (SEBs) forming a monopoly and excessive price
regulation. Each states electricity board was responsible for generation,
transmission and distribution (T&D) within its own jurisdiction. But the
SEBs turned loss making and inefficient. In the wake of the growing power
needs and the continuous surplus shortage situations faced in various
parts of the country, the government introduced Electricity Act 2003 for
restructuring of the power sector and to introduce competition and
increase efficiency. It de-licensed generation; recognized trading as a
separate licensed activity and introduced open access in T&D. Traditional
value chain components of the electric power infrastructure include power
generation, transmission, distribution and trading. The efficiency of the
electricity value chain is a function of energy efficiency and the timing of
energy consumption away from peak loads.

In order to understand the nature of the issue and the opportunity, it is

important to establish a perspective on the way in which the electricity
value chain typically operates today. The flow along the electricity value
chain starts with energy producers who mine and refine the fuels used in
electricity productions including coal, gas, oil or nuclear based fuels. The
fuels are then delivered to the generation facilities where they are
converted to electricity through the generation process. The electricity
generator uses the fuel to drive a generator to produce electricity and

dispatch it to a transmission and distributions (T&D) system, which

distributes

the

electricity

to

the

consumer

locations

through

transmission and distribution grid. From producers it is transported via

energy exchanges or other electronic trading platforms, over an extensive
transmission network to regional suppliers and from there to private,
public and industrial consumers.
III. Government Policy and Regulations
Timeline of regulatory changes

Source: Crisil Research

The Electricity Act, 2003
The Electricity Act, 2003 was the key turning point in the power sector
reforms process. It consolidated all the previous policies, thereby
streamlining the power sector and improving efficiency. Previously, there
was low level of private participation, with few private players present in
the sector. Requirement of a license for generation was another roadblock
to the entry of private players into power generation. However, with the
advent of the Act, the scenario changed with generation being delicensed. It introduced open access in generation and T&D, thus increasing
competition. The following are the key features of the act:

Generation: Generation was freed from licensing. The requirement

for techno economic clearance for hydro projects was done away
with. Clearance of the CEA for hydro projects made mandatory. It
provided for promotion of generation from renewable energy

through regulatory commissions. For rural and remote areas

standalone

systems

for

generation

was

permitted.

Increased

competition through international competitive bidding and no

license requirement led to the entry of more private players in the
generation segment

Transmission and Distribution: The Act proscribed transmission

utilities from engaging in power trading or power exchanges. Open
access to transmission lines was provided for distribution licensees
and generating companies. This was done in order to promote
competition. It made 100% metering mandatory. The regulatory
commission decides the retail tariff. It allowed open access in
distribution up to 1MW. Provisions relating to theft of electricity
made more stringent. Bulk consumers consuming more than 1 MW
of power can avail of open access; however, open access at the
retail level is yet to be implemented. Till date, there are only a few
private players in the transmission segment such as Sterlite Tech,
Reliance Infra and Tata Power

Creation of State Electricity Regulatory Commissions, which was

earlier optional. It also created an Appellate Tribunal to hear any
cases against CERC/SERC. It defined the roles of Central Electricity
Authority (CEA)

IV. Recent developments and factors affecting the Power Sector

Coal Block Allocations 2015
Subsequent to the de-allocation of 204 coal blocks by the Supreme Court
(SC) of India in September 2014, the Government of India (GoI) notified
The Coal Mines (Special Provisions) Ordinance, 2014 on October 21,
2014 in order to provide guidelines for reallocation of aforesaid coal mines
and thereafter, has concluded the first phase of e-auction of 33 coal
blocks (out of which 12 blocks earmarked for power sector and balance for
end use in non-regulated sectors) between February 14, 2015 till March

