Assignment on Comparative Evaluation and Ratio Analysis of Power sector Course title-Investments and Portfolio Management Course Code-

Fin-4103 Section- B

Submitted to
Md. Shoriful Islam Senior Lecturer in Finance Department of Business Administration Northern University Bangladesh

Prepared by
Md. Towhidul Alam BBA 110103944

Date of submission- 4/11/2012

Table of contents

S.N 1 2 3 4 5 6 7 8

Topic
Introduction Methodology Company in Brief Analysis and findings Recommendation Conclusion References Financial Statements

Page 2 3 3 7 14 14 15 16

Introduction
In this report we have analysis the financial statement of 2011 on some leading organization of power sector which are- DESCO, Summit Power, Titas Gas and Power Grid Ltd. The Bangladesh power sector in 19941996 was in crisis because of the poor financial and operational performance of key power sector utilities. The commercial performance of the state agencies was poor as reflected by high power distribution losses, pilferage of electricity, no collection of electricity bills, and high degree of outages due to lack of maintenance of the power generation plants owned by Bangladesh Power Development Board (BPDB). The corporate culture was highly politicized; the staff lacked incentives to improve performance and were constrained by bureaucratic controls. The sector was not in a position to undertake the urgently required investments and, because of poor cost recovery, could not attract private investments. The gas sector was in a relatively better position due to the commercial orientation of the public sector entities engaged in gas production and distribution. However, it lacked the financial and technical capacity to expand production capacity to meet the anticipated increase in the demand for gas. By 2009, Bangladesh has achieved significant progress in reforming the power distribution and transmission sector. The reforms have improved the commercial performance of the sector by significantly reducing power distribution losses, and stabilizing bill collection and the operational performance of transmission system. The electrification ratio increased from about 10% in 1994 to over 37% in 2008 and electricity consumption in the country increased by over 100% during 19982008. However, power shortages increased during 20022008 due to insufficient public sector investments in power generation and failure to attract new investments from the private sector. Although Bangladesh managed to attract significant investments from the private sector for gas exploration and increased gas production by over 100% during 1998 2008, the country is again increasingly facing with gas shortages due to the rapid increase in demand for gas for power generation, for residential areas, and for industry. Given the high degree of dependence of the power sector on natural gas (over 85% of electricity is generated using natural gas), planning the development of the two sectors always require close coordination.

Data collection methodology

All the data of this report is collected from secondary sources from online and organizations Annual Report. Ratio Analysis methods used to compare among four corporation to find out which one is suitable for including in portfolio.

Company In Brief

Summit Power Limited (SPL), sponsored by Summit Group, is the first Bangladeshi Independent Power Producer (IPP) in Bangladesh in private sector providing power to national grid. SPL was incorporated in Bangladesh on March 30, 1997 as a Private Limited Company. On June 7, 2004 the Company was converted to Public Limited Company under the Companies Act 1994. Summit Power Limited in 2001, has successfully established three power plants of 11 MW capacity each, for sale of electricity to Rural Electrification Board (REB) on Build, Own and Operate basis at Savar, Narsingdi and Comilla. During 2006 and 2007 in each of the above three places, 2nd unit was commissioned enhancing the capacity of SPL to 105 MW. In 2009 SPL with its 99% owned two subsidiaries has established 4 new power plants raising its capacity to 215 MW. In 2011 SPL has commissioned another power plant of 102 MW capacity at Narayanganj under Summit Narayanganj Power Limited, where SPL has 55% ownership. In the year 2011 Summit Power Limited has consolidated its position further by acquiring 53,955,326 numbers of ordinary shares of Khulna Power Company Limited (KPCL). It gives SPL the status of 18.7% of the ownership of KPCL and with that status an additional capacity

of 50 MW (approximately) has been added with that of SPL being the total capacity of 367 MW. Considering the immense opportunities, the company is striving to establish more power plants around the country. The fast-growing company has set a mission to expand the company with a power generation capacity to the tune of 1000 MW, which is a modest 20% of the electricity requirement in Bangladesh.

Power Grid Company of Bangladesh Ltd. (PGCB) was created under the restructuring process of Power Sector in Bangladesh with the objective of bringing about commercial environment including increase in efficiency, establishment of accountability and dynamism in accomplishing its objectives. PGCB was incorporated in November 1996 with an authorized capital of Tk.10 billion. It was entrusted with the responsibility to own the national power grid to operate and expand the same with efficiency. Pursuant to Government decision to transfer transmission assets to PGCB from Bangladesh Power Development Board (BPDB) and Dhaka Electric Supply Authority (DESA), PGCB completed taking over of all the transmission assets on 31.12.2002. Since then, PGCB is operating those efficiently and effectively. PGCB Profile

A public limited company. Incorporated through sponsorship of chairman, BPDB and its six members.

