G.L.

BAJAJ
INSTITUTE OF MANAGEMENT AND RESEARCH
Approved by A.I.C.T.E., & Affiliated to Dr. A.P.J. Abdul Kalam Technical
University
Plot No. 2, Knowledge Park III, Greater Noida, Distt. G.B. Nagar, U.P., India Pin-
201306

RESEARCH PROJECT REPORT

ON
“A Analysis of fund Management in THERMAL POWER”
Submitted For
THE PARTIAL FULLFILLMENT OF THE AWARD OF DEGREE OF
MASTER OF BUSINESS ADMINISTRATON (MBA)

Under the Guidance of: Submitted By:

Sarvendu Tiwari Alka Dubey
Assistant Professor Roll.No.: 1780170020
Department Of Management Studies Session: 2017-19

0
 ACKNOWLEDGEMENTS

I would like to make a special mention for a continuous guidance and

support of valuable inputs the projects would not have been accomplished in

the present manner

Lastly, projects are a result of teamwork and hundreds of people have lent

their cooperation. Although it is impossible to name each one of them

individually,

I would like to take this opportunity to wholeheartedly thank all the people

who helped me in completing the project.

Alka Dubey

1
 EXECUTIVE SUMMARY

The Project Title is “Comparative Analysis of Fund Management in last five years”. This

analysis has been done of THERMAL POWER Limited of last five years from 2009-10

to 2013-14.

The objective of this project is to study the various long-term sources of funds to finance

investments of THERMAL POWER in new or expansion projects for growth perspective

and to analyze the long-term solvency & profitability position of the company in last five

years.

This project is a study of prudent management of financial resources by THERMAL

POWER in last 5 years with the help of financial analysis tool- Ratio Analysis. Ratio

Analysis has been done by using some selected ratios including DuPont analysis, which

affects the overall profitability & long-term solvency position of the company as project

is related to comparative analysis of management of financial resources being used for

long-term perspective.

Methodology for this project work started from ratios like Debt-Equity ratio, Proprietary

ratio, Interest coverage ratio, EPS, DPS, ROE, Return on capital employed, DuPont

analysis etc. by using financial statements of last five years of THERMAL POWER. This

analysis helped to find out comparison of profitability and financial soundness & trend of

the business. Then second step involved visits to THERMAL POWER’s Registered

2
Office at Scope Complex, Lodhi Road, New Delhi to collect data about various sources

of finance, Investment patterns and procedure to analyze Financing and Investing

activities of THERMAL POWER by using various graphs and tables. Investment

procedure followed by THERMAL POWER has also been included as a part of the

report.

There is one aspect which could have been worked in this project is in-depth analysis of

different proportions of various sources of funds invested in multiple projects of

THERMAL POWER Limited, if all data had been available. The last financial year 2007-

08 has not been included in this study as audited financial results were not available at the

time of study.

Findings of the project are that THERMAL POWER’s Equity capital is being effectively

used over last 5 years and despite an ambitious capital expansion plan, THERMAL

POWER has maintained low debt levels and has strong coverage ratios without affecting

profitability of the company. To finance its new projects and expansion plans, its internal

accruals are sufficient and also it is well positioned to raise borrowings from domestic &

external resources.

Overall this is a good learning and practical knowledge in the case of power plant was

augmented and certainly interest is created in knowing even more.

3
 TABLE OF CONTENTS

S.NO. PAGE NO.

PARTICULARS
1. ACKNOWLEDGEMENTS
2. CERTIFICATES
3. EXECUTIVE SUMMARY 7
4. INTRODUCTION
10
5. RESEARCH METHODOLOGY 16
6. FUND MANAGEMENT 17
7. ANALYSIS AND INTERPRETATION 20
(i) RATIO ANALYSIS
 Debt-Equity Ratio
 Proprietary Ratio
 Interest Coverage Ratio
 Earning per Share
 Dividend per Share
 Return on Equity
 Return on Capital Employed
 DuPont Analysis
(ii) SOURCES OF FUNDS
35
 Equity Share Capital
 Retained Earnings
 Borrowings

4
 (iii) INVESTMENTS ANALYSIS
 Project Financing in THERMAL POWER
48
 Investment Procedure in New or Expansion Projects

8. FINDINGS & SUGGESTIONS 56

9. CONCLUSION 57
10. ANNEXURE 58
11. APPENDICES 63
 References
 Glossary
 Abbreviations

5
INTRODUCTION

6
 COMPANY PROFILE
THERMAL POWER Limited, a public sector company, is the largest thermal power

generating company of India.

THERMAL POWER is the sixth largest thermal power generator in the world and the

second most efficient utility in terms of capacity utilization based on data of 1998. It was

incorporated in the year 1975 to accelerate power development in the country as a wholly

owned company of the Government of India. At present, Government of India holds

89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs,

Domestic Banks, Public and others.

Type Public
Founded 7th November 1975
Industry Electricity generation/Distribution
Products Electricity
Current
generation 29,144 MW
capacity
CMD w.e.f.
Shri R. S. Sharma
May 1, 2008
No. of
23,674 (2007-08)
Employees
Website http://www.Thermal Power.co.in

7
THERMAL POWER was among the first Public Sector Enterprises to enter into a

Memorandum of Understanding (MOU) with the Government in 1987-88. Since then,

every year, THERMAL POWER has been placed under the 'Excellent category' (the best

category). In recognition of its excellent performance and tremendous potential

THERMAL POWER has been given the status of "Navratna" by the Government of

India.

Business Description

THERMAL POWER’s core business is engineering, construction, and operation of power

generating plants. The Group's principal activity is to generate and sell power to state

utilities. It also provides consultancy to power utilities and maintains power stations. The

Group operates in two segments, namely, Power Generation and Others. The Power

generation segment includes generation and sale of bulk power to SEBs/State utilities.

The Other segment provides consultancy, project management and supervision,

maintenance services for power utilities. THERMAL POWER has set new benchmarks

for the power industry both, in the area of power plant construction and operations. At

present, it provides power at one of the cheapest tariff in the country. With its experience

and expertise in the power sector, THERMAL POWER extends consultancy services to

various organizations in the power business.

8
Key Milestones

1975 THERMAL POWER was set up with 100% ownership by the government

of India.

1997 Government of India granted THERMAL POWER status of "Navratna"

being one of the nine jewels of India, enhancing the powers of the Board

of Directors.

2004 THERMAL POWER became a listed company with majority Government

ownership of 89.5%.

It became third largest by market capitalization of listed companies during

that year.

2005 The company changed its name to “THERMAL POWER Limited” w.e.f

October 28, 2005 to foray into hydro and nuclear based power generation

along with backward integration by coal mining and transforming itself

from a thermal power utility to an integrated power utility.

2008 THERMAL POWER Limited has been adjudged as the Star PSU – 2008.

During 2007-08, THERMAL POWER has posted a net profit of Rs 7,129 crore against

Rs 6,864 crore in 2006-07, a growth of about 4%. Its provisional net sales also went up

by over 13% to Rs 37,004 crore from Rs 32,595 crore during the same period in the

previous year.

9
The installed capacity of THERMAL POWER is 29,144 MW at present through its 15

coal-based (23,395 MW), 7 gas-based (3,955 MW), and 4 joint venture projects (1,794

MW).

POWERING INDIA’S GROWTH

The year 1975 witnessed the birth of an organisation that went on to achieve

great feats in performance in a sector that was, until then, characterized

largely by lack of investment, severe supply shortage and operational

practices that made the commercial viability of the sector unsustainable. On

November 7 1975, THERMAL POWER came into being and with it came a

bold way of looking at the power infrastructure that could support the

10
economy, then reeling under the oil crisis. Since then, THERMAL POWER

has led the power sector with the creation of an immensely efficient and

reliable power generation infrastructure which was till then largely in the

hands of state electricity boards.

THERMAL POWER was set up in the central sector to build, own

and operate large thermal power stations which unit size of 200MW and

500MW. Capacity addition by THERMAL POWER was meant to

supplement the efforts of state electricity boards (SEBs). The first four

projects, namely, Singrauli, Korba, Ramagundam and Farakka, in four

different regions of the country, were already on the drawing board and were

to be set up as pit-head stations. There were challenges aplenty. The

expectations were high and so were the risks. THERMAL POWER

symbolized hope of the country suffering from crippling power black-outs,

the government of India, which was trying to put an ailing, economy back on

track and the World Bank, which was supporting the country in many

development initiatives. Thus, THERMAL POWER was created not only to

redraw the power map of India but also to excel in its performance and set

benchmarks for others to follow. It succeeded on both counts.

THERMAL POWER the largest power company of the country has been

consistently powering the growth of India.

11
 THERMAL POWER quickly upgraded the power system to 500

MW units by synchronizing its first 500 MW units at Singrauli in 1986. It

had already broken new ground by employing the High Voltage Direct

Current (HVDC) technology for power transmission from Rihand to Delhi in

1984. Gas based capacities had the advantages of lower implementation time

cycles along with being more environment friendly. The World Bank

approved the funding of the first three gas projects of THERMAL POWER

at Anta, Auraiya and Kawas as early as in 1984.

THERMAL POWER's core business is engineering, construction and

operation of power generating plants and also providing consultancy to

power utilities in India and abroad. As on date the installed capacity of

THERMAL POWER is 24,249 MW through its 14 coal based (19,980MW),

7 gas based (3,955 MW) and 3 Joint Venture Projects (314 MW).

THERMAL POWER acquired 50% equity of the SAIL Power Supply

Corporation Ltd. (SPSCL). This JV company operates the captive power

plants of Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW).

THERMAL POWER’s share on 31 Mar 2006 in the total installed capacity

of the country was 19.51% and it contributed 27.68% of the total power

generation of the Country during 2005-06.

12
 An ISO 9001:2000 certified company, it is world’s sixth largest thermal

power generator and second most efficient in capacity utilization.

The corporation recorded a generation of 149.17 billion units (BUs) in 2003-

04 an increase of 5.9% over 2002-03.

Rated as one of the “Best companies to

work for in India” it has developed into a multi-location and multi-fuel

company over the past three decades.

Driven by its vision to lead, it has charted out an ambitious growth plan of

becoming a 40,000 MW plus company by 2012. Following are the other

important highlight of 2003-04:

 Total Income of more than Rs. 25000 Crore

 Net profit in excess of RS. 5000 Crore

 A dividend payment of Rs. 1082.3 Crore to the Govt. of India

 Received highest credit rating AAA by CRISIL and LAAA by

ICRA for domestic bonds and international rating for Eurobond

To tap the potential of power sector, it has formed the THERMAL POWER

Electric supply Company for power distribution activities. THERMAL

POWER Vidyut Vyapar Nigam, a subsidiary company has been set up for

13
power trading. A powerful initiative for THERMAL POWER is its entry into

the business of coal mining and coal washeries

THERMAL POWER has already entered the hydro sector through its 800

MW Koldam Hydro Power project in Himachal Pradesh.

