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A STUDY ON FUNDFLOW STATEMENT WITH RESPECT TO RTPP

INTRODUCTION:

CONCEPT OF FLOW OF FUNDS:

The term ‘flow’ means movement or change and includes both ‘inflow’ and ‘outflow’. The term
‘flow of funds’ means transfer of economic values from one asset of equality to another or changes in
working capital i.e., increase or decease in working capital. Flow of funds is said to have taken place
when a transaction results in the change of the amount of funds available when compared to that of
before transaction. If the effect of transaction results in the increase of funds, it is called as source of
funds. On the other hand if it results in the decrease of funds, it is known as an application of funds.

RULE:

The flow of funds occurs when a transaction changes a non-current account on one hand and a
current account on the other and vice – versa.

When a change in non-current account e.g., fixed assets, long-term liabilities, reserves and
surplus, fictitious assets etc., is followed by a change in another non-current account, it does not
amount to flow of funds. Similarly, changes in current account followed by a change in another current
account also do not result in flow of funds.

FUNDS FLOW:

Here flow means changes, and ‘flow of fund ‘means changes in the working capital on account
of a business transaction. The business transaction brings the change in working capital either in the
form of decrease or increase of working capital. Thus, Flow of funds involves inflow or outflow of
funds. It refers to the transfer of economic values from one asset to another or one equity to another,
from an asset to equity or vice versa. If there is change in current assets and current liabilities in the
same direction and by the same amount, there will be change only in their amount. The working
capital or fund will remain the same and hence there would be no flow of funds in such a situation.

Thus, there will be flow of funds if a transaction involves;

(i) Current assets and Fixed Assets, e.g., purchase of building for cash’
(ii) Current assets and Capital, e.g., issue of shares for cash
(iii) Current assets and Fixed Liabilities (Long Term Loans), e.g., redemption of debentures in cash
(iv) Current liabilities and Fixed Liabilities(Long Term Loans), e.g., Creditors paid off in debentures
(v) Current liabilities and Capital, e.g., creditors paid off in shares
(vi) Current liabilities and Fixed Assets, e.g., building transferred to creditors in satisfaction of
their claims
There will be no flow of funds, if a transaction involves;

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(i) Current assets and current liabilities, e.g., cash payment made to creditors
(ii) Fixed assets and fixed liabilities, e.g., building purchased and payment made by issuing
debentures.
(iii) Fixed assets and capital, e.g., building purchase and payment made in shares.
PROCEDURE FOR KNOWING WHETHER A TRANSACTION RESULTS IN THE FLOW OF FUNDS OR NOT:

 Analyze the transaction and find out the two accounts involved.
 Make journal entry of the transaction.
 Determine whether the accounts involved in the transactions are
Current or non-current.

 If both the accounts involved are non-current i.e., either permanent assets of permanent
liabilities, it does not result in flow of funds.
 If the accounts involved are such that one is a current account while the other is a non- current
i.e., current assets and permanent liability and fixed assets or current liability and permanent
liability then it results in flow of funds.
TRANSACTIONS AFFECTING FLOW OF FUND:

1) Increase in current assets without any increase in current liabilities


2) Decrease in current assets without any decrease in current liabilities
3) Increase in current liabilities without any increase in current assets
4) Decrease in current liabilities without any decrease in current assets.
TRANSACTIONS NOT AFFECTING FLOW OF FUND:

CHANGE IN WORKING CAPITAL

1) Transactions which make conversions of one current asset into another current assets.
2) Transaction which make conversions of one current liability into another current liability
3) Transaction which bring increase or decrease in current assets causing a corresponding
increase or decrease in current liabilities
FUNDS FLOW STATEMENT:

The ‘Funds Flow Statement’ also known as ‘Funds Flow Analysis’, has several names. Some
of them are:

1) Statement of sources and uses of funds


2) Where got and where gone statement.
3) Statement of inflow and outflow of funds
4) Statement of fund supplied and applied
5) Statement of Resources provided and applied.

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Whatever its name may be, the various factors for inflow and outflow of working capital are shown in a
statement, particularly prepared for this purpose, which is known as “Statement of Sources and
Application of Funds”. This statement reveals the manner in which the financial resources have been
generated and deployed during a particular accounting period. This statement is also considered as an
important one just as the two traditional financial statements (balance sheet and profit and loss a/c) as
it supplies important information to the users. In brief it may be said that funds flow statement focuses
on the flow of funds between the various assets and equity items during an accounting period and an
analysis based on this statement is generally called “Fund Flow Analysis” or simply “Fund Analysis”. It
may be pointed out that this analysis also makes use of “Cash Flow Analysis”. “The fund statement is
an important device to throw light on the underlying financial movements, the ebb and flow of funds”.

The basic financial statements, i.e., the balance sheet and profit and loss account or income
statement of business, reveal the net effect of the various transactions on the operational and
financial position of the company. But, there are many transactions that take place in an
undertaking and which do not operate through profit and loss account. Thus, another statement
has to be prepared to show the change in the assets and liabilities from the end of one period of
time to the end of another period of time. The statement is called a Statement of Changes in
Financial Position or a Funds Flow Statement which is also called as the Statement of Sources
and Application of Funds.The Statement of Sources and Application of Funds is a statement
which shows the movement of funds and is a report of the financial operations of the business
undertaking. It indicates various means by which funds were obtained during a particular period
and the ways in which these funds were employed. In simple words, it is a statement of Sources
and Application of funds.

MEANING AND DEFINITION OF STATEMENT OF SOURCES


AND APPLICATION OF FUNDS

A Statement of sources and application of funds is a method by which we study the changes in
the financial position of a business enterprise between beginning and ending financial statement
dates. It is a statement showing sources and uses of funds for a period of time.

Foulke defines this statement as:

“A statement of sources and application of funds is a technical device designed to


analyse the changes in the financial condition of a business enterprise between two dates”.

In the words of Anthony, “The funds flow statement describes the sources from which
additional funds were derived and the use to which these sources were put”.

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I.C.W.A. in Glossary of Management Accounting terms defines Funds Flow Statement


as “a Statement prospective or retrospective, setting out the sources and applications of the
funds of an enterprise. The purpose of the statement is to indicate clearly the requirement of
funds and how they are proposed to be raised and the efficient utilization and application of the
same.”

IMPORTANCE OF THE STUDY OF SOURCES AND


APPLICATION OF FUNDS:

FUND:

According to the dictionary meaning the term “funds” implies an accumulation or


deposit of resources from which supplies are or may be drawn a more of less permanent store or
supply. It is also defined as available pecuniary resources. But, these two meanings are broad in
nature and apt to macro level planning and control. According to the International Accounting
Standard – 7 on “Statement of Changes in Financial Position” the term “Fund” generally refers
to cash and cash equivalents or to working capital. The term Funds is generally used in the
sense of net working capital i.e., excess of current assets over current liabilities. A number of
definitions of the term ‘fund’ have been given. Some people mean fund as cash. But it is seen in
practice that the currents assets are constantly circulating through cash account in business
operations and many transactions affect flow of cash atleast later or sooner. For example, the
sale of goods on credit increases in accounts receivable rather than resulting in an immediate
cash flow. Similarly, certain expenses may result in a current liability since they might not have
been paid immediately. In other words, it may be said that any current assets and or current
liability has its impact on working capital (as working capital is the difference of current assets
and current liabilities) rather than cash. Therefore, another view about meaning of ‘fund’ is
‘working capital’.

FUNDS FLOW USE AND SIGNIFICANCE FOR


MANAGEMENT:
The benefits from the Statement of Sources and Application of funds to the management of
the concern are listed below:

1. HELPS IN THE ANALYSIS OF FINACIAL OPERATIONS AND


EXPLAINS THE FINANCIAL CONSEQUENCES OF BUSINESS
OPERATIONS:

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The financial statement reveals the net effect of various transactions on the operation
and financial positions of concern. The balance sheet gives a static view of the resource of a
business and the uses to which these resources have been put at a certain point of time. But it
does not disclose the causes for changes in the assets and liabilities between two different
points of time. The funds flow statement explains causes for such changes and also the effect of
these changes on liquidity position of the company. Sometimes concern may operate profitably
but yet its cash position may become worse. The funds flow statement provides a clear answer
to such a situation explaining what has happened to the profits of the firm.

