Description
Equity research on Power sector
Equity Research on Power sector
PROJECT REPORT ON EQUITY ANALYSIS ON POWER SECTOR In BIRLA SUNLIFE INSURANCE COMPANY LIMITED
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT OF MASTER OF MANAGEMENT STUDIES
BY PAWANJYOT SINGH SABHARWAL ROLL NO. : 2010121 MMS-II (SEM III) YEAR 2010-2012
LALA LAJPATRAI INSTITUTE OF MANAGEMENT MAHALAXMI, MUMBAI - 400034
Equity Research on Power sector
PROJECT REPORT ON EQUITY ANALYSIS ON POWER SECTOR In BIRLA SUNLIFE INSURANCE
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT OF MASTER OF MANAGEMENT STUDIES
BY PAWANJYOT SINGH SABHARWAL ROLL NO. : 2010121 MMS-II (SEM III) YEAR 2010-2012
LALA LAJPATRAI INSTITUTE OF MANAGEMENT MAHALAXMI, MUMBAI - 400034
Equity Research on Power sector
SUMMER INTERNSHIP PROJECT
SUBMITTED BY PAWANJYOT SINGH SABHARWAL ROLL NO. : 2010121 MMS – II (SEM III) Year 2010-2012
Equity Research on Power sector
Equity Research on Power sector
Certificate
This is to certify that the project work titled “Equity Analysis on power Sector” is a summer internship work carried out by Mr. Pawanjyot Singh Sabharwal The project was completed for “Birla Sunlife Insurance Company Limited”, under the guidance of Mr. Nikesh Ruparel. I further certify that the said work has not been submitted in the part or in full, to any other University.
Date:
____________________
Prof. Arati Kale Project Guide
____________________
Dr V.B. Angadi Director, Lala Lajpatrai Institute of Management
Equity Research on Power sector
DECLARATION
I, Mr. Pawanjyot Singh Sabharwal, student of Lala Lajpatrai Institute of Management of MMS II (Semester III) hereby declare that I have completed the summer internship project on Equity Research on Power Sector with Birla Sunlife Insurance Company Ltd. in the Academic year 2010-2012. The information submitted is true & original to the best of my knowledge.
___________________ Signature of Student
Equity Research on Power sector
ACKNOWLEDGEMENT
At the outset of this project, I would like to express my profound thanks to a few people without whose help, completion of this project would not have been possible. First and foremost, I would like to express sincere thanks to Birla Sunlife Insurance Company Ltd. for giving me this opportunity to work with them. The list is endless but to name a few special people, I would like to thank Mr.Nikesh Ruparel for being extremely supportive and guiding me throughout my internship and giving me constant motivation and expert advice. I would also like to thank the entire training team for providing me their precious time and making this internship a successful learning experience. I am very grateful to Dr. Angadi, Director of Lala Lajpat Rai Institute of Management, for giving me the opportunity to do this project in Birla Sunlife Insurance Company Ltd. My sincere thanks to Prof. Arati Kale for her valuable guidance and advice in completing this project.
I would also like to thank Prof. Avni Pramod for being an excellent mentor and helping me whenever I approached her.
Equity Research on Power sector
INDEX Sr. No. 1 2 3 4 5 6 7 8 9 10 11 TOPIC Executive Summary Introduction 1.1 Objective of the study 1.2 Research Methodology Company Profile (Birla Sunlife Insurance co. Ltd.) Fundamental Analysis 3.1 Financial Statement 3.2 Analysis of Financial Statement Indian Power Sector 4.1 Why Indian Power sector? National Thermal Power Corporation Ltd. (NTPC) 5.1 Company Introduction 5.2 NTPC Financials Tata Power 6.1 Company Introduction 6.2 Tata Power Financials Power Grid Corporation of India (PGCIL) 7.1 Company Introduction 7.2 PGCIL Financials Findings and Suggestions Conclusion Recommendations Bibliography Page No. 1 1 2 3-8 9-11 12 12-16 17-18 19 20-26 27-30 31-37 38-41 42-44 45-48 49 50 51
Equity Research on Power sector
EXECUTIVE SUMMARY
Indian Economy being one of the fastest developing economies in the world, Companies in India are growing at farter rate as compared to their growth rate a decade back. Many Indian companies are expanding their business globally with mergers and acquisitions. As companies grow their shareholders are benefitted with good dividend and capital appreciation on investment in equity shares of such companies. Number of companies listed in stock exchange (BSE & NSE) has been increasing every year with new IPO’s coming in the market. Investing in equity shares based on tips is not the true investment but it is clear gambling with your money which many of us would not like to do with our hard earned money. So there arises a need for Fundamental analysis of a company. With the help of Fundamental analysis one can make his investment somewhat secure. The fundamental analysis consists of three parts: economic, industry and company. All the factors are involved in this analysis were identified and studied carefully to identify the factors in the existing environment. The data or information collected was based on the personal interaction with the guide of the company. Economic analysis was a task to be studied as it affected the company’s tax, and it will effect on the revenue of the industry. Also other factors are considered in the economic analysis. And it will interpret for the fundamental analysis. Industry analysis was a challenging factor for the research of the fundamental analysis. All the sub-factors of the industry analysis were taken up from the secondary source to analysis each factor with the industry and related those factors with the company. It also analysis the competitiveness of each company’s strengths like Quality, services, cost of Raw-material, etc.
Equity Research on Power sector
Company analysis is last factor of the fundamental analysis and it is one of the most important parts of the company. An approach was made to understand the existing company and its impact on company’s market share and its performance.
1. INTRODUCTION
Fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a Company’s actual business and its future prospects. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. A fundamental analyst believes that analyzing strategy, management, product, financial stats and many other readily and not-so-readily quantifiable numbers will help choose stocks that will outperform the market. 1.1 Objective of the study:
?
To acquire a deep knowledge of the Power Sector through fundamental analysis.
? To assess the financial health & management effectiveness of the Company. ? To evaluate the share of the company NTPC Ltd, Tata Power and Power Grid
Corporation of India Ltd.
? To find out how the judgment is taken by the analyst on the basis of fundamental analysis
of the company.
Equity Research on Power sector
? To predict the future performance of the stocks and give suggestion on the same
Research Methodology: Formation of the Problem Which significant ratios determine investment decision in share market? Collection of Data Secondary Data: The sources of secondary data are:• •
Company Annual Report Internet-Websites
Research Limitation
• • • •
Information available on the websites was not updated. There was a limited time period to complete the project. This study will be confined to the Indian stock market only. This study will be restricted up to the Power sector only.
Equity Research on Power sector
2. COMPANY PROFILE
Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group, a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc, leading international financial services organization from Canada. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc., offers a formidable protection for its customers’ future. With an experience of over 9 years, BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 5 private life insurance companies in the country. Known for its innovation and creating industry benchmarks, BSLI has several firsts to its credit. It was the first Indian Insurance Company to introduce “Free Look Period” and the same was made mandatory by IRDA for all other life insurance companies. Additionally, BSLI pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. To establish credibility and further transparency, BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. These category development initiatives have helped BSLI be closer to its policy holders’ expectations, which gets further
Equity Research on Power sector
accentuated by the complete bouquet of insurance products (viz. pure term plan, life stage products, health plan and retirement plan) that the company offers. Add to this, the extensive reach through its network of 600 branches and 175,000 empanelled advisors. This impressive combination of domain expertise, product range, reach and ears on ground, helped BSLI cover more than 2 million lives since it commenced operations and establish a customer base spread across more than 1500 towns and cities in India. To ensure that our customers have an impeccable experience, BSLI has ensured that it has lowest outstanding claims ratio of 0.00% for FY 2008-09. Additionally, BSLI has the best Turn Around Time according to LOMA on all claims Parameters. Such services are well supported by sound financials that the Company has. The AUM of BSLI stood at Rs. 8165 crs as on February 28, 2009, while as on March 31, 2009, the company has a robust capital base of Rs. 2000 crore. VISION
•
To be a leader and role model in a broad based and integrated financial services business.
MISSION
• To help people mitigate risks of life, accident, health, and money at all stages and under
all circumstances.
• Enhance the financial future of our customers including enterprises.
VALUES
• Integrity • Commitment • Passion • Seamlessness • Speed
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A US $28 billion corporation, the Aditya Birla Group is in the league of Fortune 500 worldwide. It is anchored by an extraordinary force of 100,000 employees, belonging to 25 different nationalities. The group operates in 25 countries across six continents – truly India's first multinational corporation.
Aditya Birla Group through Aditya Birla Financial Services Group (ABFSG), has a strong presence across various financial services verticals that include life insurance, fund management, distribution & wealth management, security based lending, insurance broking, private equity and retail broking. The seven companies representing ABFSG are Birla Sun Life Insurance Company, Birla Sun Life Asset Management Company, Aditya Birla Money, Aditya Birla Finance, Birla Insurance Advisory & Broking Services, Aditya Birla Capital Advisors and Apollo Sindhoori Capital Investment. In FY 2008-09, the consolidated revenues of ABFSG from these businesses crossed Rs. 4763 crore, registering a growth rate of 36%. Sun Life Financial is a leading international financial services organisation providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of December 31, 2008, the Sun Life Financial group of companies had total assets under management of $381 billion. AWARDS At Birla Sun Life Insurance, winning is a way of life. Our innovative solutions and customer-friendly services have been admired, appreciated and rewarded by customers and the industry at large.
• Recruiting and Staffing Best in Class Awards.
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• Outlook Money Awards 2004 BSLI - Best Life Insurer (Runner Up) 2004 TROPHY
• The 8th Asia Insurance Industry Awards 2004 - Birla Sun Life Insurance was among the
top five nominees in the category.
• The Indo-Canadian Business Chamber- BSLI awarded for its 'Successful Performance'
for 4 years April 2005.
• Birla Sun Life Insurance was presented 'The Hewitt Best Employers In India Awards
2004' Trophy.
• Birla Sun Life Insurance was awarded 'The Great Place to Work Seminar Series 2007’
Presented by Anil Sachdev (Chairman & MD of Grow Talent Company Ltd) Robert Levering (Co-founder Great Place to Work Institute) and Jehangir Pocha (Business World Magazine).
• The Bhartiya Shiromani Puraskar awarded to BSLI at the seminar on "Economic
Development” New Delhi, on February 13, 2006. This is a Certificate of Excellence for Enhancing the image of India presented by Dr. Bhishma Narain Singh (Former Governor of Tamil Nadu & Assam) in association with the "Institute of Economic Studies (IES)".
• Hewitt Best Employers in India 2004.
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• Sponsorship Acknowledgement for - The Asia Insurance Review.
FUTURE BUSINESS CONTINUITY PLAN Birla Sun Life Insurance is one of the few Indian companies to have a fully operational Business Continuity Plan (BCP) to ensure minimal impact to the organisation, its people, and most importantly, its customers. Our Business Continuity Planning (BCP) Program is a response plan which would ensure that in the event of a disaster we would be able to restore and recover operations for critical processes within a predetermined time after the disaster.
BSLI’S BUSINESS CONTINUITY MANAGEMENT POLICY\ To have a planned response in the event of any contingency ensuring recovery of critical activities at agreed levels within agreed timeframe thereby complying with various regulatory requirements and minimizing the potential business impact to BSLI. Additionally to create a system that fosters continuous improvement of business continuity management.
