CORPORATE FINANCE PROJECT

ON

SUBMITTED TO: Ms.Ranjani Matta SUBMITTED BY: Amit Yadav Satyendra Yadav Manmohan Rai

COMPANY PROFILE:
Power Grid Corporation of India is incorporated in 1989 for transmission of Electric Power across the India. It is carrying 51% of Generated Power across the India with --89170 MVA Transformation capacity. --22400 MW Interregional capacity. Net profit of Power Grid has been increased from 1009 crore in 2005-06 to 2041 crore in 2009-10 and turnover also have been increasing from 2005-06 to 200910.Its asset growth is also increasing 24888 crore to 43202 crore from 2005-06 to 2009-10.

MISSION

Establishment and operation of Regional and National Power Grids

to facilitate transfer of electric power within and across the regions with Reliability, Security and Economy on sound commercial principles.

Stockholder Analysis:
Category Total Shares 3634907735 600 177796904 64455175 77345395 23200905 48000966 4095341 179038209 4208841230 % To Equity 86.36 0.00 4.22 1.53 1.84 0.55 1.14 0.10 4.25 100.00

1 9 2 3 4 5 6 7 8

PRESIDENT OF INDIA PROMOTERS INDIAN PUBLIC FIIs BODIES CORPORATE MUTUAL FUNDS BANKS & FI NRI/OCBs Others Total

year 2005-06 2006-07 2007-08 2008-09 2009-10

Earning per share 3.03 3.28 3.6 4.02 4.85

Dividend per share 1.00 1.20 1.20 1.50

Analysis:- Power Grid has majority of shares held by President of India(86.76%).That means the major control on the company is of the Government. Hence ,there are less chances of conflict amongst shareholders.

Earning per share has also increased from Rs 4.02 to Rs 4.85 .And dividend has also increased from RS 1.2 to Rs 1.5.

Leverage:
The investment of the funds of company in fixed cost bearing assets. Leverage is two types: Operating leverage Financial leverage Degree of operating leverage (DOL) = contribution/PBIT DOL= 2801.3/4170 = 0.67 Degree of financial leverage (DFL) = PBIT/PBT DFL = 4170/2626 = 1.58 Degree of combined leverage (DCL) = DOL+DFL DCL= 0.67+1.58 = 2.25 Analysis: - DOL says that 1% change in sale leads to 0.67% change in PBIT. Similarly DFL says that 1% change in PBIT or interest leads to 1.58 % change in PBT. This also show that Power Grid has less fund investment in operating leverage as compare to financial leverage.

Dividend policy:
Year 2005-06 2006-07 2007-08 2008-09 Dividend (in cr.) 303 369 505 505

2009-10

631

Dividend payout ratio = Dividend per share/Earning per share Dividend payout ratio= 1.5/4.85*100 = 30% year 2005-06 2006-2007 2007-08 2008-09 2009-10 Next year dividend 1.00 1.20 1.20 1.50 change 0.20 0.00 0.30 %change 20 0 25 22.5%

Dividend Yield = D(1+G)/P = 1.5(1+.225)/10*100 = 18.37%. Where: - D- dividend for current year G- Growth rate P- Current price per share Analysis: Dividend Payout ratio is 30% and dividend yield is 18.37%.Dividend per share from 2008-09 to 2009-10 has increased from Rs 1.20 to Rs 1.50.

Capital Structure:
It tells about the portion of Equity share capital to Debt. Capital of a company. year 2005-06 2006-07 2007-08 2008-09 2009-10 Equity (in %) 39 38 36 34 32 Debt.(in %) 61 64 62 66 68

Debt. Equity proportion :

year

Authorized 10,000

Issued

Subscribed

Called Up 4208.84

2010

4,208.84 4208.84

Less : Calls Forfeited in Arrears 0.00 0.00

Paid Up 4208.84

Analysis: Power Grid has debt to equity ratio 68:32 in 2010.It shows that the company has more capital in from of debt which is clear from above pie chart, i.e., 68%. Company also issued 42.08% of its authorized capital.

Cost of Capital:
It is calculated by calculating cost of equity and cost of debt. re = D(1+g)/P + g

Where:re =cost of equity D1 = D (1+g) = dividend per share for next year. P = current price per share g = constant growth rate. re = 1.5(1+.225)/10+.225 = 0.265 = 26.5%.

rd= Annual interest (1-tc)/Total debt Where:rd= cost of debt. (Assumption: - corporate tax is 33%) rd = 1543.24(1-0.33)/34416.79 = 0.0304 = 3.04%.

WACC= re + rd

(WACC- weighted average cost of capital)

WACC = 26.5 + 3.04 = 29.54%. Analysis:- Power Grid has lower cost of debt as compared to cost of equity. That why, Power Grid has more Debt (68%) in their capital structure. Secondly, Power grid has to make profit at least 29.54% to re back cost of capital.

Working capital management:

The capital which a company requires to manage its day to day to operations. Working capital management of Power Grid =Rs. 10245.07 cr.

Calculation:-

Gross working capital = sum of all current asset = Rs. 9627 cr.

Net working capital = sum of all current asset sum of all current liability.

Net working capital = Rs.9627-7634.6 = Rs.1992.72 cr.

Inventory period = Avg. inventory/ Avg.COGS/365

Inventory period= 321.12/4310.39/365 = 27.19 days.

A/c Receivable period =

Avg. A/c Receivable Avg. sale /365

A/c Receivable period = 1794.21/6821.15/365 = 96 days.

A/c Payable period = Avg. A/c payable Avg. COGS/365 A/c Payable period = 2817.59/ 4310.39/365 = 123.19 days.

Operating cycle = inventory period + A/c receivable period Operating cycle = 27.19 + 96 = 123.19 days.

Analysis: - Power Grid has operating cycle of 123.19 days that is not big. Hence it has to maintain less working capital. Secondly account receivable period is 96 days that 3 month credit Hence it also require less Working capital. Thirdly, A/c payable period is high. So it can take long credit hence require less Working capital.

Valuation of shares:
P = D1/(Ke g) Where: P= valuation of share D1 =dividend per share for next year. Ke = expected growth rate g = constant growth rate Assumption expected growth rate is 25%.

P= 1.5(1+0.225)/( 0.25-0.225) = 73.3 %. Analysis: valuation of share will be 73.33%.

Project evaluation:Through this project we analyzed that dividend per share of power grid has increased from Rs1.2 to Rs. 1.5 and Earning per share also increased from Rs.4.05 to Rs. 4.85. We also analyzed that cost of debt. Capital is less than cost of equity

share capital. And majority of share held by the President of India. Hence it is more secured. We also analyzed that power Grid require less working capital requirement because has small operating cycle.