76.25% ownership with BPDB & 23.75% with general public. It's Head Office is at Institution of Engineers of Bangladesh Bhaban(New) , the 3rd and 4th floor, 8/A Ramna,Dhaka-1000,Bangladesh.

Titas Gas T & D Co. Ltd. (TGTDCL)

Titas Gas T & D Co. Ltd. (TGTDCL) was formed in November 1964 as a joint Stock Company (Under the Companys Act 1913) of the central Government of Pakistan on the one hand and Pakistan Shell Oil Company on the other, with a view to transmitting and distributing natural gas to the Dhaka city the then provincial capital of Pakistan from the discovered gas field called Titas located on the bank of the River Titas, within the close vicinity of the present Brahmanbaria district of Bangladesh. The authorized capital was Taka 17.8 million only, divided into 17800 shares of Taka 10.00 each. Ninety percent of the shares were subscribed by the then central Government of Pakistan and remaining ten percent by the Shell Oil Company.

The basic objective of the Company was to construct, own and operate natural gas transmission & distribution facilities in the mid-eastern region of Bangladesh i.e. Comilla, Mymensingh and Dhaka district with the right of purchasing, transmission, distribution, sales and disposal of natural gas within the jurisdiction of greater districts before creation of new districts.

DESCO incorporated under the Companies Act 1994 with its own Memorandum and Articles of Association. The company as a whole owned by Government of Bangladesh and DESA representing government by acquiring 100% shares. DESCO managed by a part time Board of Directors appointed by its shareholders, they are responsible for policy decisions. The Board of Directors appointed managing Director and two full time Directors and they were also members of the Board Directors after appointment. The organizational of the company is as follows:

The Chairman DESA being the Board of Directors on his nominee till such time DESA owns the majority of the shares in DESCO.

The Managing Director acts as the Chief Executive Officer of the company and responsible for overall management of the company. 6

The Director (Technical) responsible for development planning supply demand management and operation and maintenance of the system.

The Director (Finance) responsible for all financial matters and commercial operations of the company.

Start Up to the DESCO

DESCO was constituted to provide uninterrupted & stable power supply, better consumer service, improve system loss & C.!. ratio and accordingly DESCO starting its operational activity since September 24, 1998 by taking over of Mirpur area from DESA. Following are the initial activity of DESCO which includes: (1) Operation & Maintenance of Sub-Stations & Lines; (2) Commercial functions i.e. billing, consumer accounting, disconnection & reconnection of consumers, testing & installation of consumer meters etc.; and (3) Planning, Design and installation of Sub-stations & lines etc.

Our Investors are Our Principals We believe in honoring the trust they have placed upon us. We therefore have the responsibility to: apply professional and diligent management to ensure the financial viability of the company and maintain a fair and competitive return for our investors; and conserve and enhance our investors assets, and respect their interests.

Analysis and Findings

Earnings per Share (EPS)

DESCO EPS = Net income / No of common stock outstanding = 1,478,338,572 / 20,822,158 = TK-71.00

POWER GRID EPS = Net income / No of common stock outstanding = 924601544 / 41901181 = TK-22.07

SUMMIT POWER EPS = Net income / No of common stock outstanding = 1561789677/394360164 =TK-3.96

TITAS EPS = Net income / No of common stock outstanding =9,177,477,399/94,211,603 =TK-97.41

Comment:From above findings we can say that the EPS of Titas is highest among the four companies but EPS is not always indicate the right scenario of an organization so we should go through other ratio which may be more acceptable.

Price /Earnings Ratio

P/E RATIO = Market Price per Share /Earning Per Share

DESCO = Market Price per Share /Earning Per Share = 1590.22/71.00 = TK 22.40

POWER GRID = Market Price per Share /Earning Per Share =806/22.07 = TK 36.52

SUMMIT POWER = Market Price per Share /Earning Per Share =57.89/3.96 = TK 14.62 TITAS = Market Price per Share /Earning Per Share =802/97.41 = TK 8.23

Comment:The P/E Ratios are showing that Titas Gas is most attractive securities among all. But we have to remember that high P/E Ratio does not indicate the share is overvalued because investors are convinced that it will have strong earnings growth in the future and so they bid up the stocks price now.

PEG Ratio

PEG Ratio = P/E Ratio/Growth rate

TITAS GAS =P/E Ratio/Growth rate =8.23/9.12 =0.90% POWER GRID =P/E Ratio/Growth rate =36.52/11.5 =3.18% SUMMIT POWER =P/E Ratio/Growth rate =14.62/16 =0.914% DESCO =P/E Ratio/Growth rate =22.40/8.3 =2.70%

Comment- we know the lower the PEG Ratio the better the value because you would be paying less for each unit of earning growth. So according to this Summit power and Titas Gas are more suitable for investors.