BUSINESS CONTINUITY MANAGEMENT SYSTEM OBJECTIVES (BCMS) The objectives of BSLI's BCMS are as follows
• Ensuring a Proactive response to any contingency • Ensuring recovery of identified critical activities within agreed timeframe. • Ensuring that we adhere to our clients, contractual, legal & regulatory requirements.
Equity Research on Power sector
PROGRAMME OVERVIEW As part of our Business Continuity Plan, we have a documented crisis response and recovery procedure for quick response and stabilisation of the situation, and a business continuity procedure to ensure recovery. HIGHLIGHTS OF OUR PLAN DOCUMENT
• Alternate recovery sites if primary location is unavailable • Assurance to customers that they will continue to receive optimum customer services at
all times
• Communication with customers, employees and other stakeholders • Crisis Management & incident response • Data back-up, data and system recovery • Recovery of all mission-critical business functions and supporting systems
OUR COMMITMENT
• Risk Assessment & Business Impact Analysis (BIA) annually. • Business Continuity Plan for HO & it’s Critical branches. • Crisis Management Plan & Pandemic Response Plan at a corporate Level. • Business Continuity Plan Testing ensuring viability of all its plans. • The activities set forth above may evolve as business and regulatory needs
require.
Equity Research on Power sector
3. FUNDAMENTAL ANALYSIS
Fundamental analysis is examination of the underlying forces that affect the well being of examination of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements.
Interpretation
Most fundamental information focuses on economic, industry, and company statistics. The typical approach to analyzing a company involves three basic steps: 1. Determine the condition of the general economy. 2. Determine the condition of the industry. 3. Determine the condition of the company.
Equity Research on Power sector
ECONOMIC ANALYSIS The economy is studied to determine if overall conditions are good for the stock market. Is inflation a concern? Are interest rates likely to rise or fall? Are consumers spending? Is the trade balance favorable? Is the money supply expanding or contracting? These are just some of the questions that the fundamental analyst would ask to determine if economic conditions are right for the stock market.
INDUSTRY ANALYSIS It is the study of industries which are on the upswing. The ideal investment is the investment in the growing industries. It is often said that a weak stock in a strong industry is preferable to a strong stock in a weak industry. In order to make productive investments the investor should know the industry classification used in the economy. It is also enviable to know the characteristics, problems and practices in different industries.
COMPANY ANALYSIS
Equity Research on Power sector
After determining the economic and industry conditions, the company itself is analyzed to determine its financial health. This is usually done by studying the company's financial statements. From these statements a number of useful ratios can be calculated. The ratios fall under five main categories: profitability, price, liquidity, leverage, and efficiency. While performing ratio analysis of a company, the ratios should be compared to other companies within the same or similar industry to get a feel for what is considered "normal."
Phases of Fundamental Analysis: Phase First Nature of analysis Economic Analysis Industry Analysis Purpose Tools & Techniques
To assess the general economic Economic indicators – lead, situation both within the country lag and coincidental indicators and internationally To review prevailing conditions Performance indicators – within a specific industry and its aggregate demand & supply segments position, internal & external competition, government policies To analyze the financial & non- Non-financial aspects analysis finance aspects of a company to like promoters, management, determine whether to buy, sell, or vital product quality, hold onto the shares of a corporate image, etc. financial company aspects like EPS, sales, profitability, dividend record, asset growth
Second
Third
Company Analysis
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3.1 FINANCIAL STATEMENTS
The prosperity of a company will depend upon its profitability and financial health. The financial statement published by a company periodically helps us to access the profitability and financial health of the company. The two basic financial statements provided by the companies are the balance sheet and the P&L A/C. The first gives us a picture of the company’s assets and liabilities while the second gives us a picture of its earnings. The balance sheet gives us the list of assets and liabilities of a company on a specific date. The major categories of assets are fixed and current. The P&L A/C, also called as the income statement, reveals the revenue earned, the cost incurred and the resulting profit or loss of the company for one accounting year. The profit after tax (PAT) divided by the number of shares gives the Earnings per Share (EPS), which is a figure which most investors are interested. The P&L A/C summarizes the activities of a company during an accounting year.
3.2 ANALYSIS OF FINANCIAL STATEMENTS
The financial statement of a company can be used to evaluate the financial position f the company. Financial ratios are most extensively used for this purpose. Ratio analysis helps an investor to determine the strengths and weakness of the company. It also helps him to analyze whether the financial performance and financial strengths are improving or deteriorating. Ratios can be used for comparative analysis either with other firms in the industry through a cross sectional analysis or with past data through a time series analysis.
Equity Research on Power sector
Different ratios measure different aspects of a company’s performance or health. Four groups of ratios may be used for analyzing the performance of a company.
Liquidity Ratios: These measure the company’s ability to fulfill its short-term obligations and reflect its short-term financial strength or liquidity. The commonly used ratios are Current Ratio = Current Assets / Current Liabilities.
Quick Ratio = Current Assets- Inventory – Prepaid Expenses Current Liabilities
A higher current ratio would enable a company to meet its short-term obligations even if the value of current assets decline. The quick ratio represents the ratio between quick assets and current liabilities. It is a more rigorous measure of liquidity. However, both these ratios are to be used together to analyze the liquidity of the company. Leverage Ratios: These ratios are also known as capital structure ratios. They measure the ability of the company to meet its long-term debt obligations. They throw light on the long-term solvency of a company. The commonly used leverage ratios are:
Long term Debt_ Debt-Equity Ratio = Shareholder’s Equity
Debt to Total
=
Total Debt
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Asset Ratio
Total Assets
Proprietary Ratio =
Shareholders Equity Total Assets
Interest Coverage Ratio =
EBIT Interest
The first three ratios indicate the relative contribution of owners and creditors in financing the assets of the company. These ratios reflect the safety margin available to the long-term creditors. The coverage ratios measures the ability if the company to meet its interest payments arising from the debt.
Profitability Ratios: The profitability of a company can be the profitability ratios. These ratios are calculated be relating the profits either to sales, or to investment, or t the equity shares. Thus we have three groups of profitability ratios. These are listed below.
A. Profitability related to Sales Gross Profit Ratio = Gross Profit (Sales – Cost of Goods Sold) Sales
Operating Profit Ratio
=
EBIT / Sales
Net Profit Ratio
=
EAT Sales
Administrative Expenses Ratio =
Administrative Expenses Sales
Selling Expenses Ratio
=
Selling Expenses
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Sales
Operating Expenses Ratio
=
Administrative Expenses + Selling Expenses Sales
Operating Ratio
=
COGS + Operating Expenses Sales
B. Profitability related to Investment. Return on Assets = EAT Total Assets
Return on Capital Employed =
EBIT Total Capital Employed
Return on Equity
=
EAT Shareholders Equity
C. Profitability related to Equity Shares. Earnings Per Share = Net Profit available to Eq.Sh.Holders Number of Equity Shares
Earnings Yield
=
EPS Market Price per Share
Dividend Yield
=
DPS (Dividend per Share) Market Price per Share
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Dividend Payout Ratio
=
DPS EPS
Price Earning Ratio (P/E Ratio)
=
Market Price per Share EPS
D. Overall Profitability (Earning Power) Return on Investment (ROI) = EAT Total Assets The overall profitability is measured by the ROI, which is the product of the net profit ratio and the investment turnover. It is a central measure of the earning power or operating efficiency of a company.
Activity or Efficiency Ratios: These are also known as turnover ratios. These ratios measure the efficiency in asset management. They express the relation between the sales and the different types of assets, showing the speed with which these assets generate sales. Important activity ratios are enumerated below. Current Asset Turnover = Sales / Current Assets
Fixed Assets Turnover
=
Sales / Fixed Assets
Total Assets Turnover
=
Sales / Total Assets
Equity Research on Power sector
4. INDIAN POWER SECTOR
A strong Power sector is the backbone of a strong economy. India has the fifth largest generation capacity in the world with an installed capacity of 152 GW as on 30 September 2009, which is about 4 percent of global Power generation. The top four countries, viz., US, Japan, China and Russia together consume about 49 percent of the total Power generated globally. The average per capita consumption of electricity in India is estimated to be 704 kWh during 200809. However, this is fairly low when compared to that of some of the developed and emerging nations such US (~15,000 kWh) and China (~1,800 kWh).The world average stands at 2,300 kWh. The Indian government has set ambitious goals in the 11th plan for Power sector owing to which the Power sector is poised for significant expansion. In order to provide availability of over 1000 units of per capita electricity by year 2012, it hasbeen estimated that need-based capacity addition of more than 100,000 MW would be required. This has resulted in massive addition plans being proposed in the sub-sectors of Generation Transmission and Distribution.
The electricity sector in India is predominantly controlled by the Government of India's public sector undertakings (PSUs). Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several state-level corporations, such as Maharashtra State Electricity Board (MSEB), are also involved in the generation and intra-state distribution of electricity. The Power Grid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid.
Equity Research on Power sector
The Ministry of Power is the apex body responsible for the development of electrical energy in India. This ministry started functioning independently from 2 July 1992; earlier, it was known as the Ministry of Energy. The Union Minister of Power at present is Sushilkumar Shinde of the Congress Party who took charge of the ministry on the 28th of May, 2009.
India is world's 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to India's economic rise, the demand for energy has grown at an average of 3.6% per annum over the past 30 years. In March 2009, the installed Power generation capacity of India stood at 147,000 MW while the per capita Power consumption stood at 612 kWH.The country's annual Power production increased from about 190 billion kWH in 1986 to more than 680 billion kWH in 2006.The Indian government has set an ambitious target to add approximately 78,000 MW of installed generation capacity by 2012. The total demand for electricity in India is expected to cross 950,000 MW by 2030.
About 75% of the electricity consumed in India is generated by thermal Power
plants, 21%
by hydroelectric Power plants and 4% by nuclear Power plants. More than 50% of India's commercial energy demand is met through the country's vast coal reserves. The country has also invested heavily in recent years on renewable sources of energy such as wind energy. As of 2008, India's installed wind Power generation capacity stood at 9,655 MW. Additionally, India has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW. In July 2009, India unveiled a $19 billion plan to produce 20,000 MW of solar Power by 2020. Electricity losses in India during transmission and distribution are extremely high and vary between 30 to 45%. In 2004-05, electricity demand outstripped supply by 7-11%. Due to shortage of electricity, Power cuts are common throughout India and this has adversely effected the country's economic growth. Theft of electricity, common in most parts of urban India, amounts to 1.5% of India's GDP. Despite an ambitious rural electrification program, some 400 million Indians lose electricity access during blackouts. While 80 percent of Indian villages have at least an electricity line, just 44 percent of rural households have access to electricity. According to a sample of 97,882 households in 2002, electricity was the main source of lighting for 53% of rural households compared to 36% in 1993. Multi Commodity Exchange has sought permission to offer electricity future markets.
