Chapter 1 To 5

c

The power sector has registered significant progress since the process of
planned development of the economy began in 1950. Hydro -power and coal
based thermal power have been the main sources of generating electricity.
Nuclear power development is at slower pace, which was introduced, in late
sixties. The concept of operating power systems on a regional basis crossing the
political boundaries of states was introduced in the early sixties. In spite of the
overall development that has taken place, the power supply industry has been
under constant pressure to bridge the gap between supply and demand.
The total electricity generation in the country increased from 420.6 Billion Unit
(BU) during 1997-98 to 638.1 BU during (April-January, 2009-10). The overall
electricity generation in power utilities in the country as well as shortage are
stated as under.
Year Requirement (BUs) Availability(BUs) Shortage(BUs) Shortage %

1997-98 457.67 420.6 34.06 8.1
1998-99 476.51 448.4 28.11 5.9
1999-00 512.47 480.7 31.77 6.2
2000-01 541.75 499.5 42.25 7.8
2001-02 556.97 515.2 41.77 7.5
2002-03 582.89 531.6 51.29 8.8
2003-04 600.96 558.3 42.66 7.1
2004-05 633.65 587.4 46.25 7.3
2005-06 674.12 617.5 56.62 8.4
2006-07 732.74 662.4 70.34 9.6
2007-08 780.93 704.4 76.53 9.8
2008-09 814.17 723.8 90.37 11.1
2009-10 856.32 771.55 84.77 9.9
Table 1.1 Power Supply Position Source NTPC Ltd.
a
Chart 1.1 Generation Growth in India

Power development is the key to the economic development. The power Sector
has been receiving adequate priority ever since the process of planned
development began in 1950. The Power Sector has been getting 18-20% of the
total Public Sector outlay in initial plan periods. Remarkable growth and progress
have led to extensive use of electricity in all the sectors of economy in the
successive five years plans. Over the years (since 1950) the installed capacity of
Power Plants (Utilities) has increased to 89090 MW (31.3.98) from meager 1713
MW in 1950, registering a 52 fold increase in 48 years. Similarly, the electricity
generation increased from about 5.1 billion units to 420 Billion units ± 82 fold
increase. The per capita consumption of electricity in the country also increased
from 15 kWh in 1950 to about 338 kWh in 1997-98, which is about 23 times. In
the field of Rural Electrification and pump set energisation, country has made a
tremendous progress. About 85% of the villages have been electrified except far-
flung areas in North Eastern states, where it is difficult to extend the grid supply.
The National Electricity Policy (NEP) stipulates power for all and annual per
capita consumption of electricity to rise to 1000 units for 2012. This entails
provision of adequate reliable power, at affordable cost with access to all
citizens. Electricity is in the concurrent list in the constitution and the primary
responsibility of structuring its availability and distribution is that of the states.
u
However both the center and the state have to pay a decisive and positive role.
While shortages are presently being experienced by each region, it is much more
acute in the case of some regions/states.
To fulfill the objective of the NEP, a capacity addition of 78,700 MW has been
done in the 11th plan. This capacity addition has provided a growth rate of 6.6
percent to the power sector. The breakup of the capacity addition target is gives
as:

½ u½a u½ c ca c

a½½ auuc cca u

uu uu ½u

u½ au c½u c

½ u½ c c c
The overall generation in the country has increased by 6.59 percent from
723.793 BU during 2008-09 to 771.551 during the year 2009-10. The category
wise generation performance is as follows:
Source Percentage Growth

Thermal 8.6
Hydro 26.67
Nuclear 5.66
Bhutan Import. 9.16

In December 1950 about 63% of the installed capacity in the Utilities was in the
private sector and about 37% was in the public sector. The Industrial Policy
Resolution of 1956 envisaged the generation, transmission and distribution of
power almost exclusively in the public sector. As a result of this Resolution and
directed by the Electricity (Supply) Act, 1948, the electricity industry developed
rapidly in the State Sector.
In the Constitution of India "Electricity" is a subject that falls within the concurrent
jurisdiction of the Centre and the States. The Electricity (Supply) Act, 1948,
provides an elaborate institutional frame work and financing norms of the
performance of the electricity industry in the country. The Act lead to the creation
½
of State Electricity Boards (SEBs) for planning and implementing the power
development programs in their respective States. The Act also provided for
creation of central generation companies for setting up and operating generating
facilities in the Central Sector. The Central Electricity Authority constituted under
the Act is responsible for power planning at the national level. In addition the
Electricity (Supply) Act also allowed from the beginning the private licensees to
distribute and generate electricity in the specified areas designated by the
concerned State Government or SEB¶s.
During the post independence period, the various States played a predominant
role in the power development. Most of the States have established State
Electricity Boards. In some of these States separate corporations have also been
established to install and operate generation facilities. In the rest of the smaller
States and UTs the power systems are managed and operated by the respective
electricity departments.
During 1974-79, the Government of India got itself involved in a the generation
and bulk transmission of power to supplement the efforts at the State level and
took upon itself the responsibility of setting up large power projects to develop
the coal and hydroelectric resources in the country as a supplementary effort in
meeting the country¶s power requirements. The National thermal Power
Corporation (NTPC) and National Hydro-electric Power Corporation (NHPC)
were set up for these purposes in 1975. North-Eastern Electric Power
Corporation (NEEPCO) was set up in 1976 to implement the regional power
projects in the North-East. Subsequently two more power generation
corporations were set up in 1988 viz. Tehri Hydro Development Corporation
(THDC) and Nathpa Jhakri Power Corporation (NJPC). To construct, operate and
maintain the inter-State and interregional transmission systems the National
Power Transmission Corporation (NPTC) was set up in 1989. The corporation
was renamed as POWER GRID in 1992 and expected to become a national grid
in 2012 in order to nationalize the power transmission lines for better service.

NTPC Limited is the largest thermal power generating public sector company in
India. It was incorporated in the year 1975 to accelerate power generation in the
country. NTPC ranked 317th in the µ2009 Forbes Global 2000¶ ranking of the
world¶s biggest companies. Within a span of 35 years, NTPC has emerged as a
truly national power company, with power generating facilities in all the major
regions of the country. With a current generating capacity of 30,644 MW, NTPC
has embarked on plans to become a 75,000 MW company by 2017.