2. IT THROWS LIGHT ON MANY DIFFICULT QUESTIONS OF GENERAL


INTEREST:

 Why were the net current assets lesser inspite of higher profits and vice-versa?
 Why more dividends could not be declared inspite of available profits.
 How was it possible to distribute more dividends than the present earnings
 What happened to the profits? Where they go?
 What happened to the proceeds from sale of fixed assets, issue of shares, debentures etc.
3. HELPS IN THE FORMATION OF REALISTIC DIVIDEND POLICY:

Sometimes, a firm may have earned sufficient profits but yet sufficient cash resources
may not be available to distribute dividend. In such cases, the analysis of sources and
application of funds i.e., funds flow statement helps in providing information to design a
realistic dividend pol

4. ACTS AS AN INSTRUMENT FOR PROPER ALLOCATION OF


RESOURCES:

The resources of a concern are always limited and there is always a need to make the
best use of these resources for meeting the productive requirements of the business. A projected
funds flow statement constructed for the future helps the management to take decisions with
respect to the allocation of scarce resources effectively to the best use of the enterprise. The
firm can plan the development of its resources and allocate them on various applications.

5. ACTS AS A FUTURE GUIDE:

A projected funds flow statement also acts as a guide to the management for future
decision making. The management can come to know about various problems it might face in
the near future for want of funds. The firm’s future need for funds can be projected well in

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advance and also the timing of need for funds. The firm can arrange to finance these needs
more effectively and avoid future problems.

6. HELPS IN APPRAISING THE USE OF WORKING CAPITAL:

A Study of Sources and Application of funds helps in explaining how


efficiently the management has used its working capital during a particular period and
also suggests ways to improve the working capital position of the firm.

7. IT HELPS IN KNOWING THE OVER ALL CREDIT WORTHINESS OF A


FIRM:

The financial institutions and banks such as State financial institutions, Industrial
Development Corporation of India, Industrial Development Bank of India etc., request for
funds flow statement constructed for a number of years prior to sanction / granting of loans to
the firm to know its credit worthiness and paying capacity. Hence a firm seeking assistance
from these institutions has no alternative but to prepare funds flow statement.

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SCOPE OF THE STUDY:

The study is confined to the management of Sources and Applications of Funds in RTPP.
The main aim of the study is to assess the proper management of funds and also the
management of current assets and current liabilities.

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OBJECTIVES:

 To know the financial position of RTPP.


 To know the operational efficiency of RTPP.
 To compare the various sources of funds for every year.

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LIMITATIONS:

 Availability of accurate financial information and analytical reports of the company may
limit the analysis of the research to some extent.
 Time is also a limiting factor of the study as the project is restricted to a period of two
months only.
 Funds flow standards pertaining to relevant industry is also a limiting factor for
comparative analysis.
 The Officers of financial department are busy with the audit work of accounts; hence
they are not able to spend more time for me.
 Data is non comparable if there is no uniformity in concept

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REVIEW OF LITERATURE

Braj kishor (1978)3 in his paper attempted to give a general framework to analyze working
capital policy issues both for public enterprises and private business firms. He analyzed the
financing of current asset first. The alternatives of long term tests and current liabilities have
been evaluated on the basis of cost and risk. A hypnotically numerical examples illustrated the
risk return trade off while doing so, an a attempt was made to incorporate subjective publishers
of risk free rates, so that expected interest after a time period could be established this would
then enable a decision with regard to whether a conservative aggressive or moderate current
liability policy should be pursued. A similar exercise was then repeated for the current assets,
fmally, two exercises would be merged together so that an interpreted policy decision both for
current assets and current liabilities emerges.

The shape of material cost and labour cost function for the Indian manufacturing industry was
studied by Bartwal and Nair (1979)4 the profit and loss data used from stock exchanges
directory for the year 1971-72 for 10 industries. The major result of this study was: 8 out of the
10 industries has evidenced increasing or decreasing returns to scale. The L shaped curve
reflecting constant returns to scale was found valid only for two industries.

Venkatchalam and Dakshinamoorthy (1983)5 in their paper working capital trends in Indian
private corporate sector analysed the working capital trends in the medium and large public
limited companies in India over a decade 1973-1974 to 1982-83. This study was based on the
RBI data. In this study in the context of the quantum of current assets is investment. The
distribution of gross working capital - current assets investment among its different
components, each components being both in absolute terms and percentages and analyzed for
an appraisal of the behavior of each component over the period. Finally the form of financing
gross working capital, that is current assets investment was traced. It was observed that current
liabilities and equally long term loan had been the major forms of financing current assets,
investment in the public limited companies accounting for a minimum of 87 percent to a
maximum of 99.5 percent.

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The study of Panigrahi (1990 was on overall working capital analysis of large Indian companies
during the period 1970 to 1987. The study also looked into the fact whether the working capital
has any impact on possibility. The study showed that liquidity position of the large Indian
companies is not satisfactory during the study period of seven years. All the liquidity ratio's
namely current ratio, quick ratio and absolute liquid ratio remained below the standard norms
throughout the period of study. It led to the conclusion that a large Indian Industries have been
suffering for lack of liquidity. Among the ratios the co-efficient of correlation between
profitability ratio and debtor's turnover ratio was found to be significant at 5 per cent level. On
the other hand, ratios like quick ratio, inventory turnover ratio, and averages collection period
have negative co-efficient of correlation with profitability ratio.

The working capital problems, in the iron and steel industry in India, was studied by Varma in
(1989)7. The study observed that the basic problem of working capital in this industry was the
surplus investments in current assets rather than inadequacies. The surplus investment is mainly
found in the inventory and receivables components. As far as cash management is concerned,
no systematic policy has found in this industry and therefore, the firms have excessively
depended upon basic borrowings to meet the working capital requirements among the industries
studied by Varna, Tata Iron and steel company (TISCO) achieved trade off between liquidity
and profitability. The main objectives of working capital management in the findings of this
study were that the private sector in the industry had an edge over the public sector as far as
management is concerned.

The share and the cost of financing of working capital which may contribute towards the growth
of a firm through reduction was studied by Roy and Bhattachariyya (1991)8. The study
concludes that as long as the income is comfortable for financing of current assets by current
liabilities it would not cause any problem. But when the projected income becomes uncertain, the
situation will turn to be critical. But it will not be so, if the finance is served from the self
fmances like depreciation provision. Here the supply of fmance from the depreciation provision
is spontaneous if the revenue remains sufficient to cover this provision.

Das (1993)9 in his paper on working capital management in the public sector undertaking in
India : a case study points out that a very important reason for slow progress of an undertaking is
shortage or wrong management of working capital. The major findings in his study were that

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current assets constituted more than 23 percent of the total assets in the National Jute
Manufactures Corporation Limited a public sector undertaking of Government of India. The
analysis of current assets to turnover or current assets to sales ratio revealed that although the
ratio has decreased over a period of time but excepting a few years the same is high. In some
cases the ratio is also high which inputs an inefficient utilization of funds. The management
should have a attention to reduce lock up of funds in current assets. The working capital to sales
ratio is positive for the first three years of study but for the rest of the years it is found to be
negative. This position is not satisfactory since the negative working capital may retard the
further progress of the undertaking. The analysis of determination to sales ratio reflects that
credit management is not very effective. The inventory holding period appears to be moderate.
From the current ratio and quick ratio point of view, the short term liquidity position of NJIVIC
was found to be poor. As a large part of capital is invested in inventory the quick assets are not
sufficient to meet the currently maturing obligations.

David F.Scott et.al. (1997)10 studied the change in the fmancial and operating performance of
79 companies from 21 developing nations that experienced full or partial privatization during
the period firm 1980 to 1992. This study used the according performance measures adjusted for
market effects in addition to unadjusted accounting performance measures both unadjusted and
market adjusted results show significant increase in profitability operating efficiency, capital
investment spending, input employment level, and dividends. This study also found a decline in
the leverage following privatization but this change was significant only for the unadjusted
leverage ratios.

Uma Subaramaniyam, (1996)11 studied working capital analysis of State road Transport
Undertaking (STU) in Tamil Nadu and identified the financial performance of the state road
transport undertaking with help of ratio analysis. The study showed no improvement in the
financial performance of either the parent corporations or the off shoot corporations. Since the
working capital showed a negative figure in the majority of years, there by indicating inadequacy
of current assets to meet current liabilities, on which management have no control. The results
also showed that there was no uniformity between the corporations as to the influence of factors
identified on the study of current assets. The inventory investment behaviour in Indian sugar
industry was carried out by Srinivasa Suresh and Somayijulu (1998)12. The RBI data was

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used in this study from 1965-66 to 1986-87. This study was carried out within the frame work of
flexible accelerator model. In this

model, the main focus was on the time structure of the investment process. This analysis is
carried out in three levels viz, time series, cross section, and pooled time series cross section
levels. It has been observed that external finance is shown to exert considerable influence on the
inventory investment.