Equity Research on Power sector
4.1 WHY POWER SECTOR?
With the rising population and growth story of India, the need of fast paced growth in power generation is increasingly gaining importance. Energy is one of the major contributors to the economic development of a country. The government has targeted electricity for all by 2012 by the end of 11 th Five Year Plan. The demand of electricity is growing exponentially. And, herein lays the opportunities for investors to plough their money in public and private sector companies both. At present, coal based thermal power plants accounts for almost two-thirds of the energy needs of the country. However, the government is increasingly becoming aware about the benefits of generating power through cleaner nuclear power plants. Stock Picks: ? NTPC (Power Generation) ? Power Grid Corporation (Power Transmission)
Equity Research on Power sector
? Tata Power (Power Generation
5. NTPC
NTPC, India's largest power company, was incorporated on November 7, 1975 to accelerate power development in India. Today, it has emerged as an ‘Integrated Power Major’, with a significant presence in the entire value chain of power generation business. With a current generating capacity of 30,144 MW, NTPC has embarked on plans to become a 75,000 MW company by 2017. NTPC is emerging as a diversified power major with presence in the entire value chain of the power generation business. Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilization and coal mining. The total installed capacity of the company is 30, 144 MW (including JVs) with 15 coal based and 7 gas based stations, located across the country. In addition under JVs, 3 stations are coal based & another station uses naptha/LNG as fuel. By 2017, the power generation portfolio is expected to have a diversified fuel mix with coal based capacity of around 53000 MW, 10000 MW through gas, 9000 MW through Hydro generation, about 2000 MW from nuclear sources and around 1000 MW from Renewable Energy Sources (RES). NTPC has adopted a multipronged growth strategy which includes capacity addition through green field projects, expansion of existing stations, joint ventures, subsidiaries and takeover of stations. NTPC has been operating its plants at high efficiency levels. Although the company has 18.79% of the total national capacity it contributes 28.60% of total power generation due to its focus on high efficiency. In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed company in November 2004 with the government holding 89.5% of the equity share capital. The
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rest is held by Institutional Investors and the Public. The issue was a resounding success. NTPC is among the largest five companies in India in terms of market capitalization. At NTPC people before Plant Load Factor is the mantra that guides all HR related policies. NTPC has been awarded No.1, Best Workplace in India among large organizations for the year 2008, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its expansive CSR initiatives NTPC strives to develop mutual trust with the communities that surround its power stations. Right from social to developmental work of the community and welfare based dependence to creating greater self reliance; the constant endeavour is to institutionalize social responsibility on various levels. Presently, NTPC generates power from Coal and Gas. With an installed capacity of 30,144 MW, NTPC is the largest power generating major in the country. It has also diversified into hydro power, coal mining, power equipment manufacturing, oil & gas exploration, power trading & distribution. With an increasing presence in the power value chain, NTPC is well on its way to becoming an “Integrated Power Major.”NTPC was the first among power utilities in India to start Environment Impact Assessment (EIA) studies and reinforced it with Periodic Environmental Audits and Reviews.
Business area of the company:
• • • • •
Power Generation Consultancy services Power trading Ash utilisation Coal mining
Business divisions:
Equity Research on Power sector
Hydro Power: In order to give impetus to hydro power growth in the country and to have a balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW Koldam hydro project in Himachal Pradesh. Two more projects have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW. Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Coal Production is likely to start in 2009-10. Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was created for trading power leading to optimal utilization of NTPC’s assets. It is the second largest power trading company in the country. In order to facilitate power trading in the country, ‘National Power Exchange Ltd.’, a JV between NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange. Ash Business: NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material input for cement companies and brick manufacturers. NVVN is engaged in the business of Fly Ash export and sale to domestic customers. Joint ventures with cement companies are being planned to set up cement grinding units in the vicinity of NTPC stations. Power Distribution: ‘NTPC Electric Supply Company Ltd.’ (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in ‘Rajiv Gandhi Gramin Vidyutikaran Yojana’programme for rural electrification and also working as 'Advisor cum Consultant' for Ministry of Power for implementation of Accelerated Power Development and Reforms Programme(APDRP) launched by Government of India. Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of power equipment manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC has also acquired stake in Transformers and Electricals Kerela Ltd. (TELK) for manufacturing and repair of transformers. Subsidiaries of the company:
1. NTPC Hydro Ltd 2. 'NTPC Vidyut Vyapar Nigam Ltd
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3. NTPC Electric Supply Company Ltd 4. Pipavav Power Development Co. Ltd. (PPDCL) 5. Kanti Bijlee Utpadan Nigam Limited 6. Bharatiya Rail Bijlee Company Limited
Apart from this the company is having 13 different Joint ventures as well.
1. PTC India Limited 2. Utility Powertech Limited (UPL) 3. NTPC-SAIL Power Company Pvt. Ltd. 4. NTPC-Alstom Power Services Private Limited 5. NTPC Tamil Nadu Energy Company Ltd. 6. Ratnagiri Gas and power Pvt. Limited 7. Aravali Power Company Private Ltd. 8. NTPC-SCCL Global Venture Pvt. Ltd. 9. Meja Urja Nigam Private Limited 10. NTPC BHEL Power Projects Pvt Ltd. 11. BF-NTPC Energy Systems Limited 12. Nabinagar Power Generating Company Private Limited
Achievements/ recognition:
•
NTPC has been awarded No.1, Best Workplace in India among large organizations for the year 2008, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. NTPC has earned a ranking of 91 on overall global performance. Platts has also analysed energy companies by nine industry classification & three global regions. NTPC ranked No.1 in Independent Power Producer & Energy Trader in Asia & No. 15 in overall performance in the Asia region. NTPC was selected as the Star Company of the year in the category of Public Sector Undertaking. 'Golden Peacock Environment Management Award - 2008’ Institute of Directors.
•
•
•
Equity Research on Power sector
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NTPC has been awarded the silver shield and judged second best for its Annual Report and Accounts for the year ended 31st March, 2008 under the Category “Infrastructure & Construction Sector” in the ICAI award for Excellence in Financial Reporting. International Project Management Award 2008,International Project Management Association (IPMA). CII-Exim Excellence Award 2008, Confederation of Indian Industry. On 3rd November 2008, NTPC-CenPEEP (Centre for Power Efficiency & Environment Protection) was conferred ‘India Power Award 2008’ in the category of ‘Energy Efficiency’. Two NTPC Stations, Farakka and Faridabad have been awarded the CII –ITC Sustainability Award 2008 in the category “Certificate of Commendation for strong Commitment.” NTPC Limited was declared the Excellence Awardee of Intel-AIM Corporate Social Responsibility Award. National centre for promotion of employment of disabled people (NCPEDP) - Shell Helen Keller Awards were instituted in 1999 to recognize individuals and organizations for their contributions in promoting employment opportunities for disabled people. Golden Peacock Award for Occupational Health & Safety -2008’Institute of Directors. All NTPC power stations have been certified for ISO 14001 & OHSAS 18001 by reputed national and international certifying agencies. NTPC’s Research and Development centre is ISO17025 accredited. NTPC ranked 317th in the ‘2009, Forbes Global 2000’ ranking of the World’s biggest companies.
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BOARD OF DIRECTOR
Arup Roy Choudhury I C P Keshari Rakesh Jain A K Singhal B P Singh D K Jain P K Sengupta S P Singh
Chairman & Managing Director Govt.of India Nominee Govt.of India Nominee Director – Finance Director - Projects Director - Technical Director Director – HR
Equity Research on Power sector
Shanti Narain A K Sanwalka I J Kapoor M N Buch K Dharmarajan M Govinda Rao Santosh Nautiyal Kanwal Nath Adesh C Jain N N Misra A K Rastogi
Director Director Director - Commercial Director Director Director Director Director Director Director - Operations Company Secretary
NTPC Share Holding Pattern Holder’s Name Promoters Foreign Institutions Financial Institutions General Public Other Companies N Banks Mutual Funds Foreign NRI & Others % Share Holding 84.50% 6.90% 3.54% 2.08% 1.50% 1.40% 0.08%
5.1 NTPC FINANCIALS
Balance Sheet of NTPC SOURCES OF FUND Total Share Capital Mar ‘11 8,245.46 Mar ‘10 8,245.50 Mar ‘09 8,245.50
Equity Research on Power sector
Equity Share Capital Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Current Liabilities Provisions Total CL & Provisions Net Current Assets TOTAL ASSETS
8,245.46 8,245.50 60,138.66 55,478.60 68,384.12 63,724.10 9,910.68 9,079.90 33,277.56 28,717.10 43,188.24 37,797.00 111,572.36 101,521.10 72,583.94 66,663.80 33,519.19 32,088.80 39,064.75 34,575.00 38,441.84 32,290.60 12,344.84 14,807.10 3,639.12 3,347.70 7,924.31 6,651.40 326.34 634 11,889.77 10,633.10 7,648.10 6,357.10 15,858.92 13,825.50 35,396.79 30,815.70 10,945.55 7,896.80 2,730.31 3,070.50 13,675.86 10,967.30 21,720.93 19,848.40 111,572.36 101,521.10
8,245.50 50,749.40 58,994.90 8,969.60 25,598.20 34,567.80 93,562.70 62,353.00 29,415.30 32,937.70 26,404.90 13,983.50 3,243.40 3,584.20 271.8 7,099.40 7,826.10 15,999.80 30,925.30 7,439.20 3,249.50 10,688.70 20,236.60 93,562.70
Profit and Loss A/c of NTPC Mar '11 Income Sales Turnover Excise Duty Net Sales Other Income Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Mar '10 Mar '09
55,216.69 46,623.60 42,196.80 278.01 245.9 221.6 54,938.68 46,377.70 41,975.20 2,525.48 2,872.80 3,012.80 57,464.16 49,250.50 44,988.00 31.33 31.1 31 35,796.37 29,689.10 27,292.30 3,395.27 2,946.80 2,897.60 1,273.14 1,096.60 940 2,264.01 578.5 473.2 525.63 436.4 394.9
Equity Research on Power sector
Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
-1,052.98 42,232.77 12,705.91 15,231.39 2,027.21 13,204.18 2,485.69 4.5 10,713.99 1,330.06 12,044.05 2,630.54 9,102.59 42,201.44 0 3,133.26 514.77
-866.9 33,911.60 12,466.10 15,338.90 1,861.90 13,477.00 2,650.10 4.3 10,822.60 616.1 11,438.70 2,682.70 8,728.20 33,880.50 0 3,133.20 527.6
-637.4 31,391.60 10,583.60 13,596.40 1,737.00 11,859.40 2,364.50 3.6 9,491.30 1,305.20 10,796.50 2,554.70 8,201.30 31,360.60 0 2,968.30 501.7
82,454.64 82,454.64 82,454.64 11.04 10.59 9.95 38 38 36 82.94 77.28 71.55
Equity Research on Power sector
Key Financial Ratios of NTPC Ltd. Ratios ROE ROCE Debt Equity Ratio Inventory Turnover Ratio Dividend Payout Ratio Dividend Yield Ratio Earnings Per Share Price Earning Ratio Net Profit Margin Face value Book value Dividend Per Share Market price as on 31st march 2011 13.31 11.32 0.63 29.18 40.07 1.96 11.04 17.48 16.48 10
82.94 3.8 193
2010 13.69 12.45 0.59 27.54 41.94 1.83 10.59 19.54 18.72 10
77.28 3.8 207
Comments on Ratio’s
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Looking at the NTPC Ltd ratios, almost all ratios have increased in 2011 as compared to 2010 Debt-equity ratio of the company is rising in this year as compared to previous year because the company has borrowed money this year.
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Equity Research on Power sector
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Return on Equity has marginally declined which indicates company is providing little lesser returns to its investors as compared to previous year. Dividend payout ratio has increased marginally as compared to previous year which means company is paying a consistent dividend and rest amount is utilized for expansion purpose.