13, 2015. Out of these 12 blocks put up for e-auction in the first two
rounds, successful bidders have been announced for 9 mines. These 9
coal blocks allocated to power sector have geological reserves of 1200
MMT (out of which extractable reserves are assumed at 60%) and
estimated to provide a fuel security for about 6 GW of generation capacity
in the power sector. It was noted that the bidding by power generating
companies in the auction had been quite aggressive with the bidding1
happening on a forward basis on the reserve price payable as bid quoted
is zero in reverse bidding. Thus, bids quoted by the successful bidders
range from Rs. 302 per MT to Rs. 1110 per MT, which are negative price
bids for the bidders which essentially means that a winning bidder would
have a zero fuel charge recovery in PPA and in addition would bear the
cost of both i.e. cost of coal mining and quoted reserve price payable to
State Government. As a result, winning bidders remain exposed to a
significant under-recovery in fuel cost which is estimated to range from
Rs. 0.39/kwh to Rs. 1.02/kwh on a levelled basis over a 25-year period.
Apart from these 9 coal blocks, 27 coal blocks have been allocated so far
to the PSUs for the use.
Coal Security in India
As of 2014-15, around 70 per cent of total installed capacity was based on
coal as a fuel. According to the Geological Survey of India, in April 2014,
the total coal reserve in India was estimated at approximately 301.56
billion tonnes (including the non-recoverable reserves under riverbeds or
urban areas). Out of this, proven reserves stood at about 126 billion
tonnes. The majority of these coal reserves are concentrated in the
country's eastern and south eastern regions. Jharkhand, Orissa, Madhya
Pradesh, Chhattisgarh, West Bengal and Andhra Pradesh account for
around 95 per cent of the country's total coal reserves. The power
generation sector (including captive power) continues to remain the
largest end-user of coal in India accounting for about 80 per cent of total
coal consumption in 2014-15. Over the next 2 years, We expects domestic
non-coking coal supply to the power sector to increase at a CAGR of 11

per cent to 543 million tons in 2016-17 as against coal demand growth of
about 7 per cent CAGR. Moreover, to ensure adequate fuel supply for
projects that are operational or expected to commission in 2015-16 and
have a long-term PPA, the government has approved coal supply through
the linkage route for a period of 1 year (Upto March 2016). Beyond this,
the government has announced that it will formulate a policy for long-term
fuel supply arrangements to ensure economic viability of projects.
From 2017-18 onwards, we expect coal supplies to improve on the back of
commissioning of 3 new railway lines which will improve coal off take by
about 50 MT. Moreover, till March 2015, the government has auctioned /
allotted 28 Schedule II mines (already commissioned) with peak capacity
of 84 MT and 23 Schedule III mines (with required clearances and at
advanced stages of commissioning) with peak capacity of 93 MT. Of these,
we expect production from captive mines allocated to PSUs to rise
significantly over the next 5 years. However, production from mines
auctioned to private players, particularly those bid aggressively is
expected to be delayed on account of weak economics of end use
projects. Consequently, production from captive mines is expected to rise
to 137 MT by 2019-20 from 39 MT in 2014-15. Some of the large captive
coal mines that are expected to ramp-up production over the next few
years include KantaBasan, Parsa East (together 15 mtpa), while those that
are expected to commence production include PakriBarwadih (NTPC - 15
mtpa), Moher and MoherAmroli (Reliance Power - 20 mtpa). Thus, with a
rise in domestic coal availability coupled with slowdown in coal based
capacity additions, the share of imports is expected to drop to 78 MT in
2019-20.

UMPP New Bidding Guidelines

The UMPP model of the central government was not as successful as it
was expected to be. The ministry of power has decided to cancel the
bidding process ultra mega power plants (UMPP) in the wake of private
companies pulling out of the process for two ultra mega power plants
(UMPP) in Tamil Nadu and Odisha. Power ministry has come up with a new
bidding model for the future UMPPs which they believe is investor friendly
and will boost fresh confidence into the investors. An expert panel set up
for suggesting revised bidding norms for ultra-mega power projects. This
panel, headed by former Central Vigilance Commission chief Pratuysh
Sinha, was set up by the government after it received tepid response from
the private sector for the two proposed plants in Odisha and Tamil Nadu.
Bankers had also raised funding issues.
The proposed guidelines cover key investor/developer risks including fuel
price

