Deepti Project

RELIANCE ENERGY LTD
Chapter 1 Introduction
Indian Institute of Finance
2005-07
RELIANCE ENERGY LTD
Introduction
Electricity is an essential requirement for all facets of our life. It has been recognized as a basic human need. It is a critical infrastructure on which the socio-economic development of the country depends. Supply of electricity at reasonable rate to rural India is essential for its overall development. Equally important is availability of reliable and quality power at competitive rates to Indian industry to make it globally competitive and to enable it to exploit the tremendous potential of employment generation. Services sector has made significant contribution to the growth of our economy. Availability of quality supply of electricity is very crucial to sustained growth of this segment. Electric power is something that any and every economy requires not just to grow, but also to sustain. There is hence no rocket science to the fact that development in the electric power industry of a country is a significant cause of overall economic development. When we extent this logic to the Indian context, the argument is even more compelling. Given that the Indian industry is growing at a rate of 6% per year in an era where double-digit GDP growth targets are being set, the role of electric power assumes great importance. The situation thus offers a huge potential for both domestic and overseas private players. Electricity is one of the key inputs for the over all socio-economic development of the country. The basic responsibility of the power supply industry is to provide adequate electricity at economic cost, while ensuring reliability and quality of the supply. The power industry in India has been characterized by energy shortages. In fiscal year 2004, demand for electricity exceeded supply by an estimated 7.1% in terms of total requirement and 11.2% in terms of peak demand requirements. Although power generation capacity has increased substantially in the recent years, it has not kept pace with the growth in demand and growth of the economy in general.
2005-07
RELIANCE ENERGY LTD
Table 1 Trends in growth of physical output in infrastructure sectors (in per cent)
* Provisional Source- Economic survey 2005-07/chapter 93
Supply and Demand: Although electricity generation capacity has increased substantially in recent years, the demand for electricity in India is still substantially higher than the available supply. In the fiscal year 2004, India faced an energy shortage of approximately 7.1% of total energy requirements and 11.2% of peak demand requirements. He following table presents data
2005-07
RELIANCE ENERGY LTD
showing the gap between the total requirement foe electricity versus the total amount of electricity made available from 2000 to 2004. Year 2001 2002 2003 2004 2005 Requirements (Million Units) 480,430 507,216 522,537 545,983 559,264 Availability (Million Units) 450,494 467,400 483,350 497,890 519,398 Surplus/Deficit (+/-) (Million Units) (%) -29,836 -6.2%3 -29,816 -39,817 -48,093 -39,866 -7.8% -7.5% -8.8% -7.1%
Table 2: Actual Power Supply Position (2001 to 2005) Source- PMI Research Bulletin-2005 Power Generation: As of March 31, 2005, Indias power system had an installed generation capacity of approximately 112,058 MW. Thermal Power Plants powered by coal, gas, naphtha or oil accounted for approximately 69% of the total power capacity in India as of March 31, 2005, hydroelectric stations for approximately 26% and others (including nuclear stations and wind power) accounted for approximately 5%. The CPSUs accounted for approximately 31% of the total power generation capacity as of March 31, 2005, the various SEBs accounted for 56% and private sector companies accounted for approximately 13%. Consumption: The end users of power can be broadly classified into industrial (representing approximately 34% of sales), agricultural (representing approximately 25% of sales), domestic (representing approximately 25% of sales), and commercial consumers (representing approximately 7% of sales). The balance of the sales goes to various other consumers. The following table compares per capita electricity consumption in India, other countries and the world average consumption as in 2000. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD Installed Capacities
The following table presents the installed generation capacity of Indias electricity generators by type of generation in the year 2005:
Table 3: Trends in the power sector (utilities only) *Provisional @ April-December

Source- Economic survey 2006-07
Transmission and Distribution (T&D): The transmission of electricity is defined as bulk power over along distance, generally 132KV and above. The entire country has been divided into four regions of transmission system, namely northern region, eastern region, western region, southern region. The interconnected transmission system within each region is also called the regional grid.
The Government of India has an ambitious mission of POWER FOR ALL BY 2012. This mission would require that our installed generation capacity should be at least 2, Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
00,000 MW by 2012 from the present level of 1, 14,000 MW. To be able to reach this power to the entire country an expansion of the regional transmission network and inter regional capacity to transmit power would be essential. The latter is required because resources are unevenly distributed in the country and power needs to be carried great distances to areas where load centers exist. In India, the T&D system is the three-tier structure comprising regional grids, state grids and distribution networks. The distribution network and the state grids are owned and operated by SEBs or state government through SEBs. Most of the inter-state transmission links are owned and operated by POWERGRID. In order to facilitate the transfer of power between neighboring states, states grids are interconnected to form regional grids. Because peak demand does not occur simultaneously in all states, situations may arise in which there is surplus power in one state while another state faces deficit. Power Trading: The Electricity Act recognized power trading as a distinct activity from generation, transmission and distribution. Power trading involves the exchange of power from suppliers with surpluses to suppliers with deficits. Seasonal diversity in generation and demand, as well as the concentration of power generation facilitates in the fuel rich eastern region of India, has created ample opportunities for trading of power. Recent regulatory developments include the announcement of rules and provisions for the open access and licensing related to interstate trading in electricity. Under the rules notified, the regulatory intention is the promotion of competition. Several entities have started trading operations or have applied for trading licenses. Current participants in the power trading business include, among others, PTC, NTPSs subsidiary NTPC Vidyut Vyapar Nigam Limited and Tata Power Trading Company Private Limited.
Rural Electrification
Rural Electricity involves supply of energy for two types of programmes:
2005-07
RELIANCE ENERGY LTD
a. Production oriented activities like minor irrigation, rural industries etc.;s b. Electrification of villages. While the emphasis is laid on exploration of ground water potential and energisation of pump sets/tube wells, which has a bearing on agricultural production, the accent in respect of areas covered under the Revised Minimum Needs Programme (RMN P), is on village electrification. Rural Electricity Supply Technology (REST) Mission The Rural Electrification Supply Technology (REST) Mission was set up in September 02. The base objective of formation of REST mission is to accelerate electrification of all villages and households progressively by year 2012 through local renewable energy sources and decentralized technologies including through the conventional grid connection. The Mission is also to identify technologies that could be used in providing affordable and reliable power supply to rural areas and effect implementation through distributed generation schemes, wherever feasible.
Current Status of Rural Electrification

Out of estimated 586,000 villages about 140,000 - 150,000 remain to be electrified. Eight States have achieved 100% village electrification Andhra Pradesh, Goa, Haryana, Maharashtra, Kerala, Punjab, Tamil Nadu and Nagaland
These States constitute 18% of villages in the country. States Uttar Pradesh
Villages Electrified
40,389
to
be Percentage
42% 2005-07
RELIANCE ENERGY LTD Bihar West Bengal Uttranchal Jharkhand Orissa Assam Meghalaya 20,449 7,694 2,.785 22,920 9,682 5,640 2,754
8 53% 20% 18% 78% 21% 23% 50%
Table 4: Eight States with substantial number of villages to be electrified

Source; www.powermin.nic.in/Report on rural electrification program
PROBLEMS BEING FACED BY INDIAN POWER SECTOR The achievement of increasing installed power capacity from 1362 MW to over 100,000 MW since independence and electrification of more than 500,000 villages is impressive. However, it is a matter of concern that the annual per capita consumption, at about 350 kWh is among the lowest in the world. Still many households in a large number of villages have no access to electricity. The end users of electricity like Since independence, generating capacity has increased from 1362 to over 100,000 MW however there are widespread shortages of power in almost all parts of the country.
Households, farmers, commercial establishments, industries etc. are confronted with frequent power cuts both scheduled and unscheduled. Power cuts, erratic voltage levels and wide fluctuations in the frequency of supply have added to the 'power woes' of the consumer. The consumers are resorting to captive power supply arrangements of various types ranging from 300 Mega Watts (industry) to 250 Watts (households). Almost every shop in an urban market place has a generator set. Most establishments have battery operated inverters and diesel generation sets. Most urban households have voltage stabilisers for different appliances. In fact the money spent by the domestic consumer on Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
these standby power supply (DG sets / Inverters) and power-conditioning (stabilisers) arrangements could be among the highest in the world. The same money could be more gainfully invested through corporate investments in power generation, transmission and distribution with assured returns on investments The major reasons for inadequate, erratic and unreliable power supply are:

Inadequate power generation capacity; Lack of optimum utilisation of the existing generation capacity; Inadequate inter-regional transmission links; Inadequate and ageing sub-transmission & distribution network leading to power cuts and local failures/faults;
Large scale theft and skewed tariff structure; Slow pace of rural electrification; Inefficient use of electricity by the end consumer.
Slow Capacity Addition In 1947, India had installed capacity of 1362 MW. It reached a level of 20117 MW in 1976. And as on March 2000, we have and installed capacity of 96949 MW. The demand has always outstripped the supply position during these years. Poor Utilization of Existing Capacities The All India average Plant Load Factor is 67%. This is mainly because of poor performance in the State sector. Against this Central performance is much higher, the CPSU-NTPC has recorded a PLF of more than 80% during the year. The All India PLF was 45% in 1980-81. High Transmission and Distribution Losses
2005-07
RELIANCE ENERGY LTD
10
The present level of transmission and distribution loss is very high. The All India T&D loss is around 23% and the losses in some state are much higher. Losses in Delhi are as high as 50%. Whereas in developed countries, T&D losses are in the range of 5% to 14%. While a part of T&D losses are due to technical deficiencies in the system and the large spread of low voltage distribution in rural area, a large portion of the line losses is due to theft & pilferage compounded by connivance on the part of the line personnel. Hydro Thermal Mix In spite of governments intention of maximizing exploitation of the hydro potential of over 84000 MW in India, the hydro thermal mix has changed adversely from around 44:54 in 1970-71 to around 25:72 in 1999-2000. Unrealistic Tariff There are too many subsidies and in many cases sales price of electricity is much lower than the cost than its cost to the State Electricity Boards. In the agricultural sector, the subsidies are the highest.
Renovation and Modernization (R & R) Every plant after a certain life of operation requires renovation and modernization effort to increase the utility life of the plant. Of late, there is lot of awareness on this account and efforts are being put towards this area to get more from the existing capacities.
Poor Financial Health of State Electricity Boards Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
11
The State Electricity Boards are facing severe financial crunch. Many of the SEBs are running into losses. They are short of funds to add capacities and take up renovation and modernization programs. Resettlement & Rehabilitation (R & R) The setting up of large hydro and thermal plants often necessitates clearing of large tracts of land, affecting the lives of people, flora and fauna. Since the displacement of people becomes unavoidable, the resettlement and rehabilitation of the displaced people becomes a major issue. This is more important for hydro power projects, as land area is large. This has resulted in delays of many projects.
Reliance Energy
Reliance Energy Ltd is India's leading integrated power utility company in the private sector. It has a significant presence in generation, transmission and distribution of power in Uttar Pradesh, Maharashtra, Goa and Andhra Pradesh. With the ushering in of the power sector reforms and in the new environment of opportunity for the power sector, REL is a key player in this transformation process. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
12
Reliance's gas finds in KG-D6 block in Krishna Godavari basin which constitutes 60% of India's present total gas production, will provide an enormous opportunity to scale up power generation capacities in India. With the new gas find, REL has the unique advantage of integration from 'well head to wall socket'. This will help the company position itself as a global integrated energy player under the Reliance banner. REL and its affiliate power companies rank among the top 25 listed private sector companies on major financial parameters. REL is part of the Reliance industries-India's private sector company ranked among the world's 175 largest companies in terms of net profit and the 500 largest companies in terms of sales.
Infrastructure and services

Generation-Creating the Power Capability The Generation division has proven expertise in designing, engineering, erection, installation, commissioning, operations and maintenance of power projects. The division implements project plans for in house power projects and supports ventures undertaken by other affiliate companies. The division is fully integrated and has in house capabilities to address every aspect of power projects including:

Mechanical Civil Electrical Instrumentation & Environmental
The division also provides engineering consultancy to external agencies and projects. The 940.59 MW Generation capacity of the Division comes from five projects: Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
13
Dahanu TPS the 2x250 MW multi fuel based thermal power station at Dahanu near Mumbai.
7.59 MW Wind Farm Project at Jogimatti in the district of Chitradurga in Karnataka.
BSES Kerala Limited: The 165 MW combined cycle power station at Kochi, Kerala.
BSES Andhra Power Limited: The 220 MW combined cycle power plant at Samalkot in Andhra Pradesh
Goa Power Station : The 48 MW naphtha based combined cycle power plant at Goa.
Transmission The Transmission department has successfully implemented and operated a 2 x 220 kV transmission system. It has been responsible for the laying of the double circuit transmission system from Dahanu to Mumbai. It has planned, constructed and commissioned two modern 200 kV receiving stations having a capacity of 300 MVA each at Ghodbunder, & Versova . It has also commissioned a 400 MVA station at Aarey for receiving power from the Dahanu plant. It is one of the select few electricity companies to commission a network of 4 circuit transmission towers for economical and efficient power transmission. The Engineering cell of the department co ordinates the engineering activities of the company's transmission network. The Transmission Division is an intermediary between Generation & Distribution Division and is responsible for transmission of power at 220 kV from DTPS to the Company's area of supply in Mumbai Suburbs.
2005-07
RELIANCE ENERGY LTD Distribution
14
Seven decades of experience and continuous investment in modernizing its distribution infrastructure have helped the company achieve the enviable distinction of operating its network with 99.99% reliability! The efforts made towards achieving higher levels of efficiency have reduced distribution losses to 13.4% - The lowest in the country! Today the company caters to 5 million satisfied customers! Reliance Energy Limiteds Mumbai operations cover a population of 9.0 million within an area of about 384 sq. kilometers. The Distribution network handled and sold 5,879.66 MUs in the year 2002-2003. Reliance Energy Limited continually upgrades its distribution network. This is accomplished through a process of decentralized operation in supply management to maintain very high on-line reliability.
Stock Price Movement of Reliance
2005-07
RELIANCE ENERGY LTD
15
Daily Return of Reliance vis-a-vis NSE