This implies that Indian sugar industry depends on external sources of finance to meet its
investment needs. However, the accelerator showed weak influence on investment activity.
Fixed capital had a bearing on inventory investment. In the sense that more the fixed investment
less would have been the inventory expenditures.

The study of working capital management in co-operative and private sector companies in the
sugar industry of TNAW was carried out by Vijayakumar (1998)13. Analysis of size of
Working capital showed that private sector units have enjoyed comparatively sound liquidity
position and also effective utilization of working capital funds form the co-operative sector. The
risk-return analysis showed that overall working capital leverage of sugar industries of Tamil
Nadu as a whole was found to be low. It shows that changes in working capital in relation to
fixed capital had very low impact over profitability.

In the work carried out by Herbert and Visscher (1998)14 ten diverse industry groups over a
time period of ten years were analysed to examine the relationship between aggressive and
conservative working capital practices. The results showed a high and significant negative
correlation between the industry assets and liability policies. And in general, it appears that
when a relatively aggressive working capital assets policy was followed, they are balanced by
relatively conservative working capital fmancial policies.

Juliet D. Souza and William I. Megginson's (1999)15 study on the financial and operating
performance of privatized firms during the 1990's. compared the pre and post privatization
fmancial and operating performances of 85 companies from 28 industrialized countries that
were privatized through public share offering for the period from 1990 to 1996. The study
reveals that significant increase in profitability, output, operating efficiency and dividend
payment and significant decrease in leverage ratios for the full sample of firms after

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privatization. Capital expenditure increased significantly in absolute terms but not relative to
sales. The fmdings suggest that privatization yields significant performance improvements.

Marc Delooy (2001)16 in his paper "Does Working Capital Management affect profitability of
Belgian Firms?" has investigated the relation between the working capital management and
corporate profitability. The sample considered of 1009 large Belgian non financial firms for the
period of 1992-1996. Number of days accounts receivables: Inventories and accounts payable
are used as measures of trade credit and inventory particles. The cash conversion cycle is used
as a comprehensive measure of working capital management. In this paper he has found out that
firms have a large amount by cash, invested in working capital. It can therefore, be expected that
the way in which the working capital is managed will have a significant role in profitability of
the firms. In this paper Deloof formed a significant negative relation between gross operating
income and the number of days accounts receivables, inventories, and accounts payable of the
Belgian firms. These results show that managers can create value for their shareholders by
reducing the number of days. Accounts payable and profitability is consistent with the view that
less profitable firms wait longer to pay their bills.

Chandrasekaran (1989)17 has made a study on the performance of cement, measuring the
profitability, efficiency and growth. He has identified that the cash flow and external funds are
the important determining factor of investment in the cement industry.

Harbir singh(1990)18 in his study has stated that the financial health of a company can be
improved if stringent control is exercised on raw materials, stores and spares, and also by
reducing the unprofitable investment blocked in current assets. The cash flow can be regulated if
the companies prepare weekly cash flow statement and also cash budget on a regular basis.

Brealey and Myers (1991)19 has stated in their study that according to the trade off theory,
high profit should mean more debt servicing capacity and more taxable income to protect,
resulting in a higher optimal debt-equity ratio. They observed that risky non profitable
companies intangible assets must rely primarily on equity financing.

Ratnam, Indra Doraiswamy, Seshadri and Rajamanickam (1992)20 in their study on "Cost
Control in Spinning Mills", examined the various costs and factors affecting profits and
suggested measures for cost control and recovery from sickness in spinning mils. The study

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found that the raw material cost was higher than all other costs. The profitability was low and
variation in profits was greater. The study also suggested short-term and long-term measures in
finance, productivity, technical and maintenance to improve their working and reduce losses.

Sinha (1993)21 conducted a study to investigate debt-equity ratio in private sector in India.
His study revealed that there was a negative correlation between debt-equity ratio and
profitability in the case of public limited companies but in the case of private limited
companies, the margin on sales had a negative correlation with debt-equity ratio.

Syed Zabid Hossion (1997)22 in his study, competitiveness of Indian Textiles in the European
Economic Community: 1974-85", had made an empirical comprehensive analysis of India's
export performance in the EEC Market in textiles and clothing during 1974-85. The study
examined India's competitiveness in textiles compared to the major Asian competitors as judged
by the alternative indicators of market share, relative price ratios and quota utilization.
According to the study, price competitiveness was a significant relevance to the performance of
India and competitors. In fabrics, Pakistan offered a lower price and had flexible exchange rate
policy. In clothing, East Asian countries were efficient in production and offered a wide range of
products. The study concluded that India's lack of competitiveness was because of India's trade
and industrial policies.

Ratnam and Kalyanaraman(1993)23 in their study on "A Decade of SITRA's Research",


compared the financial performance of member mills and analyzed the factors influencing costs
and profits. The study states that the 1 per cent change in cotton cost will affect the cost of
production by Rs.10 per spindle that the use of superior cottons combined with improved
machinery maintenance would lead to more savings to realize higher earnings than the break-
even levels. The study states that, as spindle speed increases there would be steady increase in
the overall profit per spindle.

Vijayakumar and Venkatachalam (1994)24 have made an empirical analysis on working


capital and profitability, taking 13 companies of sugar industry during the period 1982-83 to
1991-92. Correlation and regression analysis have been applied to measure the impact of
working capital ratios on profitability. Liquid ratio, inventory turnover ratio, receivables
turnover ratio and cash turnover ratio have been considered to measure their impact on

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profitability (PBT/TA). The study has revealed that liquid ratio and cash turnover ratio have
negatively influenced profitability and inventory turnover ratio and receivables turnover ratio
have positively influenced profitability.

Hyun-Han Shin and Luc Soenen (1998)25 have focused their study on efficiency in working
capital management and corporate profitability of 58,985 firms covering a period from 1975-
1994. The study found that there exists a strong negative relationship between the length of the
firms Net Trade Cycle (NTC) and its profitability. They also have found that NTC is measuring
liquidity differently from the more conventional current ratio, which is positively related to
profitability.

Amit Mallick and Debasish Sur (1998)26 have examined the relationship between return on
investment and working capital management in tea industry. Simple correlation and multiple
regression analysis have been applied to find out the relationship between return on investment
and each of the working capital ratio to assess the joint effect of those upon the profitability and
to test the significance of cause and effect. They have also examined the working capital
leverage of the tea industry. Their study has revealed that out of the nine ratios selected, five
ratios (working capital ratio) have recorded a negative correlation with return on investment.
The study encompasses yarn, fabrics and made up segments of the cotton textile industry. The
study identifies the cost of raw materials, energy, dyes and chemicals and wages as the most
critical cost in the cotton textile value chain. They constitute 85 per cent of manufacturing costs.
The study indicates that China is the cost leader with cost advantages in all the factors of
production and India is fast losing its traditional advantages of home grown cotton, low cost
labour and higher energy costs. The study recommends that India should target for radical cost
reduction, at least 15 percent in spinning, weaving and processing, to regain its competitive
edge.

Hamasalakshi and Manickam (2005)27 in their study on "Financial Performance Analysis of


Selected Software Companies" examined liquidity, profitability and leverage position of thirty
four software companies during the period 1997-1998 to 2001-2002 by using ratios, correlation
and multiple regression analysis. The study revealed favorable liquidity and working capital
position. They concluded that the companies rely on the internal financing and overall
profitability position of the software companies showed a moderately increasing trend.

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Sudhansu Mohan Sahoo and Gom Karnath (2005)28 in their article on "Capital Structure of
Indian Private Corporate Sector: An Empirical Analysis", analyzed the capital structure of the
Indian corporate sector and the factors that determine the debt-equity of the firms during the
period 1980-81 to 2003-04. The study concluded that the firm is significantly and positively to
debt-equity ratio, asset structure and profitability are the most significant factors deciding the
capital structure.

Balakrishnan (2005)29 in his study, "Financial Performance of Public Sector Petroleum


Industry", analyzed the liquidity, solvency, profitability and predicted the financial position of
the companies. He concluded that the petroleum industry is in a healthy position.