³A world class integrated power major, powering India¶s growth, with increasing
global presence´.

³Develop and provide reliable power, related products and services at

competitive prices, integrating multiple energy sources with innovative and eco-
friendly technologies and contribute to society.´

NTPC is the largest power generating entity in the country. Apart from power
generation from coal and gas, it has also diversified into hydro power, coal
mining, power equipment manufacturing, oil and gas exploration, consultancy in
the area of power plant constructions and power generation, power trading and
distribution in the form of joint ventures with various other entities in India and
abroad.

Currently NTPC owns 15 Coal Based Power Plants with a generating capacity of
24,395 MW, and 7 Gas/Liquid Fuel Based Power Plants with a generating
capacity of 3,955 MW.

Apart from this it has 4 other Coal and Gas Based Power Plants with power
generating capacity of 2,294 MW as joint ventures with other organizations.

Source: NTPC Ltd.

Fig. 2.1, evolution of NTPC

Northern 7,035 MW 2,312 MW 9,347 MW
Western 6,360 MW 1,293 MW 7,653 MW
Southern 3,600 MW 350 MW 3,950 MW
Eastern 7,400 MW - 7,400 MW
Joint Ventures 814 MW 1,480 MW 2,294 MW
25,209 MW 5,435 MW 30,644 MW

Table 2.1 Generation in different regions

!
NTPC has increased thrust on hydro development for a balanced portfolio for
long term sustainability. The first step in this direction was taken by initiating
investment in Koldam Hydro Electric Power Project (800 MW capacity) located
on Satluj river in Bilaspur district of Himachal Pradesh. Two other hydro projects
under construction are Tapovan Vishnugad (600 MW capacity) and Loharinag
Pala (520 MW capacity) in Uttarakhand. On all these projects construction
activities are in full swing.

In terms of operations, NTPC has always been considerably above the national
average. The availability factor for coal based power stations has increased from
89.32% in 1998-99 to 91.76% in 2009-10, which compares favorably with
international standards. The plat load factor (PLF) has increased from 76.6% in
1998-99 to 90.81% during the year 2009-10.
c
Fig. 2.2, PLF comparison. Source: NTPC Ltd.

Fig. 2.3 Generation Growth Source: NTPC Ltd.
cc
In October 2004, NTPC launched its Initial Public Offering (IPO) in October 2004
consisting of 5.25% as fresh issue and 5.25% as offer for sale by Government of
India. NTPC thus became a listed company in November 2004 with the
government holding 89.5% of the equity share capital. The rest is held by
Institutional Investors and the Public. The issue was a resounding success.
NTPC is among the largest five companies in India in terms of market
capitalization.
Fig. 2.4 NTPC¶s share in power sector. Source NTPC Ltd.

1975 - Incorporation of Company.
1977- NTPC acquired the first patch of land at Singrauli. The first batch of
executive trainees joined the company.
1978 ±Takeover of management of the Badarpur Project and construction of the

first transmission network Singrauli ± Korba
1982 - Commissioning of the first 200 MW unit at Singrauli. Center for education
at Power Management Institute, Delhi established. First direct foreign currency
borrowing a consortium of foreign banks, led by Standard Chartered Merchant
Bank extends a loan of GBP 298.41 million for the Rihand project.
ca
1983 ± In the very first year of commercial operation, NTPC earned a profit of Rs
4.51 crores in the financial year 1982-83.
1984 -The transmission line based on High Voltage Direct Current technology,
commissioned for power transmission from Rihand to Delhi Singrauli project
received World Bank loan of US$ 150 million through Government of India (GOI).
1985 ±This year marked the completion of decade (1975-1985) of NTPC¶s

existence. NTPC achieved a generating capacity of 220 MW commissioning 11
unites of 200 MW each at its various projects in country. The GOI approved the
setting of three gas based combined cycle projects by NTPC at Kawas in
Gujrat, Auraiya in U.P. and Anta in Rajasthan. For these projects, the World
Bank agreed to provide US $ 48 Million, which was the largest single loan in the
history of bank.
1986 -Synchronized first 500MW unit at Singrauli NTPC became one of the first
PSUs to issue bonds in the debt market.
1987 ± NTPC crossed the 5,000 MW installed capacity mark.
1988 ± The first syndicated Japanese loan of 30 Billion Yen raised.
1989 - Consultancy division of the Company launched first unit (88 MW) of
company¶s first gas based combined cycle power plant at Anta, Rajasthan
commissioned.
1990 - Total installed capacity crossed 10,000MW.
1992 - Company¶s first acquisition of Feroze Gandhi Unchahar Thermal Power

Station (2x210MW) from Uttar Pradesh Rajya Vidyut Utpadan Nigam of Uttar
Pradesh. The transmission systems owned by NTPC were transferred to Power
Grid Corporation of India Limited pursuant to legislation by the Parliament of
India.
1994 - Jhanor-Gandhar (Gujarat) becomes our first thermal power station to have
commissioned an integrated Liquid Waste Treatment Plant.
1995 - NTPC celebrated 20yrs of its existence. A new logo was adopted.
NTPC took over the 460 MW Talcher Thermal Power Station from Orissa State
Electricity Board.
cu
1997 - 'Navratna' status granted by the GOI100 billion units generation in one
year achieved A consortium of foreign banks led by Sumitomo Bank, Hong Kong
extends foreign currency loan of 5 billion Japanese Yen for the first time without
GOI guarantee.
1998 - Commissioned the first Naphtha based plant at Kayamkulam with a

capacity of 350 MW.
1999 - Dadri thermal power project, Uttar Pradesh adjudged the best in India with
a PLF of 96.12% Dadri thermal power project, Uttar Pradesh certified with ISO
14001.
2000 ± NTPC commenced construction of the first Hydro±electricity power

project of 800 MW capacity in Himachal Pradesh.
2002 - Three wholly owned subsidiaries, viz., NTPC Electric Supply Company
Limited, NTPC Hydro Limited and NTPC Vidyut Vyapar Nigam Limited
incorporated ESP (Electro-Static precipitators) set up at Talcher power plant.
NTPC exceeded 20,000 MW installed capacity mark.
2003 - Construction of first hydro-electric power project of 800 MW capacity in