0.12 0.1 0.08 0.06 0.04
Return
0.02 0 1 -0.02 -0.04 -0.06 -0.08 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 161 171 181 191 201 211 221 231 241 251
Days
Return of NSE Return of Reliance
2005-07
RELIANCE ENERGY LTD
16
2005-07
RELIANCE ENERGY LTD
17
Reliance is the supplier of electricity to the metro resident people and major revenues are generated from the retail consumer. Reliance has grown in the subsequent years in residential but it has not shown a relevant increase in the commercial and industrial supply of power, the company is planning to increase the generation of power from different sources to meet the demand for its different types of consumers.
2005-07
RELIANCE ENERGY LTD Company Overview-NTPC
18
National Thermal Power Corporation Limited (NTPC) is a premier thermal power generating company of India. It was incorporated in the year 1975 with the objective of planning, promoting and organizing an integrated development of thermal power in the country. At present, Government of India holds 89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs, Domestic Banks, public and others. National Thermal Power Corporation. The Group's principal activities are engineering, construction and operation of power generating plants and providing consultancy to power utilities in India and abroad. The Group has installed capacity of 21,749 MW through its 13 coal based (17,480 MW), 7 gas based (3,955 MW) and 3 Joint Venture Projects (314 MW). The ash produced at its coal stations are used in cement, concrete, cellular concrete and building material. The Group has generated 149.2 billion units of electricity in 2004. NTPC is also expected to form various new Joint Ventures with the following companies: Indian Oil Corporation Ltd (IOCL), with the objective of setting up a combined power stations based on refinery residue/ Naphtha and other petroleum products. Indian Railways, with the objective of setting up power stations to meet traction and non-traction power requirements of Indian Railways. Tamil Nadu Electricity Board, with the objective of setting up a1000 MW coal based power station at Ennore in Tamil Nadu utilizing the existing infrastructure facility at Ennore
NTPC has also been trying to diversify in the areas related to NTPCs core business of power generation such as Hydro Power, Power Distribution, Power Trading, Coal Mining, LNG, etc so as to broad base the business and to ensure growth. The priority sectors identified by NTPC in the concern are: Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
19
Horizontal Diversification-Hydro Power Government is laying trust on adding hydro stations so as to meet the domestic demand for power and to control pollution. This has provided NTPC with an opportunity to horizontally diversify and set up hydro electric power stations towards the due need of operating peak load demands and thermal for base load. In 1997 NTPC started the preliminary activities to tap a part of the abundant hydroelectric potential of the country by identifying suitable projects for development. Northern Region and more specifically Himachal Pradesh and Uttar Pradesh were targeted for initial entry in hydro sector. NTPC's venture in hydro sector became a reality when Koldam Project, a green field Hydro Electric project of 800 MW capacities in the State of Himachal Pradesh, was formally assigned to NTPC on 26th Feb. 2000. An MOU has been signed with Govt. of Uttranchal on 31.12.02 for implementation of Lohari-Nagpala(4x130MW) and Tapovan Vishnugad (360MW)Hydro Electric power Project in the state of Uttaranchal on BOOM basis, subject to techno-commercial viability of the project, and clearance of MOEF. In order to develop small and medium Hydro Electric Power Project up to 250 MW capacity a wholly owned subsidiary company named NTPC Hydro Ltd. has been incorporated on 12th December 2002. More hydro projects are being explored to find out the techno-economic viability for development by NTPC. The company intends to add at least 3000 MW capacities through hydro projects by the end of 10th Plan. Vertical (Forward) Integration-Distribution and Power Trading
2005-07
RELIANCE ENERGY LTD
20
In order to diversify along the power value chain, NTPC has gone in for distribution and power trading to ensure forward linkages and also enhance revenue channels. To acquire, establish and operate electrical systems etc. for distribution and supply of electrical energy to consumers, a subsidiary company named as NTPC Electric Supply Company Ltd. (NESCL) has been incorporated. In order to undertake business of sale and purchase of electric power, a subsidiary company known as NTPC Vidyut Vyapar Nigam Ltd. (NVVNL) has also been incorporated. Vertical (Backward) Integration-Coal Mining and LNG Coal Mining: The policy changes in coal sector provide an opportunity to NTPC to enter captive coal mining business. NTPC is contemplating captive mines in North Karanpura area of Central Coal-fields Ltd (CCL) and Talcher area of Mahandi Coal-fields Ltd (MCL). Central Mine Planning & Design Institute Ltd (CMPDIL) (a subsidiary of Coal India Ltd), Ranchi is being appointed as a consultant for assisting and guiding NTPC in various activities of captive mining. Coal Washeries: NTPC is intending to set up coal washeries in the following three coal mine areas: Amlori area under Northern Coal-fields Ltd. (NCL) Talcher area under Mahandi Coal-fields Ltd. (MCL) North Karanpura under Central Coal-fields Ltd. (CCL) Feasibility studies for Amlori area have already been completed in December 2002. NTPC has appointed Central Mine Planning & Design Institute Ltd. (CMPDIL) (a subsidiary of Coal India Ltd), Ranchi, India as the consultant for the feasibility studies.
2005-07
RELIANCE ENERGY LTD LNG:
21
NTPC is contemplating procurement of LNG fuel/Natural Gas for expanding its gas based power projects at Anta, Auraiya, Kawas & Jhanor - Gandhar in North India with cumulative capacity addition of 2600 MW and at Kayamkulam in South India by 1950 MW. Fuel requirement for North India is approximately 3.0 MMTPA and for South India is 2.0 MMTPA. Accordingly, LNG fuel/Natural Gas terminals have been planned, one in North India and one in South India, to be commissioned by prospective suppliers. NTPC intends to keep options for 26% equity stake in regasification terminal and may seek 10% equity in liquefaction terminal. Step Towards Globalization
NTPC is exploring the possibility of setting up a Gas Based Combined Cycle Power Plant in Bangladesh through Joint Venture with Bangladesh Power Development Board (BPDB) and Petro Bangla. NTPC has signed an MOU with Black and Veatch (USA) for rendering services in the areas of Engineering, Project Management, Operation and Maintenance, Quality Assurance etc. NTPC and BHEL have joined hands to work as consortium partners to set up a 500MW integrated water and power project with 30MGD of desalination plant in Oman on BOO basis. NTPC is Indias largest power generation company of India. As on March 31, 2005 the total installed capacity of NTPC was 20.1% (including capacities of Joint Venture companies) of Indias total installed capacity, and it contributed 27.1% of the total power generation of India during the last fiscal year. NTPC generated a total of 159.11 billion units of electricity registering an increase of 6.67% over previous years generation. 136.11 billion units or 85.54% Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
22
of total generation was through coal-fired plants and 23 billion units or 14.46% of total generation was through gas fired plants.
Power Trading Corporation of India Limited

Power Trading Corporation of India Limited was incorporated in 1999 to act as an entity, which could undertake trading of power to achieve economic efficiency and security of supply. PTC India Ltd has a two-fold mandate; to develop a full fledged, efficient and competitive market mechanism for trading in power and to facilitate the development of generation projects including through private investment, both resulting in reliable, economic and quality power in the long term. A vibrant power market, which is deep and liquid, needs to be developed in the long term, and PTC India Ltd would continue to play a frontrunner's role towards this objective and strive to add value to its customers' operations through Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
23
providing services that serve their evolving needs. The main objective for establishing PTC India Ltd was to develop power market for optimal utilization of energy, to Promote power trading to optimally utilize the existing resources, to Catalyze development of Power Projects particularly environment friendly hydro projects and to Promote exchange of power with neighboring countries. Various services provided by PTC India Ltd are: Acting as an intermediary providing single window service after identifying the Buyers and Sellers Providing end to end marketing strategies for the power generated from power projects Studying the transmission feasibility for transfer of Power including transfer through displacement Facilitate sale of surplus power from Captive Power Plants Finding alternative buyer(s) in the event of default Acting as the nodal agency to facilitate Cross Border Trading Coordination with agencies for open access, dispatch, metering, billing, energy accounting & revenue realization Facilitating the development of Power projects which can generate electricity at competitive tariff Providing advisory services
PTC India Ltd has been aggressively looking for CPPs across the country, which has surplus power available with them for sale. PTC India Ltd has entered into MoUs with such CPPs for purchase of surplus power available with them and is providing full assistance to such CPPs in getting their petitions filed for open access in the State system before respective SERCs. PTC India Ltd is acting as a single window service provider to such CPPs and is also making all out efforts to get competitive tariff to such CPPs. PTC India Ltd derives its competencies from the fact that it is the pioneer in starting power trading in India, is the leader in the power trading market and has negotiated steep learning curves in its Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
24
efforts to create a commercially vibrant power market in the country. PTC India Ltd has also had a unique track record of bringing innovations in sync with the needs of its clients, thereby providing a win-win situation for all. Moreover, PTC India Ltd is able to provide the security of payments to its suppliers; this assumes great importance in a sector, which has been marred by the high credit risk of almost all the state utilities. PTC India Ltd has continually proven its expertise in the field of power trading and this has translated into its client list covering all the state utilities in all the five regions of the country. Due to its market acceptability, PTC India Ltd is also in a position to sell surplus power from a CPP to its various customers viz. SEBs/ Distribution Companies, High-Tension consumers etc. at a market driven competitive rate ensuring good return to CPPs as compared to sale of power to the respective SEBs/ State Utilities where they are located. The main shareholders of PTC India Ltd are: Power Grid Corporation of India Ltd. Power Finance Corporation Ltd. National Thermal Power Corporation Ltd. National Hydro-Electric Power Corporation Ltd. Damodar Valley Corporation Financial Institutions: IDBI, IDFC, IFCI, GIC, LIC Tata Power Company Others/ Public at Large
The authorized capital of the company is Rs. 750 cr. and the present paid-up equity capital base is Rs. 150 cr.
Equity Structure
2005-07
RELIANCE ENERGY LTD
25
Source: www.ptcindia.com
Note- For shareholding Patten, balance sheet, p & l and cash flow statement, please refer to Annexure 5, 6, 7 & 8 respectively.
Power Finance Corporation

Power Finance Corporation was established in 1986 as a Development Financial Institution (DFI) for the development of power sector. Since then, PFC has been playing an increasingly important role in mobilizing financial resources from within and abroad at optimum cost and in providing various kinds of financial Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
26
assistance to power projects. As a DFI, PFC also focuses on the institutional development of its borrowers-State Power Utilities in particular. Reserve Bank of India registered the corporation as a Non-Banking Financial Institution in February 1997. PFCs funding criteria are based on borrowers credit worthiness and project viability. A modest beginning saw the corporation makes a disbursement of Rs. 1010 million in 1987. In the year gone by (2004-05), PFC disbursed Rs. 94 billion. Government has 100% ownership in PFI and no the government gives further budgetary support to it. Later on in 1997-98 it was registered as a non banking entity by RBI and in May 2002 Ministry of Power recommended the grant of Navratna status to PFC. The role of PFC is: Pivotal Development Financial Institution for the power sector excluding rural electrification. Catalyst to bring about institutional improvements and reforms in the power sector. Mobilization of resources, internal and external, at optimum cost. Extend financial assistance and encourage flow of investment to the power and associated sectors. PFC disbursed around Rs. 16525 Crores during 9th plan and Rs.33000 Crores in the first three years of 10th plan. PFC endeavors to achieve 20% share of Indias power sector investment for the 10th and 11th plan period.
PFCs borrowers profile is: State Power Utilities State Power/ Electricity Departments Central Power Utilities Joint Sector Power Utilities Private Sector Power Utilities 2005-07
RELIANCE ENERGY LTD Co-operative Societies Municipal Bodies Power Equipment Manufacturers Independent Power Producers
27
PFCs priorities and extent of funding is: Category of Schemes Extent of Financing for Reforming Utilities (%) Studies, Consultancy & Training R&D Meters, Computerization Transmission and Urban Distribution R&M, R&U of Generation Transmission Small hydro, Captive & Co-generation Medium & Large Hydro Generation Thermal Generation 100 90 80 80 & 80 80 80 80 Extent of Financing for Private Sector Borrowers (%) 50 50 50 50 50 50 25 20
Performance Highlights (2005-06)