Chalam and Prasad (2006)3° attempted to evaluate fmancial performance of primary


agricultural co-operative societies in Andhra Pradesh, through scaling technique. The study
concluded that out of nine co-operative societies, four societies' performance were poor.

Jayaraj and Ilango (2004)31 examined the determinants of textile exports in India
during the period from 1981-81 to 2001-02. The study concluded that the trade openness was
the major factor than raw materials, power, obsolete machines, technology up-gradation and
demand in determining the exports of textile goods.

Sankaran (2004)32 in his study on "Identifying Discriminate Financial Factors between


Well Run and Not Well-Run Spinning Mills in TamiMadu", analysed and identified factors
which separate well run from others for a period from 1991-2000, by using ratios, fund flow
statement, discriminate analysis and prediction model for the thirty member mills of The
Southern Indian Mills' Association. He arrived at the conclusion that the well run companies
were able to meet long term funds and current ratio and expenses on employee have significant
influence in determining well and not well run companies.

Vunyale Narendra and Abhinav Sharma (2006)33 argued that the public enterprises are
utilizing internal sources of funds for expansion and financing and do not utilize debt capital.
The study further stated that they raised long term resources for meeting short-term
requirements. The study concluded that the public enterprises are using pecking order theory for
capital structure policies.

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Sudarsana Reddy, Raghunatha Reddy and Mohan Reddy (2006)34 examined the internal
funds availability for financing fixed assets in paper industry of Andhra Pradesh. The study
found that the owner's funds were insufficient to finance fixed asset and observed that fixed
assets do not have significant relationship with the sales.

Eljelly (2004)35 elucidated that efficient liquidity management involves planning and
controlling current assets and current liabilities in such a manner that eliminates the risk of
inability to meet due short-term obligations and avoids excessive investment in these assets.
The relation between profitability and liquidity was examined, as measured by current ratio and
cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia using
correlation and regression analysis. The study found that the cash conversion cycle was of more
importance as a measure of liquidity than the current ratio that affects profitability. The size
variable was found to have significant effect on profitability at the industry level. The results
were stable and had important implications for liquidity management in various Saudi
companies. First, it was clear that there was a negative relationship between profitability
indicators such as current ratio and cash gap in the Saudi sample examined. Second, the study
also revealed that there was great variation among industries with respect to the significant
measure of liquidity.

Deloof (2003)36 discussed that most firms had a large amount of cash invested in working
capital. It can therefore be expected that the way in which working capital is managed will have
a significant impact on profitability of those firms. Using correlation and regression tests he
found a significant negative relationship between gross operation income and the number of
days accounts receivable, inventories and accounts payable of Belgian firms. On basis of these
results he suggested that managers could create value for their shareholders by reducing the
number of days' accounts receivable and inventories to a reasonable minimum. The negative
relationship between accounts payable and profitability is consistent with the view that less
profitable firms wait longer to pay their bills.

Chosh and Maji (2003)37 in this paper made an attempt to examine the efficiency of working
capital management of the Indian cement companies during 1992 — 1993 to 2001 — 2002. For
measuring the efficiency of working capital management, performance, utilization, and overall
efficiency indices were calculated instead of using some common working capital management

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ratios. Setting industry norms as target-efficiency levels of the individual firms, this paper also
tested the speed of achieving that target level of efficiency by an individual firm during the
period of study. Findings of the study indicated that the Indian Cement Industry as a whole did
not perform remarkably well during this period.

Shin and Soenen (1998)38 highlighted that efficient Working Capital Management (WCM) was
very important for creating value for the shareholders. The way working capital was managed
had a significant impact on both profitability and liquidity. The relationship between the length
of Net Trading Cycle, corporate profitability and risk adjusted stock return was examined using
correlation and regression analysis, by industry and capital intensity. They found a strong
negative relationship between lengths of the firm's net trading Cycle and its profitability. In
addition, shorter net trade cycles were associated with higher risk adjusted stock returns.

Smith and Begemann (1977)39 emphasized that those who promoted working capital
theory shared that profitability and liquidity comprised the salient goals of working capital
management. The problem arose because the maximization of the firm's returns could seriously
threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns. This article
evaluated the association between traditional and alternative working capital measures and
return on investment (ROI), specifically in industrial firms listed on the Johannesburg Stock
Exchange (JSE). The problem under investigation.

Parker (2002)4° presents an overview of the modern theory and evidence of credit rationing,
and concludes that the case for credit rationing is weak. He suggests that theoretical arguments
for or against credit rationing are inconclusive, so evidence is needed to decide the issue. He
further submits that the evidence is not supportive of the view that credit rationing is an
important or widespread phenomenon. Parker (2002) provides a review of the empirical
literature pertaining to capital rationing from which he concludes (p.162) that theoretical
arguments are inconclusive and empirical evidence, which he notes is inherently difficult to
obtain, does not support the view that credit rationing is important or widespread.

Boadway and Sato (1999)41 consider that project risk includes idiosyncratic and
aggregate components. They submit that banks can investigate aggregate risk and can evaluate
the idiosyncratic risk of each entrepreneur and that they engage I competition for entrepreneurs

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using interest rates. They conclude that information obtained by a bank on aggregate risk is fully
revealed, and that entrepreneur — specific risk is partly revealed. In their view, banks will not
investigate risk and will evaluate entrepreneurs too intensively. As a result, efficiency can be
improved by public acquisition of information on industry risk and by loan guarantees partially
covering losses on projects that fail.

Eggers, Leahy, Mikalachki (1997)42 Rapid growth often leads to expansion of the need for
working capital, in turn generating a need for additional cash. Hence, creditworthiness requires
that good fiscal management accompany rapid growth. This argument poses the empirical
challenge of distinguishing, in cases of low levels of creditworthiness, whether rapid growth is
the causal factor or whether poor fiscal management is the problem.

Madill, Haines, Riding, (2003)43 Suppliers of risk capital tend to be more specialized in
growth-oriented businesses than lenders' loan account managers. Typically, they also provide
assistance with the commercialization process.

Berger and Udell (1992-1995)44 employed indirect tests for capital rationing. They
concluded that "information — based equilibrium credit rationing, if it exists, may be relatively
small and economically insignificant". Oliver and Moore also found that the degree of
innovation was not linked to the likelihood of financing constraints.

Herzog (1982)45 argues for the importance of small business to the Swedish economy,
but points out that small firms often face obstacles such as insufficient security for loans, lack or
risk capital, and sometimes insufficient management expertise in the fields of technical
development, financial planning, or marketing. Herzog goes on to indicate that the aim of
governmental policy is to remove these obstacles, and to achieve this goal a number of
supporting institutions were launched.

Schenk (2004)46 analyzes industrial financing in Hong Kong in the the Swedish
economy, but points out that small firms often face obstacles such as insufficient security for
loans, lack or risk capital, and sometimes insufficient management expertise in the fields of
technical development, financial planning, or marketing. Herzog goes on to indicate that the aim
of governmental policy is to remove these obstacles, and to achieve this goal a number of
supporting institutions were launched. period 1950 to 1970. Although she indicated the evidence

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suggest a bias toward financing large — scale industry at the time, she also refers to a "lack of
evidence" of market failure. The small business sector applied political pressure over lack of
financing because is members felt discriminated against because they lacked the collateral or
reputation to establish their creditworthiness. There was also a cultural dimension to the issue of
the demand versus supply of small business financing because, a the time, British expatriates
controlled the largest bank while Chinese mainly conducted industry.

Zinger (2002)47 finds differential satisfaction among borrowers, depending on firm size.
Although Zinger (2002) indicates that few of the sample borrowers can be classified as being
disappointed with their present bank financing arrangements, he also points out that business
size, as measured by the number of full time employees, is positively associated with the level of
satisfaction with bank financing arrangements- that is, the smallest business are less satisfied
than the largest business. The generalizability of the study is called into question due to its small
sample size, and focus on a single geographic region, Northern Ontario.

Uzzi (1999)48 takes a sociological approach to the small business loan market. In his study of
acquisition and cost of financial capital in middle-market banking, Uzzi (1999) finds that firms
that embed their commercial transactions with their lender in social attachments receive lower
interest rates on loans. He also finds that firms are more likely to get loans and to receive lower
interest rates on loans if their network of bank ties has a mix of embedded ties and arm's —
length ties. He argues that these effects arise because embedded ties motivate the borrower with
access to public information on market prices and loan opportunities. The suggestion that there
are two prices available in the market one if capital is sought in the context if social attachments
to the provider of capital, and a second price if there are no social attachments is in itself
evidence of a market imperfection. In a similar vein, Cole (1998) finds that a potential lender is
more likely to extend credit to a firm with which is has a preexisting relationship as a source of
financial services.