6.1 TATA POWER
Tata Power, erstwhile known as Tata Electric, pioneered the generation of electricity in India nine decades ago. The company started as Tata Hydroelectric Power Supply Company in 1911, it got its new status with the amalgamation of two entities viz, Tata Hydroelectric Power Supply Company and Andhra Valley Power Supply Company in 1916. Today, it is the country’s largest private power utility, established as a licensee in Mumbai and with ambitious expansion plans from being essentially Mumbai-centric to a major national player, not only in the fields of Power but also in Energy and Broadband Communication. Tata Power commissioned India’s first power plant- the hydro-electric station- in Khopoli (72 MW) in 1915, the second hydro station one in Bhivpuri (75 MW) in 1919 and the 3rd one in Bhira (300 MW) in 1922. With these three hydro stations and the 1,350 MW thermal power station in Trombay, Mumbai; a 475 MW power station near Jamshedpur in Jharkhand and an 87 MW thermal power plant in Belgaum, Tata Power is the largest integrated private power company in India and is the most trustworthy power supplier to Mumbai. The Tata Power Company Limited is India’s largest private sector power utility with an installed generation capacity of over 2785 MW. The company has emerged as a pioneer in the Indian power sector, with a track record of performance, customer care and sustained growth.
Equity Research on Power sector
Tata Power has a presence in all the segments of the power sector viz generation (thermal, hydro, solar, wind and liquid fuel), transmission and distribution Recognized as India’s largest private sector power utility, with a reputation for trustworthiness, built up over nearly nine decades, Tata Power surges ahead into yet another year with plans of sustained growth, greater value to consumer and reliable power supply. Led by a powerful vision, Tata Power pioneered the generation of electricity in India. It has now successfully served the Mumbai consumers for over ninety years and has spread its footprints across the nation. Today, it is the country’s largest private player in the sector. Apart from Mumbai and Delhi, the company has generation capacities in Jojobera, Jharkhand and Karnataka. Tata Power has an installed power generation capacity of above 2300 Mega Watts, with the Mumbai power business, which has a unique mix of Thermal and Hydro Power, generated at the Thermal Power Station, Trombay, and the Hydro Electric Power Stations at Bhira, Bhivpuri and Khopoli, accounting for 1797 MW. Its diverse generation capability facilitates the company in producing low cost energy, thereby giving its consumers a greater value for money. Among its many achievements that Tata Power can proudly boast of are the installation and commissioning of India’s first 500 MW unit (at its Thermal Power Generating Station, Trombay) the 150 MW Pumped Storage Unit at its Hydro Generating Station, Bhira, and environmental control systems like the Flue Gas Desulphurisation plant. Tata Power has a first of its kind joint venture with Power Grid Corporation of India for the 1200 km Tala Transmission Project.
Services offered by the company: Design & Development- Strategic Electronics Division (SED)- SED (Mumbai) was established in 1967 and is today a leading development rganization, having pioneered indigenous design
Equity Research on Power sector
and development of many hi-tech systems for Defence and Industry. The manufacturing facility was established in 1982 and is situated in Bangalore. Direct Marketing – Power Supply to Mumbai Consumers- The Company also supplies power directly to such bulk consumers as Central and Western Railways, Mumbai Port, refineries, textile mills, fertilizer factories, BARC, Municipal Corporation water pumping plants and other major continuous processes industries requiring uninterrupted power supply. Power Projects & Related Services- Tata Power also extends its expertise for:Setting up Independent Power Plants (IPP) Setting up Captive Power Plants (CPP)Power Transmission and Distribution Projects Operation and Maintenance Services (O&M Services) Transmission & Distribution
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Transmission Business – Tata Power owns and operates 1200 circuit Kms of high voltage (220 kV and 110 kV) Transmission Network. Distribution Business – Tata Power has a 935 km HT and LT cable distribution network connecting 17 major receiving stations and over 85 sub-stations in its Mumbai License area.
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Subsidiary Companies associated with Tata Power:
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Af-Taab Investment Co. Ltd. Chemical Terminal Trombay Ltd. Powerlinks Transmission Ltd. Tata Power Trading Co. Ltd. Maithon Power Ltd. NELCO Ltd. Tatanet Services Ltd. Industrial Energy Ltd.
Equity Research on Power sector
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Industrial Power Utility Ltd. Industrial Power Infrastructure Ltd. Coastal Gujarat Power Limited Veltina Holdings Ltd. Tata Power (Mauritius) Ltd. Tata Power (Cyprus) Ltd. Tata Power International Holdings Ltd. North Delhi Power Ltd. Energy Eastern Pte. Ltd.
Achievements/ recognition:
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“Greentech Safety Gold Award 2008” in Thermal Power sector for “Outstanding achievement in Safety Management” awarded to Trombay Thermal Power Station for the 5th consecutive year. – April 2008. “Suraksha Puraskar” by the National Safety Council of India for Jojobera, in January 2008 for developing and implementing very effective Safety Management Systems and Procedures during the assessment period of three years – 2003-05. – January 2008. Silver Shield awarded for Bhira and Bhira Pump Storage Scheme (6X25 + 1 X 150 MW), adjudged the second best performing station in the country by the Central Electricity Authority, India. – March 2008. Awarded the Quality Circles AWARD 2007 at the “National Convention on Quality Circles” under the aegis of Quality Circle Forum of India. Dahanukar Award by the Indian Association of Occupational Health for HIV/AIDS intervention at the workplace. NASSCOM Best IT User Award 2006 in the Energy and Utility sector for providing value added services to consumers through Customer Portal System via Internet website. Amity HR Excellence Award for the year 2007 for effective people management practices and HR systems. Tata Power has won the prestigious Dahanukar Award for HIV / AIDS intervention at the work place in 2007.
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Equity Research on Power sector
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Association of Business Communicators India Award 2007 – Bronze medal for Social Responsibility Communication. Tata Power Bhira Hydro Plant has received the ‘Silver Shield’ Award from the Central Electricity Authority Mumbai. ‘Tata Power, Jamshedpur’ has been declared as the winner of ‘Golden Peacock Environment Management Award’ for the year 2006. Greentech Safety Award 2006 under Platinum Category has been awarded to The Tata Power Co. Ltd., Jojobera, Jamshedpur. Rajiv Gandhi National Quality Award 2005 for Jojobera. ‘Greentech Safety Gold Award’ for the Year 2003-2004 for the Trombay power plant. Tata Power receives the Greentech Gold Award for safety (August 18, 2003). Tata Power bags BCCI ‘good corporate citizen award 2001-2002’ (September 21, 2002). Premier credit rating agencies like CRISIL & ICRA have given Tata Power the Coveted ‘AAA ‘ and ‘LAAA’ ratings respectively. Tata Power has won the N M GIDWANI Rolling Trophy consistently from 1991 to 1999, for the maintenance of the Suman Nagar Gardens, a competition conducted by the Friends of Trees. Safety Awards for Lowest Frequency Rate of Accident and Maximum Accident Free days have been won by Trombay Thermal Power Station in 1992. Bombay Chamber Good Corporate Citizen Award 1994 – 95. The Review 200 Plaque ranked Tata Power among the top ten rganizations in Asia for overall corporate excellence by the Far Eastern Economic Review in 1995. The 1995 Power Plant Award presented by Electric Power International for the Trombay Thermal Power Station. Bronze Award from the American Concrete Institute for the ‘Outstanding Structures of the Year’ for the 900 feet tall reinforced concrete chimney for the 500 MW power plant at Trombay Thermal Power Station 1988-89.
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Board of Director’s
Equity Research on Power sector
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K e
Equity Research on Power sector
y F i n a n c i a l R a t i o s o f T a t a P o w e
Equity Research on Power sector
r
Mar '11 % Share Holding
Mar '11
2011
2010
Equity Research on Power sector
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69.42% 13.46% 5.45% 5.36% 3.56% 2.30% 0.17% 0.29%
4,629.73
Equity Research on Power sector
4,629.73 16,737.27 21,367.00 38,672.45 4,557.70 43,230.15 64,597.15 50,351.78 13,127.80 37,223.98 26,624.59 1,365.05 381.51 3,162.09 3,680.06 7,223.66 3,293.47 10,517.13 8,260.55 2,875.46 11,136.01 -618.88 64,597.15
ss A/c of Power Grid
8,388.70 0 8,388.70 1,108.16 0 9,496.86 0.03 70.96 745.89 152.95 0
ing Expenses
Equity Research on Power sector
365.69 0 1,335.52 7,053.18 8,161.34 1,733.93 6,427.41 2,199.39 1.86 4,226.16 -8.96 4,217.20 1,123.25 2,696.89 1,335.49 0 810.23 132.33 46,297.25 5.83 10 46.15
Equity Research on Power sector
Key Ratio Analysis of Power Grid Corporation of India Ratios ROE ROCE Debt Equity Ratio Inventory Turnover Ratio Dividend Payout Ratio Dividend Yield Ratio EPS P/E Net Profit Margin Face value 12.62 8.61 2.02 21.99 34.94 0.98 5.83 17.46 32.14 10
46.15 1
12.92 8.58 2.18 -36.11 1.39 4.85 22.09 28.63 10
37.88 1.5 107.15
Book value
Dividend Per Share Market price as on 31st march
101.80
Comments on Ratio’s
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Return on Equity has declined which indicates company is providing lesser returns to its investors. Debt equity ratio has declined which means company is repaying its debts and concentrating more on equity for its financing.
Equity Research on Power sector
Company has repaid its secured loans.
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The company’s EPS has increased; P/E ratio of company has decreased.
8 FINDINGS
Comparative Analysis of three companies for one year
Share Price (Rs.) as on 31st March 2011 EPS 193.00 1330.35 101.80 11.04 39.67 5.83
Company NTPC Ltd. Tata Power Power Grid (PGCIL)
P/E 17.48 33.53 17.46
ROE 13.31 8.37 12.62
Target Price 220.8 793.4 116.6
Suggestions:
? From the above findings it can be seen that target price of NTPC Ltd. is more than the
share price in March 2011. The stock is expected to provide approximate return of 14% in future. Investors should buy the shares of NTPC Ltd.
? In case of Tata Power the target price is very less as compared to march 2011 price which
means the company is overvalued and the share prices are expected to fall down.
Equity Research on Power sector
Investors holding shares of Tata Power should sell their shares and it is advisable not to invest in this share for a certain period of time.
? Power Grid is also expected to provide approximate returns of 14% to the investors so
investors can buy shares as it is expected that company will provide good returns to investors.
? From the above three companies I found that Tata Power is overvalued and NTPC Ltd.
and Power Grid both are expected to provide approximate returns of 14% but in case of NTPC Ltd. EPS and ROE is better than that of Power Grid and P/E of both the companies is almost the same so NTPC Ltd. is preferred over Power Grid.
9 CONCLUSIONS
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We had done my summer internship as trainee in Birla Sunlife Insurance Company where we were asked to achieve target and, in turn we were being provided training on equity research and wealth management.
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We were given a traditional plan to sell the policy. This policy was for a long term of 22 years or 35 years. When we approached to people we found that people were reluctant to make an investment in this plan for such a long period of time. I also found that people were asking about LIC policy with same features, as they consider investment done through LIC to be more safe investment.
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Our training program helped us to understand various aspects of training module. We got knowledge of share market, mutual funds and our mentor advised to make project on equity research or on IPO or on mergers and acquisitions or on mutual funds.
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Besides regular training we also had visited NSE and attended a seminar which would be very fruitful for us in near future.
Equity Research on Power sector
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We also learnt preparing a dummy portfolio as an activity by choosing stocks and maintaining the NAV.
10. RECOMMENDATIONS
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The company takes more operational time to begin the execution of the policy. To overcome this, the company should have a smooth operational system in place with a smarter backend process in place so as to reduce the execution period.