Cumulative Sanctions Cumulative Disbursements Net Profit Recovery Rate More than Rs. 743 billion More than Rs. 500 billion Rs. 9.83 billion 99% (Nil NPAs)
2005-07
RELIANCE ENERGY LTD
28
Growth in Operations
Financial results
2005-07
RELIANCE ENERGY LTD
29
Capital structure
Source: www.pfcindia.com Note for selected financial performance and statements of PFC please refer to Annexure 9, 10, 11 & 12 respectively.
2005-07
RELIANCE ENERGY LTD
30
Government has 100% ownership in PFI and no further budgetary support is given to it by the government. Later on in 1997-98 it was registered as a non banking entity by RBI and in May 2002 Ministry of Power recommended the grant of Navratna status to PFC. The role of PFC is: rural Pivotal Development Financial Institution for the power sector excluding electrification. Catalyst to bring about institutional improvements and reforms in the Mobilization of resources, internal and external, at optimum cost. Extend financial assistance and encourage flow of investment to the PFC disbursed around Rs. 16525 Crores during 9th plan and Rs.33000 PFC endeavors to achieve 20% share of Indias power sector investment
power sector.
power and associated sectors. Crores in the first three years of 10th plan. for the 10th and 11th plan period.
2005-07
RELIANCE ENERGY LTD
31
Chapter 2 Objective
2005-07
RELIANCE ENERGY LTD
32
Objective
Power sector is an important ingredient for the growth of any economy. Industrial growth and economic growth cannot be thought of without sustainable power supply. National Thermal Power Corporation (NTPC) in India is ensuring this smooth flow of power supply since 1995 and has contributed effectively in the growth of this nation. During the last 30 years of its operation NTPC has been able to build up a position of market leader in the Indian power sector but it wont be able to add a global perspective to its business if it continues in the similar manner. NTPC needs to grow; it needs to add more value to its product and needs to get closer to its customers. That is why there is an urgent need to figure out those issues which are acting as a barrier in the way of NTPC becoming a global leader in power generation. Here in my project I have tried to figure out these issues and tried to provide solution in the manner which might help NTPC in making its presence felt globally. My main objective of this project was to analyze performance of NTPC vis--vis other PSU players like Power Finance Corporation, Power Trading Corporation of India and National Hydro Power Corporation so that I can get an insight into the actual condition of these organizations. Further I have mentioned some global companies, which are also Public Sector Undertakings, but still they have grown into global giants by applying modern techniques and practices. The main rationale behind my mentioning these companies was that that these companies have close resemblance with NTPC in terms of origination and business operation but still they have become global players despite of any hindrances they might have faced due to the government policies in their countries. I have not only mentioned the performance of these companies but have also tried to show through a model, how NTPC can be one of them by maintaining its desired structure.
2005-07
RELIANCE ENERGY LTD
33
Later with the objective of making NTPC a global player, I have suggested further consolidation by means of mergers and acquisitions. Here I have shown forward integration where I have tried to formulate a strategy of possible merger between NTPC and PTC. Further I have supported my rationale with the help of a deal structure and future shape of the acquiring company. Thus, my overall objective is to evaluate the possibilities through which NTPC can become a global player and make its presence felt globally.
2005-07
RELIANCE ENERGY LTD
34
Chapter 4 Methodology
2005-07
RELIANCE ENERGY LTD
35
Methodology
NTPC is the largest thermal power generating organization in India but it has not been able to make its presence felt globally. There are various fronts where it is lacking. This project is an effort to find out ways to consolidate the position of NTPC and also to find out solutions to the problems faced by NTPC. Various phases are involved in the completion of this project. These are: 1. Data gathering phase: This phase involves finding the information about the various policies of the government regarding the power sector and finding out the details of the functioning of NTPC, its relative position in India and in the world. This phase also involves gathering information about various global players in the field of power generation. Here I have also tried to figure out the problems faced by NTPC and how they can tackled. 2. Structuring phase: This phase includes a deep insight into the requirements of NTPC for becoming a global player and finding out the companies which can be merged with NTPC so that its size is increased and also it gets access into other related products which will add value to NTPC. This phase also includes qualitative comparison of NTPC with other global players. 3. Method Used: In this project I have first tried to find out government policies which have an impact on NTPC, then tried to find out the strategies implemented by NTPC to tackle the problems and the growth plans of NTPC. Then I have tried to figure out the companies which could be merged into NTPC so that NTPC can gain cost effectiveness and get access to the related products to improve its product line and also to increase its market. I have also
2005-07
RELIANCE ENERGY LTD
36
done ratio analysis of NTPC, PTC and PFC to find out the financial position of these companies and to see the benefits derived by NTPC by merging these companies with itself. Then I have tried to prepare a model which can be used by NTPC to consolidate its position and become a global player. Later on I have showed a merger deal between PTC and NTPC with appropriated rationale for this merger. 4. Documentation phase: This phase involves clearly writing all the findings in a structured manner. And showing the merger as a feasible option with NTPC for growing at a rapid speed with the required rationale for the merger and also the details for the merger deal with the appropriate rationale for the merger of PTC with NTPC. 5. Feedback interaction phase: This phase involves discussions with the project guide and going through the project again and again to make the project more comprehensive and a more valuable study.
2005-07
RELIANCE ENERGY LTD
37
Chapter 5 Analysis & Interpretation
2005-07
RELIANCE ENERGY LTD
38
Growth of Power Sector
2005-07
RELIANCE ENERGY LTD
39
Introduction
Industry Outlook As per the estimates for Index of Industrial Production (IIP) released by Central Statistical Organization, the electricity sector has grown at 5.2% during 2004-05 over the previous year 2003-04 as against the growth in General Index of 8.2%. During the year, capacities amounting to 3,949 MW were added of which 2,934 MW came in Thermal Sector, 1,015 MW in Hydro. With this 10,773 MW of capacity has been added in the first three years of the X Plan period (2002-2007) out of the total target of 41,110 MW for the whole plan. Generation of electricity during the year in the country was 587 BUs which as compared to 558 BUs in the previous year registered an increase of 5%. Capacity utilization as measured by Plant Load Factor (PLF) of generating stations for coal-fired plants has increased to 74.8% in 2005 from 72.7% in 2004. Per capita consumption of power in India is 592 Kwh per annum much lower than the world average of over 2,000 kWh. Even at the current levels of consumption, there is a wide gap between demand and supply of power and in fiscal 2005, there was a peak demand deficit of 11.7% and an energy deficit of 7.3%. The following table presents data showing the gap between the total requirements of electricity versus the total amount of electricity made available in the last five years: (In million units) Fiscal Year Requirement 2001 2002 2003 2004 2005 507216 522537 545983 559264 591373 Availability 467400 483350 497890 519398 548115 Surplus/Deficit (+/-) Units -29816 -39817 -48093 -39866 -43258 % -7.8 -7.5 -8.8 -7.1 -7.3 2005-07
RELIANCE ENERGY LTD
40
Opportunities Considering the existing demand-supply gap and the expected increase in per capita consumption in view of the overall growth targets for the economy, the 16th electric Power Survey has projected a peak load demand of 157,107 MW and an energy demand of 975.2 billion units by the end of March, 2012. To meet this projected growth in peak demand, India would require 212,000 MW of generating capacity by 2012. Also, Electricity Act 2003 has opened up several opportunities for existing power sector players like NTPC. These opportunities are in the area of direct supply to large customers, retail supply, distribution, trading, etc. The enabling framework put in place by the Act and the built in reform thrust would lead to better cash flows for the States. This, in turn, would result in better realisations and better paying capacity of NTPCs customers. All these factors provide enough opportunities for NTPC to pursue aggressive plans in its core area of generation. Risks And Concerns Fuel Supply constraint Coal Coal mines are not being developed or expanded at required pace in comparison to the pace at which capacities are being added. This may lead to situations where some of the power stations may have difficulty in operating at full capacity due to scarcity of coal. However, the shortages in coal supplies are considered temporary and are not expected to affect current levels of capacity utilisation. Also, coal companies are expected to put up capacities as per requirement. Further, developing coal mining blocks and import of coal to augment supplies are options, which have been initiated by NTPC to mitigate the risk. An order has
2005-07
RELIANCE ENERGY LTD supplies have already commenced. Gas
41
been placed with MMTC for importing 2.1 MT of coal, against which, coal
Availability of gas and its pricing is a key concern. However, the recent gas finds in India and the prospective supplies of gas in liquefied form from off-shore fields provide opportunities to tie-up gas for existing and upcoming gas power projects. The company is adopting various strategies such as procuring gas through international competitive bidding process, exploring the possibilities of participating in the Gas / LNG value chain abroad. In this regard the company has also submitted offer to the Government of India for allocation of blocks for exploration of oil and natural gas under the New Exploration Licensing Policy which may unfold an opportunity for securing gas at an affordable price. Besides these efforts towards long term security in gas supplies , to augment the present requirements , additional gas supplies have been tied up with GAIL from Panna Muktha Tapthi gas fields and Gujarat State Petroleum Corporation and regasified LNG from GAIL and BPCL.
Industry Scenario for all the power sector companies

The generating capacity in India at the end of FY05 stood at 1,22,275 MW (excluding captive capacities of around 25,000 MW). Out of this, India utilises a poor 66% due to inefficient transmission and distribution causing a lot of power shortage. As a result, it has become necessary to resort to power cuts and other regulatory measures to ration power supply. Currently central institutions like National Thermal Power Corporation (NTPC) and the State Electricity Boards (SEBs) dominate the power scene in India. India has adopted a blend of thermal, hydel and nuclear sources with a view to increasing the availability of electricity. Thermal plants at present account for 70% (85,590 MW) of the total power generation, hydro-electricity plants contribute 26% and the rest come from nuclear and wind. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
42
Average transmission and distribution losses (T&D) exceed 25% of total power generation compared to less than 15% for developing economies. The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage. Further, the government plans to add 150,000 MW of generation capacity over the next decade (including 100,000 MW thermal capacity and 50,000 MW hydro capacity) in order to bridge the current demand-supply gap. This is almost 1.2 times the current generation capacity in the country. Also, if India has to achieve a consistent 7% GDP growth, then power generation has to grow by around 10% per annum. In FY05, the total power generation figures stood at 520 bn units as compared to 519 bn units in FY04. The overall PLF for the year ended March 2005 stood at a lower 51.4% as compared to 52.9% during FY04. A capacity addition of 3,487 MW was witnessed during FY05, almost 15% lower than the addition of 4,085 MW in FY04. The per capita consumption of electricity was 606 kWh in FY05. While energy demand deficit was recorded at 7.4%, peak demand deficit soared to 12.2% during the fiscal.
2005-07
RELIANCE ENERGY LTD
43
Performance of Undertakings under Ministry of Power

2002-03 NTPC Generation PLF Fresh Capacity Starts Ash Utilization Sanctions Disbursals Net Profits Sales Revenue Energy Traded 2003-04 +5.1% +0.8% +171% +3.5% +17.6% +22% +37% +156% +164% +12% +14% +246%
(provisional) (BU) 141 149 (%) 83.6 84.41 (MW) 1000 2710 (lakh MT(%)) 57 (20%) 75 (23.5%) (Rs. Cr.) (Rs. Cr.) (Rs. Cr.) (Rs. Cr.) (MU) (MU) (Rs. Cr.) (MW) (MW) 14001 7338 1172 927 4178 9863 510 0 800 16472 8973 1601 2378 110029 11045 581 800 2772
PFC
PTC
NHPC Generation Net Profits Fresh Capacity Added Fresh Starts
Various Policies and its Impact on the Functioning of Power Sector companies
Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
44
Electricity is an essential requirement for all facets of our life. It has been recognized as a basic human need. It is a critical infrastructure on which the socio-economic development of the country depends. Supply of electricity at reasonable rate to rural India is essential for its overall development. Equally important is availability of reliable and quality power at competitive rates to Indian industry to make it globally competitive and to enable it to exploit the tremendous potential of employment generation. Services sector has made significant contribution to the growth of our economy. Availability of quality supply of electricity is very crucial to sustained growth of this segment. Recognizing that electricity is one of the key drivers for rapid economic growth and poverty alleviation, the nation has set itself the target of providing access to all households in next five years. As per Census 2001, about 44% of the households do not have access to electricity. Hence meeting the target of providing universal access is a daunting task requiring significant addition to generation capacity and expansion of the transmission and distribution network. Indian Power sector is witnessing major changes. Growth of Power Sector in India since its Independence has been noteworthy. However, the demand for power has been outstripping the growth of availability. Substantial peak and energy shortages prevail in the country. This is due to inadequacies in generation, transmission & distribution as well as inefficient use of electricity. Very high level of technical and commercial losses and lack of commercial approach in management of utilities has led to unsustainable financial operations. Cross-subsidies have risen to unsustainable levels. Inadequacies in distribution networks have been one of the major reasons for poor quality of supply.
Electricity industry is capital-intensive having long gestation period. Resources of power generation are unevenly dispersed across the country. Electricity is a commodity that can not be stored in the grid where demand and supply have to Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
45
be continuously balanced. The widely distributed and rapidly increasing demand requirements of the country need to be met in an optimum manner. Electricity Act, 2003 provides an enabling framework for accelerated and more efficient development of the power sector. The Act seeks to encourage competition with appropriate regulatory intervention. Competition is expected to yield efficiency gains and in turn result in availability of quality supply of electricity to consumers at competitive rates.
NTPC being a public sector unit and the largest electricity generator in the country is subject to various policies formulated by the government. Be the policy related to power supply or consumption of fuel or dividend policy or any thing else it has its impact on the decisions and functioning of NTPC. Here in this section I have considered few of the policies formulated by the Government of India and tried to analyse their impact on NTPC and its growth pattern. National Electricity Policy National Electricity Policy (NEP) lays down creation of adequate generation capacity with a spinning reserve of at least 5% by 2012. It also gives strong thrust to hydro development. Main targets of National Electricity Policy (NEP) are: Availability of electricity to all households in five years Demand to be fully met by 2012 Minimum lifeline consumption of 1 unit per household per day.
Along with all these issues NEP has also laid thrust on policy initiatives for saving of the fuel. It clearly states that there should be policy initiatives like priority allocation of captive coal mine blocks to power generation companies and Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
46
allocation of profit gas share of the Government of India, under the Production Sharing Contract, for the power sector to keep power tariffs at affordable levels. Also, coal pricing mechanisms with greater transparency may be encouraged to facilitate the process of making cost of power affordable. Even 100% FDI has been allowed in all segments of power chain, including power trading.
NTPCs Strategies NTPC has short and long-term strategies to not only deal with the issues and challenges but to convert the challenges into opportunities of enhancing corporate growth and strength and become a world-class integrated energy utility. Coal consumption by the power sector has gone up considerably driven substantially by higher PLF of coal based thermal power stations. Massive capacity expansion plans and increasing generation from existing plants indicate substantial shortage of power grade coal in the future. Coal sector is taking steps to speed up new coal mine developments in the 10th Plan. While, import of coal for addressing the current shortfall may be a short-term measure, there is a need to intensify mining activities with infusion of new participants, more capital and new technologies. Therefore NTPC is importing coal for meeting the shortfall at Talcher Stage-II, Farakka and Simhadri as a short-term measure. The Company is also going for coal mining in order to enhance its fuel security and mitigate fuel risk. It has been allotted one coal-mining block and has applied for many more. NTPC has adopt modern mining practices and state-
of-the-art technologies. The Company has also identified coal pithead based integrated power projects where the Company can draw coal from its own mines for the power project. Applications for allocation of coal blocks for a few Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
47
such projects have been recommended by Ministry of Power to Ministry of Coal. Further these arrangements are supplemented with the reliable and cost competitive gas/ LNG supply arrangements. NTPC is also looking at forward integration as one of the viable options. It has plans to acquire parallel distribution licenses in the related projects, like distribution and trading. The target behind this is to increase the Power Trading volume substantially. All the forward and backward integration initiatives are primarily aimed at strengthening the core business of power generation. Assured availability of coal and gas is the key to the Companys success and long-term sustainability as well as competitiveness. NTPC is also laying thrust on hydro power in order to achieve operational and commercial synergy.
One Time Settlement Plan