The company is committed to

preserve and nurture the environment through the following projects:

 On-line paryavaran Monitoring System (PMS) introduced

 All THERMAL POWER station are ISO 140001 certified

 Planted 1.6 crore trees in and around its power stations for

Balancing the ecosystem

 Nearly 75 lakhs tones of ash was utilized in cement, asbeston,

land development and road embankment during 2003-04, which is

23.5% of total ash generation.

A member of Global Compact, a UN initiative, THERMAL

POWER has underta-ken initiatives to create a brighter future for the weaker

section of the society. Pro-active in the field corporate Social Responsibility

(CRS), THERMAL POWER continues to focus on the resettlement and

rehabilitation issue in respect of persons affected by its project.

THERMAL POWER plans to establish a foundation for:

14
  Helping physically challenged persons

 Electrification of remote and rural clusters

 Preservation and maintenance of historical monuments and

 Planned response in time of natural disaster and calamities.

THERMAL POWER has set new benchmarks for the power industry both in

the area of power plant construction and operations. It is providing power at

the cheapest average tariff in the country. With its experience and expertise

in the power sector, THERMAL POWER is extending consultancy services

to various organizations in the power business.

THERMAL POWER is committed to the environment,

generating power at minimal environmental cost and preserving the ecology

in the vicinity of the plants. THERMAL POWER has undertaken massive a

forestation in the vicinity of its plants. Plantations have increased forest area

and reduced barren land. The massive a forestation by THERMAL POWER

in and around its Ramagundam Power station (2100 MW) have contributed

reducing the temperature in the areas by about 3°c. THERMAL POWER has

also taken proactive steps for ash utilization In 1991, it set up Ash

Utilization Division to manage efficient use of the ash produced at its coal

15
stations. This quality of ash produced is ideal for use in cement, concrete,

cellular concrete, building material.

A "Centre for Power Efficiency and Environment Protection (CENPEEP)"

has been established in THERMAL POWER with the assistance of United

States Agency for International Development. (USAID). Cenpeep is an

efficiency oriented, eco-friendly and eco-nurturing initiative - a symbol of

THERMAL POWER's concern towards environmental protection and

continued commitment to sustainable power development in India.

As a responsible corporate citizen, THERMAL POWER is making constant

efforts to improve the socio-economic status of the people affected by the

projects. Through its Rehabilitation and Resettlement programmes, the

company endeavors to improve the overall socio-economic status of Project

Affected Persons.

THERMAL POWER was among the first Public Sector Enterprises

to enter into a Memorandum of Understanding (MOU) with the Government

in 1987-88. THERMAL POWER has been Placed under the 'Excellent

category' (the best category) every year since the MOU system became

operative.

16
Recognizing its excellent performance and vast potential, Government of the
India has identified THERMAL POWER as one of the jewels of Public
Sector ‘Navratnas’- a potential global giant. Inspired by its glorious past and
vibrant present, THERMAL POWER is well on its way to realize its vision
of being “A world class integrated power major, powering India’s growth,
with increasing global presence”.

THERMAL POWER POWER STATIONS

17
 THERMAL
POWER Limited
(29,144 MW)

7 Gas/Liquid based
15 Coal based 4 Joint-Venture
Power Stations
Power Stations Projects
(3955 MW)
(23,395 MW) (1794 MW)

RGPPL
SPSCL
(Maharashtra)
(314 MW)
(1480 MW)

Durgapur
(West Bengal)
(120 MW)

Rourkela
(Orissa)
(120 MW)

Bhilai
Fig. 1 (Chhattisgarh)
(74 MW)

THERMAL POWER's Coal based Power Stations

1. Dadri (Delhi)

2. Singrauli (Uttar Pradesh)

3. Rihand (Uttar Pradesh)

18
 4. Unchahar (Uttar Pradesh)

5. Tanda (Uttar Pradesh)

6. NCPP Dadri(Uttar Pradesh)

7. Korba (Chhattisgarh)

8. Sipat (Chhattisgarh)

9. Ramagundam (Andhra Pradesh)

10. Simhadri (Andhra Pradesh)

11. Talcher Thermal(Orissa)

12. Talcher Kaniha(Orissa)

13. Farakka (West Bengal)

14. Vindhyachal (Madhya Pradesh)

15. Kahalgaon (Bihar)

THERMAL POWER's Gas/Liquid based Power Stations

1. Anta (Rajasthan)

2. Auraiya (Uttar Pradesh)

3. Dadri (Uttar Pradesh)

4. Kawas (Gujarat)

5. Jhanor-Gandhar (Gujarat)

6. Rajiv Gandhi CCPP Kayamkulam (Kerala)

7. Faridabad (Haryana)

Subsidiaries of THERMAL POWER

1. THERMAL POWER Electric Supply Company Ltd (NESCL)
2. THERMAL POWER Vidyut Vyapar Nigam Ltd. (NVVN)
3. THERMAL POWER Hydro Limited (NHL)

19
 About DTPS (Dadri Thermal Power Station)

The Dadri Thermal Power Plant is a coal-based power plant situated at Dadri in Delhi.

Beginning its power generation in 1973, this plant generates an average of 705 MW of

power from its 5 units annually. The coal for the power generation is taken from Jharia

Coal Fields and water from Agra Canal. Coal supply is managed by various guidelines

mentioned in the Fuel & Supply Agreement. This power plant is owned and operated by

THERMAL POWER Limited, the largest thermal power generating company of India.

 BTPS was previously owned by Govt. of India, Ministry of Power.

 Conceived in 1965 to meet the growing electricity demand of Northern

Region.

 The site construction activities started in 1968.

 The plant became operational with the commissioning of its first unit

on 26th July 1973.

 Achieved new heights in Generation, availability and substantial

reduction in inputs; thereby demonstrating overall efficiency in plant performance.

 In spite of the old and aging units, PLF of BTPS has remained higher

than the National Average for the last 10 consecutive years.

 BTPS meets more than 24% of Delhi’s electricity consumption which is the sole

beneficiary state.

 Installed capacity is 720 MW

20
  Derated capacity (11.01.90) is 705 i.e. 3 units of 95 MW each and 2 units of 210

MW each.

 Managed by THERMAL POWER from 1.04.1978 to 31.05.2006.

 Being owned by THERMAL POWER from 1st June, 2006.

The expertise in R&M and performance turnaround was developed and built up by

THERMAL POWER with the operational turnaround of Dadri TPS through

scientifically engineered R&M initiatives. BTPS has been achieving PLF above 80%

after 1999-2000 onwards.

21
 PRODUCT PROFILE

What is electricity?

Electricity is a type of energy that can build up in one place or flow from

one place to another. When electricity gathers in one place it is known as

static electricity (the word static means something that does not move);

electricity that moves from one place to another is called current electricity.

Generating electricity

Just as electricity can make magnetism, so magnetism can make electricity.

A bicycle dynamo is a bit like an electric motor inside. When you pedal your

bicycle, the dynamo clipped to the wheel spins around. Inside the dynamo,

there is a heavy core made from iron wire wrapped tightly around—much

like the inside of a motor. The core spins freely inside some large fixed

magnets. As you pedal, the core rotates inside these outer magnets and

generates electricity. The electricity flows out from the dynamo and powers

your bicycle lamp.

22
The electric generators used in power plants work in exactly the same way,

only on a much bigger scale. Instead of being powered by someone's legs,

pedalling furiously, these large generators are driven by steam. The steam is

made by burning fuels or by nuclear reactions. Power plants can make

enormous amounts of electricity, but they waste quite a lot of the energy they

produce. The energy has to flow from the plant, where it is made, to the

homes, offices, and factories where it is used down many miles of electric

power cable. Delivering electricity this way can waste up to two thirds of the

power originally produced.

How does electricity get from a power plant to your home?

The heart of a power station is a large generator that extracts energy from a

fuel. Some power stations burn fossil fuels such as coal, oil, or gas. The heat

produced is used to turn water into steam at high pressure. This steam turns a

windmill-like device called a turbine connected to an electricity generator.

Extracting heat from a fuel takes place over a number of stages and some

energy is wasted at each stage.

23
Fig – 1.2 Steps to Generate Electricity

1. Fuel: The energy that finds its way into your TV, computer, or toaster

starts off as fuel loaded into a power plant. Some power plants run on

coal, while others use oil, natural gas, or methane gas from

decomposing rubbish.

2. Furnace: The fuel is burned in a giant furnace to release heat energy.

3. Boiler: In the boiler, heat from the furnace flows around pipes full of

cold water. The heat boils the water and turns it into steam.

24
4. Turbine: The steam flows at high-pressure around a wheel that's a bit

like a windmill made of tightly packed metal blades. The blades start

turning as the steam flows past. Known as a steam turbine, this device

is designed to convert the steam's energy into kinetic energy

(movement). For the turbine to work efficiently, heat must enter it at a

really high temperature and pressure and leave at as low a temperature

and pressure as possible.

5. Cooling tower: The giant, jug-shaped cooling towers you see at old

power plants make the turbine more efficient. Boiling hot water from

the steam turbine is cooled in a heat exchanger called a condenser.

Then it's sprayed into the giant cooling towers and pumped back for

reuse. Most of the water condenses on the walls of the towers and

drips back down again. Only a tiny amount of the water used escapes

as steam from the towers themselves, but huge amounts of heat and

energy are lost.

6. Generator: The turbine is linked by an axle to a generator, so the

generator spins around with the turbine blades. As it spins, the
generator uses the kinetic energy from the turbine to make electricity.

7. Electricity cables: The electricity travels out of the generator to a

transformer nearby.

25
8. Step-up transformer: Electricity loses some of its energy as it travels
down wire cables, but high-voltage electricity loses less energy than
low-voltage electricity. So the electricity generated in the plant is
stepped-up (boosted) to a very high voltage as it leaves the power
plant.

9. Pylons: Hugh metal towers carry electricity at extremely high

voltages, along overhead cables, to wherever it is needed.

10.Step-down transformer: Once the electricity reaches its destination,

another transformer converts the electricity back to a lower voltage
safe for homes to use.

11.Homes: Electricity flows into homes through underground cables.

12.Appliances: Electricity flows all round your home to outlets on the

wall. When you plug in a television or other appliance, it could be
making a very indirect connection to a piece of coal hundreds of miles
away

26
 MARKET SHARE

THERMAL POWER has been operating its plants at high efficiency levels.

Although the company has 17.75% of the total national capacity, it

contributes 27.40% of total power generation due to its focus on high

efficiency.

Fig

1.3

THERMAL POWER Vs Rest of India

27
PERFORMANCE STATISTICS

In terms of operations, THERMAL POWER has always been considerably

above the national average. The availability factor for coal based power
stations has increased from 78.00% in 1997-98 to 88.00% in 2011-12, which
compares favorably with international standards. The PLF has increased
from 76.6% in 1998-99 to 85.00% during the year 2011-12.

