CAPITAL STRUCTURE

ANALYSIS
OF
KPTL

A project report
In partial fulfillment of the requirement of two year full time Post
Graduate Programme in Management (PGPM) Program (2008-10)

INSTITUTE OF BUSINESS MANAGEMANT

AND RESEARCH
IBMR Ahmedabad

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BY: Jaymin D. Bhavsar

PGPM Ist Year

Acknowledgement
Through this acknowledgement, we express our sincere gratitude towards all those
people who aided us in the preparation of this project report which has been a
learning experience.

We would like to thank our director, Mr. R.K. BALYAN for giving us the best
opportunity of this practical work experience.

We express our sincere thanks to Mr.Satvik Trivedi, Human Resource Manager,

who led us through out the project report and gave us valuable suggestions and
encouragement about the work.
Again we express our thanks to the account manager Mr. Shailesh Vyas who had
given us remarkable information regarding financial position of KPTL throughout
last 5 year.
We would like to thank our faculty member that they gave us a chance for working
in such a big organization.

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Finally we would like to thank our Incredible parents, how they can be escaped,
who have cooperated me directly and indirectly in one or other way.

INDEX
S.No
1.
2.
3.
4.
5.
6.

7.

Topic

Pg.No

Board of Directors
Executive summery
Objectives
Vision statement
Research Methodology
Introduction
Power based industry
About KPTL
Division Of company
Projects and joint cventures
Balance sheet of the company
Profit and loss A/C of the company
Capital structure theory
Capital structure of KPTL
Ratio analysis
leverage
cost of equity

8.

Strengths of the company

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9.

Limitations

10.

Recommendation and suggesstions

11.

Bibliography

BOARD OF DIRECTORS

EXECUTIVE
MANAGEMENT
TEAM

Mr. Mofatraj P. Munot

Chairman
Founder, Promoter and Chairman of Kalpataru
Group with over 44 years of experience in the
field of Real Estate and Property Development,
Civil Contracting & various industries.
Mr. Mahendra G. Punatar
Vice Chairman (upto 30.01.2009)
Independent Director (w.e.f. 01.06.2009)
MS (Structural Engineering) from University of
Michigan, USA with over 49 years of experience
in transmission line towers.
Mr. K. V. Mani
Managing Director (upto 31.05.2009)
Additional Director (w.e.f. 01.06.2009)
Bachelor of Engineering and MBA. Has 44 years
of experience in Transmission industry, mainly
Construction, Project Management and
Overseas Marketing.
Mr. Pankaj Sachdeva
IBMR Ahmedabad

Mr. Kamal K. Jain

President & CFO
Mr. Dinesh B. Patel
President & CEO
(Distribution Projects)
Mr. N. Sai Mohan
President & CEO
(Overseas Projects)
Mr. Gyan Prakash
President & CEO
(Pipeline Project)
Mr. M. A. Baraiya
Head )-HR
Company Secretary

Mr. Bajrang Ramdharani

Auditors

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Dy. Managing Director (upto 31.05.2009)

M/s. Kishan M. Mehta & Co.,

Ahmedabad

Managing Director (w.e.f. 01.06.2009)

M/s. Deloitte Haskins & Sells,

Ahmedabad
B.E (Hons) degree in Electrical Engineering

and has over 25 years of Product Marketing

and Project Execution experience in Power
Systems Sector.

Legal Advisor
M/s. Singhi & Co., Ahmedabad

Mr. Parag Munot

Promoter Director
MBA, Carnegie Mellon University, USA with 16
years of experience, is responsible for the group
Real Estate and Property Development business.

Mr. Ajay Munot

Executive Director (upto 31.03.2009)
Chartered Accountant and Bachelor in General
Law with over 14 years of experience.
Mr. Manish Mohnot
Executive Director
Chartered Accountant and an ICWA having a
rich experience of 14 years in consulting in the
field of Oil, Gas, Power and other sectors
related to Infrastructure.

Bankers
Indian Bank
Oriental Bank of Commerce
Union Bank of India
State Bank of India
EXIM Bank
ICICI Bank Ltd.
Citi Bank N.A.
BNP Paribas, Abu Dhabi
Commercial Bank of Kuwait

Mr. Sajjanraj Mehta

Independent Director
Chartered Accountant with over 34 years of
experience. A consultant in the field of Foreign
Exchange, Taxation & Corporate Affairs and
Strategy.
Mr. Vimal Bhandari
Independent Director
Chartered Accountant with an experience of more
than 24 years in Financial Services sector. He was
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Executive Director of IL&FS Ltd. Presently, he is

Country Manager - Aegon India.
Mr. Shitin Desai
Independent Director
Experience in excess of 28 years in Financial
Services sector. He is currently the Executive Vice
Chairman of DSP Merrill Lynch Ltd.
Mr. Narayan Seshadri
Independent Director
Chartered Accountant with an experience of
27 years in the field of finance, account, tax and
business consulting. Presently, he is the Chairman
and CEO of Halcyon Resources and
Management Pvt. Ltd.
Mr. Imtiaz Kanga
Promoter Director(upto 30.01.2009)
Chartered Accountant with 29 years of experience in various industries

EXECUTIVE SUMMARY

Kalpataru Power Transmission is one of World's leading companies in the

design, testing, fabrication, erection and construction of transmission lines and
substation structures on a turnkey basis across India and Overseas. As an EPC
contractor, our scope of work includes design, testing, fabrication, galvanizing of
towers and construction activities from survey, civil works/ foundation, erection to
stringing and commissioning of EHV lines, besides procurement of items such as
conductors, insulators, hardware accessories etc. We also participates in Substation
projects on a partnership basis.
Located at Gandhinagar Gujarat, in Western India, Kalpataru Power Transmission
is a public listed company with a turnover of USD 385 Million (Rs. 19.1 Billion)
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and annual production of 80,000 MTs till 2007-08.The company has a net worth
of over USD 200 Million and an order booking of over Rs 50 Billion (USD
1Billion). The company has also attained distinction of crossing the USD 800
Million (Rs. 40 Billion) market capitalization. On a combined basis (with JMC
Projects), the consolidated turnover has crossed Rs 32.8 Billion (USD 655
Million).
The study aims at determining profitability and liquidity by analyzing the financial
statements of the company. The analysis of the financial statement is a process of
evaluating the relationship between component parts of financial statement to
obtain a better understanding of the firms position performance.