Government had come out with a policy called One Time Settlement Plan, where by all the receivables due to the power generating companies from the SEBs would be converted into bonds backed by the government. This policy helped all the power generating companies as they were able to recover their dues and hence their sales figure improved. NTPC had also gained a lot from this policy as it does not sell electricity directly to general public rather it sells electricity to State Electricity Boards (SEBs). In the past, NTPC was perennially exposed to the problem of large receivables from weak SEBs. NTPC has benefited from the Settlement Scheme as per the Ahluwalia Committees recommendations whereby the sundry debtor levels dropped from Rs. 12, 440 crores (237 days of sales) in FY2002-03 to Rs. 470 crores (9 days of sales) in
FY2003-04. The outstanding payments to Central Power Sector Utilities (CPSUs) by the SEBs as on September 30, 2001 along with 40% of the surcharge (60% waiver of surcharge) has been converted into State Govt. backed 8.5% tax Free Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
48
Bonds. As per the scheme, the State Governments were asked to issue bonds worth Rs. 16,410 crores to NTPC in lieu of past debts of the SEBs. NTPC has entered into a bi-partite agreement with Delhi on similar lines for its dues to the tune of Rs. 1,060 Crores. As a result, receivables from weak state electricity boards have been converted into interest-bearing investments. These investments are potentially liquid, subject to annual sell-off caps. Prospectively, SEBs are required to open LCs with commercial banks in favour of NTPC, covering 105% of the average monthly billing for the preceding 12 months of sale. To that extent, the payment for power sold to the financially weak SEBs is secured. In FY2003-04, NTPC realised 100% amounts for the power sold to SEBs as a result of this arrangement. Fuel / Energy mix for capacity addition Currently, coal has a dominant share in the power generation capacities in India. This is also reflected in the high share of coal-based capacities in NTPCs current portfolio. With high uncertainties involved in Domestic gas/ LNG, both in terms of availability and prices, NTPC is continuing to set up large pit-head coal based projects, including few integrated coal cum power projects. To reduce the dependence on fossil fuels, there is a need to push for renewable sources of power in the sector. Therefore NTPC is trying to avail opportunities to add hydropower to its portfolio subject to competitive tariffs. A first step in this direction has already been taken with the investment in Koldam Hydro Power Project. NTPC is also continuously closely monitoring developments on nuclear front also and is open to setting up around 2000 MW of Nuclear power generation capacity, possibly through a Joint Venture. As a leader in power generation, NTPC is also considering other energy sources such as biomass, cogeneration, fuel cells, etc for future development thereby reducing the dependence on thermal fuels.
2005-07
RELIANCE ENERGY LTD
49
While a decision on the fuel/energy mix for NTPC in the future would be largely governed by their relative tariff-competitiveness, the fuel mix in 2017 may be different from the existing portfolio, though not very significantly. Diversification along the Value Chain NTPC has achieved the distinction of being the largest thermal generating company in India. In the past, this focus was adequate as the industry was highly regulated with limited diversification opportunities. Over last few years, the country has been facing acute shortages, both in coal and gas, severely affecting optimum utilisation of its power stations and these shortages are likely to continue in future as well. This is in spite of the fact that India is one of the largest producers of coal in the World. To safeguard its competitive advantage in power generation business, NTPC has moved ahead in diversifying its portfolio to emerge as an integrated power major, with presence across entire energy value chain. In fact, to symbolise this change, NTPC has taken on a new identity and a new name NTPC Limited. NTPC has recently diversified into coal mining business primarily to secure its fuel requirements and support its aggressive capacity addition program. In addition, NTPC is also giving thrust on diversification in the areas of power trading and distribution. Diversification would also allow NTPC to offer new growth opportunities to its employees while leveraging their skills to capitalise on new opportunities in the sector. Establishing a Global Presence To become a truly global company serving global markets, it is essential for NTPC to establish its brand equity in overseas markets. NTPC is continuously focusing on offering Engineering & Project Management Services, Operations & Maintenance services, and Renovation & Modernization services in the international market. Establishing a successful services brand would be a precursor to taking higher investment decisions in different markets. Going forward, NTPC will also Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
50
continue to evaluate various options for strengthening its presence in global markets including setting up power generation capacity, acquisition of gas blocks etc. Circa 2017: NTPCs corporate profile NTPC aims to successfully diversify its generation mix, diversified across the power value chain and entered overseas markets by the year 2017. As a result NTPC would have altered its profile significantly. Elements of the revised profile
that NTPC would seek to achieve are:

Amongst top five market capitalisation in the Indian market An Indian MNC with presence in many countries Diversified utility with multiple businesses Setting benchmarks in project construction and plant availability & efficiency Preferred employer Have a strong research and technology base Loyal customer base in both bulk and retail supply A leading corporate citizen with a keen focus on executing its social responsibility
Policy hindrances in the way of NTPC THE NTPC, India's biggest power utility, was established in 1975 to strengthen regional grids. It utilises coal near the pitheads for power generation, the reasoning being that generation at such locations is a cheaper alternative to transporting coal or transmitting power across the country. Most of the funding for its projects have come from the multilateral agencies, primarily the World Bank. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
51
However, immediately after the new power policy was announced in 1991, The NTPC was not allowed to bid for Independent Power Projects (IPPs). Some of the projects allotted to it earlier were handed over to private developers. During the same year, the World Bank, the primary agency in respect of the funding of NTPC power projects, refused funding, alleging that the company was in poor financial health. The NTPC now has 12 coal-based and seven gas-based power projects. The use of coal, the cheapest and most abundant resource for power generation, has enabled it to sell power at the cheapest rate in the country. The average cost of power generated by it is a rupee a unit; at Korba in Madhya Pradesh it is only 64 paise. The Plant Load Factor (PLF), indicating the extent of capacity utilisation of a power plant, is far higher than the national average. Last year, the average PLF of its power plants was 77 per cent, despite the poor performance of plants in the eastern region where the PLF was 43 per cent. To improve the situation, there are plans to evacuate surplus power from the eastern region to the northern and western regions. The NTPC's first 200 MW unit for the 2000 MW Singrauli power project in Uttar Pradesh was commissioned in 1982. By 1983-84 it had a capacity of 1000 MW, but the real spurt in growth came between 1987-88 and 1989-90, when 6713 MW of capacity was added. By this time the mega projects at Singrauli (2000 MW), Korba (2100 MW), Ramagundam (2100 MW), and Rihand (1000 MW) were fully completed. Since then, however, capacity has not expanded at the same pace (see chart). It now has an installed generating capacity of 16795 MW - about 19 per cent of the entire power generating capacity in India. However, it produces about 25 per cent of the electricity generated in the country. The restructuring of the power sector and the 'rationalisation' of tariffs that accompanies it, is now being implemented at the level of SEBs. The NTPC is also likely to follow such a course. This will provide the Corporation avenues for rapid growth in revenue. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
52
SEBs' arrears to the NTPC have mounted. The arrears now stand at Rs. 3,800 crores, and, inclusive of surcharge, the amount is Rs. 6,200 crores. The NTPC, the largest corporate recipient of World Bank funding, has been told by the Bank that fresh assistance will become available only if the dues from the SEBs are cleared. Some of the SEBs, such as those in Andhra Pradesh and Orissa, are being restructured through the creation of separate companies for generation, transmission and distribution. A more moderate option advocated by critics of such a course is a modest increase in tariffs, which, they argue, will bring down the losses of SEBs. The NTPC recently indicated that it would prefer to be freed from the administered price mechanism (APM) that governs its sale price to SEBs. Its demand is similar to that planned for the oil companies after price deregulation. The NTPC has been allowed to set tariffs at levels that guarantee it a 16 per cent rate of return on new power plants. The Navaratna status is likely to help the company proceed with plans to break up the company into separate subsidiaries, each operating as a profit centre. The reasoning is that the lossmaking units will be separated from the profit-generating units. The company's projects in Kayamkulam in Kerala, in Yamunanagar in Haryana, in Mangalore (where the controversial Cogentrix project is now located) and another controversial project, the Ib Valley project in Orissa, were all handed over to private developers after the Government announced its new power policy. The projects in Kerala and Haryana are now back with the NTPC because no private promoter wanted to undertake them. Despite its aborted partnership with Spectrum Technology for the Kakinada project, the NTPC is now keen on forming a joint venture with a company specialising in the lucrative renovation and modernisation (R&M) business in the power sector. Asked whether an alliance with BHEL may have been preferable,
2005-07
RELIANCE ENERGY LTD
53
The NTPC plans to add 6270 MW of generating capacity during the Ninth Plan period and a further 8000 MW during the Tenth Plan, aiming for a total capacity
of over 30000 MW by the end of the Tenth Plan period. The outlay for projects in the Ninth Plan is estimated to be Rs. 19,000 crores. Of the additional capacity in the Ninth Plan, 3920 MW of capacity are in coal-based projects and the remaining for projects utilising gas and other fuels. About 40 per cent of the funds for the projects are expected to be raised in foreign currency from multilateral agencies and a further 10 per cent in the form of suppliers' credit if equipment is sourced from the multinational power equipment companies.
2005-07
RELIANCE ENERGY LTD
54
Financial Analysis
National Thermal Power Corporation

Strategic Analysis of the Company
Company and its Mission NTPC was set up by Ministry of Power in 1975 by observing the countries huge demand for electricity. Till today NTPC is contributing about 27% of the total Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
55
power generation in India. The companys vision is to be worlds biggest player in the power sector. And company has made significant progress towards achieving this target. Today it stands at 38th position among the global players and the kind of strategy it has formulated especially by the means of consolidation, it is likely to improve its position at global level. External Environment The external environment, especially the social, political and economic environment of the country is very progressive. Government is all set to boost the infrastructural activities and power sector has been given the main consideration. Economy is growing at 8% per annum and to sustain this growth rate country has to develop a proper infrastructure to attract investment. Power sector has been given lot of support both in term of relaxing the policies and providing financial support. The budgetary support to this sector has been increased significantly and private participation has been allowed. Industry Analysis Power industry has a very bright outlook. It is growing at approximately 10% per annum. Private players have registered more growth than the public sector players, though major market share is still with public sector players, especially NTPC. Currently private sector accounts for 10% of the total power generation
capacity. The remaining is divided between Center and the state owned companies in the ratio of 36:64. More foreign players are making an entry (Torrent Power and Alstom are among them). Public private partnership has emerged as a major trend to boost the growth of this sector. Players like NTPC have gone for lots of joint ventures with global players like Alstom (for power project development) and British Energy ( for consultancy services)
2005-07
RELIANCE ENERGY LTD Future Outlook
56
Power sector has not been given its required due in the past years. Today when India has to compete with other developed nations it is planning to boost the growth of this sector as much as possible. Market leaders like NTPC have enough potential to gain momentum in such a supportive environment. Company is planning to develop ultra mega power projects of 4000 MW capacity and company is also looking to venture into other renewable sources of energy like nuclear power. To avoid the shortage of raw material company is initiating its projects near the pit heads and also acquiring lots of captive coal mines. Company is planning to have joint ventures with private players for supply of fuel especially gas (recently it has made an agreement with Reliance for the supply of gas) Company is also planning to go for a joint venture with private players for exploration of gas and coal under the National Exploration Licensing Policy-VI (NELP-VI). Thus company is all set to take advantage of supportive government policies and industry growth in order to become a global player in power sector.
S.W.O.T Analysis of NTPC

Strength Largest power utility Indian Institute of Finance Weight age Weakness 75 Long gestation period Weight age 70 2005-07
RELIANCE ENERGY LTD Trained Manpower Diversification Better capacity utilization Government Support Market Leader Total Change = +30 70 50 80 70 75 340
57 PSU work culture Social responsibility Compulsory obligations Absence in distribution High Adm. Cost 50 40 60 80 70 310
Opportunity
Weightage 60 90 60 70 280
Threat Entry of private player Low cost supply to SEBs Availability of raw material Privatization
Weightage 90 40 70 40 240
Supportive power policy Huge Demand Restriction on FDI Access to global debt market Total Change = +40 Total Change = +70
So the SWOT analysis of NTPC is giving positive results with very high margin i.e. 70% which shows firms competence and efficiency. Note- the weights are assigned out of 100.
Analysis
Strengths
NTPC is the largest thermal power generating company in India with total installed capacity 20.1% of Indias total installed capacity and contributed to about 27.1% of the total power generation in India during the year 2004-05.
2005-07
RELIANCE ENERGY LTD
58
NTPC has a highly trained manpower. The total strength of employees of the corporation stood at 23385 as on March,2005 and the overall Man-MW ratio for the year was 0.91.NTPC continuously trains its employees through various training programmes for their continuous growth. NTPC has diversified into coal mining, coal washeries and has also started a company by the name of NEECO. Hence it can be said that NTPC is trying to diversify its business. The plant load factor for thermal plants of NTPC during the year 2004-05 was 87.5% as compared to 84.4% last year and for gas plants the plant load factor was 65.3%. NTPC, being a public sector unit, has a very strong government support and this gives NTPC an upper hand as compared to other players in this area. And NTPC is also a market leader as far as the power generation is concerned specifically thermal power generation.
Weaknesses
Establishments of power projects take a long time and same is the case with NTPC. NTPC has started with the establishment of hydro plants but still they are not complete and would take another two to three years to start functioning.
NTPC faces the same problem as most of the PSUs, that is, it takes lots of time to finish some work, file keeps on moving from one table to another and toll the time the project is finalized lots of time is wasted. And being a government entity it has to fulfill certain social responsibilities like taking care that the environment does not get polluted and to develop the area around the NTPC plant premises, etc. And it even has certain compulsory obligations like for example it had to overtake Dhabol Power Plant (which is loss making) as government had asked it to do so. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
59
Absence of a strong place in the distribution sector is also harming the business of NTPC as it cannot get in direct touch with its customers. Though it has started a distribution company in 2001 but still it does not have that much of presence in the Indian market. NTPC has a very large number of employees and it remunerations are among the highest in the PSU sector and it also provides almost all the possible facilities to its employees, which makes the administrative cost for NTPC very high.
Opportunities
Government is giving a lot of thrust on the development of the power sector and this is very helpful for NTPC as it can find more avenues to grow. And secondly there is a very large demand for electricity and shortage of electricity supply. So this also provides NTPC with an opportunity to grow further. Apart from this though 100% FDI is allowed in the power sector by automatic route but still there are certain government regulations which are a hindrance in this process. And since NTPC is a public sector unit and even cash rich this situation will help NTPC a lot. And NTPC being a large company has an access to global debt market for funds from where it can get funds at low interest rates hence helping NTPC to maintain low cost of capital.
Threats
The major threat for NTPC is the entrance of private players like TATA Power, Reliance Energy, etc. in the Indian power sector. And for this NTPC has to grow at a very fast pace if it wants to retain its market leader position for long.
2005-07
RELIANCE ENERGY LTD
60
Another problem for NTPC is that it has to supply power to SEBs at a low cost even when the cost of generation is high and this at times leads to losses and this is because of the government policies. Another major problem with NTPC is the acute shortage of raw material, that is, coal. And because of this NTPC is trying to venture into other power generation methods like hydro power generation, gas projects and even into nuclear plants. But this will take a long time as the gestation period for establishing a plant and making it operational is long. So till the shortage of fuel will be NTPCs major concern.
Analysis of the return of the NTPC stock