variation,

fixed

charge

quote,

ownership

of

asset,

incentive/disincentive for performance, land acquisition and termination of

contract. A key reason for the failure of the previous guidelines was the

unwillingness of lenders to fund a 4,000 MW project with an estimated

investment outlay of Rs 20,000 crore on a design, build, finance, operate
and transfer model, where the asset ownership did not vest with the
developer. The new guidelines propose a build, own and operate model.
The proposals provide for a better fuel cost pass-through as they envisage
a full escalation on the base tariff based on the Central Electricity
Regulatory Commission (CERC) rules. Earlier, a fuel cost bid was divided
into two parts, which required the developer to project the part of the fuel
cost that won't escalate over the life of the project, leading to viability
issues. Escalations based on CERC rules should provide sufficient cushion
to developers to manage the inflation associated with mining costs. The
fuel cost variation over the life of a power purchase agreement is unlikely
to be high, given that the proposed guidelines speak about UMPPs based
on captive domestic coal. Additionally, the current guidelines do not
provide for any open capacity which could be sold as merchant power usually at a higher price compared with long-term contracts - as against
the earlier guidelines which allowed up to 15% under open capacity. It is
considered to be more prudent as the 15% open capacity added an
additional uncontrolled variable (per unit price of merchant tariffs) in the
bidding, and developer's assumption on merchant tariffs alone could have
altered the project viability. The current guidelines propose the bidding of
a separate fixed charge for each year over the life of a power purchase
agreement which is favorable from a project-risk perspective compared
with the earlier guideline of a single fixed charge quote with annual
escalation. The incentive structure has been made more stringent with
incentives proposed above the normative availability of 90% and has been
aligned to the plant load factor instead of availability.
Microgrids
As per a Government of India estimate, 61 million households or about
300 million people live without electricity. The government policy of Rajiv
Gandhi Grameen Vidyutikaran Yogana (RGGVY) aims to extend the power
grid to include these people. Now with the help of Microgrids, rural

electrification can be independent of grid extension. Microgrid is a

distributed generating system, which is either in parallel or islanded from
the main grid. This system is characterized by the many small generating
facilities and use renewable sources. The generation sources include fuel
cells, wind, solar or other energy resources. Mircogrids are also applicable
in urban settings. Decreasing prices of solar panels, fuel cells, internal
combustion engines, and growing popularity of sources like biofuels, result
in more number of micro scale power producers. Microgrids offer various
advantages:

Reliability
Reduced carbon emissions
Diversification of energy resources
Cost reduction

The cost of electricity from private invertors and diesel generators in

about 3 times the grid
costs. Microgrids can help in reducing costs in this case. A report in Hindu
Business Line, calls Microgrids the Next Big Thing. The trend would be
growing number of distributed, self sufficient and solar panel based
microgrids. In the wake of the greatest grid collapse in history in India, last
year, the idea of microgrid came to the forefront. In the event of failure of
a macrogrid, the microgrid would come in the picture and protect the
cluster that it caters to. Microgrids can aid in preventing black outs so that
the critical elements continue to receive power, such as hospitals and
data centers. The Microgrid Company OMC Power was selected in the
prestigious 2014 Technology Pioneers Programme of the World Economic
Forum. The programme comprises 36 innovative companies, which
previously included Google in 2001 and Twitter in 2010. OMC builds
smallscale power plants with renewable energy in off grid locations in
rural areas. It also provides green power to telecom infrastructure. It has
shown how to profitably provide these services. Many such commercially
viable companies have come up. Another example is MeraGao Power,
which supplies power to rural India via microgrids. It had received funding
from USAID.

V. Impact Analysis - Union Budget 2015-16 on the Power Sector

The budget provides a thrust on investments in the power and renewable
energy space, with a 16% y-o-y increase in planned expenditure. We
believe that a healthy growth in capacity additions and augmentation of
T&D infrastructure will reduce power deficit to about 1% by 2018-19.
However,

favourable

regulatory

framework

coupled

with

states

facilitating implementation of projects will be critical to boost investments.