The financial analysis includes horizontal (trend) as well as the vertical analysis.
Trend analysis involves a comparison of the percentage of a firm over a time, that
is present percentage is compared with past percentage for the same firm.
This study will help the stakeholders of the company to know about the finance of
the company.Above were the reasons why we have chosen to understand a project
with detailed analysis of KPTL.For that after collecting the appropriate information
we have analyzed the financial statement having the analysis of the profit and loss
account, Balance Sheet and ratios.
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Objectives :
Strategic assessment of the power industries as well as overall KPTL.
To understand the financial soundness of the company.
To know how company increases the productivity as well as profitability
with the help of employees as an asset.

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Mission
The Kalpataru Group's credo of "No Compromise" embodies strong commitment
to highest standards of excellence and ethics. It encourages innovation and people
development, which in turn lead to superior quality products and services and
result in maximum customer satisfaction.

RESEARCH METHODOLOGY
Study objectives :a) To study the nature of working capital, concepts and definition of working capital.
b) To examine the effectiveness of working capital management practices of the
firm.
c) To find out how adequacy or otherwise of working capital affects commercial
operations of the company.

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d) To prescribe remedial measures to encounter the problems faced by the firm.

e) To study the working capital financing or means of financing of the company.

Scope of the study :f) Planning of working capital management

g) Working capital finance

Methods of Data collection :a) Primary data:

Basic information collected from the local sources as well as from the company
staff like managers, accountants and officers. Moreover information gathered
through practically preparing the data for working capital.
b) Secondary data:
1. From the B/S of the company
2. From CMA proposal report
3. From internet
4. From books

Introduction
Overview of power industry

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.Kalpataru Power has two large Fabrication Plants with an annual installed capacity

of 108,000 MTs (with a capacity addition of 24,000 MTs in Oct, 2008) one of the
largest in the world and is equipped with modern machineries (including 16 CNC
machines) and automated temperature controlled Galvanising Baths, besides its
own state-of-the-art Testing Station and R & D Centre. It was the first company in
1994 in the Indian transmission industry to be ISO 9001 certified.

About 650,000+ MTs of towers and substation structures have already been
designed, manufactured and supplied over the last few years of which over
175,000 MTs has been exported. Over 250 Tower Tests of 132-500KV have been
carried out successfully, including 125 nos. at our own Testing Station, which is
one of the largest facilities of its kind in the world.
Their Construction division has completed over 8,000+ kms of turnkey projects in
India for various clients such as the Power Grid Corporation of India and various
State Electricity Boards (SEBs) of Gujarat, Karnataka, Maharashtra, Rajasthan,
Andhra Pradesh, Rajasthan, Orissa, Tamil Nadu and Madhya Pradesh.

INFRASTRUCTURE
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Kalpataru Power Transmission has 2 fabrication units and the production capacity
of these plants is around 108,000 MT per year. KPTL has one Plant for a Domestic
requirement which is situated in Sector 28 Gandhinagar, which has a capacity of
78,000 MTs per annum. And second plant is situated in Sector 25, Gandhinagar
which is 100% EOU plant for Export purpose and has capacity of 30000 MTs per
annum. The average capacity utilisation Rate is around 96 % of total Capacity
Installed.
The facilities available in these plants are
CNC punching / drilling machines (16 No from Ficep, Italy), Capable of
handling Angle sections upto 250*250*35 mm and Plates
Automatic temperature controlled galvanizing bath Capable of coating
requirement of 610 and 910 gms per sq.mts (80 to 130 micron)
Tower Testing Station and R&D Centre for testing upto 800KV D/C towers
with Tower Base width - 27M x 27M (square and rectangle), Height - 85mts
and uplift capacity per leg of 500 MT is one of the largest facility of its kind
in the world.
Over 12 nos. of Tension Stringing equipments upto 8/16 Tones (capable of
pulling quadruple conductors)

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DIVISION OF COMPANY
Tower Design, Testing and Manufacturing

The key strength of any Transmission Line player lies in its core capability of
design, testing, manufacturing and construction.
The company employs latest 3D Design Software and their Engineering
Team has perfected the art to deliver cost effective design solutions. Their state of
art Tower Testing Station and R & D center can handle up to 800 KV D/C towers
with base width of 27 Mtrs * 27 Mtrs and height of 80 Mtrs. They have
successfully completed their 100th Tower Tests.
Their Fabrication plant with an annual installed capacity of 54000 MTs has
been running at 90 % of its capacity to deliver up to 4000 MTs per month for over
36 months. Besides delivering towers to their own projects, they have been reliable
supplier of choice to reputed EPC Contractors like ABB, Areva, Sumitomo,
IBMR Ahmedabad

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Downer, Gridcom etc with exports to 15 countries. They are the first Indian
manufacturing unit to achieve the ISO 9001 Certification since 1994.
They are further expanding capacity by another 18000 MTs to exclusively
cater to their export requirements and to retain their position as one of the largest
tower fabricators across the world.

Civil Construction (JMC Projects)

JMC projects (India) Ltd. is one of the leading civil contracting company and is a
preferred name when it comes to industrial Structures, factories, Commercial
Buildings, InfoTech / Software parks. Besides this, it has done civil works for
various Power Plants, Sub-stations, Sugar, Pharma and Automobile Factories.