NTPCs had come out with its Initial Public Offering in October 2004 and since then its stock had been performing very well. I have considered the stock price of NTPC from October 1, 2005 to March 31, 2006 and have taken out its return and beta. For comparison I have taken the returns of NSE of the same period.
2005-07
RELIANCE ENERGY LTD
61
During this period the average return of NTPC stock was 0.21% and its beta was 0.60. For stock price of last 6 months see Annexure 12 The same is depicted in the graph given below.
0.06
0.04
0.02 Return NTPC Return NTPC 0 1 -0.02 10 19 28 37 46 55 64 73 82 91 100 109 118 Return of NSE Linear (Return of NSE )
-0.04
-0.06 Return NSE
Analysis
NTPCs stock is one the most stable stock in the stock market and its clearly shown by its beta which is 0.60. It clearly suggests that NTPCs stock risk is almost half the risk of the market, or we can say slightly more as it is more that 0.50. This stock can also act as a portfolio stabilizer due to its low volatility. The trading volume in the stock has been significant. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
62
2005-07
RELIANCE ENERGY LTD
63
Common Size Balance Sheet

2005-06 2004-05 2003-04 2002-03 2001-02 SOURCES OF FUNDS Shareholder's Funds Capital Reserves and Surplus Deferred Revenue-on account of advance against depreciation Development Surcharge Fund Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability (Net) Less: Recoverable TOTAL APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Capital Work in Progress Construction Stores & Advances Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Indian Institute of Finance
13.93% 56.64% 70.57%
15.16% 53.82% 68.98%
17.56% 52.95% 70.41%
19.42% 51.80% 71.22%
21.22% 52.15% 73.37%
0.57%
0.31% 0.73%
0.06%
7.50% 21.36% 28.86% 8.54% 8.54% 0.00% 100%
8.89% 21.09% 29.98% 10.14% 10.14% 0.00% 100%
9.21% 20.32% 29.53% 9.92% 9.92% 0.00% 100%
4.09% 24.69% 28.78%
5.34% 21.29%
0.00% 100%
0.00% 100%
72.81% 35.12% 37.69% 11.33% 5.44% 54.46% 35.13%
77.67% 36.42% 41.24% 10.89% 3.60% 55.78% 33.64%
81.80% 37.42% 44.39% 11.52% 2.75% 58.65% 8.19%
81.75% 37.81% 43.94% 12.93% 3.36% 60.23% 10.01%
86.69% 37.66% 49.03% 7.58% 2.79% 59.39% 9.14%
3% 2.32% 10.27% 1.64%
3.37% 0.91% 1.18% 15.53%
3.96% 27.78% 1.22% 5.62%
5.01% 28.66% 2.99% 1.37%
4.99% 25.61% 1.04% 7.32% 2005-07
RELIANCE ENERGY LTD Loans & Advances Less: Current Liabilities& Provisions Liabilities Provisions Net Current Assets Miscellaneous Expenditure (to the extent not written off or adjusted) TOTAL 8.84% 2.56% 11.40% 10.41% 4.57% 21.80%
64 5.29% 26.28% 4.80% 43.38% 3.66% 41.71% 10.04% 48.99%
12.66% 3.05% 15.70% 10.58%
7.64% 2.60% 10.24% 33.13%
7.92% 4.04% 11.97% 29.74%
44.18% 17.55% 31.44%
100%
100%
0.02% 100%
0.02% 100%
0.02% 100%
2005-07
RELIANCE ENERGY LTD
65
Common Size Income Statement

2005-06 INCOME Sales Energy Internally Consumed Provisions Written Back Other Income Total EXPENDITURE Fuel Employee's remuneration & Benefits Generation, administration & other expenses Depreciation Provisions Interest & Finance Charges Total Profit before Tax & Prior Period Adjustments Prior Period Income/ Exp.(net) Extraordinary item-Capital Reciepts Profit Before Tax
Provision for Current Tax
2004-05
2003-04
2002-03
2001-02
100% 100% 100% 100% 100% 0.11% 0.10% 0.13% 0.10% 0.10% 2.76% 5.12% 2.09% 0.06% 1.91% 10.46% 32.53% 2.12% 3.77% 4.83% 113.30% 137.75% 104.31% 103.93% 106.87%
60.88% 3.92%
64.80% 4.69%
57.91% 4.31% 5.71% 8.03% 2.92% 5.21% 84.08%
58.37% 4.51% 6.53% 7.34% 1.03% 4.87% 83.05%
52.38% 4.03% 5.31% 12.25% 5.25% 5.76% 84.97%
5.37% 5.21% 8.69% 10.73% 0.03% 3.10% 7.52% 17.88% 86.41% 106.40%
26.92% -0.04 26.97% 4.46% 3.26% 1.20% 25.76% -0.76% -0.76% 25.76%
31.34% 0.01% 31.25% 4.61% 1.27% 3.34% 27.91% 4.19% 4.19% 27.91%
20.13% 0.42% 19.71% 5.91% 5.14% 0.77% 18.94% 1.86% 1.86% 18.94%
20.78% 0.00% 0.28% 21.06% 5.78% 4.59% 1.19% 19.87%
21.90% 0.42% 21.48% 7.09% 5.29% 1.79% 19.68%
Less: Income tax recoverable Profit after Current Tax Provision for deferred tax Less: Deferred Tax Recoverable Profit after Tax
19.87%
19.68%
2005-07
RELIANCE ENERGY LTD
66
Financial Ratios
Internal Liquidity (Solvency) Ratio Current Ratio Quick Ratio Cash Ratio Receivables Turnover Ratio Average Receivables Collection Period Operating Efficiency Ratios Total Assets Turn Over Ratio Net Fixed Assets Turnover Ratio Equity Turnover Ratio Operating Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Capital Return on Owners Capital Financial Risk Ratios Debt Equity Ratio Long Term Debt to Total Capital Ratio Earnings Flow Ratio Interest Coverage Ratio Cash Flow Ratio Cash Flow to Long Term Debt Ratio Cash Flow Coverage Ratio Growth Potential Retention Rate Return on Equity Growth Rate Indian Institute of Finance 2005-06 1.91:1 1.65:1 1.3:1 25.4 times 14.93 days 0.64 times 1.03 times 0.58 times 43.78% 34.5% 25.76% 10.45% 13.9% 40.9% 29.03% 4.58 times 154.6% 15.59 times 0.66% 13.9% 9.17% 2004-05 1.67:1 1.46:1 0.41:1 2.92 times 125 days 2003-04 4.2:1 3.8:1 0.59:1 1.59 times 229.5 days 0.52 times 1.01 times 0.63 times 35% 24.91% 18.94% 7.2% 11.45% 41.94% 29.5% 4.79 times 187.6% 25 times 0.80% 11.45% 9.16% 2002-03 3.5:1 3.1:1 0.56:1 1.7 times 214.7 days 0.52 times 1 times 0.64 times 37% 10% 19.87% 7.73% 12.35% 40.42% 28.78% 5.32 times 161.9% 21.6 times 0.80% 12.35% 9.88% 2001-02 2.8:1 2.5:1 0.63:1 2.13 times 171.4 days 0.53 times 1.1 times 0.74 times 36.6% 12.57% 19.69% 8.8% 13.82% 36.3% 26.6% 4.73 times 179.5% 16.1 times 0.80% 13.82% 11.06% 2005-07
0.51 times 0.92 times 0.56 times 59% 49.12% 27.9% 13.37% 14.8% 43.46% 30.3% 2.75 times 160.7% 7.37 times 0.79% 14.8% 11.7%
RELIANCE ENERGY LTD Chart No. 1
67
Quick Ratio
4 3.5 3 2.5 2 1.5 1 0.5 0 2000-01 2001-02 2002-03 Years 2003-04 2004-05 Series1
Chart No. 2
Recievables Turnover Ratio
30
25
20
15
Series1
10
0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
2005-07
68
Average Recievables Collection Period 250
200
Days
150 Series1
100
50
0 2000-01 2001-02 2002-03 Years 2003-04 2004-05
Chart No. 4
2005-07
RELIANCE ENERGY LTD
69
Net Profit Margin
30
25
20 Percentage
15
Series1
10
0 2000-01 2001-02 2002-03 Years 2003-04 2004-05
Chart No. 5
Cash Flow Coverage Ratio
30
25
20
15
Series1
10
0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
Chart No. 6 Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
70
Growth Rate
14 12 10 Percentage 8 Series1 6 4 2 0 2000-01 2001-02 2002-03 Years 2003-04 2004-05
Analysis
Common size Balance Sheet shows that the Reserves & Surpluses of NTPC have an increasing trend clearly indicating that NTPC is a cash rich company. And the loans taken by the company have decreased, hence reducing the financial risk faced by the organization. And if we see the fixed assets of the company it can be seen that though the fixed assets owned by the company have increased but still their percentage in the total assets have gone down. Debtors of the company have also gone down mainly due to the Governments One Time Settlement Plan, which helped NTPC to recover its debt from the SEBs to whom it sells its electricity. And finally the companys cash balance has also increased a lot making the company cash rich. Common Size Income Statement:
2005-07
RELIANCE ENERGY LTD
71
NTPCs Profit Before Tax has grown in the last five fiscal years. Though it has declined in the year 2004-05 as compared to year 2003-04 from 31.34% to 26.92% of sales but still if all the five years are considered it has grown. And Profit After Tax has also seen a similar trend as PBT making the company a profitable company. Financial Ratios Solvency Ratios NTPCs liquidity position is very good as its Cash Ratio has increased a lot and its Current and Quick Ratios also show a favorable position. The major change is seen in the Receivables Turnover Ratio which has gone up to 25.4 times from the previous of 2.92 times and an Average Receivables Collection Period which has gone down to 14.93 days from 125 days. This had happened due to the governments One Time Settlement Plan which reduced the debtors of the company drastically and increased its cash balance. Operating Efficiency Ratios The company has seen a stable growth in its Total Assets Turnover Ratio, Net Fixed Assets Turnover Ratio and Equity Turnover Ratio clearly indicating that the company is a growing concern. Operating Profitability Ratios The Net Profit Margin along with Gross Profit Margin and Operating Profit Margin has been on a rising trend, which indicates stable growth. There was a sharp rise in the profits in the year 2003-04 (due to One Time Settlement Plan) and in 2004-05 the profit came down but still it was higher if compared to the previous years profit. Even the Return on Total Capital and Return on Owners Capital have gone up. Financial Risk
2005-07
RELIANCE ENERGY LTD
72
The company has been paying off its debt hence reducing the financial risk faced by the company and this is visible from the falling Debt-Equity Ratio and Long Term Debt to Total Capital Ratio. Earnings Flow Ratio and Cash Flow Ratio NTPCs Interest Coverage ratio has been very good, i.e., it has been able to service its debt very easily with an only decline in the year 2003-04. But even in 2003-04 the Interest Coverage ratio was 2.45 times which is good enough for servicing the debts. The Cash Flow to Long Term Debt Ratio has gone down and its Cash Flow Coverage Ratio has also gone down, meaning that the cash flow of the company has been falling. But still the company is in a good financial position. Growth Potential NTPCs Return on Equity has been stable and its growth rate has also been stable, indicating that NTPC is growth oriented. By observing the above analysis one can easily say that company is in a regrouping phase. More emphasis is given to recovery of dues. Thats why companys receivable ratio increased to 24 times from modest 3 times on the other hand its collection period reduced to 15 days from 125 days. On other front company is slightly struggling. The cash coverage ratio is higher due to high receivable collection but its growth rate declined and its ROE has shown modest increase. So we can sate that company need to perform better on operating side in order to achieve a sustainable growth rate.
2005-07
RELIANCE ENERGY LTD
73
Power Trading Corporation of India