Himachal Pradesh commenced after the investment approval.
2004 - The award of contract for the first Super Critical Thermal Power Plant at
Sipat reached a total installed capacity of 22,249 MW with the Talcher Unit V
getting synchronized on May 13, 2004. Company¶s Feroze Gandhi Unchahar
Thermal station achieves a record PLF of 87.43% in current year up from 18.02%
in February 92 when it was taken over by NTPC. LIC extends credit facility for
Rs. 70 billion. Rs. 40 billion is in the form of unsecured loans and Rs 30 billion is
in the form of bonds. Company makes its debut issue of euro bonds amounting
to USD 200 million in the international market. First coal mining block was
allotted and listing of equity shares on the Stock Exchanges.
2005 -Company received the International Project Management Award 2005 for
its Simhadri project at the International Project Management Association.
Company adopted core values 'BCOMIT' (Business Ethics, Customer Focus,
Organizational Pride, Mutual Respect and Trust, Innovation and Speed and Total
Quality for Excellence). NTPC was ranked as the Third Great Place to work in
India for second time in succession by a survey conducted by Grow Talent and
Business World 2005.
c½
2006 - Badarpur Thermal Power Station (BTPS) having an installed capacity of
705 MW transferred to NTPC Ltd.
2007- Got granted in-principle approval for allocation of a new coal block, Chatti-
Bariatu (South) to NTPC. The share of reserves was estimated to be 354 Million
Tonnes.
2008- The company was adjudged as the Star PSU and awarded for Power
Efficiency and Environmental Protection.
2009 - NTPC entered Memorandum of understanding (MOU) with Nuclear Power

Corporation of India Ltd. (NPCIL) to work together for development of Nuclear
Power in India and for this purpose to form a Joint Venture Company for setting
up Nuclear Power Projects.

NTPC has a glorious record of excellence in every field of its activities ever since
its inception in 1975. Leading the country¶s power sector with a vision to become
a 75,000 MW company by 2017.
I. Company Rankings Award

II. Environment Award
III. Hr Award
IV. Safety Award
V. Performance Award
VI. International Gold Star Award for Quality
VII. India pride Award
VIII. ICAI Award
IX. International Project management award, 2008.
X. Exim Excellence Award, 2008.
XI. India Power Awards,2008.
XII. Enterprise Excellence Award.

c

à
à

Strength:
i. Largest market share in domestic power generation and a broad

customer portfolio across the country.
ii. Excellent track record of performance in project implementation and plant
operation.
iii. Diversified thermal generation portfolio multiple and fuels.
iv. Navaratna status.
v. High brand equity among shareholders.
vi. Strong balance sheet ± ability to raise low cost debt.
vii. Engineering skills in project configuration and package design.
viii. Turnaround ability for old plants ± demonstrated in the takeover plants of
Talcher, Tanda and Unchahar.
ix. High credit rating that is indicative of the confidence of lenders.
c
x. In house training facility (PMI),CENPEEP, R&D etc that assist in
development of the sector.
Weakness:
i. Low risk diversification of business portfolio consists primarily of

generation assets.
ii. Poor financial health of customer.
iii. Functional orientation hampering across functional perspective in decision
making.
iv. Long and multi layered procurement process leading to long lead times
and process delay.
v. Fragmented IT architecture.
vi. Gaps in HR systems such as performance management, awards and
incentive career development.
vii. Hierarchy for decision making that effects responsiveness.
viii. Role ambiguity and dilution within different lends of the organization.
Opportunity :
i. Expand generation capacities by putting up thermal & hydro capacities,

maintain the position of a dominant generating utility in the Indian Power
sector.
ii. Broad base fuel mix by considering imported coal, gas, domestic coal,
nuclear power etc. With a mitigate fuel risk and maintaining long run
competitiveness.
iii. Expand services for EPC, R&M, and O&M activities in the domestic as well
as international market.
iv. Backward integrate into fuel management to exercise greater control and
understanding of supply economics.
v. Lead the development and commercial deployment of non ± conventional
energy sources especially in the distributed generation mode.
vi. Improve collections by trading, direct sales to bulk customers and the
active role in allocation of new plants.
c
vii. Execute increased number of power power plants that classify for Mega
Power Projects status, thereby reducing the cost of the projects and power
and power generated.
viii. Forward integrate into the distribution business in India.
Threats:
i. Limited experience of operating in a truly liberalized environment with

competition.
ii. Limited experience of operating in an independently regulated system.
iii. Redirecting power may be constrained by interregional connectivity
iv. Downward regulatory and competitive pressure on tariffs.
v. Stringent norms for approval of increase in capital costs for projects in
event of time overrun.
vi. Stringent environmental norms in the future may add to the cost of
generation.
vii. Absence of an independent regular for coal industry and the delay in
private investments lending to the risk of low availability of coal in the
future.
"

Tata power is the largest private sector utility. Its annual revenue is USD 1
Billion. Its Profit after tax is USD 137 Million. Its generation capacity is 2300 MW.
Out of which in Mumbai, the capacity is 1800 MW. It has presence in generation,
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
c
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 Ltd (REL) formerly known as Bombay Suburban Electric Supply
(BSES) is a part of the Anil Dhirubhai Ambani Group. It is an integrated owner
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.