Some of its valued customers include Bajaj Auto, Coca Cola, Asian Paints, Power
Grid, Infosys, Wipro, IIM Ahmadabad and many more.
The company has revenues of approx Rs.2.4 Billion (USD 55 Million) and a
manpower strength of over 875 people, besides a fleet of plant & equipment.

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JMCs edge has been its quality and commitment to timely execution. It has also
entered into construction of Express Ways, Roads & Bridges.

Kalpataru Power has become a dominant shareholder in JMC since February 2005
and is committed to take JMC to greater height of success.

Transmission & Distribution Division

Following measures taken by the Company from time to time. Has helped us
maintaining energy consumption at optimum level:
1. Use of Voltage Stabilizer to regulate fluctuations in voltage of the Ahmadabad
Electricity Company supply, which helps to reduce energy consumption and
eliminates wastage.
2. Installed enough number of Capacitors at Electrical Control Panel Boards to
improve the overall power factor.

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3. Took PNG Connection, an environment friendly fuel, for galvanizing plant and
hot bending machine to conserve the energy.
Total energy cost is less than 1% total turnover, which reflects success of the
company's efforts in this direction.

Bio-mass Energy Division

1. The company has diversified into Power Generation using renewable/non

conventional energy sources such as agricultural waste

and crop residues

(biomass) in the State of Rajasthan.

2. The plants uses biomass (mustard crop residue / cotton sticks) and has
established infrastructure / logistics enabling it to collect over 75,000 MTs last
year. Based on first hand experience and holding of buffer stocks, the company
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foresees no biomass collection risks in Ganganagar.

3 Distribution companies of Jaipur, Jodhpur & Ajmer based on the Rajasthan State
Policy of Non-Conventional energy. Third party sale to Large Industrial Customer
is also permitted as per existing Policy & Regulatory guidelines. The Plant sale
will be approx. 90 million units/kwh in 2007-08 to the Rajasthan Grid with timely
payments.
Besides being environment friendly, the Project is expected to contribute to the
prosperity and sustainable development of the region, besides generating local
employment opportunities.

Oil and Gas Pipeline Sector

After the Oil & Gas sector has been opened up in India, and the demand of energy
per capita has been rising steadily with the growth in economy, the demand of
Pipelines for natural gas and petroleum products in India has been witnessing a
spurt. The phenomenon has been replicated in many parts of world and as a result,
more and more pipelines are being set up in various parts of the world to facilitate
transport connectivity between farthest point to the source.
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Natural gas has emerged as the dominant source of additional energy in world.
There exists a huge deficit of natural gas based on current production and demand
data in India.
According to GAIL (India) Limited, the nodal agency for transportation of natural
gas, the demand for natural gas is increasing @12% per annum. Pipeline transports
only 25% of petroleum product consumed by Indian industry in spite of being
cheaper than Railways and Road transportation. It is estimated that total pipeline
network would increase from the present 16,000 km to 40,000 km in the next 3-4
years, total Capital Expenditure required for Oil & Gas Network is estimated
around USD 10 billion.

Logistics & Warehousing Business

According to industry estimates, storage capacity in the country vis-a-vis

production of vegetables and fruits stands at a meager 12% compared with the
international average of 50%. The result: nearly 38% of the perishable goods, such
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as vegetables and fruits, are lost owing to lack of cold storage systems and
processing facilities. The cumulative loss could be to the tune of Rs. 55,000 crore.

Shree Shubham Logistics Limited (SSLL),a subsidiary of Kalpataru Power

Transmission Limited is focused in developing Commodity Warehousing Logistics
parks in strategic locations in the country.

The key objective is to develop multi-function facilities catering to ambient

temperature warehousing, cold storage, processing units, auction yard, weigh
bridges and other support amenities. By July, 2009, SSLL will have storage
capacity of over 1,80,000 MTs as most of its planned warehouses will be
operational by that time.

REAL ESTATE DIVISION

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Company is looking for certain real estate initiatives directly or indirectly through
SPV or Subsidiaries to build up developers capabilities to bid for BOOT/BOOM
infrastructure projects in future. The Company has identified two developmental
projects for execution under its subsidiaries.

One of its wholly owned subsidiary Energy Link (India) Ltd., development of
multi product SEZ is proposed over an area of approximately 1,000 hectors (2,600
Acres) in the region called 'Ahmedabad-Dholera Special Investment Region' (SIR),
which is about 85 kms away from Ahmedabad.

The other project is through wholly owned subsidiary namely Amber Real Estate
Ltd. to develop IT Park which is proposed to be developed at Mumbai.

KPTL is associated with And Different Projects of KPTL

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Established over 3 decades ago in 1969 by Mr. Mofatraj P. Munot, a first generation entrepreneur.
The Group employs over 4,000 people. Kalpataru borrows its name from the ancient Indian
mythological tree - the Kalpa-Vruksha -beneath which all wishes are fulfilled.
Property Solutions (I) Pvt Ltd.
Kalpataru Ltd.
(PSIPL)
JMC Projects (India) Ltd.
Caprihans India Limited
Shree Shubham Logistics Ltd.

1. Kalpataru Ltd.
The group's flagship company, Kalpataru Ltd. is a leading real estate developer with premium
residential and commercial complexes in Mumbai and Pune.
Pioneering the concept of creating lifestyle living, it has built more than 75 landmark edifices in
the last 39 years. With a team of 1,000 dedicated, Kalpataru has created an uncomparable brand
and reputation for itself in the Property Development and Real Estate industry.
We pride at being one of the largest Property Groups in India, with development of over 1.5
Million sq.ft at any point of time.
Every Kalpataru project reflects a "no compromise" attitude; one that manifests in the architecture,
engineering and construction of every project; from towering structures to expansive complexes,
Kalpataru has proven its commitment and expertise in every segment of property development.
The residential complexes are replete with landscaped gardens, swimming pools, gymnasium,
ennis and squash courts, clubhouses and several innovative amenities.
In an age where architecture is mainly utilitarian, Kalpataru endeavours to combine the functional
with the aesthetic and maintains the highest standards of quality right down to the last detail.