SWOT Analysis
Strength Single trading company in India system Highly profitable and no debt Strong negotiation power with both buyers and sellers Less regulatory control Low exposure in rural area Failed in creating a transparent pricing mechanism Low private sector participation Weakness Lack of own management
Opportunity High demand for electricity
Threat Possibility of acquisition by other big PSU players like NTPC, etc.
Electricity reforms and supportive Entry of generation companies government policies Entry of more private players in power generation into power trading Relaxation of licensing policies especially in power trading
2005-07
RELIANCE ENERGY LTD
74
Analysis
Strengths
PTC is the only independent power trading organization in India which was established by the government to facilitate the trading of power in the country. Being the only entity in this sector gives the organization almost monopolistic powers in its field hence strengthening its position. PTC is also a very profitable organization with a growth rate of almost 9.36% and this is a debt free organization which is an added advantage as it clearly signifies that the organization does not have financial risk due to debt. Being the only player in the power trading sector PTC has a very strong negotiating power with both buyers and sellers of power as it is the only platform where buyers and sellers meet.
Weakness
Majority of the companys holding is in the hands of Financial Institutions (government and non government both, FIIs, etc. Promoters only hold approximately 32% and along with that since it is a government organization it does not have its own management system, Prices are decided by PTC for the sale and purchase of electricity and in a situation the pricing mechanism should be transparent but this is not the case with PTC. Though the prices of electricity are regulated by the government but still if the pricing mechanism is not transparent it portrays a wrong picture of the organization.
2005-07
RELIANCE ENERGY LTD
75
PTC being the premier organization in the power trading section does not have any exposure in the rural area and governments major thrust area is to electrify the rural areas. And since PTC does not have any exposure in the rural area it is loosing out on opportunities.
Opportunity
Demand for power has been on a rising trend as the supply has not been able to meet the demand and since PTC is also a part of the power sector it has a very good opportunity to grow and increase its operations. Various government policies and electricity reforms have been such which provide for better supply of power to all those areas which are still not electrified, it wants the supply of electricity to fully meet the demand for electricity and this gives PTC and opportunity to grow. Due to the rising demand of electricity many private players have entered in to generation of power providing PTC with more of customers and even better negotiation power as there is stiff competition among these players.
Threat
All the major players in the sector of power generation would like to acquire PTC as it would provide them a platform to directly interact with their customers and place them at such a position which would provide it with an upper hand as compared to other organizations. And due to this the major threat that PTC is facing is the threat of acquisition from the major players in the power sector.
2005-07
RELIANCE ENERGY LTD
76
Quite a number of power generation companies have started their own power trading hence effecting the position of PTC in the area as now PTC would have competition form these players and its monopolistic position would be hampered. Government policies for power trading sector are very relaxed, i.e., companies belonging to power sector can easily start up their own power trading branch and other players can also enter the market, clearly suggesting that PTC is not getting benefited from the governments relaxed licensing policy.
2005-07
RELIANCE ENERGY LTD
77
Analysis of the return of the PTC stock

PTCs stock had been performing well in the Indian stock market and its price had been hovering around Rs.55 to Rs. 60. I have considered the stock price of PTC from October 1, 2005 to March 31, 2006 and have taken out its return and beta. For comparison I have taken the returns of NSE of the same period. During this period the average return of PTC stock was 0.12% and its beta was 0.33. For the stock prices and return of last 6 months see Annexure 13 The same is depicted in the graph given below.
0.15
0.1
Return PTC
0.05 Return PTC Return of NSE Linear (Return of NSE) 0 1 10 19 28 37 46 55 64 73 82 91 100 109 118
-0.05
-0.1 Return NSE
2005-07
RELIANCE ENERGY LTD
78
Analysis
By observing the beta of PTC one can easily make out that the stock is not much volatile if compared to the market return, i.e., if the market rises by 100% PTCs share would only increase by 33%. In other words it can be said that it is a safe stock. The main reason behind such a low beta is the lack of trading in the shares of PTC. PTC is among those PSU stocks which have witnessed a very low trading volume even in the bull run of the stick market.
2005-07
RELIANCE ENERGY LTD
79

2005-06 Sources of Funds Shareholder's Funds Share Capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability Total Application of Funds Fixed Assets Gross Block Less: Depreciation Net Block Capital Work in Progress Investments Deferred Tax Assets Current Assets, Loans & Advances Sundry Debtors Cash and Bank Bank Balances Other Current Assets Loans & Advances 2004-05 2003-04 2002-03 2001-02
66.04% 32.83% 98.87%
68.96% 29.63% 98.59%
81.13% 14.89% 96.02%
80.80% 19.20% 100%
100% 100%
1.13% 100%
1.41% 100%
3.98% 100%
100%
100%
10.02% 1.71% 8.31% 0.21% 87.16% 0.07%
10.12% 1.24% 8.87% 0.02% 61.65% 0.13% 35.23% 58.68% 0.15% 11.31% 105.38% 60% 19.43% 25.95% 79.43% 3.38% 100%
25.37% 1.87% 23.50%
67.82% 1.13% 66.69%
2.07% 0.41% 1.67%
24.88% 4.25% 0.14% 16.17% 45.44% Less:Current Liabilities&Provisions Current Liabilities 23.57% Provisions 20.11% 43.69% Net Current Assets 1.75% Miscellaneous Expenditure 2.49% Profit and Loss Account Total 100%
55.15% 110.60% 2.70% 16.21% 184.66% 107.35% 11.31% 118.67% 65.99% 10.51% 100%
103.26% 138.62% 5.10% 5.45% 252.42% 222.91% 15.49% 238.40% 14.02% 19.29% 100%
0.71% 87.18% 1.89% 9.42% 99.20% 12.49% 5.58% 18.07% 81.13% 16.53% 0.68% 100%
2005-07
RELIANCE ENERGY LTD
80

200506 Income Electricity Sales Service Charges Rebate on Purchase of Power Other Income Foreign Currency Fluctuation Profit on Sales of Investment (Net) Excess Provisions Written Back Discount on Purchase of Power Expenditure Electricity Purchase Rebate on Sale of Power Handling & Scheduling Charges Employee Cost Other Expenses Loss on Sale of Fixed Assets(Net) Old Balance Written Off Provision -For diminution in value of Investments -For Contingencies Foreign Currency Fluctuation Profit/(Loss) before Amortization, Depreciation & Prior Period Items Amortization & Write Offs Preliminary Expenses Pre-Acquisition Developmental Expenditure Deferred Revenue Expenditure (DRE)-Strategic Planning DRE-Inc. in Authorised Capital DRE-Developmental Expenditure on Potential Power Projects Indian Institute of Finance 97.80% 0.02% 1.92% 0.21% 0% 0.01% 0.04% 100% 95.50% 1.96% 0.09% 0.21% 0.25% 0% 0.01% 200405 97.57% 0.13% 2.04% 0.26% 0.00% 0% 0% 100% 95.32% 2.17% 0.18% 0.20% 0% 200304 97.14% 0.36% 1.92% 0.35% 0% 0.03% 0.20% 100% 95.20% 2.21% 0.16% 0.19% 0.03% 200203 96.62% 0.84% 1.86% 0.67% 200102 91.01% 1.86% 5.64% 0.51% 0.98% 100% 95.26% 2.04% 0.27% 0.21% 100% 90.98%
4.40% 3.23%
0.01% 0.02% 98.03% 97.87% 97.77% 0.04% 97.81% 98.61%
1.97%
2.13% 0.03%
2.23% 0.10%
2.19% 0.02% 0.03%
1.39% 0.73% 0.95% 0.31%
0% 0.01% 0.09%
0.01% 0.01% 0.07%
0.04% 0.03%
0.10%
2005-07
RELIANCE ENERGY LTD Depreciation/ Amortization of Intangible Assets Prior Period Adjustments (Net) Profit Before Tax Provision for Taxation Current Tax Deferred Tax Expediture/ (Income) Profit after Tax
81 0.06% 0% 1.81% 0.63% -0.02 1.19% 0.05% -0.07 2.06% 0.71% -0.03% 1.38% 0.07% 0.02% 2.11% 0.63% 0.13% 1.34% 0.03% 2.09% 0.08% 0.25% 0.18% -1.04%
2.01%
-1.04%
2005-07
RELIANCE ENERGY LTD
82
Financial Ratios
Internal Liquidity (Solvency) Ratio Current Ratio Quick Ratio Cash Ratio Receivables Turnover Ratio Average Receivables Collection Period Operating Efficiency Ratios Total Assets Turn Over Ratio Net Fixed Assets Turnover Ratio Equity Turnover Ratio Operating Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Capital Return on Owners Capital Financial Risk Ratios Debt Equity Ratio Long Term Debt to Total Capital Ratio Earnings Flow Ratio Interest Coverage Ratio Cash Flow Ratio Cash Flow to Long Term Debt Ratio Cash Flow Coverage Ratio Growth Potential Retention Rate Return on Equity Growth Rate 2005-06 1.04:1 1.04:1 0.10:1 35.26 times 10.35 days 1.63 times 105.60 times 8.87 times 2.15% 12.21% 1.22% 7.42% 10.83% 0.51% 10.83% 5.52% 2004-05 4.06:1 4.06:1 2.26:1 30.27 times 12.06 days 9.34 times 120.23 times 10.82 times 3.63% 1.42% 1.42% 7.40% 15.31% 0.63% 15.31% 9.65% 2003-04 1.56:1 1.56:1 0.93:1 18.27 times 19.98 days 4.84 times 42.87 times 10.49 times 1.55% 1.38% 1.38% 4.97% 14.53% 0.82% 14.53% 11.91% 2002-03 1.06:1 1.06:1 0.58:1 11.54 times 31.63 days 3.74 times 17.87 times 11.92 times 2.36% 2.08% 2.08% 7.02% 24.74% 0.80% 24.74% 19.79% 2001-02 5.49:1 5.49:1 4.82:1 66.78 times 5.46 days
0.47 times 28.49 times 0.47 times 3.70% 4.84% (1.14)% (0.27)% (0.54)% 10.54% -
2005-07
83
Cash Ratio
6
4 Ratio
Series1
0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
Chart No. 8
Current Ratio
6
4 Ratio
Series1
0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
2005-07
84
Average Receivables Collection Period Ratio

35 30 25 20 Days Series1 15 10 5 0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
Chart No. 10
Net Fixed Assets Turnover Ratio
140 120 100 80 Series1 60 40 20 0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
2005-07
85
Operating Profit Margin

14 12 10 Percentage 8 Series1 6 4 2 0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
Chart No. 12
Growth Rate
25
20
Percentage
15 Series1 10
0 2004-05 2003-04 Years 2002-03 2001-02
2005-07
RELIANCE ENERGY LTD
86
Analysis
Common Size Balance Sheet PTC has issued more of equity capital in the year 2003-04 and its Reserves and Surplus have also been increasing indicating that the company has been retaining profits earned, may be for growth purpose. And an added advantage is that PTC is a debt free company hence the financial risk is nil. And if we see the trend we can easily figure out that there has been a sharp rise in Fixed Assets, Current Assets and Current Liabilities in the year 2001-02, but after that they have been stable. This might be because in the year 2001-02, the company might have expanded its operations from the previous levels. Common Size Income Statement PTCs profits have been stable in the previous years but in 2004-05 its profits have declined a bit mainly because its expenditures have gone up and its sales have not increased accordingly. Financial Ratios Solvency Ratios The current ratios and the quick ratios trend has been very fluctuating in the last five years. These ratios have been very high in 2000-01 and 2003-04 and have been able to only meet the required standards in the rest of the years. Companys cash position has also deteriorated in the last few years which is visible from the falling cash ratio. PTCs receivable turnover ratio and average receivables collection period have improved a bit as receivable turnover ratio has gone up and average receivables collection period has fallen down. In all companys liquidity position is not good.
2005-07
RELIANCE ENERGY LTD
87
Operating Efficiency Ratios Total assets turnover ratio has fallen in the last five years, though there was a sharp rise in the year 2003-04 but it fell to a very low level in 2004-05. Net fixed assets turnover ratio also saw sharp rise in 2003-04 and a fall in 2004-05 but still it was more than the amount in 2002-03. Equity Turnover ratio has been falling continuously since 2001-02, hence showing a poor management of assets. Operating Profitability Ratios PFCs operating profit margin and return on total capital have shown some growth whereas the gross profit margin, net profit margin and return on owners capital have declined in the five years. The gross profit margin had improved a bit in the year 2003-04 but it again fell down in the year 2004-05. And the return on total capital ratio had reached the highest level in all five years in the year 200102 and sins then it has been falling with a minute improvement in 2003-04 which could not be sustained even in 2004-05. Hence, clearly showing that the profits of the company are in a declining phase and it will start incurring losses if appropriate steps are not taken to improve its position. Growth Potential The retention rate of the company has declined in the years 2003-04 and 200405 and return on equity has also fallen. And this has a direct effect on the growth rate of the company as the growth rate has also been falling. This shows that the company has not been able to efficiently manage the funds available with it and even the assets owned by the organization have not been efficiently used. Company is running on burning track. Except in one or two field it is lacking in most of the areas. Most acute problem is the problem of liquidity. Company is facing liquidity crunch which is clearly visible by their cash and current ratios. To some extent this liquidity crunch is supported by poor receivable collection which Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
88
also on lower side. Company has some sign of relief as its operating profit and return on total capital ratio is quite satisfactory. But in ROE and the growth rate have been falling, showing poor financial position. So in all company is not in good financial position it has to improve its liquidity position, its management of resources available as well as its receivable collection process and policies.
2005-07
RELIANCE ENERGY LTD
89
Power Finance Corporation

SWOT Analysis
Strength Single financing organization for power projects Wide range of network Large number of buyers with good creditworthiness govt. and RBI Weakness Provides loan only for long term projects hence funds are stuck for a longer period of time. Lack of alternative investment options for the ideal cash Being a PSU and a DFI it has to follow the regulations of both
Opportunity Large amount of infrastructural activity Supportive government policies financed
Threat Entry of new financial institutions Introduction of mega power projects which would be directly by Ministry.
Huge demand for power

Companies are moving towards

2005-07
RELIANCE ENERGY LTD
90
international borrowing at a cheaper rate
2005-07
RELIANCE ENERGY LTD
91
Analysis
Strengths
PFC is the only organization dealing with financing of the power projects in India, hence its position is very strong the in the Indian markets as almost all the power projects are financed by PFC. PFC has a very wide range of network with the borrowers having a very high credit worthiness in the market and hence providing security to the funds lend to these organizations. PFC is a government undertaking and hence it is responsible to properly allocate funds for the proper development of the power sector in India and hence almost all of its lending criterias are regulated by the government, providing it with a uniform management system.
Weakness
Since PFC only provides funds for long term purposes like power plant establishment, etc and not for working capital requirements so most of its funds allocated are stuck for a long period of time. PFC as per the governments regulations is not allowed to invest anywhere apart from the power projects so it is not left with any avenue to park its ideal cash in the situations when no funds are required in the power sector. And being a PSU and along with that a DFI it has to follow the guidelines of both the government and RBI, hence restricting the operations of PFC to a large extent.
2005-07
RELIANCE ENERGY LTD
92
Opportunities
Government main thrust area these days is the power sector, it plans to electrify entire India and its main thrust is on the development of the rural area and the fact that the supply of power has not been able to meet the rising demand for power is further fueling the growth of power sector and because of this many new players are entering the field of power and are establishing new power plants and hence providing PFC with an opportunity to expand its business.
Threats
PFC is facing competition from various other financial institutions which have emerged and are financing the small power projects hence taking away business from PFC. Along with this the mega power projects which will be started are being financed by the Ministry directly hence again affecting the business of PFC. And another factor which is affecting the business of PFC is the fact that the power companies with good rating are moving towards the international debt market as the funds are available at a cheaper rates.
2005-07
RELIANCE ENERGY LTD
93