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Or even if the policy papers take time to reach the customers, the company should e-mail the policy data for the time gap. Or it could give some kind of mobile alert to the customers about the future course.
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The training room should be more spacious. There is a need for an improvement in company’s system as it takes more time to execute the policy. At times the operational system used to be down and because of that there was delay in login of the policy. To overcome this, the company should have a smooth operational system in place.
doc_273538785.pdf
Equity research on Power sector
Equity Research on Power sector
PROJECT REPORT ON EQUITY ANALYSIS ON POWER SECTOR In BIRLA SUNLIFE INSURANCE COMPANY LIMITED
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT OF MASTER OF MANAGEMENT STUDIES
BY PAWANJYOT SINGH SABHARWAL ROLL NO. : 2010121 MMS-II (SEM III) YEAR 2010-2012
LALA LAJPATRAI INSTITUTE OF MANAGEMENT MAHALAXMI, MUMBAI - 400034
Equity Research on Power sector
PROJECT REPORT ON EQUITY ANALYSIS ON POWER SECTOR In BIRLA SUNLIFE INSURANCE
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT OF MASTER OF MANAGEMENT STUDIES
BY PAWANJYOT SINGH SABHARWAL ROLL NO. : 2010121 MMS-II (SEM III) YEAR 2010-2012
LALA LAJPATRAI INSTITUTE OF MANAGEMENT MAHALAXMI, MUMBAI - 400034
Equity Research on Power sector
SUMMER INTERNSHIP PROJECT
SUBMITTED BY PAWANJYOT SINGH SABHARWAL ROLL NO. : 2010121 MMS – II (SEM III) Year 2010-2012
Equity Research on Power sector
Equity Research on Power sector
Certificate
This is to certify that the project work titled “Equity Analysis on power Sector” is a summer internship work carried out by Mr. Pawanjyot Singh Sabharwal The project was completed for “Birla Sunlife Insurance Company Limited”, under the guidance of Mr. Nikesh Ruparel. I further certify that the said work has not been submitted in the part or in full, to any other University.
Date:
____________________
Prof. Arati Kale Project Guide
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Dr V.B. Angadi Director, Lala Lajpatrai Institute of Management
Equity Research on Power sector
DECLARATION
I, Mr. Pawanjyot Singh Sabharwal, student of Lala Lajpatrai Institute of Management of MMS II (Semester III) hereby declare that I have completed the summer internship project on Equity Research on Power Sector with Birla Sunlife Insurance Company Ltd. in the Academic year 2010-2012. The information submitted is true & original to the best of my knowledge.
___________________ Signature of Student
Equity Research on Power sector
ACKNOWLEDGEMENT
At the outset of this project, I would like to express my profound thanks to a few people without whose help, completion of this project would not have been possible. First and foremost, I would like to express sincere thanks to Birla Sunlife Insurance Company Ltd. for giving me this opportunity to work with them. The list is endless but to name a few special people, I would like to thank Mr.Nikesh Ruparel for being extremely supportive and guiding me throughout my internship and giving me constant motivation and expert advice. I would also like to thank the entire training team for providing me their precious time and making this internship a successful learning experience. I am very grateful to Dr. Angadi, Director of Lala Lajpat Rai Institute of Management, for giving me the opportunity to do this project in Birla Sunlife Insurance Company Ltd. My sincere thanks to Prof. Arati Kale for her valuable guidance and advice in completing this project.
I would also like to thank Prof. Avni Pramod for being an excellent mentor and helping me whenever I approached her.
Equity Research on Power sector
INDEX Sr. No. 1 2 3 4 5 6 7 8 9 10 11 TOPIC Executive Summary Introduction 1.1 Objective of the study 1.2 Research Methodology Company Profile (Birla Sunlife Insurance co. Ltd.) Fundamental Analysis 3.1 Financial Statement 3.2 Analysis of Financial Statement Indian Power Sector 4.1 Why Indian Power sector? National Thermal Power Corporation Ltd. (NTPC) 5.1 Company Introduction 5.2 NTPC Financials Tata Power 6.1 Company Introduction 6.2 Tata Power Financials Power Grid Corporation of India (PGCIL) 7.1 Company Introduction 7.2 PGCIL Financials Findings and Suggestions Conclusion Recommendations Bibliography Page No. 1 1 2 3-8 9-11 12 12-16 17-18 19 20-26 27-30 31-37 38-41 42-44 45-48 49 50 51
Equity Research on Power sector
EXECUTIVE SUMMARY
Indian Economy being one of the fastest developing economies in the world, Companies in India are growing at farter rate as compared to their growth rate a decade back. Many Indian companies are expanding their business globally with mergers and acquisitions. As companies grow their shareholders are benefitted with good dividend and capital appreciation on investment in equity shares of such companies. Number of companies listed in stock exchange (BSE & NSE) has been increasing every year with new IPO’s coming in the market. Investing in equity shares based on tips is not the true investment but it is clear gambling with your money which many of us would not like to do with our hard earned money. So there arises a need for Fundamental analysis of a company. With the help of Fundamental analysis one can make his investment somewhat secure. The fundamental analysis consists of three parts: economic, industry and company. All the factors are involved in this analysis were identified and studied carefully to identify the factors in the existing environment. The data or information collected was based on the personal interaction with the guide of the company. Economic analysis was a task to be studied as it affected the company’s tax, and it will effect on the revenue of the industry. Also other factors are considered in the economic analysis. And it will interpret for the fundamental analysis. Industry analysis was a challenging factor for the research of the fundamental analysis. All the sub-factors of the industry analysis were taken up from the secondary source to analysis each factor with the industry and related those factors with the company. It also analysis the competitiveness of each company’s strengths like Quality, services, cost of Raw-material, etc.
Equity Research on Power sector
Company analysis is last factor of the fundamental analysis and it is one of the most important parts of the company. An approach was made to understand the existing company and its impact on company’s market share and its performance.
1. INTRODUCTION
Fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a Company’s actual business and its future prospects. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. A fundamental analyst believes that analyzing strategy, management, product, financial stats and many other readily and not-so-readily quantifiable numbers will help choose stocks that will outperform the market. 1.1 Objective of the study:
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To acquire a deep knowledge of the Power Sector through fundamental analysis.
? To assess the financial health & management effectiveness of the Company. ? To evaluate the share of the company NTPC Ltd, Tata Power and Power Grid
Corporation of India Ltd.
? To find out how the judgment is taken by the analyst on the basis of fundamental analysis
of the company.
Equity Research on Power sector
? To predict the future performance of the stocks and give suggestion on the same
Research Methodology: Formation of the Problem Which significant ratios determine investment decision in share market? Collection of Data Secondary Data: The sources of secondary data are:• •
Company Annual Report Internet-Websites
Research Limitation
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Information available on the websites was not updated. There was a limited time period to complete the project. This study will be confined to the Indian stock market only. This study will be restricted up to the Power sector only.
Equity Research on Power sector
2. COMPANY PROFILE
Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group, a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc, leading international financial services organization from Canada. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc., offers a formidable protection for its customers’ future. With an experience of over 9 years, BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 5 private life insurance companies in the country. Known for its innovation and creating industry benchmarks, BSLI has several firsts to its credit. It was the first Indian Insurance Company to introduce “Free Look Period” and the same was made mandatory by IRDA for all other life insurance companies. Additionally, BSLI pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. To establish credibility and further transparency, BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. These category development initiatives have helped BSLI be closer to its policy holders’ expectations, which gets further
Equity Research on Power sector
accentuated by the complete bouquet of insurance products (viz. pure term plan, life stage products, health plan and retirement plan) that the company offers. Add to this, the extensive reach through its network of 600 branches and 175,000 empanelled advisors. This impressive combination of domain expertise, product range, reach and ears on ground, helped BSLI cover more than 2 million lives since it commenced operations and establish a customer base spread across more than 1500 towns and cities in India. To ensure that our customers have an impeccable experience, BSLI has ensured that it has lowest outstanding claims ratio of 0.00% for FY 2008-09. Additionally, BSLI has the best Turn Around Time according to LOMA on all claims Parameters. Such services are well supported by sound financials that the Company has. The AUM of BSLI stood at Rs. 8165 crs as on February 28, 2009, while as on March 31, 2009, the company has a robust capital base of Rs. 2000 crore. VISION
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To be a leader and role model in a broad based and integrated financial services business.
MISSION
• To help people mitigate risks of life, accident, health, and money at all stages and under
all circumstances.
• Enhance the financial future of our customers including enterprises.
VALUES
• Integrity • Commitment • Passion • Seamlessness • Speed
Equity Research on Power sector
A US $28 billion corporation, the Aditya Birla Group is in the league of Fortune 500 worldwide. It is anchored by an extraordinary force of 100,000 employees, belonging to 25 different nationalities. The group operates in 25 countries across six continents – truly India's first multinational corporation.
Aditya Birla Group through Aditya Birla Financial Services Group (ABFSG), has a strong presence across various financial services verticals that include life insurance, fund management, distribution & wealth management, security based lending, insurance broking, private equity and retail broking. The seven companies representing ABFSG are Birla Sun Life Insurance Company, Birla Sun Life Asset Management Company, Aditya Birla Money, Aditya Birla Finance, Birla Insurance Advisory & Broking Services, Aditya Birla Capital Advisors and Apollo Sindhoori Capital Investment. In FY 2008-09, the consolidated revenues of ABFSG from these businesses crossed Rs. 4763 crore, registering a growth rate of 36%. Sun Life Financial is a leading international financial services organisation providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of December 31, 2008, the Sun Life Financial group of companies had total assets under management of $381 billion. AWARDS At Birla Sun Life Insurance, winning is a way of life. Our innovative solutions and customer-friendly services have been admired, appreciated and rewarded by customers and the industry at large.
• Recruiting and Staffing Best in Class Awards.
Equity Research on Power sector
• Outlook Money Awards 2004 BSLI - Best Life Insurer (Runner Up) 2004 TROPHY
• The 8th Asia Insurance Industry Awards 2004 - Birla Sun Life Insurance was among the
top five nominees in the category.
• The Indo-Canadian Business Chamber- BSLI awarded for its 'Successful Performance'
for 4 years April 2005.
• Birla Sun Life Insurance was presented 'The Hewitt Best Employers In India Awards
2004' Trophy.
• Birla Sun Life Insurance was awarded 'The Great Place to Work Seminar Series 2007’
Presented by Anil Sachdev (Chairman & MD of Grow Talent Company Ltd) Robert Levering (Co-founder Great Place to Work Institute) and Jehangir Pocha (Business World Magazine).
• The Bhartiya Shiromani Puraskar awarded to BSLI at the seminar on "Economic
Development” New Delhi, on February 13, 2006. This is a Certificate of Excellence for Enhancing the image of India presented by Dr. Bhishma Narain Singh (Former Governor of Tamil Nadu & Assam) in association with the "Institute of Economic Studies (IES)".
• Hewitt Best Employers in India 2004.
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• Sponsorship Acknowledgement for - The Asia Insurance Review.
FUTURE BUSINESS CONTINUITY PLAN Birla Sun Life Insurance is one of the few Indian companies to have a fully operational Business Continuity Plan (BCP) to ensure minimal impact to the organisation, its people, and most importantly, its customers. Our Business Continuity Planning (BCP) Program is a response plan which would ensure that in the event of a disaster we would be able to restore and recover operations for critical processes within a predetermined time after the disaster.