Fig – 1.4 PLF of THERMAL POWER Station vs All India

COMPETITORS’ OVERVIEW

TATA POWER

Tata power is India’s largest private sector power utility. Its revenues are $ 1

bn. Its Profit after tax is $ 137 mn. Its generation capacity is 2300 MW. Out

of that in Mumbai, the capacity is 1800 MW. It has presence in generation,

28
transmission and distribution of power. It supplies power to Mumbai and

Delhi regions.

Business strategy:

The core business of Tata Power Company is to generate, transmit and

distribute electricity. The Company operates in two business segments:

Power and Other services. The Power segment is engaged in generation,

transmission and distribution of electricity. The other services segment

includes electronic equipment, broadband services, and project consultancy

and oil exploration.

RELIANCE ENERGY

Reliance Energy Ltd (REL) formerly known as Bombay Suburban Electric

Supply (BSES) is a part of the Anil Dhirubhai Ambani Group. It is an

integrated power utility company in the private sector in India which came

into existence when it took over BSES in 2002.

The company is the sole distributor of electricity to consumers in the

suburbs of Mumbai. It also runs power generation, transmission and
distribution businesses in other parts of Maharashtra, Goa and Andhra
Pradesh. REL has significant presence in the field of execution of the Power
projects on EPC (Engineering, Procurement and Commissioning) basis.

29
CESC

CESC, a power utility in India was setup in 1899. CESC Limited is a

flagship company of RPG Enterprises, which is one of India's well-managed
groups of companies with a diversified presence. Company brought thermal
power to India more than 100 years ago and supplies power to the city of
Kolkata.

GAIL (INDIA) LIMITED

GAIL (India) Limited is no blowhard when it comes to turning energy into

profits. The largest gas transmission and marketing company in India, GAIL
owns more than 6,700 km of pipeline and has a 78% market share in India's
natural gas transmission business. It has seven gas processing units and
owns India's largest gas-based petrochemicals complex. In addition, GAIL
has major domestic exploration and production operations. It also has a
fibre-optic cable network of 13,000 km that provides bandwidth to
telecommunications carriers. It is also involved in liquefied natural gas
import projects. The company is also exploring buying US shale assets. The
government of India owns 57% of the company.

30
 WORK FORCE DETAILS

THERMAL POWER has continuously been part of the Best Workplaces List

for the last eight years and has been consistently amongst top performers.

THERMAL POWER has over 25000 employees spread over 29 locations

across the country. Company is the leader in power generation with presence

in Thermal, Hydro, power trading, coal mining and power consultancy

services.

The below pie-chart shows the category wise distribution of employees of

THERMAL POWER, Korba as on 31-03-2012.Today THERMAL POWER

Korba with a dedicated and trained manpower of around 2300 employees

has earned a distinction for itself in the field of power generation. For works

of non-perennial nature, contracts are resorted to. All employees and also

contractor employees are covered under safety, health and environmental

management system (IS/ISO 14001: 1996 & IS18001:2000).

31
Fig – 1.5 THERMAL POWER, Korba Manpower Profile

THERMAL POWER, Korba maintains healthy and mutually enriching

relationship with all representatives (Unions & Associations) of its people.

Award and Reward scheme is effectively developed to recognize the

contributions of our people who are making THERMAL POWER, Korba a

success story.

In tune with the need for massive capacity addition in the changing scenario,

adding another 500 MW Unit was commenced on end of 2010. Once

completed, Korba will added another feather in its cap by having the first

Merchant Power plant of THERMAL POWER and will thus help the

company in taking one more step in its Mission 2017.

32
In present day scenario, only the most economical, Qualitative and efficient

power generating station will meet the requirement of survival of the fittest.

Korba Super Thermal Power Station is constantly raising the bar of efficient

and economical power generation for excellence.

Despite over 25 years, THERMAL POWER Korba achieves over 97% PLF

and is thus treated as one of the best stations when we talk about Power

Generation in India today. Meritorious Performance Awards of twenty times

in the last 26 years is a testimony to the fact that this project has created a

niche in the domain of Operation and Maintenance of thermal power

stations. The station has in fact set a benchmark in producing power at the

lowest cost.

33
Fig - 1.6 ORGANIZATIONAL STRUCTURE

CMD
THERMAL

DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR

FINANCE PRODUCTION MARKETING HR TECHNICAL

REGIONAL DIRECTOR

GENERAL MANAGER

DEPUTY GENERAL
MANAGER

ASSISTANT GENERAL
MANAGER

SENIOR MANAGER

MANAGER

34
 FACTORS CONTROABLE
BY MANAGEMENT
JOB SECURITY: Industrial workers say that what they want most is steady work.
Employment relation in the last decade has undergone a fundamental change. Fell
time permanent employment has been declining and other forms of insecure work
agreements like contracts, temporary and labour has been increasing. It is suspected
that the loss of jobs is more pronounced among blue-collar workers that in white-
collar workers.

 PAY: the importance of pay as a factor in job satisfaction has been greatly
overemphasized by management. Many companies feel that a pay raise is a “cure-
all” which will make everyone in the plant happy. Pay ranks well below security,
type of work and opportunity for advancement. The importance of pay will
probably change with labour market, with economic conditions and with
employees beliefs about the job situation.

 FRINGE BENEFITS: Management as something employees want has

emphasized benefits, but the results of most of the studies show benefits in a
rather low position of importance.
 FRINGE BENEFITS: Management as something employees want has
emphasized benefits, but the results of most of the studies show benefits in a
rather low position of importance.
 OPPORTUNITY FOR ADVANCEMENT: studies show that opportunity for
advancement consistently ranks above average in importance. This factor is
more important to sales, and skilled personnel, and least important to
unskilled. Older workers were less interested in advancement that younger
ones, perhaps because a man does most of his advancing in his earlier years
and settles in one or two jobs in his last twenty years of working. Individuals,
who perceive that promotion decisions are made in a fair and just manner,
therefore are likely to experience satisfaction from their jobs.

35
 JOB SATISFACTION
AS AN INDEPENDENT VARIABLE

Managers interest in job satisfaction tends to center on its effect on

employee performance. A number of studies have been designed to
access the impact of job satisfaction on employee productivity,
absenteeism and turnover:

 SATISFACTION & PRODUCTIVITY: There is a positive

relationship between satisfaction and productivity. The relationship is
stronger when the employees behavior is not constrained or controlled
by outside factors. An employee’s productivity on machine-paced
jobs, for machine than his or her level of satisfaction. Similarly, a
stockbroker’s productivity is largely constrained by the general
movement of the stock market. When the market is moving up and
volume is high, both satisfied and dissatisfied brokers are going to
ring up lots of commissions.

One of the greatest myths held by managers is that the happier a worker is
the more he or she will produce. Research tells us that positive emotions do
not cause productivity. It is more likely that high productivity leads to
satisfaction. Management may have to do specific things to increase
productivity and separate things to improve satisfaction.

36
Assuming that the organization rewards productivity, your higher
productivity should increase verbal recognition, your pay level and
probabilities for promotion. These rewards increase your level of satisfaction
with the job.

SATISFACTION AND ABSENTEEISM: There is a negative relationship

between satisfaction and absenteeism. Dissatisfied employees are more
likely to miss work. Organizations that provide liberal stick level benefits
are encouraging all their employees including those who are highly satisfied
to take days off.

A study was made about how satisfaction directly leads to attendance, where
there is minimum impact from other factors. If satisfaction leads to
attendance, where there is absence of outside factors, the more satisfied
employees should have come to work while dissatisfied employees should
stayed at home.

 SATISFACTION & TURNOVER: Satisfaction is negatively related

to turnover, but the correlation is stronger than for absenteeism. Yet
again other factor such as labour market conditions, expectations
about alternative job opportunities and length of tenure with the
organization are important constraints on the actual decision to leave
one’s current job.

37
  SATISFACTION & JOB PERFORMANCE: Bray field and
Crockett examined all research relating to job satisfaction and job
performance upto 1955 and concluded that was virtually no evidence
of any relationship between these two variables.

In summarizing the research relating to job satisfaction to job behavior

variables, Vroom draws number of conclusions:

1) There is a consistent negative relationship between satisfaction and the

probability of resignation(turnover).
2) There is a less consistent relationship between satisfaction and
absences.
3) There is no simple relationship between satisfaction and job
performance.

38
HOW EMPLOYEES CAN EXPRESS DISSATISFACTION?

Dissatisfaction can be expressed in a number of ways. For example than quit employees
can complain, be insubordinate, steal organizational property, or shirk a part of their work
responsibilities. There are four responses that differs one another along with two
dimensions:

1) Constructiveness/Destructiveness

2) Activity/Passivity

 EXIT: Dissatisfaction expressed through behavior directed towards

leaving the organization which includes looking for a new position as
well as resigning.

 VOICE: Dissatisfaction expressed through active and constructive

attempts to improve conditions that includes suggesting
improvements, discussing problems with superiors and some from of
union activity.

 LOYALTY: Dissatisfaction expressed by passively but optimistically

waiting for conditions to improve, includes speaking up for the
organization in the face of external criticism and trusting the
organization and its management “to do the right thing”.

39
 NEGLECT: Dissatisfaction expressed through allowing conditions to
worsen, includes chronic absenteeism or lateness, reduce effort and
increase error rate.

Exit and neglect behavior encompass the performance variables

productivity, absenteeism and turnover. Constructive behaviors that allow
individuals to tolerate unpleasant situations or to revive a satisfactory
condition, which helps to understand situations such as those sometimes
found among, unionized workers, where low job satisfaction is coupled
with low turnover. Union members often express dissatisfaction through
the grievance procedure or through formal contract negotiations. These
voice mechanism allow the union members to continue in their jobs
while convincing themselves that are acting to improve situation.

40
 IMPORTANCE OF HIGH JOB
SATISFACTION

Managers should be concerned with the level of job satisfaction in their

organizations for at least three reasons:
a. Dissatisfied employees skip work more often and more likely to resign.
b. Satisfied employees have better health and live longer.
c. Satisfaction on the job carries over the employees life outside the job.

Satisfied employees have lower rates of both turnover and absenteeism. Specifically,
satisfaction is strongly and consistently negatively related to an employee’s decision to
leave the organization.

Several studies have shown that employees who are dissatisfied with their jobs are prone
to health setbacks ranging from headaches to heart disease. Some research even indicates
that job satisfaction is better predictor of length of life than in physical condition.

Job satisfaction has its importance for society as a whole. When employees happy with
their jobs, it improves their live off the job. These people will hold a more positive
attitude towards life in general and make for a society of more psychologically healthy
people. In contrast, the dissatisfied employee carries that negative attitude at home.