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INDUSTRY PROFILE

POWER SECTOR REFORMS IN INDIA

Introduction:

The power sector has transited to an area or controlled competition giving a


meaningful role for the private sector and the market to play in the nation’s infrastructure
building. Reform in the power sector was officially kicked off in September 1991 with the
passing of the electricity laws (amendment) act, allowing the private sector in power
generation. This was followed by the center’s resolution in October 1991 that opened up
electricity generation, supply and distribution to the private sector. These came soon after the
assumption of office by the NarasimhaRao Government.

REFORMS IN THE STATE ELECTRICITY BOARD:

The reforms process turned active only in late 1996 with the adoption of the
“common minimum nation action plan for power” at the Chief Minister’s conference. The
action plan, which laid the foundation for reforms, is the state electricity boards [SEB’s]
have the following salient features.

 Formulation of national energy policy.


 Setting up of the central and state electricity regulatory commissions.
 Rationalization of retail tariffs.
 Private sector participation in private distribution.
 Streaming the role of central agencies concerned with project approvals.
 Autonomy and improvement in the management and physical parameters of
SEB’s.

It took another 18 months before the reforms process got into implementation mode
with the promulgation of the electricity regulatory commissions ordinance by the precedence
of India April 25, 1998. This ordinance primarily gave legal shape to the two cardinal

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features of the common minimum action plan establishment of regulatory commission and
rationalization of retail tariff. This provision invited considerable flak from the prefer power
lobby and was unceremoniously shelved when the ordinance was passed in to, an I act of
parliament of July 2, 1998, reducing SERCs to toothless tigers as far as rationalization of
retail tariff was concerned. However, the clause requiring the State Government to
compensate the person affected by the grant of subsidy in the manner state commission may
direct was retained, thereby giving some vestige of authority to the regulators.

Andhra Pradesh Power Generation Corporation Limited is one of the pivotal


organizations of Andhra Pradesh, engaged in the business of Power generation. Apart from
operation & Maintenance of the power plants it has undertaken the execution of the ongoing
& new power projects scheduled under capacity addition programmed and is taking up
renovation & modernization works of the old power stations.

When APSEB came into existence in 1959, APSEB started functioning with the
objectives of maintaining the power sector efficiently and economically simultaneously
ensuring demand meets the supply.

During the last decade inadequate capacity addition and low system frequency
operation of less than 48.5 Hz for more than half a decade considerably reduced the power
supply reliability.

The consumer have grown up from two and half lakes to over one corner, the energy
handled per annum from 686 MV to over 40,000 MV. The annual revenue has increased
from mere Rs.65 corer to Rs.48000 corer. In the after reforms process is taken up in a big
way and APGENCO could complete 2X250MU KTPS V – stage and Srisailam left bank
Power House. International agencies have are now interested in taking part in VTPS stage –
IV.

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HISTROY OF APGENCO: -

APGENCO came into existence on 28.12.1998 and commenced operations from


01.02.1999. This was a sequel to Government’s reforms in Power Sector to unbundle the
activities relating to Generation, Transmission and Distribution of Power. All the Generating
Stations owned by erstwhile APSEB were transferred to the control of APGENCO.

The installed capacity of APGENCO as on 31.03.2007 is 6760.9 MW comprising


3172.50 MW Thermal, 3586.4 MW Hydro and 2 MW Wing power stations, and contributes
about half the total Energy Requirement of Andhra Pradesh. APGENCO is third largest
power generating utility in the Country next NTPC and Maharashtra. Its installed Hydro
capacity of 3586.4 MW is the highest among the Country.

APGENCO has an equity base of Rs.2107 crore with 10804 dedicated employees as
on 31.12.2006. The company has an asset base of approximately Rs. 12000 crores.

Power Sector Status in India:

 Generation during 2007-08 (April).


 Daily reservoir levels.
 Daily generation report.
 Generation during 2006-07 (April – March).

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1) Thermal Plants.

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2.Hydelplants

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3) Wind Plants.

Wind Plants

Capacity Date of
Name & Address
(MW) Installation

Ramiro Wind Farm,


HLC Colony
Anantapur-515001
2 10/10/1994
Anantapur (Dot).
Phone : 08554-276541
Fax :

Total Capacity: 2

PLANT WISE PERFORMANCE:

Station GENERATION PLF %


(MU)
2006 2007- 2006- 2007
-07 08 07 -08
VTPS 9755 9010.7 88.4 89.2
RTPP 2371 2989.7 64.4 88.88
1
KTPS 4732 4298.2 75 76.6
5
KTPS-V 3482 3309.4 79.5 82.6
1
RTS-B 282 283.74 68.4 56.6
NTS 7.42 0 16.9 0

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APGENCO ACHIEVED RECORD PLF:

The APGENCO has achieved highest ever PLF of 88.9 % in thermal generation during
2000-01 surprising all other power utilities in the country including the giant National
Thermal Power Corporation (NTPC). The all India average PLF during the year 2004 was 70
% and that of NTPC 82.3 %. The overall thermal generation of APGENCO stations was
23,032 MU the highest ever achieved against 22,245 MU of 2003. The RTPP has created a
landmark with a PLF of 94.83 % and stood first among all thermal stations in the country.
The Vijayawada Thermal Power Station realized a PLF of 93.17 % stood second, with
the completion of renovation and modernization works.. Overall the APGENCO thermal
power stations contributed about two-thirds of the total A.P. power systems.
State Wise Performance:
Apr-Mar 2005-06

Name of the station Capacity( MW ) PLF ( % )

Unchahar (NTPC) 840 95.7


Sabarmati (AEC) 330 93.5

Vindhyachal (NTPC) 2260 92.5


Dari NCTPP (NTPC) 840 92.0

Suratgarh (RRVUNL) 1250 90.9

Kota (RRVUNL)) 1045 90.6


Kahalgaon (NTPC) 840 89.3
Mutter (TNEB) 840 88.6
Singrauli (NTPC) 2000 88.5
Vijayawada (APGENCO) 1260 88.4
Simhadri (NTPC) 1000 88.4

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COMPANY PROFILE

BEGINNING

HISTORYBACKGROUND OF RTTP, KADAPA (DT), A.P

Almost a century after the invention of electricity it was introduced in India for
commercial use in a humble way. For the first time in the year 1889 a mini hydroelectric
power house with a capacity of 15KW was constructed on a small rivulet in Darjeeling
district and electric power was supplied n its vicinity. Within, two decades, in 1909 a 10KW
diesel set was installed in Hyderabad for supply of electricity to the king’s palaces. This was
the first step in the development of electric power in Andhra Pradesh (HYDERABAD).

ELECTRICITY PROGRESS IN A.P (1911-1922)

The electricity department was established in 1911 under the Government Mint. Later
Hussain Sagar Bund was electrified on Saturday 25th October; 1913A.D. and street electrification
work was started within and outside the Municipal limits of Hyderabad and electricity was
provided on the residency roads. In Hyderabad 10 sub-stations were erected for the distribution
of power in the city. The tariff was 6 annas (osmania sikka) per unit with a minimum of Rs.5/-
O.S. per month. Programmes of expansion to cover other town if the Nizams State was take up.
Under this programme steps were taken to generate electric power at Aurangabad, Raichur,
Warangal, and Gulbarga etc.

The Government of India framed Electricity rules in 1910 so as to ensure fair distribution
and supply of power as well as take all necessary precaution for the use of power by the
consumers and concerned departments.

The management of the Secunderabad Electricity supply remained with department.


Nearly 3 miles of cable of various sizes and three and half miles of overhead mains were laid for
261 consumers. The work of changing the feeding voltage from 3300 to 6600 was completed.
There were altogether 12 main and feeder lines, and 50 sub-stations at the end of the year 1922.
The total number of consumers increased from 2977 to 3328.

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During 1939-40 the department constructed first outdoor substation at Toli Chowki. This is
a modern form of construction usually associated with high voltage systems, and was used at
Toli Chowki to initiate the new 11000 volt extensions. Two old style sub-stations, Tank Bund
and Begum Bazaar were enlarged in order to accommodate extensions to their equipment and were at
the same time converted into the new style of architecture. Thus raising the total number of sub stations
built in this style to 19.