BSLI’S BUSINESS CONTINUITY MANAGEMENT POLICY\ To have a planned response in the event of any contingency ensuring recovery of critical activities at agreed levels within agreed timeframe thereby complying with various regulatory requirements and minimizing the potential business impact to BSLI. Additionally to create a system that fosters continuous improvement of business continuity management.
BUSINESS CONTINUITY MANAGEMENT SYSTEM OBJECTIVES (BCMS) The objectives of BSLI's BCMS are as follows
• Ensuring a Proactive response to any contingency • Ensuring recovery of identified critical activities within agreed timeframe. • Ensuring that we adhere to our clients, contractual, legal & regulatory requirements.
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PROGRAMME OVERVIEW As part of our Business Continuity Plan, we have a documented crisis response and recovery procedure for quick response and stabilisation of the situation, and a business continuity procedure to ensure recovery. HIGHLIGHTS OF OUR PLAN DOCUMENT
• Alternate recovery sites if primary location is unavailable • Assurance to customers that they will continue to receive optimum customer services at
all times
• Communication with customers, employees and other stakeholders • Crisis Management & incident response • Data back-up, data and system recovery • Recovery of all mission-critical business functions and supporting systems
OUR COMMITMENT
• Risk Assessment & Business Impact Analysis (BIA) annually. • Business Continuity Plan for HO & it’s Critical branches. • Crisis Management Plan & Pandemic Response Plan at a corporate Level. • Business Continuity Plan Testing ensuring viability of all its plans. • The activities set forth above may evolve as business and regulatory needs
require.
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3. FUNDAMENTAL ANALYSIS
Fundamental analysis is examination of the underlying forces that affect the well being of examination of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements.
Interpretation
Most fundamental information focuses on economic, industry, and company statistics. The typical approach to analyzing a company involves three basic steps: 1. Determine the condition of the general economy. 2. Determine the condition of the industry. 3. Determine the condition of the company.
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ECONOMIC ANALYSIS The economy is studied to determine if overall conditions are good for the stock market. Is inflation a concern? Are interest rates likely to rise or fall? Are consumers spending? Is the trade balance favorable? Is the money supply expanding or contracting? These are just some of the questions that the fundamental analyst would ask to determine if economic conditions are right for the stock market.
INDUSTRY ANALYSIS It is the study of industries which are on the upswing. The ideal investment is the investment in the growing industries. It is often said that a weak stock in a strong industry is preferable to a strong stock in a weak industry. In order to make productive investments the investor should know the industry classification used in the economy. It is also enviable to know the characteristics, problems and practices in different industries.
COMPANY ANALYSIS
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After determining the economic and industry conditions, the company itself is analyzed to determine its financial health. This is usually done by studying the company's financial statements. From these statements a number of useful ratios can be calculated. The ratios fall under five main categories: profitability, price, liquidity, leverage, and efficiency. While performing ratio analysis of a company, the ratios should be compared to other companies within the same or similar industry to get a feel for what is considered "normal."
Phases of Fundamental Analysis: Phase First Nature of analysis Economic Analysis Industry Analysis Purpose Tools & Techniques
To assess the general economic Economic indicators – lead, situation both within the country lag and coincidental indicators and internationally To review prevailing conditions Performance indicators – within a specific industry and its aggregate demand & supply segments position, internal & external competition, government policies To analyze the financial & non- Non-financial aspects analysis finance aspects of a company to like promoters, management, determine whether to buy, sell, or vital product quality, hold onto the shares of a corporate image, etc. financial company aspects like EPS, sales, profitability, dividend record, asset growth
Second
Third
Company Analysis
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3.1 FINANCIAL STATEMENTS
The prosperity of a company will depend upon its profitability and financial health. The financial statement published by a company periodically helps us to access the profitability and financial health of the company. The two basic financial statements provided by the companies are the balance sheet and the P&L A/C. The first gives us a picture of the company’s assets and liabilities while the second gives us a picture of its earnings. The balance sheet gives us the list of assets and liabilities of a company on a specific date. The major categories of assets are fixed and current. The P&L A/C, also called as the income statement, reveals the revenue earned, the cost incurred and the resulting profit or loss of the company for one accounting year. The profit after tax (PAT) divided by the number of shares gives the Earnings per Share (EPS), which is a figure which most investors are interested. The P&L A/C summarizes the activities of a company during an accounting year.
3.2 ANALYSIS OF FINANCIAL STATEMENTS
The financial statement of a company can be used to evaluate the financial position f the company. Financial ratios are most extensively used for this purpose. Ratio analysis helps an investor to determine the strengths and weakness of the company. It also helps him to analyze whether the financial performance and financial strengths are improving or deteriorating. Ratios can be used for comparative analysis either with other firms in the industry through a cross sectional analysis or with past data through a time series analysis.
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Different ratios measure different aspects of a company’s performance or health. Four groups of ratios may be used for analyzing the performance of a company.
Liquidity Ratios: These measure the company’s ability to fulfill its short-term obligations and reflect its short-term financial strength or liquidity. The commonly used ratios are Current Ratio = Current Assets / Current Liabilities.
Quick Ratio = Current Assets- Inventory – Prepaid Expenses Current Liabilities
A higher current ratio would enable a company to meet its short-term obligations even if the value of current assets decline. The quick ratio represents the ratio between quick assets and current liabilities. It is a more rigorous measure of liquidity. However, both these ratios are to be used together to analyze the liquidity of the company. Leverage Ratios: These ratios are also known as capital structure ratios. They measure the ability of the company to meet its long-term debt obligations. They throw light on the long-term solvency of a company. The commonly used leverage ratios are:
Long term Debt_ Debt-Equity Ratio = Shareholder’s Equity
Debt to Total
=
Total Debt
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Asset Ratio
Total Assets
Proprietary Ratio =
Shareholders Equity Total Assets
Interest Coverage Ratio =
EBIT Interest
The first three ratios indicate the relative contribution of owners and creditors in financing the assets of the company. These ratios reflect the safety margin available to the long-term creditors. The coverage ratios measures the ability if the company to meet its interest payments arising from the debt.
Profitability Ratios: The profitability of a company can be the profitability ratios. These ratios are calculated be relating the profits either to sales, or to investment, or t the equity shares. Thus we have three groups of profitability ratios. These are listed below.
A. Profitability related to Sales Gross Profit Ratio = Gross Profit (Sales – Cost of Goods Sold) Sales
Operating Profit Ratio
=
EBIT / Sales
Net Profit Ratio
=
EAT Sales
Administrative Expenses Ratio =
Administrative Expenses Sales
Selling Expenses Ratio
=
Selling Expenses
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Sales
Operating Expenses Ratio
=
Administrative Expenses + Selling Expenses Sales
Operating Ratio
=
COGS + Operating Expenses Sales
B. Profitability related to Investment. Return on Assets = EAT Total Assets
Return on Capital Employed =
EBIT Total Capital Employed
Return on Equity
=
EAT Shareholders Equity
C. Profitability related to Equity Shares. Earnings Per Share = Net Profit available to Eq.Sh.Holders Number of Equity Shares
Earnings Yield
=
EPS Market Price per Share
Dividend Yield
=
DPS (Dividend per Share) Market Price per Share
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Dividend Payout Ratio
=
DPS EPS
Price Earning Ratio (P/E Ratio)
=
Market Price per Share EPS
D. Overall Profitability (Earning Power) Return on Investment (ROI) = EAT Total Assets The overall profitability is measured by the ROI, which is the product of the net profit ratio and the investment turnover. It is a central measure of the earning power or operating efficiency of a company.
Activity or Efficiency Ratios: These are also known as turnover ratios. These ratios measure the efficiency in asset management. They express the relation between the sales and the different types of assets, showing the speed with which these assets generate sales. Important activity ratios are enumerated below. Current Asset Turnover = Sales / Current Assets
Fixed Assets Turnover
=
Sales / Fixed Assets
Total Assets Turnover
=
Sales / Total Assets
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4. INDIAN POWER SECTOR
A strong Power sector is the backbone of a strong economy. India has the fifth largest generation capacity in the world with an installed capacity of 152 GW as on 30 September 2009, which is about 4 percent of global Power generation. The top four countries, viz., US, Japan, China and Russia together consume about 49 percent of the total Power generated globally. The average per capita consumption of electricity in India is estimated to be 704 kWh during 200809. However, this is fairly low when compared to that of some of the developed and emerging nations such US (~15,000 kWh) and China (~1,800 kWh).The world average stands at 2,300 kWh. The Indian government has set ambitious goals in the 11th plan for Power sector owing to which the Power sector is poised for significant expansion. In order to provide availability of over 1000 units of per capita electricity by year 2012, it hasbeen estimated that need-based capacity addition of more than 100,000 MW would be required. This has resulted in massive addition plans being proposed in the sub-sectors of Generation Transmission and Distribution.
The electricity sector in India is predominantly controlled by the Government of India's public sector undertakings (PSUs). Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several state-level corporations, such as Maharashtra State Electricity Board (MSEB), are also involved in the generation and intra-state distribution of electricity. The Power Grid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid.
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The Ministry of Power is the apex body responsible for the development of electrical energy in India. This ministry started functioning independently from 2 July 1992; earlier, it was known as the Ministry of Energy. The Union Minister of Power at present is Sushilkumar Shinde of the Congress Party who took charge of the ministry on the 28th of May, 2009.
India is world's 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to India's economic rise, the demand for energy has grown at an average of 3.6% per annum over the past 30 years. In March 2009, the installed Power generation capacity of India stood at 147,000 MW while the per capita Power consumption stood at 612 kWH.The country's annual Power production increased from about 190 billion kWH in 1986 to more than 680 billion kWH in 2006.The Indian government has set an ambitious target to add approximately 78,000 MW of installed generation capacity by 2012. The total demand for electricity in India is expected to cross 950,000 MW by 2030.
About 75% of the electricity consumed in India is generated by thermal Power
plants, 21%
by hydroelectric Power plants and 4% by nuclear Power plants. More than 50% of India's commercial energy demand is met through the country's vast coal reserves. The country has also invested heavily in recent years on renewable sources of energy such as wind energy. As of 2008, India's installed wind Power generation capacity stood at 9,655 MW. Additionally, India has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW. In July 2009, India unveiled a $19 billion plan to produce 20,000 MW of solar Power by 2020. Electricity losses in India during transmission and distribution are extremely high and vary between 30 to 45%. In 2004-05, electricity demand outstripped supply by 7-11%. Due to shortage of electricity, Power cuts are common throughout India and this has adversely effected the country's economic growth. Theft of electricity, common in most parts of urban India, amounts to 1.5% of India's GDP. Despite an ambitious rural electrification program, some 400 million Indians lose electricity access during blackouts. While 80 percent of Indian villages have at least an electricity line, just 44 percent of rural households have access to electricity. According to a sample of 97,882 households in 2002, electricity was the main source of lighting for 53% of rural households compared to 36% in 1993. Multi Commodity Exchange has sought permission to offer electricity future markets.
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4.1 WHY POWER SECTOR?