While the provisions are positive, addressing fuel availability issues and
improving the financial health of state distribution companies is important
to alleviate financial stress in the sector.
Impact factors

Clean energy cess levied on coal has been doubled to Rs 200 per
tonne, while rail freight on coal has been hiked by 6.3%. This is
expected to increase power generation costs by Rs 0.09 per unit.
However, this will not have an impact on fixed return projects as
these costs will be allowed as a pass-through. Also, a large part of
competitively

bid

projects,

transportation

charges

as

which
scalable

have

quoted

components,

fuel
will

and

remain

unaffected to the extent of their bid

Budget allocation to the transmission and distribution segment has

risen by 26 per cent to Rs 63.5 billion as compared to levels in 201415. This will help lower T&D losses and improve power supply in
rural areas

Setting up of a National Investment and Infrastructure Fund (NIIF),

with a corpus of Rs 200 billion to infrastructure finance companies,
will improve funding availability to the power sector. Additionally,
rationalisation of the tax regime for Infrastructure Investment Trusts
will help monetise capital locked in completed projects

Additional depreciation of 20 per cent granted to new projects is a

positive as it will allow companies to set-off higher depreciation

against overall profits. This will benefit capacities of around 15 GW

expected to commission in 2015-16

Setting up of five Ultra Mega Power Plants (UMPPs) of 4,000 MW

with pre-awarded clearances and fuel linkages each is beneficial for
power generation segment given that projects have witnessed
significant time and cost overruns on these counts

VI. Company Profile

NTPC
Government of India (GoI) incorporated NTPC in 1975 as a thermal power
generation company. Bulk sale of electricity forms NTPC's principal
business, and accounted for around 96 per cent of revenues, as of March
2014. Power is sold through long-term PPAs, mainly signed with state
distribution utilities. NTPC's installed capacity of 43,108 MW (inclusing
JVs), as on March 2014, represents around 18 per cent of India's overall
capacity. It's share in total power produced in the country was 26 per cent
in the same period. The company has undertaken backward integration
measures and has also entered into related businesses, such as power
trading and distribution.
Joint ventures and subsidiaries
NTPC has formed several JVs which include Utility Powertech Ltd (with
Reliance Infra), NTPC Alstom Power Services Pvt Ltd (with Alstom Power
Generation AG), NTPC Tamil Nadu Energy Co Ltd, Ratnagiri Gas and Power
Pvt Ltd and PTC, among others. It also acquired a 50 per cent equity stake
in SAIL Power Supply Corporation Ltd (SPSCL). The company has entered

into a JV with BHEL to undertake EPC activities in power sector and

manufacture and supply equipment for power plants.
JV and Subsidiary Companies

Source: Company Reports

Installed capacity and additions
On a standalone basis the company has an installed capacity of 37,107
MW (excluding joint ventures) as on March, 2014. Coal-based capacities
dominate the fuel mix. Of the total installed capacity of 37,107 MW,
around 89 per cent capacity is coal-based, while the balance is based on
gas based projects.
NTPC (excluding JVs): Installed capacity and generation

Source: Company reports, CRISIL Research

NTPC on a standalone basis has added 1,287 MW of commercial capacity
during 2013-14, significantly lower than the 3,170 MW of capacity added
in 2012-13. In 2013-14, it generated 233 Billion Units (BUs), marginally
higher than the 232 BUs generated in the previous year.
Capacity addition in 2013-14:

Source:

Company

reports, CRISIL Research

NHPC
Background
NHPC was incorporated in 1975 following the government's amalgamation
of three hydroelectric power projects that were being executed by the
Central Hydroelectric Projects Control Board. Since then, NHPC has
become the largest hydroelectric power developer in the country with 86
per cent of equity held by government. Its capabilities range from
conceptualizing

to

commissioning

hydroelectric

power

projects. All

projects of the Company operate on a fixed return on equity of 15.5 per

cent.
Current operations
In 2013-14, the company generated 18,386 MUs of power, around 3 per
cent lower

than

18,923

MUs

generated

in 2012-13.