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No. of Shares
held

Sr. No.

Category

Promoter & Promoter Group Share Holding :

Indian

16,876,266

Foreign
B

%t
Shareho

Public Share Holding :

1. Institutional :
Mutual Funds & UTI

3,457,372

Banks, Financial Inst.

53,577

Venture Capital Fund

1,514,000

Insurance Companies

642,473

FIIs

1,760,304

2. Non-Institutional :
Private Corporate Bodies

679,955

NRIs / OCBs

155,071

Indian Public

1,260,984

Clearing Members

99,998

TOTAL
No. of Shares
of Rs.10 each
Upto - 500

26,500,000
Shareholders

Share in Amount
Number % of Total

In Rs. % of Total

14,525

96.33

8,762,830

3.31

501 - 1,000

268

1.78

1,993,220

0.75

1,001 - 2,000

106

0.70

1,530,080

0.58

2,001 - 3,000

39

0.26

977,990

0.37

3,001 - 4,000

17

0.11

611,660

0.23

4,001 - 5,000

0.06

423,160

0.16

5,001 - 10,000

23

0.15

1,716,140

0.64

10,001 and above

91

0.61 248,984,920

93.96

12,700

100.00 265,000,000

100.00

Total

Rajiv Gandhi Grameen Vidyutikaran Yojana

Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) was launched in April-05
by merging all ongoing schemes. Under the programmed 90% grant is provided by
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10

Govt. of India and 10% as loan by REC to the State Governments. REC is the
nodal agency for the programme. The RGGVY aims at:
Electrifying all villages and habitations as per new definition
Providing access to electricity to all rural households
Providing electricity Connection to Below Poverty Line (BPL) families free
of charge

Infrastructure under RGGVY :

Rural Electricity Distribution Backbone (REDB) with 33/11 KV (or 66/11
KV) sub-station of adequate capacity in blocks where these do not exist.
Village Electrification Infrastructure (VEI) with provision of distribution
transformer of appropriate capacity in villages/habitations.
Decentralized Distributed Generation (DDG) Systems based on conventional
& non conventional energy sources where grid supply is not feasible or costeffective.
SIZE
India has the fifth largest electricity generation capacity in the world
Low per capita consumption at 631 units; less than half of China
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 Transmission & Distribution network of 6.6 million circuit km - the third

largest in the world

STRUCTURE
Majority of Generation, Transmission and Distribution capacities are with
either public sector companies or with State Electricity Boards (SEBs)
Private sector participation is increasing especially in Generation and
Distribution.
Distribution licences for several cities are already with the private sector
Three large ultra-mega power projects of 4000MW each have been recently
awarded to the private sector on the basis of global tenders.
POLICY
100% FDI permitted in Generation, Transmission & Distribution - the
Government is keen to draw private investment into the sector
Policy framework: Electricity Act 2003 and National Electricity Policy 2005
Incentives: Income tax holiday for a block of 10 years in the first 15 years of
operation; waiver of capital goods' import duties on mega power projects
(above 1,000 MW generation capacity)

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 Independent Regulators: Central Electricity Regulatory Commission for

central PSUs and inter-state issues. Each state has its own Electricity
Regulatory Commission

OUTLOOK
Over 78,000 MW of new generation capacity is planned in the next five
years
A corresponding investment is required in Transmission and Distribution
networks
Power costs need to be reduced from the current high of 8-10 cents/unit by a
combination of lower AT & C losses, increased generation efficiencies and
added low-cost generating capacity
POTENTIAL
Large demand-supply gap: All India average energy shortfall of 9% and
peak demand shortfall of 14%
The implementation of key reforms is likely to foster growth in all segments
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 Unbundling of vertically integrated SEBs

Open Access to Transmission and Distribution networks
Select distribution circles to be franchised/privatised
Tariff reforms by regulatory authorities
Opportunities in Generation for:
Ultra Mega Power Plants (UMPP) 9 projects of 4000 MW each
Coal based plants at pithead or coastal locations (imported coal)
Natural Gas/CNG-based turbines at load centres or near gas terminals
Hydel power potential of 150,000 MW is untapped as assessed by the
Government of India.
GLOBAL LEVEL OF THE COMPANY
With a strong thrust on Overseas markets, the Company is/has already
exported Towers or is executing/has completed Turnkey projects in :

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Asia
Philippines
Malaysia
Vietnam
Indonesia
Thailand
Bangladesh
Nepal

Middle East
Kuwait
UAE
Qatar
Syria
Turkey
Iraq

Africa
Algeria
Ethopia
Zambia
Nigeria
Kenya
Tanzania
Mozambique
Djibouti
Uganda
South Africa

America
USA
Canada
Mexico
Peru

Australia
Tasmania

Transmission Line Experience

Total supplies
Over 6,00,000 MTs
Total physical exports Over 2,00,000 MTs
Tested
Over 250 Towers (including over 125 at own Testing Station)

Construction of lines
Total lines from 130kv to 765KV HVDC

over 8,000 kms

BALANCE SHEET OF KPTL

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Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Mar ' 05

Sources of funds
Owner's fund
Equity share capital

26.5

26.5

26.5

10.86

10.86

Share application money

Preference share capital

810.45

740.72

615.34

156.43

102.25

Secured loans

485.44

295.85

336.71

232.78

100.48

Unsecured loans

169.27

30

10

1,491.66

1,093.07

978.55

400.07

223.59

359.09

295.97

256.75

159.38

97.66

0.55

0.6

0.64

0.69

100.69

73.29

51.71

35.36

27.09

258.4

222.13

204.45

123.38

69.88

10

1.93

4.12

28.36

0.21

126.83

147.51

218.92

29.45

10.13

1,332.47 1,084.76

600.87

343.41

Reserves & surplus

Loan funds

Total
Uses of funds
Fixed assets
Gross block
Less : revaluation reserve
Less : accumulated
depreciation
Net block
Capital work-in-progress
Investments
Net current assets
Current assets, loans &
IBMR Ahmedabad