With the rising population and growth story of India, the need of fast paced growth in power generation is increasingly gaining importance. Energy is one of the major contributors to the economic development of a country. The government has targeted electricity for all by 2012 by the end of 11 th Five Year Plan. The demand of electricity is growing exponentially. And, herein lays the opportunities for investors to plough their money in public and private sector companies both. At present, coal based thermal power plants accounts for almost two-thirds of the energy needs of the country. However, the government is increasingly becoming aware about the benefits of generating power through cleaner nuclear power plants. Stock Picks: ? NTPC (Power Generation) ? Power Grid Corporation (Power Transmission)
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? Tata Power (Power Generation
5. NTPC
NTPC, India's largest power company, was incorporated on November 7, 1975 to accelerate power development in India. Today, it has emerged as an ‘Integrated Power Major’, with a significant presence in the entire value chain of power generation business. With a current generating capacity of 30,144 MW, NTPC has embarked on plans to become a 75,000 MW company by 2017. NTPC is emerging as a diversified power major with presence in the entire value chain of the power generation business. Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilization and coal mining. The total installed capacity of the company is 30, 144 MW (including JVs) with 15 coal based and 7 gas based stations, located across the country. In addition under JVs, 3 stations are coal based & another station uses naptha/LNG as fuel. By 2017, the power generation portfolio is expected to have a diversified fuel mix with coal based capacity of around 53000 MW, 10000 MW through gas, 9000 MW through Hydro generation, about 2000 MW from nuclear sources and around 1000 MW from Renewable Energy Sources (RES). NTPC has adopted a multipronged growth strategy which includes capacity addition through green field projects, expansion of existing stations, joint ventures, subsidiaries and takeover of stations. NTPC has been operating its plants at high efficiency levels. Although the company has 18.79% of the total national capacity it contributes 28.60% of total power generation due to its focus on high efficiency. In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed company in November 2004 with the government holding 89.5% of the equity share capital. The
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rest is held by Institutional Investors and the Public. The issue was a resounding success. NTPC is among the largest five companies in India in terms of market capitalization. At NTPC people before Plant Load Factor is the mantra that guides all HR related policies. NTPC has been awarded No.1, Best Workplace in India among large organizations for the year 2008, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its expansive CSR initiatives NTPC strives to develop mutual trust with the communities that surround its power stations. Right from social to developmental work of the community and welfare based dependence to creating greater self reliance; the constant endeavour is to institutionalize social responsibility on various levels. Presently, NTPC generates power from Coal and Gas. With an installed capacity of 30,144 MW, NTPC is the largest power generating major in the country. It has also diversified into hydro power, coal mining, power equipment manufacturing, oil & gas exploration, power trading & distribution. With an increasing presence in the power value chain, NTPC is well on its way to becoming an “Integrated Power Major.”NTPC was the first among power utilities in India to start Environment Impact Assessment (EIA) studies and reinforced it with Periodic Environmental Audits and Reviews.
Business area of the company:
• • • • •
Power Generation Consultancy services Power trading Ash utilisation Coal mining
Business divisions:
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Hydro Power: In order to give impetus to hydro power growth in the country and to have a balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW Koldam hydro project in Himachal Pradesh. Two more projects have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW. Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Coal Production is likely to start in 2009-10. Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was created for trading power leading to optimal utilization of NTPC’s assets. It is the second largest power trading company in the country. In order to facilitate power trading in the country, ‘National Power Exchange Ltd.’, a JV between NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange. Ash Business: NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material input for cement companies and brick manufacturers. NVVN is engaged in the business of Fly Ash export and sale to domestic customers. Joint ventures with cement companies are being planned to set up cement grinding units in the vicinity of NTPC stations. Power Distribution: ‘NTPC Electric Supply Company Ltd.’ (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in ‘Rajiv Gandhi Gramin Vidyutikaran Yojana’programme for rural electrification and also working as 'Advisor cum Consultant' for Ministry of Power for implementation of Accelerated Power Development and Reforms Programme(APDRP) launched by Government of India. Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of power equipment manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC has also acquired stake in Transformers and Electricals Kerela Ltd. (TELK) for manufacturing and repair of transformers. Subsidiaries of the company:
1. NTPC Hydro Ltd 2. 'NTPC Vidyut Vyapar Nigam Ltd
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3. NTPC Electric Supply Company Ltd 4. Pipavav Power Development Co. Ltd. (PPDCL) 5. Kanti Bijlee Utpadan Nigam Limited 6. Bharatiya Rail Bijlee Company Limited
Apart from this the company is having 13 different Joint ventures as well.
1. PTC India Limited 2. Utility Powertech Limited (UPL) 3. NTPC-SAIL Power Company Pvt. Ltd. 4. NTPC-Alstom Power Services Private Limited 5. NTPC Tamil Nadu Energy Company Ltd. 6. Ratnagiri Gas and power Pvt. Limited 7. Aravali Power Company Private Ltd. 8. NTPC-SCCL Global Venture Pvt. Ltd. 9. Meja Urja Nigam Private Limited 10. NTPC BHEL Power Projects Pvt Ltd. 11. BF-NTPC Energy Systems Limited 12. Nabinagar Power Generating Company Private Limited
Achievements/ recognition:
•
NTPC has been awarded No.1, Best Workplace in India among large organizations for the year 2008, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. NTPC has earned a ranking of 91 on overall global performance. Platts has also analysed energy companies by nine industry classification & three global regions. NTPC ranked No.1 in Independent Power Producer & Energy Trader in Asia & No. 15 in overall performance in the Asia region. NTPC was selected as the Star Company of the year in the category of Public Sector Undertaking. 'Golden Peacock Environment Management Award - 2008’ Institute of Directors.
•
•
•
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•
NTPC has been awarded the silver shield and judged second best for its Annual Report and Accounts for the year ended 31st March, 2008 under the Category “Infrastructure & Construction Sector” in the ICAI award for Excellence in Financial Reporting. International Project Management Award 2008,International Project Management Association (IPMA). CII-Exim Excellence Award 2008, Confederation of Indian Industry. On 3rd November 2008, NTPC-CenPEEP (Centre for Power Efficiency & Environment Protection) was conferred ‘India Power Award 2008’ in the category of ‘Energy Efficiency’. Two NTPC Stations, Farakka and Faridabad have been awarded the CII –ITC Sustainability Award 2008 in the category “Certificate of Commendation for strong Commitment.” NTPC Limited was declared the Excellence Awardee of Intel-AIM Corporate Social Responsibility Award. National centre for promotion of employment of disabled people (NCPEDP) - Shell Helen Keller Awards were instituted in 1999 to recognize individuals and organizations for their contributions in promoting employment opportunities for disabled people. Golden Peacock Award for Occupational Health & Safety -2008’Institute of Directors. All NTPC power stations have been certified for ISO 14001 & OHSAS 18001 by reputed national and international certifying agencies. NTPC’s Research and Development centre is ISO17025 accredited. NTPC ranked 317th in the ‘2009, Forbes Global 2000’ ranking of the World’s biggest companies.
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BOARD OF DIRECTOR
Arup Roy Choudhury I C P Keshari Rakesh Jain A K Singhal B P Singh D K Jain P K Sengupta S P Singh
Chairman & Managing Director Govt.of India Nominee Govt.of India Nominee Director – Finance Director - Projects Director - Technical Director Director – HR
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Shanti Narain A K Sanwalka I J Kapoor M N Buch K Dharmarajan M Govinda Rao Santosh Nautiyal Kanwal Nath Adesh C Jain N N Misra A K Rastogi
Director Director Director - Commercial Director Director Director Director Director Director Director - Operations Company Secretary
NTPC Share Holding Pattern Holder’s Name Promoters Foreign Institutions Financial Institutions General Public Other Companies N Banks Mutual Funds Foreign NRI & Others % Share Holding 84.50% 6.90% 3.54% 2.08% 1.50% 1.40% 0.08%
5.1 NTPC FINANCIALS
Balance Sheet of NTPC SOURCES OF FUND Total Share Capital Mar ‘11 8,245.46 Mar ‘10 8,245.50 Mar ‘09 8,245.50
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Equity Share Capital Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Current Liabilities Provisions Total CL & Provisions Net Current Assets TOTAL ASSETS
8,245.46 8,245.50 60,138.66 55,478.60 68,384.12 63,724.10 9,910.68 9,079.90 33,277.56 28,717.10 43,188.24 37,797.00 111,572.36 101,521.10 72,583.94 66,663.80 33,519.19 32,088.80 39,064.75 34,575.00 38,441.84 32,290.60 12,344.84 14,807.10 3,639.12 3,347.70 7,924.31 6,651.40 326.34 634 11,889.77 10,633.10 7,648.10 6,357.10 15,858.92 13,825.50 35,396.79 30,815.70 10,945.55 7,896.80 2,730.31 3,070.50 13,675.86 10,967.30 21,720.93 19,848.40 111,572.36 101,521.10
8,245.50 50,749.40 58,994.90 8,969.60 25,598.20 34,567.80 93,562.70 62,353.00 29,415.30 32,937.70 26,404.90 13,983.50 3,243.40 3,584.20 271.8 7,099.40 7,826.10 15,999.80 30,925.30 7,439.20 3,249.50 10,688.70 20,236.60 93,562.70
Profit and Loss A/c of NTPC Mar '11 Income Sales Turnover Excise Duty Net Sales Other Income Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Mar '10 Mar '09
55,216.69 46,623.60 42,196.80 278.01 245.9 221.6 54,938.68 46,377.70 41,975.20 2,525.48 2,872.80 3,012.80 57,464.16 49,250.50 44,988.00 31.33 31.1 31 35,796.37 29,689.10 27,292.30 3,395.27 2,946.80 2,897.60 1,273.14 1,096.60 940 2,264.01 578.5 473.2 525.63 436.4 394.9
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Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
-1,052.98 42,232.77 12,705.91 15,231.39 2,027.21 13,204.18 2,485.69 4.5 10,713.99 1,330.06 12,044.05 2,630.54 9,102.59 42,201.44 0 3,133.26 514.77
-866.9 33,911.60 12,466.10 15,338.90 1,861.90 13,477.00 2,650.10 4.3 10,822.60 616.1 11,438.70 2,682.70 8,728.20 33,880.50 0 3,133.20 527.6
-637.4 31,391.60 10,583.60 13,596.40 1,737.00 11,859.40 2,364.50 3.6 9,491.30 1,305.20 10,796.50 2,554.70 8,201.30 31,360.60 0 2,968.30 501.7
82,454.64 82,454.64 82,454.64 11.04 10.59 9.95 38 38 36 82.94 77.28 71.55
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Key Financial Ratios of NTPC Ltd. Ratios ROE ROCE Debt Equity Ratio Inventory Turnover Ratio Dividend Payout Ratio Dividend Yield Ratio Earnings Per Share Price Earning Ratio Net Profit Margin Face value Book value Dividend Per Share Market price as on 31st march 2011 13.31 11.32 0.63 29.18 40.07 1.96 11.04 17.48 16.48 10
82.94 3.8 193
2010 13.69 12.45 0.59 27.54 41.94 1.83 10.59 19.54 18.72 10
77.28 3.8 207
Comments on Ratio’s
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Looking at the NTPC Ltd ratios, almost all ratios have increased in 2011 as compared to 2010 Debt-equity ratio of the company is rising in this year as compared to previous year because the company has borrowed money this year.
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• •
Return on Equity has marginally declined which indicates company is providing little lesser returns to its investors as compared to previous year. Dividend payout ratio has increased marginally as compared to previous year which means company is paying a consistent dividend and rest amount is utilized for expansion purpose.