For management, a satisfied work force translates into higher productivity due to fewer
disruptions caused by absenteeism or good employees quitting, as well as into lower
medical and life insurance costs. Satisfaction on job carries over to the employee’s off the
job hours.

41
 RESEARCH METHODOLOGY

This project work started from Secondary sources to get financial statements of last five

years of THERMAL POWER and doing ratio analysis like Debt-Equity ratio, Proprietary

ratio, Interest coverage ratio, EPS, DPS, ROE, Return on capital employed, and DuPont

Analysis etc. This analysis helped me to find out comparison of profitability and financial

soundness & trend of the business.

Then second step involved visits to THERMAL POWER’s Registered Office at Scope

Complex, Lodhi Road, New Delhi to collect primary data about various sources of

finance, Investment patterns and procedure to analyze Financing and Investing activities

of THERMAL POWER by using various graphs and tables. Investment procedure

followed by THERMAL POWER has also been included as a part of the report.

There is one aspect which could have been worked in this project is in-depth analysis of

different proportions of various sources of funds invested in multiple projects of

THERMAL POWER Limited, if all data had been available.

42
 FUND MANAGEMENT

Fund Management can have various definitions; all of them have the meaning related to

money management. It refers to arranging for funds from various available sources of

finance and investing them in various investments by keeping in mind the profitability

position of the business.

It is the management of net funds available for investment from domestic and external

funds arranged from various sources of finance. Funds management attempts to supply

the funds sufficient to meet specified needs for long-term investments or growth

objectives at the lowest funding cost and at acceptable levels of risk.

It includes various Financing, Investing and Dividend decisions. These three decisions

are interrelated to each other i.e. one decision effects the other decision in the company

because the underlying objective of all these decisions is the same i.e. maximization of

shareholders wealth. The company has to consider the joint impact of these decisions on

the market strength, profitability, solvency position of the company. The decision to

invest in a new project needs the financing for the investment. The financing decision, in

turns is influenced by and influences dividend decision because retained earnings used in

internal financing deprive shareholders of their dividends. An efficient financial or funds

management can ensure optimal joint decisions. This is possible by evaluating each

decision in relation to its effect on the shareholders wealth.

43
Fund Management at THERMAL POWER Limited comprises of following financial

soundness objectives.

 To maintain and improve the financial soundness of THERMAL POWER by

prudent management of the financial resources.

 To continuously strive to reduce the cost of capital through prudent management

of deployed funds, leveraging opportunities in domestic and international

financial markets.

 To develop appropriate commercial policies and processes which would ensure

remunerative tariffs & minimize receivables.

 To continuously strive for reduction in cost of power generation by improving

operating practices.

44
 HUMAN RESOURCE POLICY

POWERING INDIA’S GROWTH: THROUGH PEOPLE

THERMAL POWER strongly believes in achieving organizational excellence through

Human Resources and follows "People First" approach to leverage the potential of its

23,500 employees to fulfill its business plans. Human Resources Function has formulated

an integrated HR strategy which rests on four building blocks of HR viz. Competence

building, Commitment building, Culture building and Systems building. All HR

initiatives are undertaken within this broad framework to actualize the H R Vision of

"enabling the employees to be a family of committed world class professionals making

THERMAL POWER a learning organization". To induct talent and groom them into a

dedicated cadre of power professionals "Executive Trainee" Scheme was introduced in

the year 1977 for recruitment in the disciplines of Mechanical, Electrical, Civil, Control

& Instrumentation and now encompasses Computer Science, Chemistry, HR and Finance

disciplines also. Besides a comprehensive one year training comprising theoretical inputs

as well as on-the-job training, the new recruits are attached with senior executives under

a systematic and formal 'Mentoring System' of the company to integrate them into the

Culture of the company. As part of post employment training and development

opportunities, a systematic Training plan has been formulated for ensuring minimum

seven man days training per employee per year and includes level-wise planned

45
intervention designed to groom people for assuming positions of higher responsibility, as

well as specific need-based interventions based on scientific Training Needs Analysis.

THERMAL POWER has created 15 project training centres, 2 simulator training centres

and an apex institute namely 'Power Management Institute' (PMI). While the project

training centres (Employee Development Centres) have specialized in imparting technical

skills and knowledge, PMI places emphasis on management development. Besides

opportunities for long term education are also provided through tie ups with reputed

Institutions like IIT, Delhi, (M.Tech in Power Generation Technology), MDI, Gurgaon

(Executive MBA programme), BITS, Pilani (B.Tech) etc.

In order to realize the HR Vision of making THERMAL POWER a learning Organization

by providing opportunities to continually learn new capabilities a number of initiatives

have been taken. THERMAL POWER Open Competition for Executive Talent (NOCET)

is organized every year in which teams of executives compete annually through oral and

written presentation on a topical theme. Similarly "Professional Circles" have been

formed department-wise where Executives of the department meet every fortnight to

share their knowledge and experiences and discuss topical issues. In order to tap the

latent talent among non executives and make use of their potential for creativity and

innovation, Quality Circles have been set up in various units/offices in THERMAL

POWER. Besides a management journal called "Horizon" is published quarterly to

enable the employees to share their ideas and experiences across the organization.

Demonstrating its high concern for people, THERMAL POWER has developed strong

employee welfare, health & well-being and social security systems leading to high level

of commitment. THERMAL POWER offers best quality of life through beautiful

46
townships with all amenities such as educational, medical and recreational opportunities

for employees and their family members. The motivation to perform and excel is further

enhanced through comprehensive THERMAL POWER Rewards and Recognition

system.

In order to institutionalize a strong Culture based on Values a number of initiatives are

taken to actualize the Vision and Core Values (COMIT) across the company. A culture of

celebrating achievements and a strong focus on performance are a way of life in

THERMAL POWER. THERMAL POWER has institutionalized "Development Centers"

in the company to systematically diagnose the current and potential competency

requirements of the employees with the objective of enhancing their development in a

planned manner. These Centers give a good insight to the employees about their strengths

and weaknesses, the gaps in their competencies which they can bridge through suitable

support from company.

Due to innovative people management practices there is a high level of pride and

commitment amongst employees as reflected in the "Best Employers in India-2003"

survey by Hewitt Associates in which THERMAL POWER bagged coveted third rank.

Further continuous efforts are being made by HR function to leverage the potential of its

employees and become a strategic business partner.

47
 RATIO
ANALYSIS
Of
THERMAL POWER
LIMITED

48
Financial Statement Analysis

Financial Statements of last 5 years of THERMAL POWER Limited are there being

analyzed with the help of some selected financial ratios to know about company’s long-

term solvency position and profitability position over a period of five years.

Long-Term Solvency Ratios:

1. Debt-Equity Ratio

2. Proprietary ratio

3. Interest Coverage Ratio

Profitability Ratios:

1. Earning Per Share

2. Dividend Per Share

3. Return on Equity

4. Return on Capital employed

49
Debt-Equity Ratio

This ratio expresses the relationship between long-term debts and Shareholders’ funds. It

indicates the proportion of funds which are acquired by long-term borrowings in

comparison to shareholders’ funds. Excessive liabilities tend to cause insolvency. It tells

the owners the extent to which they can gain the benefits or maintain control with the

limited investment.

2009-10 2010-11 2011-12 2012-13 2013-14

Rs. Million
Debts
1,27,090 1,49,415 1,66,719 2,01,195 2,44,516
Long-Term Loans
5,067 5,113 4,159 778 328
Working Capital Loans

or Debts:

(i) Bonds

(ii) Fixed Deposits 26,513 40,972 45,891 47,044 59,500

(iii) Foreign Currency 5,067 5,113 4,159 778 328

Bonds/Notes 55,900 49,780 44,927 66,085 72,537

(iv) Others including 44,677 58,663 75,901 88,066 1,12,479

loans from banks &

other advances
Total Debts 1,32,157 1,54,528 1,70,878 2,01,973 2,44,844

50
Equity/Net Worth

Share Capital 78,125 78,125 82,455 82,455 82,455

+Reserves & Surplus 2,37,002 2,77,376 3,35,308 3,67,132 4,03,513

- Miscellaneous 87

Expenditure

Equity 3,15,040 3,55,501 4,17,763 4,49,587 4,85,968

Debt-Equity Ratio =

Debts/Equity 0.42:1 0.43:1 0.41:1 0.45:1 0.50:1

51
Debt funds of THERMAL POWER Limited include Bonds, Fixed Deposits, Foreign Currency

Bonds/ Notes, Loans from banks & financial institutions etc. Equity includes Share Capital,

Capital Reserve, Share premium, Bonds redemption reserve, General reserves & surplus.

Equity has been increasing continuously mainly due to increase in retained earnings. Debts are

increasing due to increase in long-term loans but company has not been accepting large amount

of Public deposits for working capital as THERMAL POWER’s internal accruals are sufficient.

Standard for debt-equity ratio is 2:1. Debt-equity ratio stands in between 0.41 to 0.50 only. It

shows that

company is following a conservative approach. In past three years, debts are increasing at

faster rate than equity. High proportion is risky since loans carry with them the obligation to

pay interest at a fixed rate which may difficult if profit is reduced. But this ratio indicates that

the long-term financial position of THERMAL POWER Limited is sound.

Proprietary Ratio

52
This ratio indicates the proportion of total assets funded by owners or shareholders. It is a

variation of the debt-equity ratio. It is very important as far as dependence of the company on

its owned capital and particularly important to the creditors.

2009-10 2010-11 2011-12 2012-13 2013-14

Rs. Million
Equity/Net Worth

Share Capital 78,125 78,125 82,455 82,455 82,455

+Reserves & Surplus 2,37,002 2,77,376 3,35,308 3,67,132 4,03,513

- Miscellaneous 87

Expenditure

Shareholders’ Funds 3,15,040 3,55,501 4,17,763 4,49,587 4,85,968

Assets
2,62,513 2,87,498 3,22,400 3,67,235 4,24,873
Fixed Assets
36,674 1,73,380 2,07,977 1,92,891 1,60,943
Investments
1,94,132 1,35,468 1,29,106 1,57,245 2,21,827
Current Assets

Total Assets 493319 596346 659483 717371 807643

Proprietary Ratio =

Equity / Total Assets 0.64 0.60 0.63 0.63 0.60

53
 Fig. 3

Higher proprietary ratio (above 50%) is generally treated an indicator of sound financial

position from long-term point of view, because it means that a large proportion of total assets is

provided by equity and hence the firm is less dependent on external sources of finance.

THERMAL POWER’s proprietary ratio stands between 60% to 64% over last five years. It

shows that long-term financial position of the company is very sound.

Interest Coverage Ratio

This ratio is very important from the lenders’ point of view. It indicates whether the business

would earn sufficient profit to pay periodically interest charges. It shows the number of times

54
the interest charges are covered by the income out of which they will be paid. The higher the

number, the more secure the lender is in respect of his periodical interest income as this ratio

measures the margin of safety for the lenders.