The

company generated lesser power than the annual MoU target of 21,465
MUs for 2013-14. Moreover, its average Plant Availability Factor (PAF) for

the year reduced to 77.7 per cent in 2013-14 as compared to 85.3 per
cent in 2012-13. The decline in generation and availability was primarily
on account of a shutdown at the Dhauliganga Power Station owing to flash
floods in the state of Uttarakhand.
Installed Capacity and Generation

Source: Company reports, CRISIL Research

NHPC's first power station (180 MW) was commissioned at Bairasiul,
Himachal Pradesh, in 1982. As on March 2014, it had 20 operational plants
with a total installed capacity of 6,507 MW. This includes a 1,000 MW
project on the Indira Sagar Dam, which is a JV with Narmada Hydroelectric
Development Corporation, and 520 MW Omkareshwar project in JV with
the Madhya Pradesh government. The generation of power from the
Omkareshwar project is directly related to the regulated release of water
from Indira Sagar project. In 2013-14, the company commissioned the 520
MW Parbati III, 240 MW Uri II, 45 MW Nimoo Bazgo and 132 MW Teesta
Low Dam III projects, taking its total installed capacity to 6,507 MW as on
March 2014.
NHPC - Operational projects

Source: CRISIL Research and Company reports

Future plans
Currently, NHPC is constructing 4 projects, aggregating to a total installed
capacity of 3,290 MW. Seven new projects with a combined capacity
of 7,301 MW (including JVs) are in the clearance and approval stages
NHPC - Projects under construction

Source:

Company

reports, CRISIL Research

Tata Power
Tata

Power is an Indian electric utility company based in Mumbai,

Maharashtra, India and is part of the Tata Group. The core business of the
company is to generate, transmit and distribute electricity.With an
installed electricity generation capacity of about 8,747 MW, it is India's
second largest private power producer. At the end of August 2013, its
market capitalisation was $2.74 billion (INR 182 billion). The firm started
as the Tata Hydroelectric Power Supply Company in 1911, which
amalgamated with the Andhra Valley Power Supply Company in 1916.It

commissioned

Indias

first

large hydro-electric project

in

1915

in Khopoli for 72 MW. Then second and third power plants were installed
in Bhivpuri (78 MW) in 1919 and Bhira (300 MW) in 1922.
Key Subsidiaries

Coastal

Gujarat

Power

Limited

(CGPL): Revenue for the

Financial Year (FY15) stood at ` 5,982.23 crore up by 6% and Loss

After Tax at ` (898.08) crore decreased by 40%

Maithon Power Limited (MPL): The 74:26 Joint Venture Company
between Tata Power and Damodar Valley Corporation reported
Revenue of ` 2,317.71 crore down by 1% and PAT at ` 210.51 crore

up by 104% for FY15

Industrial Energy Limited (IEL): The Company reported Revenue
at ` 516.70 crore up by 8% and PAT at ` 11.86 crore down by 87%

for FY15
Tata Power Renewable Energy Limited (TPREL): Revenue for
FY15 stood at ` 148.62 crore up by 66% and PAT at ` 6.31 crore up

by 43%
Tata Power

Delhi

Distribution

Limited

(TPDDL):

The

Companys distribution subsidiary and Joint-Venture with Delhi

Government, posted Revenue of ` 6,528.71 crore up 9% and PAT at `

335.99 crore up by 1% for FY15

Powerlinks Transmission Limited (Powerlinks): Powerlinks, the
first public-private Joint Venture in power transmission in India,
reported FY15 Revenue at ` 241.91 crore down by 5% and PAT at `
112.11 crore down by 1% as compared to the corresponding period

last year
Tata Power Trading Company Limited (TPTCL): TPTCL traded a
total of 10, 572 MUs in FY15 as compared to 11,488 MUs in the
previous year. Revenue for FY15 was ` 4,181.21 crore up 1% and
PAT was ` 29.13 crore down by 26% over last year