1,925.71

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advances
Less : current liabilities &
provisions

829.27

610.98

533.75

382.08

200.19

1,096.44

721.49

551.01

218.79

143.22

0.05

0.1

0.15

1,491.66

1,093.07

978.55

400.07

223.59

Book value of unquoted

investments

53.26

74.79

146.45

Market value of quoted

investments

58.48

276.3

179.15

147.3

20.28

107.63

55.59

29.44

48.34

36.44

265

265

265

108.62

108.62

Total net current assets

Miscellaneous expenses
not written
Total
Notes:

Contingent liabilities
Number of equity shares
outstanding (Lacs)

PROFIT AND LOSS A/COF KPTL

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Mar ' 09 Mar ' 08

Mar ' 07 Mar ' 06

Mar ' 05

1,882.50

1,737.58

1,524.3
6

839.72

541.32

1,026.03

988.94

864.21

522.71

347.3

Manufacturing expenses

414.15

260.45

201.53

87.49

72.34

Personnel expenses

108.62

90.58

71.61

38.9

23.63

21.24

22.07

9.49

4.4

110.97

86.3

65.67

38

22.62

1,659.76

1,447.52

1,225.0
9

696.59

470.29

222.73

290.06

299.27

143.13

71.04

30.76

16.05

10.66

1.64

1.04

Adjusted PBDIT

253.49

306.11

309.93

144.77

72.08

Financial expenses

105.59

56

64.83

40.5

22.43

27.32

21.8

16.76

8.79

5.5

0.05

0.05

0.07

0.11

120.58

228.26

228.28

95.41

44.04

Tax charges

26.17

82.36

70.84

32.52

16.26

Adjusted PAT

94.41

145.90

157.44

62.89

27.78

Income:
Operating income
Expenses
Material consumed

Selling expenses
Adminstrative expenses
Expenses capitalized
Cost of sales
Operating profit
Other recurring income

Depreciation
Other write offs
Adjusted PBT

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Non recurring items

1.88

1.83

1.77

-0.8

Other non cash

adjustments

-0.15

2.1

-1.18

1.78

1.65

Reported net profit

94.26

149.88

158.09

66.45

28.63

Earnigs before
appropriation

414.18

363.17

256.54

117.89

60.58

Equity dividend

19.88

19.88

19.88

10.86

5.43

3.38

3.38

3.38

1.58

0.71

390.93

339.92

233.29

105.45

54.44

Preference dividend
Dividend tax
Retained earnings

IBMR Ahmedabad

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TREND ANALYSIS OF BALANCE SHEET

Chart (A) Sources of Funds
1000

Rs.(In Crore s)
Share capital

500
Reserves

Secured loans

Unsecured loans

0
2009-08

2008-07

2007-06

Year

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 Chart (B) Fixed Assets & Investment

700
600
500
400
% Trend

300

Gross Block
200

Depriciation

Net Block

Capital Work In Progress

Investment

100
0
2009-08

2008-07

2007-06

Year

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700
600
500
400
% Trend

300

Gross Block
200

Depriciation

Net Block

Capital Work In Progress

Investment

100
0
2009-08

2008-07

2007-06

Year

700
600
500
400
% Trend

300

Gross Block
200

Depriciation

Net Block

Capital Work In Progress

Investment

100
0
2009-08

2008-07

2007-06

Year

CAPITAL STRUCTURE

In finance, capital structure refers to the way a corporation finances its assets
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through some combination of equity, debt, or hybrid securities. A firm's capital

structure is then the composition or 'structure' of its liabilities. For example, a firm
that sells $20 billion in equity and $80 billion in debt is said to be 20% equityfinanced and 80% debt-financed. The firm's ratio of debt to total financing, 80% in
this example, is referred to as the firm's leverage. In reality, capital structure may
be highly complex and include tens of sources. Gearing Ratio is the proportion of
the capital employed of the firm which come from outside of the business finance,
e.g. by taking a long term loan etc.

A mix of a company's long-term debt, specific short-term debt, common equity

and preferred equity. The capital structure is how a firm finances its overall
operations and growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes payable, while equity is
classified as common stock, preferred stock or retained earnings. Short-term debt
such as working capital requirements is also considered to be part of the capital
structure.

A company's proportion of short and long-term debt is considered when analyzing

capital structure.

DEFINITION
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The permanent long-term financing of a company, including long-term debt,

common stock and preferred stock, and retained earnings. It differs from financial
structure, which includes short-term debt and accounts payable.

The capital structure of a company is the particular combination of debt, equity and
other sources of finance that it uses to fund its long term financing.

The key division in capital structure is between debt and equity. The proportion of
debt funding is measured by gearing.

This simple division is somewhat complicated by the existence of other types of

capital that blur the lines between debt and equity, as they are hybrids of the two.
Preference shares are legally shares, but have a fixed return that makes them closer
to debt than equity in their economic effect. Convertible debt may be likely to
become equity in the future.

Considering the division between debt and equity is sufficient to understand the
issues involved.