2009-10 2010-11 2011-12 2012-13 2013-14

Rs. Million
Earnings before Interest
57247 94987 85083 83719 107668
& Tax (EBIT)
Interest on long-term
9916 33697 16955 17632 18594
debts
Interest Coverage
5.77 Times 2.82 Times 5.02 Times 4.75 Times 5.79 Times
Ratio = EBIT/Interest

Fig. 4

THERMAL POWER’s Interest Coverage Ratio is satisfactory in last 5 years except year

2010-11 because of high interest charges on long-term borrowings. It shows very low

ability of the company to meet interest payments in 2010-11. But it is now improving and

55
increased to 5.79 in 2013-14 in spite of fall in 2012-13, which is a good indicator of long-

term solvency position.

Earning Per Share

Earning per share (EPS) helps in estimating the company’s capacity to pay dividend out

of its total earnings to its equity shareholders. It measures the net income earned on each

share. It also helps in determining the market price of the equity share of the company

and useful perspective for determining profitability.

2009-10 2010-11 2011-12 2012-13 2013-14

Profit After Tax

(Rs. Million)
36075 52608 58070 58202 68647
( Earnings available to

Equity Shareholders)
No. of Equity Shares 7812549400 7812549400 8245464400 8245464400 8245464400
EPS = Profit After

Tax / No. of Shares 4.62 6.73 7.04 7.06 8.33

( in Rupees)

56
 Fig. 5

EPS of THERMAL POWER Limited has been continuously rising in last five years as

shown in above chart. It means that Equity Share Capital is being effectively used over

past 5 years.

Dividend Per Share

Dividend per share ratio indicates the amount of profit distributed to shareholders per

share. It reflects how much profit is paid as dividend and how much is retained by the

company.

57
 2009-10 2010-11 2011-12 2012-13 2013-14
Dividend paid to

Equity Shareholders 7080 10823 19790 23087 26385

( Rs. in Million)
No. of Equity Shares 7812549400 7812549400 8245464400 8245464400 8245464400
DPS = Dividend 0.

paid/No. of Shares 91 1.38 2.40 2.80 3.20

( in Rupees)

Fig. 6

58
Dividend paid per share in last 5 years has been continuously increasing. Proportionate

increase in DPS of 2011-12 from 2010-11 is more than proportionate increase in EPS in

that period. It indicates that more share of earnings is being distributed to equity

shareholders.

Return on Equity

The shareholders of a company are more interested in knowing how much their

investment has earned. Profit that is available to equity shareholders is net profit after

interest, taxes and dividends payable on preference share capital. ROE measures the

profitability of equity funds invested in the company.

2009-10 2010-11 2011-12 2012-13 2013-14

Rs. Million
Profits after tax 36075 52608 58070 58202 68647
Shareholders’ Funds
3,15,040 3,55,501 4,17,763 4,49,587 4,85,968
or Equity
ROE = Profits after
11.45% 14.80% 13.90% 12.95% 14.13%
tax*100/Net Worth

Return on Capital Employed

59
Fig. 7
This ratio represents the earnings of the company against the funds invested in the

business. It shows the rate of return generated by the company and is the best measure to

analyze overall performance of the company from the standpoint of profitability. In short,

this ratio tells the owner whether or not all the effort put into the business has been

worthwhile or not.

2009-10 2010-11 2011-12 2012-13 2013-14

Rs. Million
Earnings before interest
57247 94987 85083 83719 107668
& tax (EBIT)
Capital Employed

(Net Worth + Long-term 386343 458267 500540 523572 564331

debts)
ROCE =
14.82% 20.73% 17.00% 16.00% 19.08%
EBIT*100/Cap. Emp.

ROCE has been lying between 14 to 21% approximately in last five years. Funds

employed both equity & long-term debts were being effectively utilized the most in 2010-

11 as compared to other years in last 5 years. ROCE had decreased in 2012 & 2013, but it

has again gone up in 2013-14to 19.08%.

DUPONT ANALYSIS

60
Fig. 8
It is a type of analysis that helps to examine a company's Return on Equity (ROE) by

breaking it into three main components- Profit Margin, Asset Turnover and Leverage

factor. By breaking the ROE into these three distinct parts, one can examine how

effectively a company is using equity, since poorly performing components will drag

down the overall figure. ROE is calculated by multiplying ROA and Equity Multiplier.

ROE = Return on Assets * Equity Multiplier

Return on Assets is further broke down in two parts: Profit Margin & Assets Turnover.

Return on Assets = Profit Margin * Assets Turnover

ROE = Profit Margin * Assets Turnover * Equity Multiplier

61
 ROE
(Net Income / Equity)

ROA Equity Multiplier

(Net Income / Total (Total assets /
Assets) Equity)

PROFIT ASSETS
MARGIN TURNOVER
(Net Income / (Revenue/Total Assets)
Revenue) Fig. 9

Profit Margin shows profitability & operating efficiency of the company. It tells that how

much profit the company gets out of its resources. Assets turnover shows assets use

efficiency i.e. how effectively the company makes use of its assets. Equity Multiplier is

the leverage factor which is a measure of how much the company is leveraged.

DUPONT ANALYSIS OF THERMAL POWER LIMITED:

62
 2009-10 2010-11 2011-12 2012-13 2013-13
Rs. Million
Net Income or
36075 52608 58070 58202 68647
Profits after tax
Revenue or Sales 2,04,302 2,52,387 2,56,525 2,93,370 3,53,766

Total Assets 493319 596346 659483 717371 807643

Equity 3,15,040 3,55,501 4,17,763 4,49,587 4,85,968

Profit Margin =
17.66% 20.84% 22.64% 19.84% 19.40%
Net Income / Revenue
Assets Turnover =
41.41% 42.32% 38.90% 40.90% 43.80%
Revenue / Total Assets
Equity Multiplier =
1.57 1.68 1.58 1.60 1.66
Total Assets / Equity
ROA = Profit Margin *
7.31% 8.82% 8.81% 8.11% 8.50%
Assets Turnover
ROE = ROA * Equity
11.47% 14.82% 13.92% 12.98% 14.11%
Multiplier

63
 Fig. 10

 ROE & ROA both have been increasing in the same trend in last five years.

 In 2011, Profit margin has been increased due to increase in net incomes, which

gave a positive effect on the operational efficiency and also led to positive change

in ROA.

 In 2012, Assets turnover has been decreased, which shows that increase in assets

were not being fully utilized by the company. Equity Multiplier has also been

decreased i.e. leverage came down due to its IPO in 2011. Both of these

Profitability & Leverage factor led to decrease in ROA & ROE both.

 In 2013, Assets of the company were being fully utilized by the company as

shown by its assets turnover ratio. Profit margin decreased due to Rs.37,316

million increase in expenditures which shows that company got fewer amounts of

profits out of its revenues in that year. ROE & ROA decreased due to that factor.

 In 2014, ROE & ROA has gone up and these are now again coming to line with

figures of 2011. In this year also assets have been fully utilized by the company.

64
Three Components of DuPont:

1. PROFITABILITY

Profitability position of the company as shown by the first component i.e. Profit Margins

have been increased from 17.66% to 19.44% in last 5 years, which is good for the

company. These have shown decrease after 2012 due to increase in expenditures but by

analyzing overall figures of last 5 years, THERMAL POWER’s operating efficiency is

good.

2. ASSETS USE EFFICIENCY

The second component i.e. Assets Turnover shows assets use efficiency. It has been

increased from 41.41% to 43.80% & showing an upward trend in usage efficiency of the

assets except year 2125.

3. DEGREE OF LEVERAGE

The degree of leverage as shown by the third component Equity Multiplier has gone up

from 1.57% to 1.66% and it is also showing an increasing trend over the last 5 years.

65
SOURCES
OF
FINANCE

66
SOURCES OF FINANCE IN THERMAL POWER LIMITED

THERMAL POWER Limited procures funds from different internal and external sources of

funds by accessing both domestic and international financing. THERMAL POWER's funding

operations are designed to ensure that necessary financial resources are available to fund the

current and proposed expansion of its generation capacity at the lowest possible funding cost.

THERMAL POWER does not rely on Government funds and is not subject to any

Government budgetary approvals. Based on its financial and operational performance, in July

1997 the Government named THERMAL POWER one of the nine initial Navratna (or nine

jewels) companies and granted it enhanced autonomy in making financial and other

decisions. It can raise funds at home and internationally without Government approval or

interference. THERMAL POWER is permitted to form joint ventures and subsidiaries up to

specified limits, subscribe equity in these entities, purchase, and receive new technology and

knowledge transfer.

1. EQUITY SHARE CAPITAL

THERMAL POWER was 100% Government owned prior to its initial public offering (IPO)

in October 2011. The IPO raised Rs. 54 billion ($1.2 billion) through the issuance of new

shares plus divesting a portion of the Government’s shares. THERMAL POWER Limited is

now Government-owned entity with 89.5% of its paid-up capital contributed by the

Government and the balance of 10.5% being held with foreign institutional investors,

financial institutions, banks, and the general public. The current value of THERMAL

67
POWER’s share price has nearly doubled since the IPO. The proceeds from the new shares

are being applied to funding THERMAL POWER’s capital expansion program. The IPO’s

success reflects positive sentiments from both domestic and foreign investors toward

THERMAL POWER’s financial strength, its position in the market, and its growth prospects.

It has been accepting funds only through equity share capital, not preference share capital.

THERMAL POWER’s authorized share capital is Rs. 10,000 crore at present consisting of

10,000,000,000 equity shares of Rs. 10 each. THERMAL POWER equity shares are listed on

two stock exchanges- NSE with scrip code THERMAL POWER EQ and on BSE with scrip

code 532555. Its stock code is ISIN-INE733E01010.

Authorized Issued Paid Up Paid Up Paid Up

Year Capital Capital Shares Face Value Capital

(Rs. Cr.) (Rs. Cr.) (Nos) (Rs.) (Rs. Cr.)

2013-14 10,000.00 8,245.46 8245464400 10 8,245.46
2012-13 10,000.00 8,245.46 8245464400 10 8,245.46
2011-12 10,000.00 8,245.46 8245464400 10 8,245.46
2010-11 10,000.00 7,812.55 7812549400 10 7,812.55
2009-10 10,000.00 7,812.55 7812549400 10 7,812.55
2008-09 8,000.00 7,812.55 78125494 1,000 7,812.55

68
 Fig. 11

THERMAL POWER’s paid-up capital has been increased to Rs.82455 million in 2011-12

from Rs.78125 million in previous year after its IPO of 865.830 million equity shares.

The IPO

comprised fresh issue of 432.915 million equity shares and “Offer for Sale” by

Government of India of 432.915 million equity shares with a price band of Rs. 52 to Rs.