Return on Equity

DESCO = Net income/ Equity capital =1,478,338,572/9919340395 =0.1490 or 14.90% 10

POWER GRID = Net income/ Equity capital =924601544/19781648951 =0.0467 of 4.67%

SUMMIT POWER = Net income/ Equity capital = 1561789677/8501854334 = 0.1837 or 18.37%

TITAS GAS = Net income/ Equity capital = 9,177,477,399/31502542350 = 0.2913 or 29.13 %

Comment- ROE shows how much profits a company generates in comparison to its book value. So investors will prefer high and growing ROE. Here Summit power is the best alternative according to its ROE.

Net Asset Value(NAV) per share

Net Asset Value(NAV) per share= Net Asset Value / No of Share

TITAS GAS = Net Asset Value / No of Share = 28246371161/94,211,603 = 299.82

POWER GRID = Net Asset Value / No of Share = 19781648951/41901181 = 472.10

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SUMMIT POWER = Net Asset Value / No of Share = 8501854334/394360164 = 21.56

DESCO = Net Asset Value / No of Share = 9,919,340,395/20,822,158 = 476.38

Comment- the NAV per share is the Book value divided by number of share of a company.. Here Power Grid and DESCO have attractive NAV per share.

Price to Book value Ratio TITAS GAS =Market price per share/Book value per share =802/299.82 =2.68

SUMMIT POWER =Market price per share/Book value per share =57.89/21.56 =2.69 POWER GRID =Market price per share/Book value per share =806/472.10 =1.71 DESCO =Market price per share/Book value per share =1590.22/476.38 =3.34 Comment- we know the higher the P/B Ratio the higher the premium the market willing to pay for the company above its hard asset. This ratio is more interest to value investor than

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growth investors. Here the value investors will prefer DESCO and the growth investors will prefer Power Grid. Dividend yield

Dividend yield= Dividend per share/ Market price per share

TITAS GAS =Dividend per share/ Market price per share =22.55/1590.22 =0.0142 or 1.42%

POWER GRID =Dividend per share/ Market price per share =8.70/806 =0.0108 or 1.08%

SUMMIT POWER =Dividend per share/ Market price per share =0.672/57.89 =0.0116 or 1.16%

DESCO =Dividend per share/ Market price per share =4.67/802 =0.0058 or 0.58%

Dividend payout Ratio Dividend payout Ratio=DPS/EPS

TITAS GAS =DPS/EPS =22.55/97.41 13

=0.2315 or 23.15%

POWER GRID =DPS/EPS =8.70 /22.07 =0.3942 or 39.42%

SUMMIT POWER =DPS/EPS =0.672/3.96 =0.1697 or 16.97%

DESCO =DPS/EPS =4.67/71.00 =0.066 or 6.6%

Comment- Dividend payout ratio shows what percentage of a companys earning it is paying out to investors in the form of dividend per share. So here Power Grid is paying an attractive dividend to investors.

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Recommendation
From the report we can recommend that as an investor should choice securities analyzing different ratio analysis like EPS, P/E Ratio, PEG Ratio, NPV per share, Price to Book Value, Dividend payout ratio etc. After analyzing the four organizations we have realized that there are many determinants for investors to find out suitable securities according to their demand. Some investors are value expected and some investors are growth or dividend expected. So these determinants may vary among investors for attractiveness of a particular security.

Conclusion
From the analysis we come to the conclusion that Ratio analysis is an important tool for analyzing securities. The more you analyze the more you can predict the future of a securities. Most of the investors of our country do not have enough knowledge about these ratios. By doing this report we have found many interesting result which indicates that only one ratio can never shows the actual scenarios of a company or securities. From the above report now I have a clear idea about the present situation of power industry of Bangladesh. The power industry of Bangladesh has a lot of weaknesses but at the same time it has a lot of opportunities also. The prospect of the industry is positive. It is a promising industry. From my study on this industry, I recommend the following for the betterment of the industry. Stock markets provide an attractive opportunity for making money. There is no other form of investment as on today which can offer a better rate of return than that offered by shares. The other side of the picture is that the companies may not line up to the expectations of the investors. Selecting only those shares in which he has a high level of confidence regarding their stability and prosperity can minimize the risk. So we can say as a Finance student this report is going to help us in Investment analysis and portfolio management.

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References

1. Annual Reports 2. Dhaka Stock Exchange web site http//www.dsebd.org/

Websites http://www.dsebd.org/latest_PE.php http://www.stockbangladesh.com/ http://www.dsemonitor.com/ http://www.icbdm.com/as.php http://www.powerdivision.gov.bd/ http://www.powerdivision.gov.bd/pdf/PSEPGPB.pdf http://en.wikipedia.org/wiki/Electricity_sector_in_Bangladesh

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