A Thermal Power Station comprises all of the equipment and a subsystem

required to produce electricity by using a steam generating boiler fired with fossil
fuels or befouls to drive an electrical generator. Some prefer to use the term
ENERGY CENTER because such facilities convert forms of energy, like nuclear
energy, gravitational potential energy or heat energy (derived from the
combustion of fuel) into electrical energy.
c
m

Badarpur Thermal Power Station is owned by Govt. of India, Ministry of Energy

and is managed by NTPC Ltd. since 1 April, 1978. At the time of change over
management the installed capacity was 300 MW and under NTPC two more
unites of 210 MW, each were erected and commissioned.
a
BTPS was conceived in 1965 to meet the growing electricity demand of Northern
Region. The site construction work started in 1968 and plant became operational
with the commissioning of its first unit on 26th July 1973, 2nd unit in 1974, 3rd unit
in 1975, 4th unit in 1978 and 5th unit in 1980. It achieved new heights in
Generation, Availability and substantial reduction in inputs; thereby
demonstrating overall efficiency in plant performance, towards its end-objective
of providing power to the Capital. In spite of the old & ageing unites, PLF of
BTPS has remained higher than the National Average for the last 16 consecutive
years. In the top 20 power station of India BTPS has got 8th position in current
financial year and achieved all MOU Targets with Excellent Rating.
There are total five unites in the Badarpur Thermal Power Station, details of the
various unites are:
3 units of 95 MW each and 2 units of 210 MW each hence the installed capacity
of the BTPS is G

CCL (Center Coal Field Ltd.)
BCCL (Bharat Coking Coal Ltd. )
ECL (Eastern Coal Field Ltd.)
The water supplied is taken from Agra irrigation canal and is used for cooling.
There are cooling towers provided so that the plant can operate in the closed
cycle.

#

(i) Sources of Revenue:
Sale of energy.
Rent from residential building.
Interest
Depreciation reserve fund.
ac
Investment.
Bank deposits.
Over standing dues.
Other receipts
(ii) Sources of Expenditure:
Fuel.
Water purification.
Lubricants and Grease.
Salaries, Wages and Allowances contribution to provident fund.

(i) Building and civil works

(ii) Boiler plant and equipment, Cash handling equipments.
(iii) Ancillary equipment.
(iv) Cooling water system and wolfing tower.
(v) Electrical equipment.
(vi) Miscellaneous charges
(vii) Depreciation.

(i) Salaries and allowances contribution to provident and other funds.

(ii) Welfare and Administrative expenses.

(i) Interest on Government capital Account.

(ii) Interest on Government current Account.

Revenue:
(i) Fixed Assets
aa
Fixed assets are shown at historical cost.
Deposits, payment/ liabilities made provision towards compensation,

rehabilitation and other expenses relate to land in possession are treated
as cost of land.
In the case of commissioned assets, where final settlement of bills with

contracts is yet to be effected , capitalization is done on provisional basis
subject to necessary adjustment in the year of settlement.
(ii) Capital work in progress
In respect of supply cum executive contracts the value of supply received

at site and accepted is taken as capital work in progress.
Interest on capital expenditure financed out of Government capital. It is

treated as revenue expenditure.
Incidental expenditure during construction for the year is appointed to

capital work in progress.
(iii) Inventories:
Inventories are valued at cost, on weighted average basis.
Value of scrap including steel scrap is accounted of in the accounts as and

when sold.
Expenditure:
Depreciation is charged on straight line method.
Depreciation on fixed assets is provided from the year following that in

which the assets become available for use.
au
u
Ê

Ê

Ê

This department handles all the process starting from coal handling to
generation and transmission of electricity.

There are two section in it:
(i) Receipt: In this all the money from sales will go to the company¶s
centralize corporate sector
(ii) Payments :It involves employee refund, tour advance, water charges,
electricity charges, hospital charges etc.
This section also do the periodic reconciliation of bank statement. NTPC has
accounts in three banks: Central bank of India, state bank of India & ICICI.

This section covers benefits for the employees. The benefits includes Child
education, Increment, Medical, Provident fund, Conveyance maintenance,
Transport allowance, House rent allowance, Fixed compensatory allowance,
Lease.
a½

This department actually verifies the requirement which is raised by the indenting
department and also verifies the amount which is charges by the supplier is
genuine or not. This section take care of purchase concurrence and works
concurrence. Purchase concurrence involves purchase of various office items
and works concurrence involves hiring servicing consultancy etc.

This section involves repairs & maintenance of various office item and plant item
like repair of machinery, oiling in fans, maintenance of A.C., computers etc.
under this section billing is also done after deducting the TDS under section
194(k). at the time of payment tax is deducted from the bill of supplier and the
balance is paid to the supplier. At the end of the year tax certificate is given to the
supplier.

It involves the payment of the material. Material involve coal, other office
expenses like furniture, almirah¶s, capital goods like boiler, maintenance charges.
The payment through this section is direct or via bank. However the main
supplier of capital goods is BHEL.
Another important fact in this section is that approx Rs 1 cr. Per annum is spent
on the filtration of water. The water is supplied by Agra canal which stores
Yamuna water but due to toxicity element huge expenditure incurred every year
for the filtration.
asically there are three supplier of coal
CCL (Central Coal field limited): According to NTPC, their coal is of very low
grade, BCCL (Bharat cooking coal limited), ECI (Eastern coal fields limited).
There was a very interesting fact which I came across in this section is that the
cost of transportation (freight charges) exceeds the cost of coal.
C & M department (contracts and material):
This is another department which is related with finance department. Any item
regarding the plant whether parts of machinery or even a new machine is first
a
approve by this department and then finance department comes into picture This
department is responsible for issuing of tenders regarding the various plant
items. Under this department there are three types of tenders:
(i) Single tender: This type of tender is issued for particular supplier of
materials like original equipment manufacturer. For NTPC, BHEL is the
original equipment manufacturer.
(ii) Limited tender: This type of tender is issued when the items are limited. It
is issued for the limited supplier.
(iii) Open tender: This type of tender is issued when the purchasing items are
substantial and huge amount is involved. Any party can bid in this tender
Complete procedure for purchasing any item is as follows:
(i) Raising of inquiry by the indenting department