62 per equity share of Rs. 10 each. The total issue of 865.8 million shares received

overwhelming response and was fully subscribed soon after opening. The book was

subscribed 3.67 times on day one. The issue was closed on October 14, 2011. While the

Qualified Institutional Buyers’ portion was oversubscribed by 18.98 times, the overall

subscription was 13.14 times. The issue mopped up Rs. 235,241 million with a valid

demand for 11,378 million equity shares through 14.68 lakh applications. Over 98% of

the total book was built at the highest end of the price band at Rs. 62 per share. Hence,

the price of each equity share was fixed at Rs. 62.

69
Shareholding Pattern

The entire share capital (Rs.7812.55 Crore) was owned by govt. prior to year 2011 and no

additions have been made in share capital in 2009 & 2010. However, the authorized capital

has been increased from Rs.8,000 crore to Rs.10,000 crore and the face value of shares has

been split to Rs.10 each from Rs.1,000 each in 2009-10.

% to Equity

Category 2011-12 2012-13 2013-14

GOI 89.5 89.5 89.5

FIIs 5.82 7.07 7.05

Indian Public 3.04 2.03 1.79

Banks & FIs 0.77 0.56 0.08

Private Corp. Bodies 0.51 0.30 0.33

Mutual Funds 0.24 0.47 0.55

NRI/OCBs 0.06 0.03 0.03

Others 0.06 0.04 0.67

Total 100.00 100.00 100.00

Government share in equity capital is 89.5% now after 2004 and balance 10.5% is being

held with Foreign Institutional Investors, Indian Public, Banks & financial institutions,

Private & Corporate Bodies, Mutual Funds & UTIs, NRIs & others in different

proportion as shown in the following charts.

70
 2. RETAINED EARNINGS

THERMAL POWER Limited is also been engaged in getting funds through its retained

earnings in various forms like capital Reserve, Share Premium Account, Bonds

Redemption Reserve, Foreign Project Reserve, General Reserve & Surplus etc. It ploughs

back a reasonable amount of profit after paying Dividend annually to the government and

its other shareholders keeping in view its legal requirements & expansion plans. Its

reserves & surpluses have been rising continuously from Rs.2,37,002 million in 2003 to

Rs.4,03,513 million in 2014.

THERMAL POWER's dividend target is 30% of profit after tax but the policy allows

THERMAL POWER to take into account its requirements for internal resources to fund

its capacity expansion program. The declaration and payment of a dividend is

recommended prudently by the Board and approved by the THERMAL POWER

shareholders. The dividend paid for 2011-12 was Rs19,790 million, or 34.1% of profits

after tax, which is almost double the dividend paid for the previous fiscal year of

Rs10,823 million or 20.6% of profits after tax. The dividend paid for 2013-14 was

Rs.26385 million or 38.43% of profits after tax.

2009-10 2010-11 2011-12 2012-13 2013-14

Reserves & Surplus
Rs. Million
Free Reserves and 2,35,769 2,76,113 3,11,693 3,43,543 3,79,920

Surplus (including

Bonds Redemption

71
Reserve)

Share Premium
- - 22,334 22,281 22,281
Account
Foreign Project
4 4 2 - -
Reserve
Capital Reserve
1,229 1,259 1,279 1,308 1,312
Total Reserves &
2,37,002 2,77,376 3,35,308 3,67,132 4,03,513
surpluses

THERMAL POWER’s Reserves & Surpluses have been continuously rising, which

shows the strong position of the firm to finance its expansion plans from internal

accruals.

3. BORROWINGS

THERMAL POWER taps domestic as well as overseas markets for borrowings. Its debt

funding has been either secured or unsecured depending on the availability of funds and

the cost of borrowing. It accepts secured loans and unsecured loans through its different

Bonds series, Public Deposits Schemes, Foreign Currency Bonds/Notes, term loans and

other loans & advances from Banks & Financial Institutions and loans from Government

of India.

In the domestic market, long-term loans from banks and financial institutions are a major

source of financing. In the case of borrowing from the International market, THERMAL

72
POWER is subject to guidelines issued by the Ministry of Finance and the Reserve Bank

of India. Under the existing guidelines, THERMAL POWER can borrow up to $500

million per annum from the international market without seeking any Government

approvals. THERMAL POWER has a long and successful track record of raising foreign

currency debt through syndicated loans, export credits, bonds, bilateral untied loans, and

so on. The company also explores avenues for funding its projects through Overseas

Development Assistance provided by multilateral / bilateral agencies.

Indian financial institutions have single borrower limits of 15% of net own funds, so

THERMAL POWER has determined that limited headroom is available in the next

several years to continue borrowing from these banks and financial institutions. By

process of elimination, this leaves rupee bond issues and external commercial borrowings

as the key sources of financing for future projects. Based on this analysis, THERMAL

POWER’s long-term corporate debt strategy is to borrow external bank-sourced debt on

an unsecured basis,

and to complement such borrowings to the maximum practical extent with rupee bond

issues, which must, as required by the Companies Act, be secured against THERMAL

POWER’s assets.

73
THERMAL POWER does not secure its external and domestic borrowings other than

required by law for rupee bond issues. All external commercial borrowings have been

made from the international bank market on a negative pledge basis, except for a loan

extended by the World Bank in 1993. Approximately $4.4 billion has been raised without

creating a charge on fixed assets. All rupee loan agreements executed with Indian lenders

are unsecured.

BONDS

THERMAL POWER has made various issues of Bonds on both Public and Private

Placement basis from time to time to finance new and ongoing schemes of expansion. In

fact, THERMAL POWER has been a fore-runner in the issue of Bonds by the Indian

Public Sector and the first issue was made in 1986. All the issues made by THERMAL

POWER have been very well received by the public, resulting in over-subscription every

time. Under Section 125 of the Companies Act, Bonds must be secured by 125% of their

value against issuer’s assets.

The Company’s bonds have been rated by different credit rating agencies in 2003 as

follows:

Domestic Bonds-

CRISIL: ‘AAA’

ICRA: ‘LAAA’

Euro Bonds

Standard and Poors: ‘BB (Stable)’

Fitch: ‘BB + (Stable)

74
In 2006, the Company has renegotiated with LIC, the interest rate on the un-drawn

amount of Term Loan of Rs 30000 million and Bonds of Rs 25000 million. LIC has

decided to reduce the same by 25 bps, thereby effecting an approximate saving of Rs

1068 million over the life of the loan.

The different rating of credit rating agencies and negotiation with LIC indicates that

THERMAL POWER can raise funds through Bonds whenever it is required.

PUBLIC DEPOSITS

THERMAL POWER Limited accepts Public Deposits under various schemes to augment

the resources for working capital requirements. The deposit schemes of the company

carry highest CRISIL rating "FAAA" which indicates highest safety regarding timely

payment of interest and principal. According to Companies (Acceptance of Deposits)

Rules 1975, the company can raise funds by way of Deposits up to 35% of the aggregate

Paid-up Capital and Free Reserves. For example: Company’s paid-up capital and free

reserves in 2006-07 are Rs.82455 million & Rs.4,03,513 million respectively. The

amount which it can raise by way of Deposits is 35% of 485968 (82455+403513) i.e.

Rs.1,70,088.80 million. The aggregates of Deposits actually held by the company in last

5 years are as follows.

2009-10 2010-11 2011-12 2012-13 2013-14

Rs. in Million

Public Deposits 5,067 5,113 4,159 778 328

75
Its Public Deposits are very low as compared to permissible issue amount of deposits.

They have been cash surplus from 1996 and under Companies Rules 1975. These are not

only low but have been continuously decreasing. The company is well positioned to raise

borrowing from domestic as well as international market. They have been cash surplus

from 1996 so it had not felt need to raise more funds through Public Deposits. Public

Deposit Section has an investor base of 363 deposits-holders with deposits of Rs.12.70

crore as on 30.04.2014. Interest rates have been continuously changing year to year with

changing economic conditions, market rates, Government rules & regulations etc.

76
 Revision of Rates of Interest

on THERMAL POWER’s Public Deposits Schemes

Annual Yield
Time Period Rate Of Interest (%)

From To 1 Year 2 Years 3 Years (%)

26.09.01 30.06.02 7.50 8.00 8.50 9.57

01.07.02 23.09.02 7.00 7.50 8.00 8.94

24.09.02 18.12.02 7.00 7.25 7.50 8.32

19.12.02 24.09.03 6.00 6.25 6.50 7.11

25.09.03 31.03.06 5.25 5.50 5.75 6.23

01.04.06 19.09.06 5.75 6.00 6.25 6.81

20.09.06 20.12.06 6.50 6.75 7.00 7.71

21.12.06 Till Date 7.25 7.50 7.75 8.63

77
THERMAL POWER’s various cumulative and non-cumulative Public Deposit Schemes

offered by the Company with effect from 21.12.2006 are as follows:

NON-CUMULATIVE

SCHEME A SCHEME B

QUARTERLY INTEREST MONTHLY INTEREST

Deposits in multiples of Rs.1,000 with a Deposits in multiples of Rs.1,000 with a

minimum amount of Rs.5,000. Interest minimum amount of Rs.1,00,000.Interest

payable at quarterly rests. payable on monthly basis.

Minimum Minimum
Rate of Interest
Amount Amount Rate of Interest (p.a.)
Period (p.a.) Period
(Rs.) (Rs.)
5,000 1 year 7.25 % 1,00,000 3 years 7.75%

5,000 2years 7.50%

5,000 3 years 7.75%

CUMULATIVE

Interest compounded @ 7.75% p.a. at quarterly rests.

78
 Effective annual yield 8.63% (Simple)

SCHEME C SCHEME D

Deposits in multiples of Rs.1,000/- with a

Deposits in multiples of Rs.3,972/-
minimum amount of Rs.5,000/-

Amount
Amount
Minimum repayable on
Invested
Amount (Rs.) Period Period maturity
(Rs.)
(Rs.)*

3,972 3 years 5,000

7,944 3 years 10,000

5,000 3 years
15,888 3 years 20,000

39,720 3 years 50,000

79,440 3 years 1,00,000

* Subject to TDS. All amounts are rounded-off to nearest Rupee

OTHER LOANS

THERMAL POWER's primary source of funding traditionally has been foreign currency

loans from multilateral or bilateral financial agencies. These loans were guaranteed by the

Government. More recently, THERMAL POWER has undertaken foreign-currency-

79
denominated external commercial borrowings in the form of export credits for imported

equipment; issuance of Eurobonds and syndicated loans; and domestic borrowings

denominated in rupees, including term loans and bonds.

THERMAL POWER is in advanced stage of negotiations for loans with various

multilateral and bilateral funding agencies such as JBIC, ADB and NIB. THERMAL

POWER has been procuring loans from Asian Development Bank, JBIC, Nordic, Export-

Import Bank of Korea, IBRD, SBI, OPEC, OECF, IDA, Sumitomo Bank Ltd. Hong-

Kong etc. It also have accepted Foreign currency bonds like Euro-bonds, Fixed Rate

notes, ECBs and loans like Swedish credit, French Credit, Japanese Govt. Loan, Belgian

credit etc. in last 5 years for its various projects.