Simple financial theory models show that capital structure does not affect the total
value (debt + equity) of a company. It is, nonetheless, an important result, know as
capital structure irrelevance.
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Contents
1 Capital structure in a perfect market
2 Capital structure in the real world
2.1 Trade-off theory
2.2 Pecking order theory
2.3 Agency Costs
2.4 Other
3 Arbitrage

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1.Capital structure in a perfect market

Assume a perfect capital market (no transaction or bankruptcy costs; perfect
information); firms and individuals can borrow at the same interest rate; no taxes;
and investment decisions aren't affected by financing decisions. Modigliani and
Miller made two findings under these conditions. Their first 'proposition' was that
the value of a company is independent of its capital structure. Their second
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'proposition' stated that the cost of equity for a leveraged firm is equal to the cost of
equity for an unleveraged firm, plus an added premium for financial risk. That is,
as leverage increases, while the burden of individual risks is shifted between
different investor classes, total risk is conserved and hence no extra value created.
Their analysis was extended to include the effect of taxes and risky debt. Under a
classical tax system, the tax deductibility of interest makes debt financing valuable;
that is, the cost of capital decreases as the proportion of debt in the capital structure
increases. The optimal structure, then would be to have virtually no equity at all.

2. Capital structure in the real world

If capital structure is irrelevant in a perfect market, then imperfections which exist
in the real world must be the cause of its relevance. The theories below try to
address some of these imperfections, by relaxing assumptions made in the M&M
model.

2.1 Trade-off theory

Trade-off theory allows the

bankruptcy

cost to exist. It states that there is an

advantage to financing with debt (namely, the tax benefit of debts) and that there is
a cost of financing with debt (the bankruptcy costs of debt). The marginal benefit
of further increases in debt declines as debt increases, while the marginal cost
increases, so that a firm that is optimizing its overall value will focus on this tradeoff when choosing how much debt and equity to use for financing. Empirically,
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this theory may explain differences in D/E ratios between industries, but it doesn't
explain differences within the same industry.

2.2 Agency Costs

There are three types of agency costs which can help explain the relevance of
capital structure.

Asset substitution effect: As D/E increases, management has an increased

incentive to undertake risky (even negative NPV) projects. This is because if
the project is successful, share holders get all the upside, whereas if it is
unsuccessful, debt holders get all the downside. If the projects are
undertaken, there is a chance of firm value decreasing and a wealth transfer
from debt holders to share holders.

Underinvestment problem: If debt is risky (eg in a growth company), the

gain from the project will accrue to debt holders rather than shareholders.
Thus, management has an incentive to reject positive NPV projects, even
though they have the potential to increase firm value.
Free cash flow: unless free cash flow is given back to investors,
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management has an incentive to destroy firm value through empire building

and perks etc. Increasing leverage imposes financial discipline on
management.

3. Arbitrage
Similar questions are also the concern of a variety of speculator known as a
capital-structure arbitrageur, see arbitrage.
A capital-structure arbitrageur seeks opportunities created by differential pricing of
various instruments issued by one corporation. Consider, for example, traditional
bonds and convertible bonds. The latter are bonds that are, under contracted-for
conditions, convertible into shares of equity.
The stock-option component of a convertible bond has a calculable value in itself.
The value of the whole instrument should be the value of the traditional bonds plus
the extra value of the option feature. If the spread, the difference between the
convertible and the non-convertible bonds grows excessively, then the capitalstructure arbitrageur will bet that it will converge.

Capital structure
From
Year

To Year

2007
IBMR Ahmedabad

2008

(in crore)

Class Of
Share

Authorized Issued
Capital
Capital

Paid Up
Shares
(Nos)

Equity Share

30

2650000

26.5

Paid Up
Face
Value

Paid
Up
Capital

10

26.5

Page 41

0
2006

2007

2005

2006

2004

2005

2003

2004

Equity Share
Equity Share
Equity Share
Equity Share

26.5

2650000
0

10

26.5

10.86

1086150
0

10

10.86

10.86

1086150
0

10

10.86

10.86

1086150
0

10

10.86

30
30
20
20

5.2 CAPITAL STRUCTURE OF KPTL

5.3 DIVIDEND

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Year

Month

Dividend (%)

2009 Jun

75

2008 May

75

2007 May

75

2006 May

50

2005 May

50

2004 May

30

2003 May

15

2002 Jul

15

2001 Aug

15

2000 Jun

2000 Mar

25

1999 May

30

1998 May

30

1997 May

30

OBJECTIVE

To calculate Weighted Average Cost of Capital (WACC)

To calculate Return on Investment(ROI)
Compare WACC and ROI.
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If ROI is greater than WACC, then the company is getting returns more than the
capital employed. Vice Versa.

RATIO REQUIRED FOR CAPITAL STRUCTURE

Ratios:
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Finance structure ratio indicates the relative mix or blending of owners fund
and outsiders debt funds in the total capital employed in the business. It should
be noted that equity funds are the prime fund, which increases progressively
through reinvestment of profits, while outside debt funds are supplementary
funds and are added at the discretion of the management. We also use some
liquidity ratio,and profitability ratio for calculation. Some popular ratios are as
under...
1 .Equity Ratios
2 .Debt Ratios
3 .Debt-Equity Ratios
4 .Debt service coverage ratio
5. Interest coverage ratio
6. Current ratio
7. Net working capital ratio
8. Return on equity

1. Equity Ratios
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Equity Ratio =

Net Worth
Total Capital Employed

1) 2008-09

836.95
971.08

2) 2007-08

0.86

767.77
838.16

= 0.91

Where,
Net Worth = Equity Capital + Reserves Misc. Expenses.
Total Capital Employed = Net Worth + Long Term Debts.

Chart : Equity Ratios

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RATIO
0.91
0.9
0.89
0.88
Axis Title

0.87
0.86
0.85
0.84
0.83

2008-09

2007-08

Analysis:
This ratio suggests the proportion of the Net Worth to total capital employed.
Net Worth to Total Capital Employed. Net Worth is share plus reserves and
surplus. The higher the ratio the higher the net worth in total capital
employed and vice versa.
The ratio decreased from the last year because the

long term debt is

increase.
It was the highest value is 0.91 in the year 2007-08.