(ii) Budget presentation
(iii) Budget approval by the financial authority. At this point concurrence
comes into picture.
(iv) Selection of material
(v) Material which is to be purchased is as per the quality specification like
ISO, grades etc.
(vi) Availability of stock
(vii) Final list of materials with complete specification.
(viii) Collection of information both primary or secondary sources who can
supply the required material.
(ix) Quality checks are done based on the material and their specification
tender is issued whether single, limited or open tender is required.
a

u

a

Working capital management is concerned with the problems arise in

attempting to manage the current assets, the current liabilities and the
inter relationship that exist between them. The term current assets refers
to those assets which in ordinary course of business can be, or, will be, turned in
to cash within one year without undergoing a diminution in value and
without disrupting the operation of the firm. The major current assets are
cash, marketable securities, account receivable and inventory. Current liabilities
ware those liabilities which intended at there inception to be paid in ordinary
course of business, within a year, out of the current assets or earnings of the
concern. The basic current liabilities are account payable, bill payable, bank
over-draft, and outstanding expenses. The goal of working capital management
is to manage the firm s current assets and current liabilities in such way that the
satisfactory level of working capital is mentioned. The current should be large
enough to cover its current liabilities in order to ensure a reasonable margin of
the safety.
Definition:
³Excess of current assets over current liabilities.´

The need for working capital gross or current assets cannot be over emphasized.
As already observed, the objective of financial decision making is to maximize
the shareholders wealth. To achieve this, it is necessary to generate
sufficient profits can be earned will naturally depend upon the magnitude of
the sales among other things but sales can not convert into cash. There
is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods
sold. Therefore sufficient working capital is necessary to sustain sales activity.
Technically this refers to operating or cash cycle. If the company has certain
amount of cash, it will be required for purchasing the raw material may be
available on credit basis. Then the company has to spend some amount
for labour and factory overhead to convert the raw material in work in
progress, and ultimately finished goods. These finished goods convert in to
sales on credit basis in the form of sundry debtors. Sundry debtors are
a
converting into cash after expiry of credit period. Thus some amount of cash
is blocked in raw materials, WIP, finished goods, and sundry debtors and day
to day cash requirements. However some part of current assets may be
financed by the current liabilities also. The amount required to be invested in this
current assets is always higher than the funds available from current liabilities.
This is the precise reason why the needs for working capital arise

There are two concepts of working capital management
1) Gross working capital
Gross working capital refers to the firm s investment I current assets.

Current assets are the assets which can be convert in to cash within year
includes cash, short term securities, debtors, bills receivable and inventory.
2) Net working capital
Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to
mature for payment within an accounting year and include creditors, bills
payable and outstanding expenses. Net working capital can be positive or
negative
Efficient working capital management requires that firms should operate with
some amount of net working capital, the exact amount varying from firm
to firm and depending, among other things; on the nature of industries.net
working capital is necessary because the cash outflows and inflows do
not coincide. The cash outflows resulting from payment of current liabilities
are relatively predictable. The cash inflow are however difficult to predict.
The more predictable the cash inflows are, the less net working capital will be
required.
The concept of working capital was, first evolved by Karl Marx. Marx used the
term variable capital means outlays for payrolls advanced to workers
before the completion of work. He compared this with constant capital which
according to him is nothing but dead labour . This variable capital is nothing
wage fund which remains blocked in terms of financial management, in work in
a
process along with other operating expenses until it is released through sale of
finished goods. Although Marx did not mentioned that workers also gave
credit to the firm by accepting periodical payment of wages which funded
a portioned of W.I.P, the concept of working capital, as we understand today was
embedded in his variable capital.

The operating cycle creates the need for current assets (working capital).
However the need does not come to an end after the cycle is completed
to explain this continuing need of current assets a destination should be
drawn between permanent and temporary working capital.
1) Permanent working capital
The need for current assets arises, as already observed, because of the
cash cycle. To carry on business certain minimum level of working capital
is necessary on continues and uninterrupted basis. For all practical purpose,
this requirement will have to be met permanent as with other fixed assets.
This requirement refers to as permanent or fixed working capital
2) Temporary working capital
Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable, working capital. This portion of the required
working capital is needed to meet fluctuation in demand consequent upon
changes in production and sales as result of seasonal changes

The amount of working capital is depends upon a following factors
$%
Some businesses are such, due to their very nature, that their requirement
of fixed capital is more rather than working capital. These businesses sell
services and not the commodities and that too on cash basis. As such, no
founds are blocked in piling inventories and also no funds are blocked in
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receivables. E.g. public utility services like railways, infrastructure oriented
project etc. there requirement of working capital is less. On the other
hand, there are some businesses like trading activity, where requirement of
fixed capital is less but more money is blocked in inventories and debtors.
$%
In some business like machine tools industry, the time gap between the
acquisition of raw material till the end of final production of finished products
itself is quit high. As such amount may be blocked either in raw material
or work in progress or finished goods or even in debtors. Naturally there need
of working capital is high.
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In very small company the working capital requirement is quit high due to high
overhead, higher buying and selling cost etc. as such medium size
business positively has edge over the small companies. But if the business start
growing after certain limit, the working capital requirements may adversely affect
by the increasing size.
$% '
If the company is the operating in the time of boom, the working capital
requirement may be more as the company may like to buy more raw material,
may increase the production and sales to take the benefit of favorable
market, due to increase in the sales, there may more and more amount of funds
blocked in stock and debtors etc. similarly in the case of depressions also,
working capital may be high as the sales terms of value and quantity may be
reducing, there may be unnecessary piling up of stack without getting sold, the
receivable may not be recovered in time etc.
$%
Some time due to competition or custom, it may be necessary for the company to
extend more and more credit to customers, as result which more and more
amount is locked up in debtors or bills receivables which increase the working
capital requirement. On the other hand, in the case of purchase, if the credit is
offered by suppliers of goods and services, a part of working capital
requirement may be financed by them, but it is necessary to purchase on
cash basis, the working capital requirement will be higher.
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The profitability of the business may be vary in each and every individual case,
which is in turn its depend on numerous factors, but high profitability will
positively reduce the strain on working capital requirement of the company,
because the profits to the extend that they earned in cash may be used to meet
the working capital requirement of the company.
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If the business is carried on more efficiently, it can operate in profits

which may reduce the strain on working capital; it may ensure proper
utilization of existing resources by eliminating the waste and improved
coordination etc.
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Research methodology is a way to systematically solve the research problem. It

may be understood as a science of studying now research is done
systematically. In that various steps, those are generally adopted by a researcher
in studying his problem along with the logic behind them.
It is important for research to know not only the research method but also know
methodology. The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology.
Methods comprise the procedures used for generating, collecting and evaluating
data. All this means that it is necessary for the researcher to design his
methodology for his problem as the same may differ from problem to problem.
Data collection is important step in any project and success of any project will be
largely depend upon now much accurate you will be able to collect and how
much time, money and effort will be required to collect that necessary data, this
is also important step.
Data collection plays an important role in research work. Without proper data
available for analysis you cannot do the research work accurately.