2005-06 Sources of Funds Shareholder's Funds Capital Share Application Money Reserves and Surplus Loans Funds Secured Loans Unsecured Loans Deferred Tax Liability(Net of Assets) Interest Subsidy from GOI TOTAL (Sources of Funds) Application of Funds Fixed Assets Gross Block Less: Depreciation Net Block Capital Work in Progress Intangible Assets Gross Block Less: Amortization Net Block Investments Loans Current Assets, Loans & Advances Cash & Bank Balances Other Current Assets Loans & Advances Less: Current Liabilities & Provisions Indian Institute of Finance 2005-07 2004-05 2003-04 2002-03 2001-02
3.43% 17.78%
4.05% 21.82%
4.95% 19.36%
6.26% 20.44%
7.35% 19.82%
71.96% 2.99 3.84 100%
69.84% -0.06 4.34% 100%
1.96% 67.01% 0 5.42% 100%
4.43% 62.23%
7.70% 58.74%
6.64% 100%
6.39% 100%
1.10% 0.87% 0.22% 0.05% 0 0 0 0.05% 98.16%
1.30% 0.99% 0.31% 0.02% 0 0 0 0.05% 97.73%
1.86% 1.19% 0.66% 0.00%
2.37% 1.26% 1.11% 0.00%
2.79% 1.18% 1.61%
0.04% 0.04% 100.37% 100.12%
0.01% 94.84%
1.12% 2.04% 0.40% 3.56%
1.39% 3.12% 0.11% 4.62%
0.49% 0.36% 3.44% 4.29%
0.58% 0.46% 3.68% 4.72%
3.89% 2.54% 2.48% 8.92%
RELIANCE ENERGY LTD Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure to the Extent not Written off or Adjusted Preliminary Expenses Deferred Tax Asset (Net of Liability) TOTAL (Application of Funds)
94 1.73% 0.31% 2.04% 1.52% 1.93% 0.80% 2.73% 1.89% 2.35% 3.16% 5.51% -1.22% 1.65% 4.41% 6.06% -1.34% 1.78% 3.60% 5.38% 3.54%
0.10%
0.07%
100%
100%
100%
100%
100%
2005-07
RELIANCE ENERGY LTD
95

Total Income Interest & Finance Charges Issue Expenses Interest Tax Personnel & Administration Expenses Depreciation Amortization of Intangible Assets Provision for Contingencies Provision for decline in value of Investments Preliminary Expenses Written off Prior Period Adjustments (including tax) Provision for Taxation(Current year & Earlier year) Deferred Tax Net Profit After Tax 2005-06 2004-05 2003-04 2002-03 2001-02 100% 100% 100% 100% 100% 51.08% 0.95% 39.82% 0.21% 45.05% 50.83% 55.86%
1.46% 0.04% 0.00% 0.62%
1.02% 1.12% 0.00% 0.16%
1.46% 1.57%
1.32% 1.99%
1.61% 2.18%
0.01%
-0.03%
0.18%
0.00%
0.03%
0.07%
7.93% 5.58% 32.29%
13.73% 0.18% 43.95%
7.80% 0.36% 44.48%
9.57% 0.76% 37.10%
8.79% 31.63%
2005-07
RELIANCE ENERGY LTD
96
Financial Ratios
Internal Liquidity (Solvency) Ratio Current Ratio Quick Ratio Cash Ratio Receivables Turnover Ratio Average Receivables Collection Period Operating Efficiency Ratios Total Assets Turn Over Ratio Net Fixed Assets Turnover Ratio Equity Turnover Ratio Operating Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Capital Return on Owners Capital Financial Risk Ratios Debt Equity Ratio Long Term Debt to Total Capital Ratio Earnings Flow Ratio Interest Coverage Ratio Cash Flow Ratio Cash Flow to Long Term Debt Ratio Cash Flow Coverage Ratio Growth Potential Retention Rate Return on Equity Growth Rate 2005-06 1.74:1 1.74:1 0.55:1 2004-05 1.69:1 1.69:1 0.51:1 2003-04 0.78:1 0.78:1 0.51:1 2002-03 0.78:1 0.78:1 0.09:1 2001-02 1.66:1 1.66:1 0.72:1 -
2.55 times 41.62 times 0.47 times 84.83% 83.37% 32.29% 223.11% 47.76% 339.30% 77.23% 1.74 times 9.98% 1.39 times 15.42% -
2005-07
97
Net Fixed Assets Turnover Ratio

45 40 35 30 25 Series1 20 15 10 5 0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
Chart No. 14
Net Profit Margin
50 45 40 Percentage 35 30 25 20 15 10 5 0 2005-06 2004-05 2032-04 Years 2002-03 2001-02
Series1
2005-07
98
Cash Flow Coverage Ratio

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004-05 2003-04 2002-03 Years 2001-02 2000-01 Series1
Chart No. 16
Return On Total Capital Ratio
300
250
150
Percentage
200
Series1
100
50
0 2005-06 2004-05 2003-04 Years 2002-03 2001-02
2005-07
99
Return On Equity
30
25
20 Percentage
15
Series1
10
0 2004-05 2003-04 2002-03 Years 2001-02 2000-01
2005-07
RELIANCE ENERGY LTD
100
Analysis
Common Size Balance Sheet PFCs share capital has been the same in all the years considered and since the Total Assets of the company have increased the percentage of the share capital in total assets have come down. And even the loans taken by PFC have also increased but the important thing to note here is that the company has already repaid its secured loan before the year 2003-04 and now it has only unsecured loans in its debt portion which has been rising. The fixed assts owned by the organization have also come down in the five years, maybe because of wear and tear or the end of their lives. And hence the percentage of the fixed assets in total assets has come down significantly. The current assets of the company are stable and the liabilities have come down hence improving the Net Current Assets position which was negative in the years 2000-01, 2001-02 and 2002-03. Common Size Income Statement PFCs total income in 2004-05 has declined a bit if compared to year 2003-04 profit but if compared to previous years it has gone up. The company had seen very high sale and hence very high profits in the year 2003-04 but it could not sustain the same level in 2004-05 as both its sales and profits came down. But if we do not consider year 2003-04 and see only the profits and sales of all the other 4 years the position of the company is good. Financial Analysis Solvency Ratio The current ratio and the quick ratio been almost same in all the years and it has been able to somewhat meet the standards and the cash ratio has also not been very good though it is almost same in all the years.
2005-07
RELIANCE ENERGY LTD Operating Efficiency Ratios
101
Net Fixed Assets Turnover Ratio has risen in the five years and the sharp rise was seen in the year 2003-04 which was even maintained in the year 2004-05. Total Assets Turnover Ratio had risen till 2003-04 but it declined in the year 2004-05 and similar is the case with Equity Turnover Ratio. Operating Profitability Ratio The Gross Profit Margin of PFC been rising till 2002-03 (in 2003-04 it was 90.98%) but in the year 2003-04 it came down to 84.79% and in 2004-05 also it was 84.83%. Similar was the case with Operating Profit Margin which was 89.92% in 2002-03 and fell in the years 2003-04 and 2004-05. Net profit margin was also rising till 2002-03 in the year 2003-04 it fell slightly but in the year 200405 it fell drastically. Return on Total Capital has seen a very high increase in the year 2003-04 as compared to previous years and the return was almost the similar in 2004-05 with only a slight decrease. Whereas the trend of Return on Owners Capital had been fluctuating but in a band of 47% to 55%. Financial Risk Ratios The debt to equity ratio has continuously increased clearly indicating the increase in the debts of the company. And due to the same reasons the long term debt to total capital ratio has also gone up, increasing the financial risk of the company. Earnings Flow Ratio and Cash Flow Ratio The company has a comfortable interest coverage ratio but it declined in the year 2004-05 as compared to 2003-04. Cash Flow to Long Term Ratio has also been on a rising trend with a small decline in the year 2004-05. And Cash Flow Coverage Ratio has been continuously rising.
2005-07
RELIANCE ENERGY LTD Return on Equity.
102
The Return on Equity has been on a rising trend till 2003-04 and it fell down drastically in 2004-05. So based on above analysis it can be said that the performance of PFC is quite sound. Its net fixed asset turnover ratio is on higher side showing companys efficiency in terms of managing the fixed asset. Companys net profit ahs been declined to some extent this could be mainly high amount of differed tax liability which company paid this year. Its return on capital ratio has been down a bit, showing slightly poor operating performance, though it has shown a phenomenal rise in last year. Cash flow ratio and return on equity is on higher showing companys better performance and timely payment of dues from borrowers. Apart from that other ratios are showing positive trend and overall performance of company is satisfactory.
2005-07
RELIANCE ENERGY LTD
103
Comparison with Major Global Players
2005-07
RELIANCE ENERGY LTD
104
Introduction
From last 30 years NTPC has been apex power provider in the country, fulfilling the demand of power both for industrial and house hold sector. Being a CPSU it has not only fulfilled its corporate responsibility but also its social responsibility. In order to improve corporate standing it has not only adopted best technological practices but it has also gone through various joint venture and partnership with leading players of the world to foster the growth of power sector in India. NTPC has also extended its hands on global consultancy of power plant management in various countries. So far its ranking is concern it produces around 27% of total electricity of the nation and 9th largest generation company in Asia-pacific region. Despite of having such an out standing record why NTPC is still not very much visible on global power generation arena. It wont be able to market itself properly at global level. One may argue that since it is largely government owned thats why it is not allowed to operate freely or it requires permission on every step to initiate any sort of venture. But it not the case if government is dominating factor why company like Oil & Natural Gas Corporation or ONGC being a central public sector undertaking is performing excellent on global arena. Here in my project I have tried to find out various reasons why and where NTPC is lacking in terms of being a global player and what are the possible steps which can help to make NTPC a global player. During my study I have taken few power sector companies from all over the world (top ten companies in the power sector) to demonstrate how they become successful and made their mark at global level.
2005-07
RELIANCE ENERGY LTD
105
Top Ten Companies in the Power Sector are:

Rank 33/1 64/2 72/3 78/4 90/5 98/6 Name E.ON Electricit de France RWE Group ENEL Suez Group Tokyo Electric 141/7 151/8 Power Endesa Group Korea Electric 177/9 190/10 463/38 Power Gaz de France Duke Energy NTPC Spain South Korea France United States India 24.60 16.75 5.38 1.42 1.83 1.33 45.43 54.59 15.45 34.05 26.30 24.36 20.69 23.14 3.76 2.78 62.35 69.89 35.49 27.72 Country Germany France Germany Italy France Japan Sales ($bil) 66.67 63.68 55.63 46.58 55.28 47.09 Profits ($bil) 8.75 1.82 2.90 3.67 2.45 2.11 Assets ($bil) 152.92 201.32 122.29 92.44 85.45 124.98 Market Value ($bil) 72.48 94.94 48.18 51.11 46.81 36.59
E.ON
Country Germany Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD Businesses (Viterra). Energy (electricity
106 and natural gas), oil (Veba Oel),
telecommunication (Connect Austria ONE, Bouygues Telecom) and real estate
Electricity: Capacity: 29.4 MW, Distribution: 220 TWh Position in the domestic electricity market It is 2nd largest power company after RWE with a market share of around 25% in terms of power generation. Features Turnover: Euro 92.3 billion (E.ON energys turnover: Eur 13.0 billion) E.ON is a vertically integrated power company: Generation, Transmission, and Supply. E.ON Activities outside Germany: UK (Powergen), Sweden (Sydkraft), Denmark, Norway, Italy (Thga & Contigas), electricity and gas distribution, Benelux (acquisition in 2000 of the Dutch generating company, EZH), Hungary (E.ON Hungaria), also in Poland, the Czech Republic, Lithuania. Additional remarks According to its strategy of focusing on its core energy business, E.ON have started its divestment program of its non-energy assets. For instance, EON sold its Stinnes shareholding to Deutsche Bahn AG (distribution/logistics), its Orange shareholding to France Telecom (telecommunication), its Degussa shareholding to RAG (chemicals), 51% stake in Veba Oel to BP (oil), and VAW aluminum to Norsk Hydro.
Overview With more than EUR56 billion in sales and roughly 80,000 employees, E.ON is the world's largest investor-owned energy service provider. E.ON is a company with a clear focus and premier positions in its core businesses electricity and gas. Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD Business Power & Gas
107
E.ON is active in the business areas of power and gas, pursuing an integrated business model on two different levels. Its business is vertically integrated: it is active in the entire value chain of the power and gas business, from power generation and gas production to distribution and customer sales. This provides us with many opportunities to optimize our business while minimizing our risks. E.ON generates electricity in power plants located both domestically and abroad, based on a wide generation mix. Our nuclear reactors in Bavaria, Lower Saxony and Schleswig-Holstein, together with our modern hard and brown coal power plants, form the foundation of our generating activities in Germany. In the United Kingdom, coal and natural gas are the most important fuels, while in the United States we rely mainly on coal. Renewable energies continue to play an expanding role, and E.ON Wasserkraft is currently the largest supplier of hydropower in Central Europe. Clean hydropower is also Scandinavias most important source of energy, and in the United Kingdom, E.ON UK is quickly becoming the leading supplier of renewable energy installations. Power E.ON Netz, an E.ON associated company, provides power transmission with one of the longest private power networks in continental Europe, with approximately 42,000 km in Germany alone. This network ensures reliable power delivery to customers, and is available to other companies as well. It provides key infrastructure for power markets on an international scale.
2005-07
RELIANCE ENERGY LTD
108
Power distribution in the European markets and the Midwestern segment of the United States market is carried out by numerous national and regional supply companies within the E.ON Group. Market E.ON has defined five target markets: The integrated markets for the distribution and sale of power and gas are Central Europe, the United Kingdom, Northern Europe and the Midwest of the United States of America. Procurement, trading and transportation of natural gas takes place in a market that spans all of Europe.
Electricit de France (EDF)