3. Debt Equity Ratio:

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When debt funds are used to generate ROI greater than interest cost on debt, the
equity earning is enhanced, but if the interest cost is higher than the ROI, adversely
affect the earning owners. This ratio is popularly described as Debt-Equity Ratio.
Higher debt equity ratio is (1) good if ROI is greater than interest on debt. Thus,
use of debt (or leverage) is considered as a Double Aged weapon.

Debt Equity Ratio = Total Long term Debt

Net Worth

2008-09

134.13
836.95

2007-08

0.16

70.38
767.77

IBMR Ahmedabad

0.09

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Chart : Debt Equity Ratios

RATIO

Axis Title

0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

2008-09

2007-08

Analysis:
Debt Equity Ratio is debt to Equity. Debt means long term fund having
maturity of five years or more including interest thereon.
Equity is paid up share capital plus free reserves. The higher the debt fund
used in capital structure, the greater is the financial risk. This is also known
as leverage ratio.
Here as per the graph, we can see that the value is decreasing regularly.

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4 .Debt service coverage ratios:

Financial institutions which provide the bulk of long-term debt finance judge the
debt capacity of a firm in terms of its DSCR.
DSCR=

PBTi+DEPi+INTi+li
INTi+LRIi

Where,
PAT= PROFIT AFTER TAX
DEP=DEPRECIATION FOR THE YEAR
INT=INTEREST ON THE LONG TERM LOAN
LRI=LOAN REPAYMENT INSTALLEMENT
Li=LEASE RENTAL YEAR
N=period of the loan
2008-09 (IN CRORE)

155
24

2007-08(IN CRORE)

6.46

231
24.26

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9.52

Chart : Debt service coverage ratios

RATIO

Axis Title

10
9
8
7
6
5
4
3
2
1
0

2008-09

2007-08

Analysis:
The DSCR is good for the company as because it decrease from the last year.
And company has no problem if it would go for debt financing

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5. INTEREST COVERAGE RATIO

This ratio is widely used by lenders to assess a firms debt capacity. Its a major
determent of bond rating. A high average Int coverage means that the firm can
easily meet its Int burden, even if earning before Int and taxes suffer a considerable
decline. This ratio is not a very appropriate measure of int coverage because the
sources of int payments are cash flow before int and taxes, not before int and taxes.

ICR

PBIT
INTEREST

2008-09

189
68

= 2.78

2007-08

242
40

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= 6.05

CHART: INTEREST COVERAGE RATIO

RATIO

Axis Title

7
6
5
4
3
2
1
0

2008-09

2007-08

Analysis:

A high ratio implies adequate safety for payment of interest.

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 It is clearly indicates by the above calculation that interest expenses increase

and also PBIT decrease and so it implies that the debt of the company
increase.
Thus in general we can conclude that the growth of the company is very
good, because it has enough position to meet the interest.

6. CUREENT RATIO
Current ratio is the indication of the firm commitment to meet its short-term
liabilities. It is widely used indicator of a companys ability to pay its debts in
short-term. The Current Ratio is the ratio of total current assets to total current
liabilities. It can be calculated, by dividing current assets by current liabilities.

Current Ratio =

Total Current Assets

Total Current Liabilities

Where,
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Current Assets = Inventories + Debtors + Bill Receivables +

Marketable Securities + Bank & Cash Balance +
Prepaid Expenses.

Current liability = Creditors + Bill payables + Unpaid expenses +

Provision for tax + dividend Payable + Bank over
Draft.

2008-09

= 1925.71
829.27

IBMR Ahmedabad

2.32

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2007-08

1332.47
610.98

2.18

CHART: CUREENT RATIO

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RATIO
2.35
2.3
current ratio

2.25
2.2
2.15
2.1

2009-08

2008-07

Analysis:

Companys Current ratio will good as its increase in the current ratio.
From this Current Ratio the Company has better liquidity \short term
Solvency.

7. Net Working Capital:

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Net Working Capital (NWC) represents the excess of current assets over current
liabilities.

Net Working Capital = Total Current Assets Total Current Liability

2008-09 = 1096.44

2007-08 = 721.49

CHART: Net Working Capital

1200
1000
NWC

800
600
400
200
0

2009-08

2008-07

Analysis:
The ratio represents that part of the long term funds represented by the net
worth and long term debt which is presently blocked asset.
Here, as per the graph, ratio is being increased regularly.
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8. Rate of Return on Equity:

Return on Equity = earnings Available to Equity Shareholder
Net Worth
Where,
Profit for the Equity = Net Profit Preference Dividend
Net Worth = Equity Capital + Reserves Misc. Expenses

2008-09 = 94.26
836.95

= 0.11

2007-08

= 149.88
767.22

= 0.20

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CHART: Rate of Return on Equity

0.2
0.18
0.16
0.14
ROE 0.12
0.1
0.08
0.06
0.04
0.02
0

2009-08

2008-07

Analysis:
Through the above calculation we can say that the rate of return on equity
ratio is Declining year to year it means shareholders earnings will decline
But
The main cause to decrease the value of the ratio is the increase in the value
of the Net Worth.

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LEVERAGE ANALYSIS
FINANCIAL LEVERAGE is the use of debt to increase the expected return on
equity. Financial leverage is measured by the ratio of debt to debt plus equity.
leverage to be positive, the rate of return on the investment must be higher than the
cost of the money borrowed. In general, in finance, leverage is the use of debt
financing. Leverage, within a corporation, is the use of borrowed money to
increase the return on investment.