There are two types of data collection methods available.
Primary data collection
Secondary data collection
1) Primary data
The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. Primary data can collect through personal
interview, questionnaire etc. to support the secondary data.
2) Secondary data collection method
The secondary data are those which have already collected and stored.
Secondary data easily get those secondary data from records, journals, annual
reports of the company etc. It will save the time, money and efforts to collect
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the data. Secondary data also made available through trade magazines,
balance sheets, books etc.
This project is based on primary data collected through personal interview of

head of account department and other concerned staff member of finance
department. But primary data collection had limitations such as matter
confidential information thus project is based on secondary information
collected through four years annual report of the company, supported by
various books and internet web sites. The data collection was aimed at study of
working capital management of the company
Project is based on
Annual report of NTPC 2006-07
!
Study of the working capital management is important because unless the

working capital is managed effectively, monitored efficiently planed properly
and reviewed periodically at regular intervals to remove bottlenecks if any the
company can not earn profits and increase its turnover. With this primary
objective of the study, the following further objectives are framed for a depth
analysis.
To study the working capital management of NTPC Ltd.
To study the optimum level of current assets and current liabilities of the
company.
To study the working capital components such as receivables accounts,
cash management.
To study the way and means of working capital finance of NTPC Ltd.
To estimate the working capital requirement of NTPC Ltd
u

The scope of the study is identified after and during the study is conducted. The
study of working capital is based on tools like trend Analysis, Ratio Analysis,
working capital leverage etc. Further the study is based on last five years Annual
Reports of Jain Irrigation Systems Ltd. And even factors like competitor s
analysis, industry analysis were not considered while preparing this project.

Following limitations were encountered while preparing this project:
1) Limited data:-
This project has completed with annual reports; it just constitutes one part of
data collection i.e., secondary. There were limitations for primary data collection
because of confidentiality.
2) Limited period:-
This project is based on five year annual reports. Conclusions and

recommendations are based on such limited data. The trend of last five
year may or may not reflect the real working capital position of the company
3) Limited area:-
Also it was difficult to collect the data regarding the competitors and their
financial information. Industry figures were also difficult to get.
u

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The consideration of the level investment in current assets should avoid

two danger points excessive and inadequate investment in current assets.
Investment in current assets should be just adequate, not more or less, to
the need of the business firms. Excessive investment in current assets
should be avoided because it impairs the firms profitability, as idle investment
earns nothing. On the other hand inadequate amount of working capital can
be threatened solvency of the firms because of its inability to meet its current
obligation. It should be realized that the working capital need of the firms may be
fluctuating with changing business activity. This may cause excess or shortage of
working capital frequently. The management should be prompt to initiate an
action and correct imbalance.
Size of working Capital ( In Millions)

G G
%
Inventories 23405 25102 26737 32432 33477
Sundry Debtors 9678 12523 29827 35842 66515
Cash & Bank Balance 84714 133146 149332 162716 144595
Other Assets 10161 10580 9218 9792 8440
Loan & Advances 30297 40476 40354 68469 55131
$ % G ( u u u
%
Current liabilities 49102 54221 55483 74391 76876
Provisions 12300 16042 23816 32495 30706
( G u G G
$% u ( G uG G

In working capital analysis the direction at changes over a period of time is of

crucial importance. Working capital is one of the important fields of
management. It is therefore very essential for an annalist to make a study about
the trend and direction of working capital over a period of time. Such analysis
enables as to study the upward and downward trend in current assets
and current liabilities and it s effect on the working capital position.
u
The term trend is very commonly used in day-to-day conversion trend, also
called secular or long term need is the basic tendency of population, sales,
income, current assets, and current liabilities to grow or decline over a period of
time The trend is also defined as smooth irreversible movement in the series. It
can be increasing or decreasing.
Emphasizing the importance of working capital trends that analysis of working

capital trends provide as base to judge whether the practice and privilege
policy of the management with regard to working capital is good enough or an
important is to be made in managing the working capital funds.
Further, any one trend by it self is not very informative and therefore
comparison with Illustrated their ideas in these words, An upwards trends
coupled with downward trend or sells, accompanied by marked increase in
plant investment especially if the increase in planning investment by fixed interest
obligation.
Working Capital Size (In Millions)

º G G
$% 96853 151564 176189 202367 200576
( ( G
u

It was observed that major source of liquidity problem is the mismatch between
current payments and current receipts from the Comparison of funds flow
statements of NTPC Ltd. for five years.

Total assets are basically classified in two parts as fixed assets and
current assets. Fixed assets are in the nature of long term or life time for
the organization. Current assets convert in the cash in the period of one
year. It means that current assets are liquid assets or assets which can convert
in to cash within a year.
Current assets size ( In Millions)

G G
%
Inventories 23405 25102 26737 32432 33477
Sundry Debtors 9678 12523 29827 35842 66515
Cash & Bank Balance 84714 133146 149332 162716 144595
Other Assets 10161 10580 9218 9792 8440
Loan & Advances 30297 40476 40354 68469 55131
G ( u u u
( G (( ( (G

½

Analysis of current assets components enable one to examine in which

components the working capital fund has locked. A large tie up of funds
in inventories affects the profitability of the business or the major portion of
current assets is made up cash alone, the profitability will be decreased because
cash is non earning assets.
Composition of Current assets ( In Millions)