2014-15 Highlights

Tata Power Groups Consolidated Revenue stood at ` 34,367 crore

The Company achieved 8,726 MW capacity mark and crossed 2

million customers (14 lakh in Delhi and 6 lakh in Mumbai) across the
country, reinforcing its position as Indias largest integrated player

and private power producer

The Company generated 47,200 MUs of power from all its power

plants. Generation sales stood at 44,001 MUs

Tata Power successfully commissioned its 2nd 28.8 MW solar farm

in Palaswadi, Maharashtra
The Company reiterated its commitment to renewable energy
generation. It completed commissioning of 32 MW Wind Project in

Maharashtra
The Company signed Share Purchase Agreement for acquisition of

270 MW Coal based Thermal Power Project in Maharashtra

Tata Powers 100% subsidiary redeemed USD 450 million Fixed to

Floating Rate Subordinated Notes

The Company issued Non-Convertible Debentures worth ` 1,500

crore
The Company entered into a Share Purchase Agreement in relation

to the 120 MW Itezhi Tezhi Hydropower Project in Zambia

Honble Ex-Prime Minister of Georgia Mr. Irakli Garibashvili blessed
the event to mark Financial Closure of Tata Powers Georgia Hydro

Project
The Company announced full commissioning of 2 units of 63 MW
each of Dagachhu Hydro Power Project in Bhutan to provide clean
power to India

Financial Highlights
Consolidated

Tata Power Groups FY15 Revenue stood at ` 34,367 crore as

compared to ` 35,873 crore last year. This is mainly due to lower
realisation in Coal Companies and lower revenue from Trombay

Units, which were under restoration

PAT was up at ` 168 crore as compared to a loss of ` (260) crore in
the previous year, mainly on account of improved operational

performance of Coastal Gujrat Power Limited and Maithon Power

Limited, lower depreciation and favourable impact of forex in VAT
settlement in coal companies
Standalone

For the Financial Year ended March 31, 2015, Revenue stood at `

8,678 crore as compared to 8,676 crore last year

PAT up by 6% to ` 1,010 crore as against ` 954 crore in the
corresponding period last year. This was mainly due to higher
dividend income and interest

Analysis of Operating Efficiency of the companies

Asset Turnover Ratios
Total Asset Turnover
It reflects the efficiency with which a company is able to utilize its assets.
It indicates how many times the assets were turned over in a period in
order to generate sales. If the asset turnover ratio is high, the firm is
managing its assets efficiently. The following table gives the value of
assets (Crores) for the three companies over the three years.
Company/Financial
Year
NTPC
NHPC
Tata Power

2014-15

2013-14

2012-13

179554

161116

55439

53979

54505

33561

30539

28093

197084

Asset Turnover Ratio

0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00

FY 2014-15

FY 2013-14
NTPC

NHPC

FY 2012-13

Tata Power

The asset turnover ratio has seen a slight decline for NTPC over the three
years. Tata Power has also seen the ratio slightly decline, though the
change has been nominal.

Fixed Asset turnover

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio
measures a company's ability to generate net sales from fixed-asset
investments - specifically property, plant and equipment (PP&E) - net of
depreciation.
A higher fixed-asset turnover ratio shows that the company has been
more effective in using the investment in fixed assets to generate
revenues.
The fixed-asset turnover ratio is calculated as:
Fixed Asset Turnover = Gross sales / Total Fixed Assets
This ratio is often used as a measure in manufacturing industries, where
major purchases are made for PP&E to help increase output. When
companies make these large purchases, prudent investors watch this ratio
in following years to see how effective the investment in the fixed assets
was.

Fixed Asset Turnover Ratio

0.60
0.50
0.40
0.30
0.20
0.10
0.00

FY 2014-15

FY 2013-14
NTPC

NHPC

FY 2012-13

Tata Power

Fixed Asset turnover ratio follows a similar trend as in the previous case.
NHPC being a hydro power generation company has lower fixed asset
turnover ratio.
Inventory Turnover Ratio
A ratio showing how many times a company's inventory is sold and
replaced over a period. The days in the period can then be divided by the
inventory turnover formula to calculate the days it takes to sell the
inventory on hand or "inventory turnover days."