It contract loans in a given year but the drawls are based on the progress of the project

concerned.

Medium Term Note: THERMAL POWER established a MTN programme for USD 1

billion in 2012-13 to tap debt funds from international market to finance its capital

expenditure requirement. The first offering off the MTN shelf was made by issuing its 10

year Fixed Rate Notes amounting to USD 300 million, the first issue out of India for a

10 year bond deal after 1997. The issue evoked an overwhelming response from the

investors leading to over subscription of the order book by over 5 times, attracting more

than 100 investors. Standard & Poor's have revised outlook on the rating of the company

from stable to positive in 2013 and has while affirming 'BB+' issuer rating. During the

year, the Company has received Issuer rating of 'IRAAA' from ICRA, which indicates

80
highest credit quality rating assigned by ICRA. These ratings reflect THERMAL

POWER’s dominant market share, diversified asset portfolio, and strong financial profile.

ADB Loan: During the year 2013-14, Company has signed an agreement with Asian

Development Bank (ADB) for a loan of USD 300 million under Complementary Finance

Scheme of ADB in September 2013. ADB has extended this loan for the first time to the

Company directly and also without any Sovereign guarantee.

ADB will provide loan of $300 million to THERMAL POWER in two tranches:

(i) Tranche A of up to $75 million with a maturity of up to 11 years, including an

availability period of up to 4 yrs, and semiannual repayments starting at the end of year 7.

Tranche A from ADB’s ordinary capital resources will carry an interest rate to be

determined in accordance with the London Interbank Offered Rate (LIBOR) plus a

margin determined by ADB's Interest Rate Committee. Similarly, ADB’s Interest Rate

Committee will determine the up-front and commitment fees.

(ii) Tranche B of up to $225 million with a maturity of up to 7 years, including an

availability period of up to 18 months and semiannual repayments starting at the end of

year 4. Tranche B, loaned by ADB as lender of record under its CFS program, will be

syndicated to commercial banks by the lead CFS arranger, with an interest rate of LIBOR

plus a margin to be determined by the commercial market during syndication.

81
Since 1997, THERMAL POWER has been borrowing without Government assistance

from external commercial financial sources. ADB’s objective in processing this

transaction was to lend and to facilitate co financing, in each case without government

guarantee to THERMAL POWER so as to ensure that power generation can be expanded

at a least cost to the economy and the recovery of the power sector can be sustained.

INVESTMENTS
IN
NEW OR
EXPANSION
PROJECTS
82
 PROJECT FINANCING IN THERMAL POWER

THERMAL POWER is a financially sound enterprise with a strong balance sheet, an

effective governance structure, and experienced management. Government named

THERMAL POWER one of the nine initial Navratna (or nine jewels) companies and

granted it enhanced autonomy in making financial and other decisions, including the

freedom to engage in investment, capital expenditures, and raising of funds at home and

internationally without Government approval or interference.

THERMAL POWER is permitted to form joint ventures and subsidiaries up to specified

limits, subscribe equity in these entities, purchase, and receive new technology and

knowledge transfer. It is permitted to decide the locations for its plants (a matter

previously determined by the Planning Commission) and has the freedom to

83
independently negotiate power purchase agreements with its customers. This status has

helped THERMAL POWER to increase the speed of implementing new projects,

absorbing new technologies, and formatting joint ventures in the core generation as well

as support service businesses.

THERMAL POWER’s Financing Philosophy:

The company’s financing philosophy is to raise debt at the corporate level on the strength

of its balance sheet for the projects undertaken by it. However, projects undertaken

through joint ventures or subsidiaries are usually set up adopting project financing

structures without recourse to THERMAL POWER. This strategy reduces the pressure on

the balance sheet of THERMAL POWER and facilitates the raising of debt in larger

volumes.

THERMAL POWER can implement maximum of 10 power projects and there is ceiling

also of 15 per cent of the net worth of THERMAL POWER in one project and overall

ceiling of 30 per cent in all such projects. All the planned capacity addition programs of

THERMAL POWER Limited are financed with a debt-equity ratio of 70:30. To finance

its expansion plans, THERMAL POWER has developed its capital raising strategy based

in large part on the tariff norms laid out by the Central Electricity Regulatory

Commission (CERC 2011 Terms and Conditions for Tariff Period 2011–2016).

The tariff order dictates the extent to which the cost of financing THERMAL POWER’s

ongoing projects can be recovered from the bulk tariffs. These norms require that the

84
equity component should not be greater than 30% of total capital, as this would increase

the weighted average cost of capital to be recovered from the tariff. Any equity financing

in excess of the stipulated 30% benchmark will not attract the 14% rate of return.

For example: If THERMAL POWER Limited has to invest total funds amounting to

Rs.32000 crore in different five projects as under:

A : Rs 5,000 Cr

B : Rs 10,000 Cr

C : Rs 8,000 Cr

D : Rs 5,000 Cr

E : Rs 4,000 Cr

Then THERMAL POWER will have to finance Rs 32000 Cr through 70:30 Debts-Equity

Ratio i.e. Rs.22400 Cr by Debts funds & Rs 9600 Cr by Equity funds under CERC 2011

terms and conditions.

Internal accruals, cash generation from operations of THERMAL POWER Limited are

sufficient to finance the equity portion of the investments which earns a fixed rate of

return of 14% through the tariff. Company is well positioned to raise the required

borrowing, as Company is presently geared with a debt-equity ratio of 0.50. Company

taps domestic as well as overseas markets for borrowings. THERMAL POWER is not

permitted under the external commercial borrowing provisions of the Reserve Bank of

India to borrow more than $500 million equivalent each year from foreign sources.

85
In order to optimize its returns in line with CERC tariff order, THERMAL POWER is

seeking to ensure that its debt component is not less than 70% of its overall capital

employed in new project. The financing of power generation plants typically require

tenors of 10–12 years (including grace periods) to amortize the debt to be recovered from

end-user tariffs. There are some commercial bank credit limits on cross border (i.e.

offshore) lending.

Tenors of syndicated bank loans of this magnitude are limited to 5 years, with a few

exceptional cases of 7 years. That’s why, Bank of America, a leading international

commercial bank, approached ADB’s Private Sector Operations Department to arrange

commercial, nonsovereign US dollar funds for THERMAL POWER for financing a

portion of the foreign exchange requirement of its fiscal 2014 capital expenditures.

The Cabinet Committee on Economic Affairs has given its approval for waiving the

ceiling for Rs 1,000 crore equity investment by THERMAL POWER to establish

financial joint ventures and wholly-owned subsidiaries in India or abroad for

participating in bidding for power projects. The move would facilitate greater

competition and establishment of more public sector power projects.

Capital expenditure incurred in 2012-13 on various capital schemes is Rs 71879 million

as compared to Rs 53603 million in 2011-12. THERMAL POWER’s current capacity is

29,144 MW, which includes 1,794 MW from joint ventures, and 16,930 MW is under

construction. The company has planned mega thermal capacity expansion programmes

under the XIth Five Year power generation plan of Government of India, which started in

86
2014 and will end by March 2018. The company plans to generate 50,000 MW by 2018.

It has already announced projects worth Rs 88,000 crore for the eleventh five-year plan.

During 2014-08, THERMAL POWER tied up funds from various financial institutions,

including Japan Bank for International Cooperation and Life Insurance Corporation.

THERMAL POWER Limited and Power Finance Corporation Ltd. (PFC) signed an

MOA for financing THERMAL POWER’s ongoing capacity addition programme.

PROCEDURE OF INVESTMENT BY THERMAL

POWER

IN NEW / EXPANSION PROJECTS

THERMAL POWER Limited follows following procedure for approval of investment of

funds in its new or expansion projects as per revised system of investment under

Navratna Powers.

87
 Environmen
Project Site t Impact FR / DPR
Location Assessment

Approval by
Initial Appraisal by
the Project
Investment Reputed
Sub-
Committee Financial
Organizatio
n

Approval Investment
for issue of Approval
NIT

1. Project Site Location

First of all, Project site is decided upon which investment is to be done. Site can be

located by SEB, CEA, Central Government or by THERMAL POWER itself. It is located

after all studies and investigation for new projects, topographical survey, and socio-

economic

88
survey. THERMAL POWER and relevant local authorities monitor environmental

features that relate to the main project impacts to check their compliance with project

approval conditions.

2. Environment Impact Assessment

In view of the proceeds of the financing being applied to projects, the environmental

impact assessment (EIA) is prepared and reviewed. Site visits undertaken and detailed

EIA studies including hydrological studies, Area Drainage study, Seismic study, Model

studies are required to be done after site location.

3. Feasibility Report / Detailed Project Report

FR / DPR are prepared in house by engineers after EIA. These are prepared on current as

well as estimated completion cost basis. Cost of this report and all above surveys should

not exceed Rs. 500 lakh for a project. CMD approves this cost.

4. Appraisal by Reputed Financial Organization

After FR / DPR being prepared, project is to be approved by any reputed financial

organization like SBI, CRISIL, ICRA, IDFC etc. If it is found viable by the organization,

FR is sent to the Project Sub-Committee for its approval.

5. Approval by the Project Sub-Committee

89
The Project Sub-Committee examines and makes recommendations to the Board on

proposals for Investment in New / Expansion Projects and Feasibility Reports of new

projects. The Project Sub-Committee of the Board comprised of CMD, Director

(Finance), Director (Projects), Director (Operations), Director (Technical), Director

(Commercial), Joint Secretary (Thermal) and one Non-Official / Part-time Director as

Members. The CMD shall be the Chairman of the Project Sub-Committee. The quorum

for the sub-committee shall be 4 members including one part-time Director.

6. Initial Investment

Advance expenditure for projects for which FR / DPR has been approved by the Project

Sub-Committee is done in activities related to development of infrastructure (such as

construction power, construction water, construction stores, construction office, approach

road, site protection etc.), processing & services charges for land acquisition, site

establishment etc. THERMAL POWER Limited can invest up to Rs. 15 crore for a

project in these activities. CMD approves this investment. Pre-requisites required for this

advance expenditure are as follows:

 FR / DPR submitted to CEA, wherever applicable

 FR / DPR approved by Project sub-Committee of the Board

 Project identified in the Annual Plan.

90
If project has received Techno-Economic Clearance (TEC) from CEA, and there is

necessary budgetary provision, then advance expenditure for projects can be done up to

Rs 50 crore (including earlier expenditure) for a project on activities related to land

acquisition of priority land, site leveling, initial expenditure on R&R, green belt etc.

7. Approval for issue of NIT

After CEA’s TEC, wherever applicable and appraisal by independent agency in case of

other projects, CMD shall approve issue of NIT for various packages including Main

Plant Package in case of New / Expansion Projects before Board’s investment approval.