POWER DEVELOPMENT IN A.P – AN OPPORTUNITY KNOCKING

We are standing at the entrance of 21st century and opportunity is knocking at its door.
The end of the century offers us the opportunity to assure India’s and in particular our state’s
electricity needs for decades to come.

Electricity demand in A.P is estimated to grow at an annual compound growth rate of


around 10% as against the National growth rate of 6.8%. The installed capacity of A.P state
Electricity Board has grown from 213 MW in 1960-61 to 6124MW at present (Excluding central
share).

The available capacity in A.P is 6136.5 Mw which includes 897 MW from central
generating stations. As the capacity addition could not keep pace with the growth in demand, a
shortage of 2000 MW in the installed capacity exists now. The growth in demand has been
mainly due to extensive Rural Electrification Programme and energisation of agricultural pump
sets at one lakh pump sets per year since 1985-86 besides increase in domestic loads.

A.P.S.E.B has long been a trendsetter in breaking new paths and adopting the STATE-
OF-THEATRE technology in its power plants. The technology adopted in the power station has
been continuously upgraded both in the Hydro and Thermal station and also in transmission
distribution and general management to enhance the productivity and improve the operations.

APGENCO – RTPP ITS VISION, MISSION AND CORE VALUES:-

VISION:

To be the best power utility in the country and one of the best in the world.

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MISSION:

 To generate adequate and reliable power most economically, efficiently and eco-
friendly.
 To spearhead accelerated power development by planning and implementing new
power projects.
 To implement Renovation and Modernization of all existing units and enhance
their performance.
CORE VALUES:

 To proactively manage change to the liberalized environment and global trends.


 To build leadership through professional excellence and quality.
 To build a team based organization by sharing knowledge and empowering employees.
 To treat everyone with personal attention, openness, honesty and respect they deserve.
 To break down all departmental barriers for working together.
 To have concern for ecology and environment.
CORPORATE OBJECTIVES:

 To operate and maintain Power Stations availability ensuring minimum cost of


generation.
 To add generating capacity within prescribed time and cost.
 To maintain the financial soundness of the Company by managing financial operations.
 In accordance with good commercial utility practices.
 To adopt appropriate Human Resources development policy leading to creation of team
of motivated and competent power professional.
Quotations Regarding Power:
 “Save Energy Today Avoid Crisis Tomorrow”.
 “A Thing Which Burns Never Returns”.
ESSENTIAL INPUTS TO PROJECTS:
LAND: An extent of 2621.587 acres of government land has been acquired for the main
plant, colony, and ash pond and marshalling yard areas. In addition to that 52.59 acres of
patty land was also acquired.

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WATER SUPPLY: The water required for running of the power station is being drawn
from the Mylavaram reservoir through a 21Mm long steel pipeline. The water flows from
Myalavaram to RTPP through gravity. Government of A.P irrigation department has
allocated 20 cusecs of water per day and 1.3 TMC per year from the reservoir for the project.
COAL SUPPLY: The power station requires about 2.5 million tons of coal every year,
which is being supplied from SINGARENICOLLIRIES under long-term coal linkage
arrangements. The coal is being transported to powerhouse site by rail over a distance of
about 800Km by one of the routes, Vijayawada-Guntur-Reniguntla. An approach railway line
is formed from Muddanur Railway Station to the project site as a part of the project.
EVACUATION OF POWER: The power generated at the project is evacuated
through six number 220KV transmission lines to Yerraguntla, Kadapa, and Anantapur.
STATE OF CLEARENCE:All the clearances required for the construction of the
project like “NO OBJECTION” from Airports Authority, “NO OBJECTION” from state
Pollution control Board and clearance of India wide letter dated 09-03-1998 accorded
investment approval for the project at an estimated cost of Rs.503.71 crores for the power
station based on 1987 prices.
SPECIAL FEATURES AT RAYALASEEMA THERMAL POWER PROJECT:

At RTPP, the Coal Bunkers and Mills are located. Boiler House and ESPS unlike usual
arrangements elsewhere in the Country placing the Bunkers and Mills in between the Turbine
House and the Boiler thus. Turbine House is totally isolated from the Mills and it will ensure
the dust free atmosphere in the Turbine House and also ensure the easy accessibility of Mills
for maintenance.

Multiple fuels Chimney are also a new feature of the Power Station.

Tower type Boiler of single pass design manufactured by M/s BHEL limited under
collaboration M/s Stein Industries [France]. This type of Boiler will have less erosion and will
be better than the two pass Boiler for high ash content coal also maintenance of Super Heaters
and Economizers.

Turbo – Generator was supplied by M/s BHEL and is manufactured by M/s KWU, West
Germany.

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Tubular Mills in place of Bowl Mills are employed which can run for a very long
durations without stopping as the Grinding Media can be fed into the Running Mill. Another
advantage is more fineness of coal can be achieved and smoother control over the varying
loads.

Distributed digital and M/s BHEL (DDC System) by M/s Kakogawa Blue Star
Limited and M/s BHEL (PROCONTROL) is employed for effective and efficient control of
Boiler, Turbine and Generator and their auxiliaries.

A new system called Dry ash system, which stores the Dry ash in SILOS and is being
issued to cement and brick Industries around the Rayalaseema region.

Approximately Rs. 5.00 lakes per annum are being invested to improve the Green Belt
in the Power House and Colony premises.

RAYALASEEMA THERMAL POWER PROJECT STAGE – I:

Rayalaseema comprises of four districts Kadapa, Kurnool, Anantapur and Chattier which are
considered to be in backward region and the area lags behind in all respects such as Agriculture,
Industry and education prior to the Industrial development, Agriculture is purely dependent on
rainfall. People used to live on Agriculture sector owing to the advancement of Science and
Technology some of barites and Mine Industries were started subsequently and more industries
were established in this region. Added to this, the region is considered to be hottest region and
temperature often goes up to 50 degrees centigrade in summer. Therefore the need for Electricity
to meet the necessity of the inhabitants and the Industrial belt of this region was felt, as the supply
that was generated by the Agencies was found insufficient. Hence the Government established
Rayalaseema Thermal Power Project in 1994. Rayalaseema Thermal Power Project is one of the
major power generation facilities began developed in Andhra Pradesh to meet the growing demand
for power. The project envisages the installation of 210 MW power generation units under Stages -
I.

The first 210 MW under commissioned on 31-3-1994 and second unit on 25-2-1995.
Rayalaseema region is in the Southern part of the state and most of generating facilities are
in the Northern part of the state except two major Hyde stations in the Central part. The
Rayalaseema region therefore gets in power, therefore gets power during summer when the

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Hyde stations generations goes down. Priority is therefore given for Industrial development
and power being the basic infrastructure; it is necessary to ensure proper power supplies. In
this context the RTPP is taken up not only to improve the base load capacity of the Grid but
also to ensure proper voltage profile in the area under all conditions.

RAYALASEEMA THERMAL POWER PROJECT STAGE – II:

Salient Features:
Installed Capacity 420 MW (2 X 210 MW)

Estimated Cost Rs. 1640 Cr

Location V V Reddy Nagar-516 312, Kadapa (Dot)

Coal Source Singareni Coal Collieries Limited

Water Source Mailavaram Dam

Units Commissions Unit-III : January, 2007

Schedule Unit-IV : July, 2007

Power Finance Corporation, Rural Electrification Corporation, Central Bank & Indian
Overseas Bank

STATUS AS ON 04.06.20017:

 All Statutory Clearances/Approvals obtained.


 Total Project cost including IDC is about Rs. 1640 Crores (Rs. 3.90 Cr per
MW).
 Contract of Main Plant and balance of plant except coal & ash plants and civil
works was the awarded to BHEL on 27.12.2003 at Rs. 1125 Cr.
 Contract for major civil works like Foundations, Structures, Cooling Towers,
Chimney,
 C.W. Pump House and Railway siding were also awarded and civil works are

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under brisk progress.

 Financial Closure achieved through PFC, REC, Central Bank and Indian
Overseas Bank.