The lesser the inventory level, the greater the cash available for meeting
day-to-day operating needs and investment in productive assets.
Higher the inventory turnover ratio, better is the inventory management

by

the

company.

Average Holding Period

Inventory Turnover ratio represents the number of times a companys
inventories are turned into sales. Investment in inventory represents idle
cash. Large inventory means the company is not able to convert it into
sales.
Average Holding Period is the average time before a company is able to
convert the inventory into sales. Lesser the Holding period better will be
the efficiency.
Average Holding Period

Days in an year/
Inventory turnover ratio

Average Holding Period

40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00

FY 2014-15

FY 2013-14
NTPC

NHPC

FY 2012-13

Tata Power

Average Holding Period is least for NHPC that is because it is into Hydro
Power Generation and it doesnt hold large inventory as water storage.
Average Holding Period for NHPC has been increasing as it stockpiles coal
for thermal power generation. Coal availability is a major concern for

thermal power based plants and they need to hold sufficient inventory to
meet short term requirement.

Debtors Turnover Ratio

An accounting measure used to quantify a firm's effectiveness in

extending credit and in collecting debts on that credit. The receivables
turnover ratio is an activity ratio measuring how efficiently a firm uses
its assets.
Receivables turnover ratio can be calculated by dividing the net value of
gross
sales during
a given
period by
the average accounts
receivable during the same period. Average accounts receivable can be
calculated by adding the value of accounts receivable at the beginning of
the desired period to their value at the end of the period and dividing the
sum by two.
The method for calculating receivables turnover ratio can be represented
with the following formula:
Debtors Tunover = Gross Sales / Trade receivables
Average Collection Period

Receivable Turnover represents the firms efficacy of firms credit policy

and its efficiency in collecting from its debtors. High Receivable turnover
ratio represents its receivable is converted rapidly into cash and that can
be used in other productive assets.
Average Collection Period

Days in an Year /
Debtors Turnover Ratio

Average Collection Period

160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00

FY 2014-15

FY 2013-14
NTPC

NHPC

FY 2012-13

Tata Power

NTPC comes out as the most efficient company in collecting from its
debtors. This is particularly good considering it is a PSU company.
The ratio is unusually high for NHPC. This might seem as a very inefficient
model for NHPC but considering the fact that the biggest client of NHPC is
government of India and it was set up by the government to promote
Hydro Power generation in the country. It is a monopoly in this category
which further adds to its inefficiency. NTPC and Tata Power serve to private
players as well.
Creditors Turnover Ratio

A short-term liquidity measure used to quantify the rate at which a

company pays off its suppliers. Accounts payable turnover ratio is
calculated by taking the total purchases made from suppliers and dividing
it by the average accounts payable amount during the same period.
Creditors Turnover Ratio = Gross sales / Trade Payables

The measure shows investors how many times per period the company
pays its average payable amount.
If the turnover ratio is falling from one period to another, this is a sign
that the company is taking longer to pay off its suppliers than it was
before. The opposite is true when the turnover ratio is increasing, which
means that the company is paying of suppliers at a faster rate.

Average Payment Period

A company often purchases raw materials and other inputs on credit from
the vendors. Creditor Turnover ratio represents the efficiency of firms
payment policy with its vendors. The better terms you have with the
vendors the longer the payments can be.
Average payment period

Days in a year/
Creditors turnover ratio

The higher the ratio the better it is for a company.

Average Payment Period

120.00
100.00
80.00
60.00
40.00
20.00
0.00

FY 2014-15

FY 2013-14
NTPC

NHPC

FY 2012-13

Tata Power

Tata Power is better placed in terms of payments to its vendors as

compared to NTPC. NHPC has seen its ratio reduce significantly in 2014-15
from 2013-14 on account of more cash purchases and less credit terms as
the amount of purchases remains the same.