If all clearances against appraisal have been done, then it goes for investment approval.

8. Investment Approval

Proposals for investment approvals shall be put up to the Board with the views of the

Project sub-Committee on such proposals. This committee would consider following pre-

requisites for various aspects of the proposal.

 Land availability confirmation.

 Water linkage from State Irrigation Department and concurrence of

CWC/MOWR, if it is inter-state jurisdiction.

 Fuel Linkage, wherever applicable.

 Signing of Fuel supply agreement, wherever applicable.

91
As part of its investment approval procedure, THERMAL POWER requires PPAs to be in

place for all new plants before approval is given for investment. The capacity of each

unit at each power station owned by THERMAL POWER is contracted to various

customers under the PPAs. For coal-fired stations, the term of the PPA for each unit is 25

years. For gas-fired stations, the term of the PPA for each unit is 15 years.

After considering various clearances, Board approves investment proposal for final

investment.

92
 FINDINGS & SUGGESTIONS

 The company has a strong balance sheet and enjoying highest credit ratings at

home as well as abroad.

 Equity capital is being effectively used over last 5 years as depicted by ROE.

 Long-term Financial Position of the company is sound and it is less dependent on

external sources of funds.

 Operating efficiency, Assets use Efficiency, Leverage ratios are good in last 5

years as depicted by DuPont Analysis.

 Despite an ambitious capital expansion plan, THERMAL POWER has maintained

low debt levels and has strong coverage ratios without affecting profitability of

the company.

 High budgeted expenditures will exert some pressure on THERMAL POWER’s

credit ratios; so cash flows from new facilities should keep coverage ratios at

acceptable levels.

 To finance its new projects and expansion plans, its internal accruals are sufficient

and also it is well positioned to raise borrowings from domestic & external

resources.

93
 CONCLUSION

Doing summer training in Finance at THERMAL POWER Limited, Dadri was a good

experience for me. It gave me a chance to apply my theoretical knowledge in practical

life. It provided me a field to have experience in the corporate world and to interact with

various corporate people while completing my project work.

I have done comparative analysis of Fund Management in THERMAL POWER Limited

in last 5 years to analyze the profitability & long-term solvency of the business and to

analyze different sources of funds to finance its various investments in new or expansion

projects. I came to conclusion that THERMAL POWER’s long-term profitability &

solvency positions are sound; its assets have been effectively utilized by the company

over last 5 years, its internal accruals are sufficient to finance equity portion of its

expansion plans. The company has received various credit ratings by different credit

rating agencies in last several years which shows strong financial profile and dominant

market share of the company. I came to know about how they follow investment

procedure for new or expansion projects.

Overall this was a good learning by working in Power Sector Company and practical

knowledge of financing activities in a thermal power plant was augmented.

94
ANNEXURE

95
96
 COMPARATIVE BALANCE SHEET OF THERMAL POWER LIMITED
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14
-- in Rs. Million --
SOURCES OF FUNDS

Shareholders’ Funds
Equity Share Capital 78,125 78,125 82,455 82,455 82,455

Reserves & Surplus 2,37,002 2,77,376 3,35,308 3,67,132 4,03,513

3,15,127 3,55,501 4,17,763 4,49,587 4,85,968
Deferred Revenue on

account of Advance 271 1,591 3,374 4,408 6,567

Against Depreciation
Development
- 3,784 - - -
Surcharge Funds
Loan Funds
Secured Loans 41,226 45,844 44,407 57,327 68,229

Unsecured Loans 90,931 1,08,684 1,26,471 1,44,646 1,76,615

1,32,157 1,54,528 1,70,878 2,01,973 2,44,844
Deferred Tax

Liability (Net) 44,379 52,280 50,570 53,224 54,427

Less: Recoverable 44,378 52,279 50,569 53,223 54,426

1 1 1 1 1

Total Liabilities 4,47,556 5,15,405 5,92,016 6,55,969 7,37,380

APPLICATION OF FUNDS
Fixed Assets
Gross Block 3,66,106 4,00,281 4,31,062 4,60,396 5,07,273

Less: Depreciation 1,67,456 1,87,736 2,07,914 2,29,501 2,50,792

Net Block 1,98,650 2,12,545 2,23,148 2,30,895 2,56,481

97
Capital Work-in-
51,543 56,413 67,063 1,30,999 1,28,567
Progress
Construction Stores
12,320 18,540 32,189 32,341 39,825
& Advances
2,62,513 2,87,498 3,22,400 3,67,235 4,24,873
Investments 36,674 1,73,380 2,07,977 1,92,891 1,60,943
Current Assets,

Loans & Advances

Inventories 17,712 17,380 17,819 23,405 25,102

Sundry Debtors 1,24,349 4,699 13,747 8,678 12,523

Cash & Bank Bal. 5,447 6,091 60,783 84,714 1,33,146

Other Current Assets 25,149 80,023 9,764 10,161 10,580

Loans and Advances 21,475 27,275 26,993 30,287 40,476

1,94,132 1,35,468 1,29,106 1,57,245 2,21,827
Less:

Current Liabilities

& Provisions
Current Liabilities 34,202 65,244 52,306 49,102 54,221

Provisions 11,648 15,697 15,161 12,300 16,042

45,850 80,941 67,467 61,402 70,263
Net Current Assets 1,48,282 54,527 61,639 95,843 1,51,564
Miscellaneous
87 - - - -
Expenditure
Total Assets 4,47,556 5,15,405 5,92,016 6,55,969 7,37,380

Source: Financial Statements of THERMAL POWER Limited

98
99
 COMPARATIVE INCOME STATEMENT FIGURES OF THERMAL POWER

LIMITED
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14
-- in Rs. Million --
Operating Income
Earned from Sale of
1,99,810 1,90,571 2,32,415 2,66,564 3,25,344
Energy
Cosultancy & Other
4,492 61,816 24,110 26,806 28,422
income
Total (A) 2,04,302 2,52,387 2,56,525 2,93,370 3,53,766
Paid & Provided for
Fuel 1,10,312 1,22,150 1,37,235 1,63,947 1,98,181
Employees

Remuneration & 8,268 8,835 8,823 9,684 11,580

Benefits
Generation, Admin.
10,814 9,813 12,062 12,721 15,619
& Other Expenses
Provision (Net) 1,567 (3,813) (6,160) 334 73
Prior Period/Extra
803 183 (102) 2,488 (109)
Ordinary Items
Total (B) 1,31,764 1,37,168 1,51,858 1,89,174 2,25,344
Profit before Dep.,

Interest & Finance 72,538 1,15,219 1,04,667 1,04,196 1,28,422

charges & tax (A-B)

Less: Depreciation 15,291 20,232 19,584 20,477 20,754

PBIT 57,247 94,987 85,083 83,719 1,07,668

Less: Interest & 9,916 33,697 16,955 17,632 18,594

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Finance cost

Profit before tax 47,331 61,290 68,128 66,087 89,074

Less: Tax (Net) 11,256 8,682 10,058 7,885 20,427

Profit after Tax 36,075 52,608 58,070 58,202 68,647

Less: Dividend 7,080 10,823 19,790 23,087 26,385

& Dividend Tax 395 1,387 2,680 3,238 3,896

7,475 12,210 22,470 26,325 30,281

Retained Profit 28,600 40,398 35,600 31,877 38,366

Source: Financial Statements of THERMAL POWER Limited

REFERENCES

 Annual Reports of last 5 Years (from 2009-10 to 2013-14)

 Data on commercial aspects like Navratna status, MOU etc.

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  CERC 2011 Terms and Conditions for Tariff Period 2011–2016

 Data on Public Deposit schemes of THERMAL POWER

 Pandey, I M; Financial Management, Ninth Edition

 Web-sites:

 www.Thermal Power.co.in

 www.powermin.nic.in

 www.cercind.gov.in

 www.moneycontrol.com

 www.adb.org

GLOSSARY

CERC:

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The Central Electricity Regulatory Commission (CERC), created in 1998 under the

Electricity Regulatory Commission Act, regulates tariffs for the CPSUs and other entities

with interstate generation or transmission operations. This act, which has since been

replaced by the Electricity Act (2003), also provided for the formation of state electricity

regulatory commissions to rationalize energy tariffs and formulate policy within each

state.

MOU SYSTEM:

The Memorandum of Understanding (MOU) is a negotiated document between the

Government, acting as the owner of Public Sector Enterprise (PSE) and a specific PSE. It

contains the intentions, obligations and mutual responsibilities of the Government and the

PSE. Further, MOU makes an attempt to move the management of PSEs from

management by controls and procedures to management by results and objectives.

PPA:

A Power Purchase Agreement (PPA) is a legal contract between an electricity generator

and a purchaser of energy or capacity (power or ancillary services). Such agreements play

a key role in the financing of electricity generating assets. By clearly defining the output

of a generating asset and its associated revenue streams, a PPA can be used by the owner

of the asset to raise non-recourse financing from a bank or other financing counterparty.

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EXTERNAL COMMERCIAL BORROWINGS:

ECBs refer to commercial loans in the form of Bank loans, Buyers credit, Suppliers

credit, Securitized instruments (e.g. floating rate notes and fixed rate bonds) availed from

non-resident lenders with minimum average maturity of 3 years. Borrowers can raise

ECBs through internationally recognized sources like:

 International Banks

 International Capital Markets

 Multilateral Financial Institutions such as IFC, ADB, NDF etc.

 Export Credit Agencies

 Suppliers of equipment

 Foreign Collaborators

 Foreign equity-holders

MEDIUM TERM NOTES:

Under MTN Programme, several lots of bonds can be issued, all having different features

e.g. different coupon rates, different currencies etc. The timing of each lot can be decided

keeping in mind the future market opportunities. The entire documentation and various

regulatory approvals can be taken at one point of time.

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 Abbreviations

CCEA Cabinet Committee on Economic Affairs

CEA Central Electricity Authority

CERC Central Electricity Regulatory Commission

CPSUs Central Power Sector Utilities

CRISIL Credit Rating Information Services of India Ltd.

CWC Central Water Commission

DPR Detailed Project Report

DPS Dividend Per Share

EBIT Earnings before Interest & Taxes

ECBs External Commercial Borrowings

EIA Environment Impact Assessment

EPS Earning Per Share

FIIs Foreign Institutional Investors

FIs Financial Institutions

FR Feasibility Report

GOI Government of India

IPO Initial Public Offering

LIBOR London Interbank Offered Rate

MOU Memorandum of Understanding

MOWR Ministry of Water Resources

MTN Medium Term Notes

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MW Mega watt

NDF Nordic Development Fund

NIT Notice Inviting Tender

OCBs Overseas Corporate Bodies

PLF Plant Load Factor

PPA Power Purchase Agreement

ROA Return on Assets

ROCE Return on Capital Employed

ROE Return on Equity

SEBs State Electricity Boards

TEC Techno-Economic Clearance

106