RAYALASEEMA THERMAL POWER PROJECT STAGE – III:

Salient Features:

Installed Capacity 710 MW (StageIII 210 MW + Stage IV 500 MW)

Installed Cost Rs. 2800 Cr

Location V.V Reddy Nagar-516 312, Kadapa (Dt)

Coal source It is being Finalized

Water source Mailavaram Dam

Units Commissioning Init-V: February, 2009

Schedule Unit-VI: March, 2010

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Financial assistance Power Finance Corporation,

Rural Electricification Corporation

RAYALASEEMA THERMAL POWER PROJECT STAGE – V:-

 APGENCO today announced the commercial operation of the 210 MW


Rayalaseema Thermal Power Project (RTPP) Stage-III, Unit-5, and hinted at
adding another 600 mw unit (Stage-IV) at the project site by 2013.
 Following test runs with the synchronization to the grid, it will supply about 5
million units a day and partially ease up pressure on growing demand ahead of the
summer months.
 APGENCO has added 710 mw capacity during the year, and expects to
commission another 500 mw by March 2011.
 According to a statement, as a part of capacity addition programme, APGenco has
taken up 210 MW Rayalaseema Thermal Power Project Stage-III. The raw water
required for the project is supplied through pipe lines covering a distance of 22
Km from Mylavaram and Bhrahamsagar reservoirs.
 The thermal plant has coal linkage from Mahanadi Coal Fields. The supply,
erection, testing and commissioning of boiler including Balance of Plant works
was awarded to BHEL. Ash Handling plant is being handled by MacawberBeekay,
New Delhi, and coal handling plant by TRF Limited, Hyderabad
The work on the Rs. 1,331 crore commenced in January 2007. Another 1x600 MW,

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Unit-6 under Stage-IV, at RTPP, will be commissioned by the end of 2013.


SALIENT FEATURES OF THE PROJECT:
Single tower type boilers on concrete pylons with a capacity of 690 T/HR at a pressure
of 155Kg/cm2 and at 540oc for each unit are installed.
SSMILLING PLANT: Three horizontal tube mills each having capacity of 105 T/HR
are provided for each of the boilers.
ELECTROSTATIC PRECIPITATORS: In order to achieve total pollution control 6
field electrostatic precipitators having capacity of 13, 82,000 M/s and 99.89% efficiency are
installed.
CHIMNEY: A 220mts tall chimney with two flues conforming to the latest
requirement of “Emission Regulators” is installed.
TURBO GENERATORS: German designed steam turbines with lowest heat rate with
3 cylinders reaction type were commissioned. Microprocessors based automatic Turbine runs
up systems are installed.
GENERATOR TRANSFORMERS: 2 Numbers 240MVA, 15.75, 236KV, 3 phase
step up transformer, one for each unit are installed for transmitting power at 220KV.
INSTRUMENTATION AND CONTROLS: Total automation and highly
sophisticated DDC control system supplied by M/S YBL and M/S BHEL Ltd are in use to
smoother and finer control.
COAL HANDLING PLANT: The coal handling plant has two wagon tipplers
complete weighing arrangement and double stream conveying systems and one stacker
reclaimed with a capacity of 1275 T/HR.
BOTTOM ASH SYSTEM: Bottom ash system provided for the collection of furnace
bottom ash through water impounded storage type bottom ash hopper. The ash slurry is being
pumped to ash pond.
FLY ASH REMOVAL SYSTEM: A wet de-ash system in which fly ash is collected
in the hoppers of electrostatic precipitators, air heaters etc. is mixed with water and sluiced to
ash slurry sump by means of high pressure sluicing jets. Dry fly ash system is intended for the
recovery of dry y ash from the selected rows of ESP hoppers. This system will empty the dry
fly ash-to-ash silos from where the ash is distributed to cement and brick manufactures.
WATER TREATMENT PLANT: Water treatment plant produces 225M3/hr of DM

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plant water through three steams of capacity 75M3/hr each to meet the requirement of stage-II.
CIRCULATING WATER SYSTEM: The circulating water system uses water from
Mylavaram reservoir through natural draught cooling towers with provision for makeup water
needs. One cooling tower for each unit is constructed. Three circulating water pumps each
having 50% capacity is installed for each unit.
SWITCH YARD:The generated voltage of the units is being stepped up to 220 KV by
means of 240MVA, 15.75KV/236MV unit step up transformers and fed to the 220KV
transmission lines through Yerraguntla, Kadapa and Anantapur.
LOAD GROWTH: This project is located in the load center of the grid and there is
consistent load growth around this project every year.

PERFORMANCE SINCE INSPECTION:-

YEAR ACHIEVED AWARDS RANK


PLANT WON
LOAD FACTOR
1995-96 70.9 % - -
1996-97 66.2 % - -
1997-98 81.1 % SILVER -
MEDAL
1998-99 91.5 % GOLD FIRST IN
MEDAL COUNTRY

1999- 94.9 % GOLD SECOND IN


2000 MEDAL COUNTRY
2000-01 94.5 % GOLD FIRST IN
MEDAL COUNTRY
2001-02 92.4 % GOLD SECOND IN
MEDAL COUNTRY

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2002-03 94.8 % GOLD FIRST IN


MEDAL COUNTRY
2003-04 91.0 % - -

 APGENCO added on797MW.


 KTPP Stage-I-500 MW, RTPP Stage-III-210MW, KTPS Stage-VI-500MW were
Synchronized with AP Grid.
 Unit-4 & 5of PriyadarshiniJurala HEP- 2X39MW, Unit-4 of Pochampad HES-
9MW were Synchronized with AP Grid.
 APGENCO has achieved highest annual generation of 37317 MU during 2010-11.
 APGENCO Thermal power stations have achieved highest annual generation of
29446 MU during 2010-11.
 APGENCO has achieved highest monthly generation of 3870 MU during March
2011.
 APGENCO Thermal power stations have achieved highest monthly generation of
3101 MU during March 2011.
 APGENCO Hydel power stations have achieved highest monthly generation of
1854 MU during September 2010.
 APGENCO has achieved highest daily generation of 143.7 MU on 04.10.2010.
 APGENCO Thermal power stations have achieved the highest daily generation of
107.2MU on 15.02.2011.
 APGENCO Thermal power stations have achieved 79.5% PLF against All India
Average PLF of 74.3%.
 APGENCO contribution to AP Power Grid is 44%
Awards won by our Thermal Plants

Productivity Award is given by GOI against the rating given for performance during peak
hours.
Incentive Award is given by GOI for Efficient & Economic operation.

Meritorious Performance in power Sector under the Category

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of Thermal Power Stations

Year Dr.NTTPS RTPP KTPS

2008-09 Bronze

Outstanding Performance Award (Medal)

Year VTPS RTPP KTPS USHES

2006-07 Bronze Bronze

2005-06 Bronze Silver

2004-05 Bronze Silver Gold

Productivity Award (Medal)

Year VTPS RTPP KTPS

2002-03 Gold Gold Gold

2001-02 Gold Gold Gold

2000-01 Gold Gold Gold

1999-00 Gold Gold Gold

 VTPS, RTPP & KTPS V have qualified for Gold Medal for Meritorious

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Productivity Award for year 2003-04.



 Vijayawada Thermal Plant has won the Meritorious Productivity Award for
twenty-one consecutive years - In which it has won nine gold medals - and
Incentive Award for twelve consecutive years.
 Rayalaseema Thermal plant has won the Meritorious Productivity Award for
seven consecutive years - gold medal six times - and Incentive Award for eight
consecutive years.

Measures have been taken to check environmental pollution by plantation i.e. avenue
plantation development of green belt area, lawns, gardens were extended in and around
R.T.P.P to establish environmental and ecological balances as follows.

AREA LENGTH IN SQUARE


METERS
MAIN PLANT AREA 5500
COAL PLANT AREA 510
DM PLANT AREA 8550
COLONY AREA 770
AROUND PLANT AREA 775
DEVELOPMENT OF GREE BELT 4850
INSIDE

Previously ash water from ash pond was let out into the Kallamalla River. It is now
stored in a tank and re-circulated back to the plant. As such water pollution has been
effectively controlled and water is being conserved. Also oxidation pond for treatment of
sanitary effluents was commissioned on 03-01-1998.
WELFARE MEASURES:
During the survey it was found that the organization is very particular about all the

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welfare activities and improving. So, it takes effective steps to maintain the continuously. The
following are the welfare measures that the organization is providing.
DRINIKING WATER:
Every establishment or factory is under a duty to make effective arrangement to provide
and maintain sufficient supply of drinking water at suitable points, as it is essential. And in
this organization also drinking water facility is provided properly.