G G

Inventories 14.78 11.32 10.47 10.49 10.86
Sundry Debtors 6.12 5.65 11.67 11.58 21.59
Cash & Bank Balance 53.53 60.02 58.46 52.62 46.92
Other Assets 6.43 4.76 3.60 3.17 2.74
Loan & Advances 19.14 18.25 15.80 22.14 17.89

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Current liabilities mean the liabilities which have to pay in current year. It
includes sundry creditor s means supplier whose payment is due but not
paid yet, thus creditors called as current liabilities. Current liabilities also
include short term loan and provision as tax provision. Current liabilities also
includes bank overdraft. For some current assets like bank overdrafts and
short term loan, company has to pay interest thus the management of current
liabilities has importance.
Current Liabilities Size ( In Millions)

G G

Current liabilities 49102 54221 55483 74391 76876
Provisions 12300 16042 23816 32495 30706
( G u G G
((u ( G( ( G

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There are so many reasons to changes in working capital as follow
1) Changes in sales and operating expenses:
The changes in sales and operating expenses may be due to three reasons
(a) There may be long run trend of change. The price of row material say
oil may constantly raise necessity the holding of large inventory.
(b) Cyclical changes in economy dealing to ups and downs in business
activity will influence the level of working capital both permanent and
temporary.
(c) Changes in seasonality in sales activities.
2) Policy changes:-
The second major case of changes in the level of working capital is because of
policy changes initiated by management. The term current assets policy may be
defined as the relationship between current assets and sales volume.
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The third major point if changes in working capital are changes in technology
because changes in technology to install that technology in our business more
working capital is required.
A change in operating expenses rise or full will have similar effects on

thelevels of working following working capital statement is prepared on the
base of balance sheet of last two year.
½u
Statement of change in working capital (Millions)
Particulars 2008-09 2009-10 Change in W.C.
Increase Decrease
%
Inventories 32432 33477 1043
Sundry Debtors 35842 66515 30673
Cash & Bank Balance 162716 144595 18121
Other Assets 9792 8440 1352
Loan & Advances 68469 55131 13338
$ % u u u
%
Current liabilities 74391 76876 2485
Provisions 32495 30706 1789
G
$% uG G

1791
uG uG

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½

Ratio analysis is the powerful tool of financial statements analysis. A ratio is

define as the indicated quotient of two mathematical expressions and as the
relationship between two or more things . The absolute figures reported in the
financial statement do not provide meaningful understanding of the
performance and financial position of the firm. Ratio helps to summaries large
quantities of financial data and to make qualitative judgment of the firm s
financial performance.

Ratio analysis helps to appraise the firms in the term of their profitability and
efficiency of performance, either individually or in relation to other firms in
same industry. Ratio analysis is one of the best possible techniques available to
management to impart the basic functions like planning and control. As future is
closely related to the immediately past, ratio calculated on the basis historical
financial data may be of good assistance to predict the future. On the basis of
inventory turnover ratio or debtors turnover ratio in the past, the level of
inventory and debtors can be easily ascertained for any given amount of
sales. Similarly, the ratio analysis may be able to locate the point out the various
arias which need the management attention in order to improve the
situation. e.g. Current ratio which shows a constant decline trend may be
indicate the need for further introduction of long term finance in order to
increase the liquidity position. As the ratio analysis is concerned with all
the aspect of the firm¶s financial analysis liquidity, solvency, activity,
profitability and overall performance, it enables the interested persons to
know the financial and operational characteristics of an organization and take
suitable decisions.

´
´
´
Current assets include cash and those assets which can be converted in to cash
within a year, such marketable securities, debtors and inventories. All
obligations within a year are include in current liabilities. Current liabilities
include creditors, bills payable accrued expenses, short term bank loan income
tax liabilities and long term debt maturing in the current year. Current ratio
½
indicates the availability of current assets in rupees for every rupee of
current liability.
)

´

$ ´

Quick ratios establish the relationship between quick or liquid assets

and liabilities. An asset is liquid if it can be converting in to cash
immediately or reasonably soon without a loss of value. Cash is the
most liquid asset. Other assets which are consider to be relatively liquid
and include in quick assets are debtors and bills receivable and
marketable securities. Inventories are considered as less liquid. Inventory
normally required some time for realizing into cash. Their value also be
tendency to fluctuate. The quick ratio is found out by dividing quick assets
by current liabilities.
½
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´

´
´

´

½
(

´

´
´

These ratios help in determining the efficiency with which affairs of the
business are being managed. An increase in the ratio over the previous
period indicates the improvement in the operational efficiency of the
business provided the gross profit ratio is constant. The ratio is thus an
effective measure to check the probability of business.
½

G

Net profit ratio relates net profit to net sales. Net profit is ³the excess of revenue
over expanses during a particular accounting period´. It is the net result of the
working of a company during a period. The ratio may be computed on the basis
of net profit after tax or before tax or both.These ratios help in determining the
efficiency with which affairs of the business are being managed. An increase in
the ratio over the previous period indicates the improvement in the operational
efficiency of the business provided the gross profit ratio is constant. The ratio is
thus an effective measure to check the probability of business.

´

´

´ ´

´

It signifies that for an amount of sales, a relative amount of working capital is

needed. If any increase in sales contemplated working capital should be
c
adequate and thus this ratio helps management to maintain the adequate level of
working capital. The ratio measures the efficiency with which the working
capital is being used by a firm. We may thus compute net working capital
turnover by dividing sales by working capital.