Impact of leverage on profitability:

Cost of interest and interest coverage:
TABLE (1)

YEAR

SALE
S

EBI
T

INTERES
T

INTEREST AS A
% OF SALES

INTEREST
COVERAGE

2004-05

567

54

11

1.94

4.91

2005-06

871

110

16

1.84

6.88

2006-07

1567

245

28

1.79

8.75

2007-08

1768

242

40

2.26

6.05

2008-09

1914

189

68

3.55

2.78

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Analysis:
Interest as a percentage of sales and interest coverage ratios are presented in
table and in figure.
Interest coverage is expressed in number of times, dividing EBIT by interest.
The interest coverage was 4.91 times in 2004-05, sharply increased Up to
2007-08 which shows that it is good for the company.
TABLE (2):
SALES
YEAR

(in
crore)

EBIT

EBT

EPS

%
CHANGE
IN EBIT

2004-05

567

54

43

26

2005-06

871

110

94

61

103.70

53.62

134.62

2006-07

1567

245

217

65

122.73

79.91

6.56

2007-08

1768

242

202

57

-1.22

12.83

-12.31

2008-09

1914

189

121

36

-21.90

8.26

-36.84

IBMR Ahmedabad

%
CHANGE
IN SALES

%
CHANGE
IN EPS

Page 62

TABLE (3)
YEAR

DOL

DFL

TL

2005-06

1.9342

0.796

1.54

2006-07

1.5359

0.855

1.312

2007-08

-0.095

0.886

-0.08

2008-09

-2.652

0.835

-2.21

ANALYSIS:
The different ratios relating to leverages and EPS are presented in table 2,
table 3 and graph. The highest DFL was noticed in 2007-08(0.88) with a
lowest one in 2005-06(0.79)
In case of operating leverages, there was substantial decrease from 2005-06.
TABLE (4)

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YEAR

% CHANGE IN EBIT

% CHANGE IN SALES

2005-06

103.70

53.62

2006-07

122.73

79.91

2007-08

-1.22

12.83

2008-09

-21.90

8.26

Change in sales vs. Change in EBIT

250
200
150
Axis Title 100
50
0
2004-05

2005-06

2006-07

2007-08

2008-09

-50

The above figure show the effect of sales in EBIT. If firm is working with high
operating leverage a proportionate change in sales will bring a more proportionate
change in EBIT.

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CONCLUSION
From the above analysis we can see that the leverages do affect the profitability of
the company. The greater is the degree of financial leverage, the greater fluctuation
(positive or negative) in EPS. The shareholders get higher returns when the firms
management chooses to use more financial leverage rather than less.

COST OF EQUITY
Equity finance may be obtained in the two ways:
Retention of earnings
Issues of additional equities
The cost of equity or the return required by the equity shareholders is the same in
the both the cases. When a firm decided to return earning an opportunity cost is
involved. Shareholders could received the earnings as a dividend and invest the
same in alternative investment of the comparable risk to earn a return.
Whether a firm raises equity finance by retain earnings or issuing additional equity
shares, the cost of equity will be the same. The only difference is in flotation cost.
There is no flotation cost for retained earning where as there is flotation cost of 2
to 8 % or even more for additional equity. Thus cost of equity refers to the cost of
the retained earnings as well as the cost of external equity.

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While the cost of debt and preference can be determined fairly easily, the cost of
equity is rather difficult to estimate. This difficulty stems from the fact that there is
no definite commitment on the part of the firm to pay dividend.

COST OF DEBT
Conceptually, the cost of debt instrument is the yield to maturity of that
instrument .following are the Debt instrument such as debenture, bank loans, and
commercial paper.

Strengths of the Company:

Design and Engineering

Testing station and R &D center
Fabrication
Galvanization
Supply chain (by air, sea, etc.)
Construction (of towers)

Customers:
Across India : Power Grid Corporation of India (PGCI)
State Electricity Boards (SEBs) of Gujarat, Maharashtra,
Rajasthan, Andhra
Pradesh, Tamil Nadu, Madhya Pradesh, West Bengal, UP.
Pre- qualified for all domestic and international tenders.
Qualified bids over 20 countries.
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 Has Trading House status and received various Awards for Meritorious
performance in Exports from Engineering Exports Promotion Council (EEPC)
and Ministry of Commerce, Government of India.

International Partners:

ABB SAE (Italy)

Downers (Australia)
Grid Comm. (Australia)
Areva/Alstom (France)
Cegelec (France)
Enel Power (Italy)
Cobra (Spain)
Sumitomo Electric (Japan)
ETA (UAE)
Hindalco (Egypt)
GYM (Peru), etc.

Limitations
As my training period clashed with the firms quarterly auditing period the
concerned person in Finance and Accounting Department were busy with
auditing work and thus were not able to provide more time to during the
training period.
Moreover the data for the years before 2006-07 where not available and thus
taken in approximate figures.
The management of the firm is very busy and was found reluctant to provide
off balance sheet information.
Operating cycle is not found to be uniform and the same was found to be
varying from one period to another due to several inherent problems in
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production

and

distribution

system/delivery

system/logistic

system

prevailing in the organization

Non availability of necessary and relevant data for assessing working capital
requirements due to Retirement of the key personnel and there was vacuum
and lack of proper interface between the firm and me.
Financial analyses are based on historical data and information.

Recommendations and Suggestions

By analyzing the annual report of the company we can conclude that,

From the Liquidity Ratio we can recommend that the Liquidity of the
company is Very Good.

The Current ratio is increases every year. The Current Assets should be at
least twice the Current Liabilities for a comfortable liquid position.

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 Here we can see that interest to be paid has been cut very well, which is
good for the company in the future.

Bibliography
I have referred following Books& websites for the information about the company
WEBSITES.

1. www.kalpatarupower.com
2. www.moneycontrol.com

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3. Annual report of kptl

4. Financial management ,by Prasanna Chandra
Books:
Pandey, I. M. Financial Management: New Delhi: Ninth Edition Vikas
Publication, 2006, page. 577-600, 658-667.

Khan, M. Y. Financial Management: An Overview: New Delhi: Seventh

Edition Tata McGraw Hill, 2005, page. 26.1-28.9.

Ram, Paras. Export: What-Where-How: New Delhi: 40th Edition Anupam

Publisher, 2006-07, page. 248-346.

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IBMR Ahmedabad

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