HOUSING FACILITY:
As it is must for every organization to provide proper housing facility for every
employee as usual it is providing good housing facility for different categories of employees
based on their designation and 1268 different type of quarters have been constructed and there
is proposal for construction of new quarters as per the requirement.
EDUCTIONAL FACILITY:
Educational facility is provided for the children of the employees in the plant itself.
The following are the educational institutions located in RTPP.
 Dayananda Anglo Vedic Public School.
 Sri SaraswathisisuMandir.
MEDICAL BENEFITS:
Plant is provided with a project hospital with sufficient number of staff and a dispensary
to provide suitable medicine for the employees and their family members.
CANTEEN:
A subsidized canteen has been provided in the plant with healthy and hygienic
environment.
CHILDREN`S PARK:
Abundant number of children’s parks was provided with cradles, seesaw, Merry goes
round etc. in a wide area to enable the children to enjoy their free time.

RECREATIONAL FACILITIES:
The management in the housing colony provided arrangement for entertainment and
recreation of workers and officers employed in R.T.P.P. Generally on the eve o0f festivals
some cultural programs are arranged by the management.

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CONVEYANCE:
For traveling to the nearby town, conveyance facility has been provided with many
trips. Three buses are arranged one for executives and two for non-executives.
COMMUNITY HALL:
A community hall is provided to arrange different functions of the R.T.P.P members
and different programs are being arranged. An open-air theatre was inaugurated recently to
facilitate cultural programs and is also used to screen the movies during weekends.

CO-OPERATIVE STORES:
Two consumers co-operative stores with all the provisions are provided in the colony.
One is for officers and the other for workers.

LIBRARY:
Library is provided by government of A.P with all kinds of books including weeklies,
technical, journals and newspapers etc.
LADIES CLUB:
In the colony, separate ladies club is opened with different indoor and outdoor games
for recreation.

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RESEARCH METHODOLOGY

Research

Research is defined as a careful consideration of study regarding a particular concern or a


problem using scientific methods. According to the American sociologist Earl Robert Babbie,
“Research is a systematic inquiry to describe, explain, predict and control the observed
phenomenon. Research involves inductive and deductive methods.”

Research is conducted with a purpose to understand:

 What do organizations or businesses really want to find out?


 What are the processes that need to be followed to chase the idea?
 What are the arguments that need to be built around a concept?
 What is the evidence that will be required that people believe in the idea or concept?

Research is, thus, an original contribution to the existing stock of knowledge making for its
advancement. It is the per suit of truth with the help of study, observation, comparison and
experiment. In short, the search for knowledge through objective and systematic method of
finding solution to a problem is research. The systematic approach concerning generalization and
the formulation of a theory is also research. As such the term ‘research’ refers to the systematic
method consisting of enunciating the problem, formulating a hypothesis, collecting the facts or
data, analyzing the facts and reaching certain conclusions either in the form of solutions(s)
towards the concerned problem or in certain generalizations for some theoretical formulation.

Types of Research :
1. Exploratory Research: As the name suggests, exploratory research is conducted to explore
the research questions and may or may not offer a final conclusion to the research conducted. It
is conducted to handle new problem areas which haven’t been explored before. Exploratory
research lays the foundation for more conclusive research and data collection. For example, a
research conducted to know the level of customer satisfaction among the patrons of a restaurant.

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2. Descriptive Research: Descriptive research focuses on throwing more light on current issues
through a process of data collection. Descriptive studies are used to describe the behavior of a
sample population. In descriptive research, only one variable (anything that has quantity or
quality that varies) is required to conduct a study. The three main purposes of descriptive
research are describing, explaining and validating the findings. For example, a research
conducted to know if top-level management leaders in the 21st century posses the moral right to
receive a huge sum of money from the company profit?

3. Explanatory Research: Explanatory research or causal research, is conducted to understand


the impact of certain changes in existing standard procedures. Conducting experiments is the
most popular form of casual research. For example, research conducted to understand the effect
of rebranding on customer loyalty.

Types of data :
Primary Data:
The primary data is that data which is collected fresh hand, and for first time which in nature.
Primary data can collect through personal interview. To support the secondary data.

Secondary data:
The secondary data are those which have already collected and stored. Secondary data easily get
those scondary data from records, journals, annuals reports of the company etc., it will save the
time, money and efforts to collct the data. Secondary data also made available trough rade
magazine, balece sheets, books etc.

Tools used for the study


Grahs are used to represent the data collected
Fundflow statements are used

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I. To know the operating efficiency of RTPP


FUNDS FROM OPERATIONS

Year 2013-14 2014-15 2015-16 2016-17 2017-18

Funds from 78172.57 82698.63 77431.87 83676.15 88855.89


Operations

Funds from Operations


90000
88000
86000
84000
82000
80000
78000
76000
74000
72000
70000
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

From the above graph it is observed that the funds from operations has been increased from
2013-14 to 2014-15 and it has a downward moovement from 2015-16 to 2016-17 and from
2015-16 onwards it has a continuous increasing trend.

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II. To know the financial position of the company

COMPARISON OF NET PROFIT (AFTER TAXES AND DEPRECIATION)

Years 2013-14 2014-15 2015-16 2016-17 2017-18

Net Profit 1045.87 5163.80 6303.94 15100.62 19763.59

Net Profit
25000

20000

15000

10000

5000

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

From the above data it is observed that the net profits after taxes and depreciation are
continuously increasing from 2013-14 to 2017-18.

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COMPARISON OF FIXED ASSETS


(Rupees in Lakhs)
FIXED ASSETS 2013-14 2014-15 2015-16 2016-17 2017-18

Gross Block 1373703.49 1403970.78 1407623.38 1416821.09 1606199.90

Add: Capital 40753.33 63108.33 149300.13 317575.41 403691.19


work in
progress

Total 1414456.82 1467079.11 1556923.51 1734396.50 2009891.09

Increase in 39142.56 52622.29 89844.40 177472.99 227594.59


fixed assets

Increase in fixed assets


250000

200000

150000

100000

50000

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

From the above analysis it is observed that there is a continuous increase in the fixed
assets of the company from 2013-14 to 2017-18

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III. To know the various sources of funds

Sources 2013-14 2014-15 2015-16 2016-17 2017-18


82698.63 77431.87 83676.15 88855.89
Funds from operations 78172.57
19597.50 17231.91 53200.00
Investments 10600.00 -
39375.92 - 36902.05 54502.87 186366.79
Secured loans
Unsecured loans 7562.10 - - -
163973.34 3074.72 5659.54 5972.72 10739.44
Deferred tax liability
- 1403.94 119.02 119.02 119.02
Miscellaneous
Expenditure

Funds from operations


90000
88000
86000
84000
82000
80000
78000
76000
74000
72000
70000
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

From the above graph it is clear that the funds from operations are fluctuating. Overall we can
say that the funds from operations are increased from 2013-14 to 2017 -18.

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Investments
60000

50000

40000

30000

20000

10000

0
2015-16 2016-17 2017-18

Interpretation
From the above graph we can observe that the investment in company is continuously
increasing year by year. The people are more attracted towards the investment in company.

Secured loans
200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
2013-14 2015-16 2016-17 2017-18

Interpretation
The above graph says that the secured loans are increasing year by year from 2013-14 to
2017 – 18. There are no secured loans in the year 2014-15.

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Deferred tax liability


180000
160000
140000
120000
100000
80000
60000
40000
20000
0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation
Deferred tax liability of the company is very high in the year 2013-14 and in the next
year there is no such high deferred tax liability.

1600

1400

1200

1000

800

600

400

200

0
Sources 2014-15 2015-16 2016-17 2017-18

Interpretation
From the above table and graph it is clear that the company is not having any
miscellaneous expenditure in the year 2013-14. In the year 2014-15 the company is having the
highest miscellaneous expenditure compared to other years.

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Findings
 The profits are in the increasing trend. There is a drastic improvement in profit from the year
2013-14 to 2014-15 where the profit is almost doubled. This indicates the good financial
soundness of the company.

 Deferred tax liability is very high in the year 2013-14 and the miscellaneous
expenditure is very high in the year 2014-15.
 funds from operations are continuously in increasing trend
 investments to the company are high in the year 2017-18

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Suggestions

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CONCLUSIONS:

 The efficiency of management at financial position of RTPP is good


 Secured loans and unsecured loans increased over the periods.
 From the observation it is clear that capital expenditure on fixed assets is increased gradually
over the period of time which might be due to construction and commission of new thermal and
hydel projects.
 Miscellaneous expenses observed decrement over the years and is Nil during the year 2015-16.
 Current liabilities also decreased from 2013-14 to 2017-18 which shows prompt clearance of
liabilities
 The RTPP uses more of long term loans/debts than owner’s equity.
 Based on the analysis made the total financial position is good.

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