NTPC GROWTH & ECONOMIC VALUE ADDED

Submitted By:Charu Aggarwal

09 MBA 012 – Finance

SCENARIO OF POWER IN INDIA

• Generating capacity has grown manifold from 1,712 MW in 1950 to more than 112,000 MW today.

TABLE OF CONTENTS• Company Profile:- - Introduction - Objective and Scope - Evolution - Organizational Structure

• Functioning of Finance Dept• SWOT Analysis• Diversified Growth• Award & Ranking Details• EVA• Interpretation• Conclusion• Recommendation• ANNEXURES

ABOUT THE COMPANY

CORPORATE VISION :• “A world class integrated power major, powering India's

growth with increasing global presence.”

CORE VALUES :• B- Business ethics• C-Customer focus• O-Organisational & professional pride• M-Mutual respect & trust• I-Innovation & speed• T-Total quality for EXCELLENCE

Objective of the StudyPrimary Objective• The purpose of this study is to understand and examine the GROWTH OF NTPC in

recent years with economic value addition and its stand up in Indian power Industry.

Sub Objectives • To gain familiarity with the phenomenon or to achieve new insights into it • To portray accurately the characteristics of particular individual, situations or a group• Study the future implications.

Scope of the project• The scope of the project includes:• Understand NTPC Market structure in India • Competetors in power sector and the role played by them• Scope and limitation of power trading in India

– Economic value addition

Research Methodology

• Qualitative as well as Quantitative

-Qualitative research, existing power market structure including the power exchanges

-Quantitative research, results would be based on the numerical data collected from the annual reports, financial statements.

EVOLUTION OF NTPC

• NTPC was set up in 1975 with 100% ownership by the Government of India. In the last 30 years, NTPC has grown into the largest power utility in India

• In 1997, Government of India granted NTPC status of “Navratna’ being one of the nine jewels of India, enhancing the powers to the Board of Directors.

• NTPC became a listed company with majority Government ownership of 89.5%.NTPC becomes third largest by Market Capitalisation of listed companies

• Memorandum of understanding that into with the Nuclear Corporation of India Ltd(NPCIL). In India 30,000MW installed capacity mark crossed.

SWOTSTRENGTHS• Largest market share in domestic power generation and a broad customer

portfolio across the country.• Diversified thermal generation portfolio – multiple sizes and fuel types. • Highly skilled and experienced human resources,• Navaratna status • Strong balance sheet – ability to raise low cost debt.

WEAKNESS• Low risk-diversification of business portfolio consists primarily of generation assets. • Poor financial health of customers. • Long and multi layered procurement process leading to long lead times and process delay. • Hierarchy for decision making that affects responsiveness.

OPPORTUNITIES• Expand generation capacities by putting up thermal and hydro capacities • Improve collections by trading, direct sale to bulk customers and the active role in allocation

in new plants.

THREATS• Limited experience of operating in a truly liberalized environment.• Downward regulatory and competitive pressure on tariffs. • Stringent norms for approval of increase in capital costs for projects in event of time

overrun.

FINANCE DEPARTMENT OF NTPC

DIVERSIFIED GROWTH:• The company is well on its way to becoming ‘an Integrated Power Major’,

having entered Hydro Power, Coal Mining, Power Trading, Equipment Manufacturing and Power Distribution.

• NTPC has also developed strategic alliances and joint ventures with leading national and international companies.

FUTURE CAPACITY ADDITIONS:• NTPC has formulated a long term

Corporate Plan upto 2017. In line with the Corporate Plan, the capacity addition under implementation stage

AWARDS & ACCOLADES

• Ranked No. 1 Independent Power Producer in Asia and 2nd in the world in thePlatts Top 250 Global Energy Company list for 2009.

• ICSI National Award for excellence in Corporate governance 2009 has beenconferred to NTPC by Institute of Company Secretaries of India.

• Awarded Gold Trophy for SCOPE Meritorious Award for best practices in humanresource management.

• Top six out of eight National Awards for Meritorious Performance of ThermalPower Stations for 2008-09 instituted by the Government of India won by NTPCcoal stations.

• NCPDEP- Shell Helen Keller Award 2009 has been conferred to NTPC fordemonstration of belief in equal rights and gainful employment for persons withdisabilities through their policies and practices.

• Best performing CFO award by CNBC TV-18 in the Infrastructure category to Shri A.K. Singhal, Director(Finance), NTPC Ltd.

• “CII- EXIM Excellence Award 2009” to three NTPC stations namely Talcher-Kaniha, Kayamkulam and Rihand for ‘Strong Commitment to Excel’ .

• NTPC was awarded Gold Trophy for India Pride Awards – Energy and PowerCategory.

• Received certificate of merit for best presented Accounts and CorporateGovernance disclosures Awards in the category of public sector entities from SAFA.

ECONOMIC VALUE ADDED

This study has the following objectives:• To examine whether NTPC has been able to

generate value for its shareholders.• To compute the performance of the company by

applying traditional performance indicators like ROI and EVA

• EVA=NOPAT –COST OF CAPITAL *CAPITAL EMPLOYED

• Capital employed =capital +reserves and surplus +secured loans+ unsecured loans

USES OF EVA

• MEASURES OF VALUE ADDED PERFORMANCE

• BASIS OF DECISION MAKING • DEVICE TO DESIGN AND IMPLEMENT

PLAN LIMITATIONS OF EVA:• Not easy to use,too complicated for small

business

• A passive tool, measures past performance

STATEMENT SHOWING NET OPERATING PROFIT AFTER TAX (RS. IN MILLIONS)

PARTICULARS

2006-07 2007-08 2008-09 2009-2010

NOPAT=EBIT(1-TAX)

71072 79562 75135 83796

CAPITAL EMPLOYED

730812 798292 919379 1002345

WACC 11.33% 10.86% 10.57% 10.07%

EVA -11729 -7132 -22043 -16739

ROI 14.73% 15.09% 12.38% 12.66%

INTERPRETATION-:• Return on investment measures a company’s profitability & its

management’s ability to generate profits from funds• EVA requires deduction of full cost of capital (cost of debt as well as

well the cost of equity). • a business should earn sufficient profit to cover its cost of capital& create

surplus to grow.

Conclusion:• The EVA depicts the actual profits benefit over cost of capital

employed where as ROI shows actual profits over normal profits • EVA is negative , it shows that the firm is

destroying value evan though it may be reportinga positiv or growing earnieng per share(EPS) or ROI

RECOMMENDATION

• Earning more profit without using more capital and this could be done by carry out a cost analysis over product line or by doing analysis of expenses.

• Change capital structure to reduce capital cost by employing less capital or invest capital in projects with greater return potential.

• Decrease overall cost of capital by paying debts, loans etc. if sufficient funds are available or it can buy back its equity.

THANK YOU