6.1 TATA POWER
Tata Power, erstwhile known as Tata Electric, pioneered the generation of electricity in India nine decades ago. The company started as Tata Hydroelectric Power Supply Company in 1911, it got its new status with the amalgamation of two entities viz, Tata Hydroelectric Power Supply Company and Andhra Valley Power Supply Company in 1916. Today, it is the country’s largest private power utility, established as a licensee in Mumbai and with ambitious expansion plans from being essentially Mumbai-centric to a major national player, not only in the fields of Power but also in Energy and Broadband Communication. Tata Power commissioned India’s first power plant- the hydro-electric station- in Khopoli (72 MW) in 1915, the second hydro station one in Bhivpuri (75 MW) in 1919 and the 3rd one in Bhira (300 MW) in 1922. With these three hydro stations and the 1,350 MW thermal power station in Trombay, Mumbai; a 475 MW power station near Jamshedpur in Jharkhand and an 87 MW thermal power plant in Belgaum, Tata Power is the largest integrated private power company in India and is the most trustworthy power supplier to Mumbai. The Tata Power Company Limited is India’s largest private sector power utility with an installed generation capacity of over 2785 MW. The company has emerged as a pioneer in the Indian power sector, with a track record of performance, customer care and sustained growth.
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Tata Power has a presence in all the segments of the power sector viz generation (thermal, hydro, solar, wind and liquid fuel), transmission and distribution Recognized as India’s largest private sector power utility, with a reputation for trustworthiness, built up over nearly nine decades, Tata Power surges ahead into yet another year with plans of sustained growth, greater value to consumer and reliable power supply. Led by a powerful vision, Tata Power pioneered the generation of electricity in India. It has now successfully served the Mumbai consumers for over ninety years and has spread its footprints across the nation. Today, it is the country’s largest private player in the sector. Apart from Mumbai and Delhi, the company has generation capacities in Jojobera, Jharkhand and Karnataka. Tata Power has an installed power generation capacity of above 2300 Mega Watts, with the Mumbai power business, which has a unique mix of Thermal and Hydro Power, generated at the Thermal Power Station, Trombay, and the Hydro Electric Power Stations at Bhira, Bhivpuri and Khopoli, accounting for 1797 MW. Its diverse generation capability facilitates the company in producing low cost energy, thereby giving its consumers a greater value for money. Among its many achievements that Tata Power can proudly boast of are the installation and commissioning of India’s first 500 MW unit (at its Thermal Power Generating Station, Trombay) the 150 MW Pumped Storage Unit at its Hydro Generating Station, Bhira, and environmental control systems like the Flue Gas Desulphurisation plant. Tata Power has a first of its kind joint venture with Power Grid Corporation of India for the 1200 km Tala Transmission Project.
Services offered by the company: Design & Development- Strategic Electronics Division (SED)- SED (Mumbai) was established in 1967 and is today a leading development rganization, having pioneered indigenous design
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and development of many hi-tech systems for Defence and Industry. The manufacturing facility was established in 1982 and is situated in Bangalore. Direct Marketing – Power Supply to Mumbai Consumers- The Company also supplies power directly to such bulk consumers as Central and Western Railways, Mumbai Port, refineries, textile mills, fertilizer factories, BARC, Municipal Corporation water pumping plants and other major continuous processes industries requiring uninterrupted power supply. Power Projects & Related Services- Tata Power also extends its expertise for:Setting up Independent Power Plants (IPP) Setting up Captive Power Plants (CPP)Power Transmission and Distribution Projects Operation and Maintenance Services (O&M Services) Transmission & Distribution
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Transmission Business – Tata Power owns and operates 1200 circuit Kms of high voltage (220 kV and 110 kV) Transmission Network. Distribution Business – Tata Power has a 935 km HT and LT cable distribution network connecting 17 major receiving stations and over 85 sub-stations in its Mumbai License area.
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Subsidiary Companies associated with Tata Power:
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Af-Taab Investment Co. Ltd. Chemical Terminal Trombay Ltd. Powerlinks Transmission Ltd. Tata Power Trading Co. Ltd. Maithon Power Ltd. NELCO Ltd. Tatanet Services Ltd. Industrial Energy Ltd.
Equity Research on Power sector
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Industrial Power Utility Ltd. Industrial Power Infrastructure Ltd. Coastal Gujarat Power Limited Veltina Holdings Ltd. Tata Power (Mauritius) Ltd. Tata Power (Cyprus) Ltd. Tata Power International Holdings Ltd. North Delhi Power Ltd. Energy Eastern Pte. Ltd.
Achievements/ recognition:
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“Greentech Safety Gold Award 2008” in Thermal Power sector for “Outstanding achievement in Safety Management” awarded to Trombay Thermal Power Station for the 5th consecutive year. – April 2008. “Suraksha Puraskar” by the National Safety Council of India for Jojobera, in January 2008 for developing and implementing very effective Safety Management Systems and Procedures during the assessment period of three years – 2003-05. – January 2008. Silver Shield awarded for Bhira and Bhira Pump Storage Scheme (6X25 + 1 X 150 MW), adjudged the second best performing station in the country by the Central Electricity Authority, India. – March 2008. Awarded the Quality Circles AWARD 2007 at the “National Convention on Quality Circles” under the aegis of Quality Circle Forum of India. Dahanukar Award by the Indian Association of Occupational Health for HIV/AIDS intervention at the workplace. NASSCOM Best IT User Award 2006 in the Energy and Utility sector for providing value added services to consumers through Customer Portal System via Internet website. Amity HR Excellence Award for the year 2007 for effective people management practices and HR systems. Tata Power has won the prestigious Dahanukar Award for HIV / AIDS intervention at the work place in 2007.
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Association of Business Communicators India Award 2007 – Bronze medal for Social Responsibility Communication. Tata Power Bhira Hydro Plant has received the ‘Silver Shield’ Award from the Central Electricity Authority Mumbai. ‘Tata Power, Jamshedpur’ has been declared as the winner of ‘Golden Peacock Environment Management Award’ for the year 2006. Greentech Safety Award 2006 under Platinum Category has been awarded to The Tata Power Co. Ltd., Jojobera, Jamshedpur. Rajiv Gandhi National Quality Award 2005 for Jojobera. ‘Greentech Safety Gold Award’ for the Year 2003-2004 for the Trombay power plant. Tata Power receives the Greentech Gold Award for safety (August 18, 2003). Tata Power bags BCCI ‘good corporate citizen award 2001-2002’ (September 21, 2002). Premier credit rating agencies like CRISIL & ICRA have given Tata Power the Coveted ‘AAA ‘ and ‘LAAA’ ratings respectively. Tata Power has won the N M GIDWANI Rolling Trophy consistently from 1991 to 1999, for the maintenance of the Suman Nagar Gardens, a competition conducted by the Friends of Trees. Safety Awards for Lowest Frequency Rate of Accident and Maximum Accident Free days have been won by Trombay Thermal Power Station in 1992. Bombay Chamber Good Corporate Citizen Award 1994 – 95. The Review 200 Plaque ranked Tata Power among the top ten rganizations in Asia for overall corporate excellence by the Far Eastern Economic Review in 1995. The 1995 Power Plant Award presented by Electric Power International for the Trombay Thermal Power Station. Bronze Award from the American Concrete Institute for the ‘Outstanding Structures of the Year’ for the 900 feet tall reinforced concrete chimney for the 500 MW power plant at Trombay Thermal Power Station 1988-89.
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Board of Director’s
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K e
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y F i n a n c i a l R a t i o s o f T a t a P o w e
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r
Mar '11 % Share Holding
Mar '11
2011
2010
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69.42% 13.46% 5.45% 5.36% 3.56% 2.30% 0.17% 0.29%
4,629.73
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4,629.73 16,737.27 21,367.00 38,672.45 4,557.70 43,230.15 64,597.15 50,351.78 13,127.80 37,223.98 26,624.59 1,365.05 381.51 3,162.09 3,680.06 7,223.66 3,293.47 10,517.13 8,260.55 2,875.46 11,136.01 -618.88 64,597.15
ss A/c of Power Grid
8,388.70 0 8,388.70 1,108.16 0 9,496.86 0.03 70.96 745.89 152.95 0
ing Expenses
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365.69 0 1,335.52 7,053.18 8,161.34 1,733.93 6,427.41 2,199.39 1.86 4,226.16 -8.96 4,217.20 1,123.25 2,696.89 1,335.49 0 810.23 132.33 46,297.25 5.83 10 46.15
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Key Ratio Analysis of Power Grid Corporation of India Ratios ROE ROCE Debt Equity Ratio Inventory Turnover Ratio Dividend Payout Ratio Dividend Yield Ratio EPS P/E Net Profit Margin Face value 12.62 8.61 2.02 21.99 34.94 0.98 5.83 17.46 32.14 10
46.15 1
12.92 8.58 2.18 -36.11 1.39 4.85 22.09 28.63 10
37.88 1.5 107.15
Book value
Dividend Per Share Market price as on 31st march
101.80
Comments on Ratio’s
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Return on Equity has declined which indicates company is providing lesser returns to its investors. Debt equity ratio has declined which means company is repaying its debts and concentrating more on equity for its financing.
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Company has repaid its secured loans.
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The company’s EPS has increased; P/E ratio of company has decreased.
8 FINDINGS
Comparative Analysis of three companies for one year
Share Price (Rs.) as on 31st March 2011 EPS 193.00 1330.35 101.80 11.04 39.67 5.83
Company NTPC Ltd. Tata Power Power Grid (PGCIL)
P/E 17.48 33.53 17.46
ROE 13.31 8.37 12.62
Target Price 220.8 793.4 116.6
Suggestions:
? From the above findings it can be seen that target price of NTPC Ltd. is more than the
share price in March 2011. The stock is expected to provide approximate return of 14% in future. Investors should buy the shares of NTPC Ltd.
? In case of Tata Power the target price is very less as compared to march 2011 price which
means the company is overvalued and the share prices are expected to fall down.
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Investors holding shares of Tata Power should sell their shares and it is advisable not to invest in this share for a certain period of time.
? Power Grid is also expected to provide approximate returns of 14% to the investors so
investors can buy shares as it is expected that company will provide good returns to investors.
? From the above three companies I found that Tata Power is overvalued and NTPC Ltd.
and Power Grid both are expected to provide approximate returns of 14% but in case of NTPC Ltd. EPS and ROE is better than that of Power Grid and P/E of both the companies is almost the same so NTPC Ltd. is preferred over Power Grid.
9 CONCLUSIONS
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We had done my summer internship as trainee in Birla Sunlife Insurance Company where we were asked to achieve target and, in turn we were being provided training on equity research and wealth management.
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We were given a traditional plan to sell the policy. This policy was for a long term of 22 years or 35 years. When we approached to people we found that people were reluctant to make an investment in this plan for such a long period of time. I also found that people were asking about LIC policy with same features, as they consider investment done through LIC to be more safe investment.
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Our training program helped us to understand various aspects of training module. We got knowledge of share market, mutual funds and our mentor advised to make project on equity research or on IPO or on mergers and acquisitions or on mutual funds.
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Besides regular training we also had visited NSE and attended a seminar which would be very fruitful for us in near future.
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We also learnt preparing a dummy portfolio as an activity by choosing stocks and maintaining the NAV.
10. RECOMMENDATIONS
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The company takes more operational time to begin the execution of the policy. To overcome this, the company should have a smooth operational system in place with a smarter backend process in place so as to reduce the execution period.
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Or even if the policy papers take time to reach the customers, the company should e-mail the policy data for the time gap. Or it could give some kind of mobile alert to the customers about the future course.
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The training room should be more spacious. There is a need for an improvement in company’s system as it takes more time to execute the policy. At times the operational system used to be down and because of that there was delay in login of the policy. To overcome this, the company should have a smooth operational system in place.
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