´

´
A high current Asset turnover ratio indicates the capability of the organization to
achieve minimum sales with the minimum investment in current assets. It
indicates that the current assets are turned over in the form of sales more
number of times. As such higher the current asset turnover ratio better will be the
situation.
a

The basic limitation of ratio analysis is that it may be difficult to find a basis for
making the comparison.
Normally, the ratios are calculated on the basis of historical financial

statements. An organization for the purpose of decision making may need
the hint regarding the future happiness rather than those in the past.
The external analyst has to depend upon the past which may not
necessary to reflect financial position and performance in future.
The technique of ratio analysis may prove inadequate in some situations if there
is differs in opinion regarding the interpretation of certain ratio.
u

G

½

Working capital management is important aspect of financial management. The

study of working capital management of NTPC Ltd. has revealed that the current
ratio was as per the standard industrial practice but the liquidity position of the
company showed the increasing trend. The study was done on working capital
ratio analysis which helped the company to manage its working capital efficiency
and affectively.
Working capital of the company was increasing and showing positive working
capital per year. It shows good liquidity position.
Positive working capital indicates that company has the ability of payment of
short term liabilities.
Working capital increased because of increment in the current assets is more

than increase in current liabilities.
Company¶s current assets were always more than requirement it affect on

profitability of the company.
Current assets are more than the current liabilities indicate that company used
long term funds for short term requirements, where long term funds are most
costly then short term funds.
Current assets components shows sundry debtors were the major part in current
assets it shows the inefficient receivable collection management.
The cash stored in bank has been utilized with the set up of new projects. There
was a rise in sales with continuous rising demand.
With the rise in inflation and elapse of subsidy on fuel there was a rise in fuel
price and hence more payment has to be done.
The decrease in loans resulted in the proper utilization of cash at bank, but the
sundry debtors increased at a faster rate which is of deep concern has to be
taken care.
The company has a zero inventory period as the power generation is a

continuous process and cannot be stored.

Recommendations can be used by the firm for the betterment of the organization,
after the study and analysis of project report on working capital I would like to
recommend.
Company should raise funds through short term sources for short term
requirements of funds, which are comparatively economical in comparison to
long term funds.
Company should take care on debtor¶s collection period which is a major part of
current assets.
Company has to take control on cash balance because cash is non earning
assets and increasing cost of funds.
Over all company has good liquidity position and sufficient funds for repayment of
liabilities. Company has conservative financial policy and thus maintaining more
current assets balance. Company is increasing sales figure year after year which
supported the company for being one of the largest power generating company
of India.
The company has taken its first step to become an international company by
initiating international collaborations with African countries to establish super
thermal power stations and harnessing renewable sources of energy which is
abundant in Africa. It is planning to establish power plants in Bangladesh and
Afghanistan.

Financial Management by I.M Pandey
Financial Management by Dr. Prasanna Chandra

www.ntpc.co.in
www.google.co.in
www.workingcapitalmanagement.com

Profit and loss Account ( In Millions)

G G
269857 338757 386350 442452 482564
26267 27761 30020 34018 29469
u 205109 237033 272219 337016 351819
$*u% ( (( u(( (
( 9795 18873 18581 21434 20780
20710 20998 22060 24948 28943
$*u(% 60510 89614 103510 93072 110491
G 2102 20631 28811 12147 22114
( u G( uGG

Chapter 1 To 5

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

Year Requirement (BUs) Availability(BUs) Shortage(BUs) Shortage %

Source Percentage Growth

  

  

³Develop and provide reliable power, related products and services at

Source: NTPC Ltd.

    

Northern 7,035 MW 2,312 MW 9,347 MW

Western 6,360 MW 1,293 MW 7,653 MW

Southern 3,600 MW 350 MW 3,950 MW

Eastern 7,400 MW - 7,400 MW

Joint Ventures 814 MW 1,480 MW 2,294 MW

 25,209 MW 5,435 MW 30,644 MW

Fig. 2.3 Generation Growth Source: NTPC Ltd.

Fig. 2.4 NTPC¶s share in power sector. Source NTPC Ltd.

  

1975 - Incorporation of Company.

1978 ±Takeover of management of the Badarpur Project and construction of the

1985 ±This year marked the completion of decade (1975-1985) of NTPC¶s

1987 ± NTPC crossed the 5,000 MW installed capacity mark.

1988 ± The first syndicated Japanese loan of 30 Billion Yen raised.

1990 - Total installed capacity crossed 10,000MW.

1992 - Company¶s first acquisition of Feroze Gandhi Unchahar Thermal Power

1998 - Commissioned the first Naphtha based plant at Kayamkulam with a

2000 ± NTPC commenced construction of the first Hydro±electricity power

2003 - Construction of first hydro-electric power project of 800 MW capacity in

2009 - NTPC entered Memorandum of understanding (MOU) with Nuclear Power

I. Company Rankings Award

i. Largest market share in domestic power generation and a broad

i. Low risk diversification of business portfolio consists primarily of

i. Expand generation capacities by putting up thermal & hydro capacities,

i. Limited experience of operating in a truly liberalized environment with

 " 

  

A Thermal Power Station comprises all of the equipment and a subsystem

Badarpur Thermal Power Station is owned by Govt. of India, Ministry of Energy

     

CCL (Center Coal Field Ltd.)

BCCL (Bharat Coking Coal Ltd. )

ECL (Eastern Coal Field Ltd.)

    #  

Rent from residential building.

Depreciation reserve fund.

Over standing dues.

(ii) Sources of Expenditure:

Lubricants and Grease.

Salaries, Wages and Allowances contribution to provident fund.

   

(i) Building and civil works

     

(i) Salaries and allowances contribution to provident and other funds.

(i) Interest on Government capital Account.

      

(i) Fixed Assets

Deposits, payment/ liabilities made provision towards compensation,

In the case of commissioned assets, where final settlement of bills with

(ii) Capital work in progress

In respect of supply cum executive contracts the value of supply received

Interest on capital expenditure financed out of Government capital. It is

Incidental expenditure during construction for the year is appointed to

Inventories are valued at cost, on weighted average basis.

Source: NTPC Ltd.

25,209 MW 5,435 MW 30,644 MW

"

#

asically there are three supplier of coal

$%

$%

$% &

$% '

$%

$%

Primary data collection

Secondary data collection

Annual report of NTPC 2006-07

Annual report of NTPC 2007-08

Annual report of NTPC 2008-09

Annual report of NTPC 2009-10

!

To study the working capital management of NTPC Ltd.

To study the working capital components such as receivables accounts,

To estimate the working capital requirement of NTPC Ltd

u%

A change in operating expenses rise or full will have similar effects on

´

´

´

´ ´