Country France Position in the domestic electricity market - Market leader Features Turnover (2001): Euro 40.7 billion (distribution: 52.1%, generation: 11.9% and services: 36%) EDF, wholly state-owned, is the largest European electricity company and has a vertically integrated structure. It operates in generation, transmission, distribution, supply and trading of electricity. EDF exports electricity from France to neighboring countries. Other activities include technical consulting related to construction, operation and maintenance of electricity plants and networks, and through subsidiaries it also provides waste recycling and street lighting services.
2005-07
RELIANCE ENERGY LTD
109
Through EDF International, a wholly-owned subsidiary, EDF owns interests in foreign subsidiaries (e.g. London Electricity in UK, Graninge in Sweden, Estag in Austria, and Light in Brazil). Generation (2001): an output of 476 TWh with a generating capacity of 119 GW Distribution (2001): 43 million customers worldwide of which 32 million French customers.
RWG
As a competent partner for customer service, internationally, RWE occupies top rankings in its core businesses, electricity, gas, water & wastewater, waste disposal & recycling. Thanks to over 100 years of experience, the group develops innovative products and services for safe and reliable supply and disposal - both today and tomorrow. Customers, partners, employees, shareholders, cities and communities all benefit from this multi-utility strategy. Electricity In Germany, the UK and in many parts of Continental Europe, RWE offers the right electricity services for each customer group from private households to commercial operations, industrial companies, municipal utilities or regional energy suppliers. We supply electricity along with a full range of related services. Water and Waste Water In the US, the UK, Germany and in many parts of Continental Europe, RWE offers the right water and waste water services for each customer group from
2005-07
RELIANCE ENERGY LTD
110
private households to commercial operations, industrial companies, municipal utilities or regional energy suppliers. RWE is committed to combining efficient water management with the highest health and ecological standards We supply water along with a full range of related services. We are looking for new ways to implement water management competently, conscientiously and on a partnership basis, while consistently aiming at serving customers and benefiting people. Gas In Germany, the UK and in many parts of Continental Europe, RWE offers the right gas services for each customer group from private households to commercial operations, industrial companies, municipal utilities or regional energy suppliers. We supply gas along with a full range of related services, such as heat and contracting models or energy controlling. We offer a full service that covers everything related to gas supply, brokering and handling transmission contracts, as well as services designed to enhance quality. Services In Germany, the UK and in many parts of Continental Europe, RWE offers the right services for each customer group from private households to commercial operations, industrial companies, municipal utilities or regional energy suppliers. We offer you integrated solutions based on our entire range of services in areas such as energy services, supporting processes, customer management or real estate management. Joining forces enables us both to profit from each other without either of us losing our individuality.
2005-07
RELIANCE ENERGY LTD
111
ENEL
Company profile Enel is Italys biggest power company, and Europes second-largest listed utility. Listed on the Milan and New York stock exchanges since 1999, Enel is the European company with the largest number of shareholders, at some 2.3 million. It has a market capitalisation of about EUR41 billion at current prices. ENEL SHAREHOLDERS The Italian Economy Ministry holds 20.9% of the company directly and another 10.2% indirectly through state-run lender Cassa Depositi e Prestiti, leaving a free-float of some 70%. Shareholders include leading international investment funds, insurance companies and pension funds, ethical funds, along with Italian retail investors. Thanks to its Code of Ethics, Sustainability Report, to its environmental protection policy and the adoption of international best practices for transparency and corporate governance, Enel has been included in the worlds most selective ethical indices, such as the FT4Good and the Dow Jones Sustainability Index. ENEL BUSINESS DESCRIPTION AND FINANCIAL RESULTS Enel produces and sells electricity mostly in Europe, North and Latin America. In the power business, Enel has 42,000 Megawatt of generating capacity and 30 million electricity customers. Enel is also the second-largest Italian distributor and vendor of natural gas, with over 2 million customers and a 12% market share. The company has about 64,000 employees and operates 43 thermal plants, 495 hydro facilities, 31 geothermal plants, 18 wind farms and 5 photovoltaic plants, in addition to more than a million kilometres of power lines, in Italy and abroad.
2005-07
RELIANCE ENERGY LTD
112
In 2004, Enel posted revenues of EUR36.5 billion. Earnings before interest and taxes reached EUR6.3 billion in 2004, while net profit was EUR2.7 billion in the same period. Enel was the first utility in the world to replace its customers traditional electromechanical meters with modern electronic devices that make it possible to take meter readings in real time and manage contractual relationships remotely. This innovation has enabled Enel to implement time-of-use electricity charges, which offer customer savings for evening and weekend electricity use, an initiative that has attracted interest from many utilities around the world. ENEL INTERNATIONAL BUSINESS Enel is actively seeking expansion abroad in the power and gas market after having completed the sale of non-core assets. Enel runs operations in Spain in the generation, distribution and sale of electricity with Enel Viesgo, which has about 2,200 MW in installed capacity, and with Enel Union Fenosa Renovables, a company active in the wind and hydro power sector. In the renewables, Enel is one of the largest independent operators in the Americas with Enel North America and Enel America Latina, two companies that have more than 500 MW of installed capacity. With 17,000 MW in plants using renewable energy resources (hydro, geothermal, wind, solar and biomass) across the world, Enel is a world leader in the sector. In Bulgaria, Enel acquired control of one of the countrys largest power plants, Maritza East III, in March 2003. The lignite-fired facility has a capacity of 840 MW. In Slovakia, in February 2005, Enel acquired 66% of Slovenske Elektrarne (SE), the largest electricity generator in the country, and the second-largest in Central and Eastern Europe, with a generation capacity of 7000 MW, a mix of nuclear, thermal and hydro assets.
2005-07
RELIANCE ENERGY LTD
113
In Romania, Enel acquired 51% of two electricity distribution companies in June 2004: Electrica Banat and Electrica Dobrogea, which supply 1.4 million customers, or 20% of the Romanian market. In Russia, Enel took over the operation in partnership with the local private group ESN Energo of the North-West Thermal Power Plant in St. Petersburg in June 2004. The gas-fired combined-cycle plant has a capacity of 450 MW.
Tokyo Power Electric Company

Japan Inc. would grind to a halt without Tokyo Electric Power Company (TEPCO), which supplies power to nearly 28 million customers in Tokyo, Yokohama, and the rest of the Kanto region. One of the world's largest electric utilities, TEPCO has a generating capacity of approximately 63,000 MW, primarily produced by thermal, nuclear, and hydroelectric power sources. Through interests in telecom businesses, the company offers telephony and Internet services; it also has international consulting and power generation operations. Other businesses include construction, real estate, and transportation companies.
2005-07
RELIANCE ENERGY LTD
114
Suez
Businesses: Electricity generation, transmission, distribution, supply and trading. Others businesses include gas, energy services, water, waste management and communication. Features Turnover: Eur 42.4 billion Suez is the result of the merger between Compagnie de Suez and Lyonnaise des Eaux in 1997. Suez is multi-utilities and multi-services. Suez operates now in four businesses: Energy: Tractabel is one of the world leading energy companies and owns assets in generation, transmission, distribution, supply and trading of electricity and gas (turnover in 2001: Eur 22.5 billion). Tractebel holds 44% of Electrabel, 40% of Elia, and 47% in Distrigas and Fluxys. Tractabel is present in over 100 countries. Water:Ondeo, formerly Lyonnaise des Eaux, which is the world largest water service company; Waste services: Sita is one of the five world largest waste management companies; Communication: mainly in France and in Belgium.
2005-07
RELIANCE ENERGY LTD
115
Endesa
Country Spain Position in the domestic electricity market Market leader Its the 1st Spanish vertically integrated electricity company. Its the 2nd Spanish gas company and telecommunication operator. Features Turnover (2000): Euro 16 billion Endesa operates in generation, transmission and distribution of electricity in Spain, Latin America and parts of Europe. Other businesses include gas distribution, water treatment, telecommunication and new technologies. Generation: installed capacity of 42,000 MW, of which 20,734 MW were in Spain and 19,278 MW in other countries, mainly in Latin America and an annual production of 165,000 GWh. Sales (1st position in Spain): In 2000, Endesa distributes more than 83,800 GWh of energy to 10.25 million customers in its domestic market and 69,500 GWh to almost 10 million customers abroad.
2005-07
RELIANCE ENERGY LTD
116
Korea Electric Power

Korea Electric Power Corporation generates and supplies electric power to its customers, both industrial and residential. The Korean government owns the majority of the company. Korea Electric Power Corporation engages in the generation, transmission, and distribution of electricity in South Korea. As of December 31, 2004, its transmission system comprised approximately 28,409 circuit kilometers of lines, and distribution system consisted of approximately 380,363 circuit kilometers. The company provides electricity primarily to industrial, commercial, and residential customers, as well as to educational and agricultural customers. Korea Electric Power was founded in 1961 and is headquartered in Seoul, South Korea.
Key Statistics
Market Cap (intraday): Enterprise Value (20-Mar-06)3: Trailing P/E (ttm, intraday): Forward P/E (fye 31-Dec-07) 1: PEG Ratio (5 yr expected): Price/Sales (ttm): Price/Book (mrq): Enterprise Value/Revenue (ttm)3: Enterprise Value/EBITDA (ttm)3: 27.67B 27.67B N/A 8.55 1.98 1.07 N/A 1.06 2.857
Gaz de France
Indian Institute of Finance 2005-07
RELIANCE ENERGY LTD
117
France's leading natural gas supplier has carved out a unique niche for itself in the European gas industry. There are two main reasons for this: the Group is well-known for its expertise and it has a public service culture. A company organized into 2 branches, with a worldwide presence Already the preferred supplier of natural gas in France, Gaz de France is expanding into other markets with the objective of becoming Europe's preferred marketer. The Energy Supply and Services branch covers exploration and production, purchase and sale of energy and services. Because Gaz de France operates one of Europe's most extensive natural gas transmission and distribution networks, it is now recognised as a benchmark operator. The Infrastructures branch encompasses Transmission and Storage in France, Distribution in France together with International Transmission and Distribution. Core Skills From upstream to downstream phases, Gaz de France is active in all the businesses of the gas chain. Each one contributes to the group's industrial, commercial, and financial success. Supply of Energy and Services: Gaz de France, Europe's preferred marketer Already the preferred supplier of natural gas in France, Gaz de France is expanding into other markets with the objective of becoming Europe's preferred marketer. The Energy Supply and Services branch covers exploration and production, purchase and sale of energy and services Exploration-Production : Own supplies In order to diversify its natural gas supply sources, enhance supply security and make its offerings more competitive, Gaz de France is developing its exploration
2005-07
RELIANCE ENERGY LTD supplies in Europe.
118
and production activities in geographical areas with the potential to contribute to The Group holds reserves, principally in the North Sea and Germany, but also operates in the other countries where it has a presence, thereby ensuring more direct involvement in investment and development decisions. The Group's long-term target is to produce gas quantities equivalent to 15% of its sales. To achieve this goal, Gaz de France is reinforcing its presence in the North Sea, and is exploring and developing fields in new regions such as Algeria and Egypt. Purchase and Sale of energy : Establish the Group as the preferred energy marketer As the world's fourth largest purchaser of natural gas and Europe's No. 1 importer of liquefied natural gas, Gaz de France possesses one of the most diversified supply portfolios in Europe. In addition to the Group's own production, this portfolio is made up of long-term contracts averaging 20 years which give the Group access to the gas reserves of the main suppliers to the European market Norway, Algeria, Russia, the Netherlands, the United Kingdom, Nigeria. To meet its objectives as an electricity supplier, Gaz de France has also begun to build up an electricity portfolio by acquiring and developing its own production capacities. Finally, Gaz de France trades in the short-term markets (arbitraging, spot purchases or sales of LNG, etc.) to round out its supply portfolio and increase competitiveness. As European energy markets open to competition at an ever faster pace, Gaz de France is maintaining sales growth in France where its products are achieving continued success. It has eleven million direct customers: residential customers, local governments, businesses and key accounts.
2005-07
RELIANCE ENERGY LTD
119
As the preferred supplier of natural gas in France, Gaz de France is developing new offerings that include energy supply natural gas and, if requested by the customer, electricity and associated services. Gaz de France is capitalising on this extensive know-how to develop sales in Europe, where it already has more than four million customers. Infrastructures : Gaz de France, a recognised European network operator Because Gaz de France operates one of Europe's most extensive natural gas transmission and distribution networks, it is now recognised as a benchmark operator. The Infrastructures branch encompasses Transmission and Storage in France, Distribution in France together with International Transmission and Distribution. Distribution in France : Development, quality and satisfaction Approximately 8,800 municipalities, representing more than 75% of the French population, are connected to the natural gas distribution mains. With approximately 170,000 km of mains, Gaz de France has one of Europe's largest distribution networks. In order to attract one million additional natural gas heating customers by 2007, Gaz de France is continuing to extend its network, concentrating on network infill in municipalities already connected to the mains. A committed approach to quality guarantees ISO 9000 and 14000 certification for the main processes linked to natural gas distribution. At the same time, Gaz de France is continuing its efforts to modernise the network and replace the grey cast iron mains. In keeping with its public service commitments, Gaz de France focuses on maintaining a high level of satisfaction amongst customers and its local government partners.
2005-07
RELIANCE ENERGY LTD
120
International Transmission and Distribution : International development The long-term ambition of the Gaz de France group is to hold a significant market share outside France in the European countries where it operates. Upstream from its facilities in France, Gaz de France owns interests in several European gas transmission companies (mainly in Austria, Belgium, Germany, Slovakia). They secure the transmission of the company's natural gas supplies and occupy a strategic position at the crossroads of European gas exchange. Likewise, through subsidiaries and affiliates, Gaz de France operates several distribution networks in Europe, primarily in Germany, Italy, Hungary, Portugal and Slovakia. Outside Europe, Gaz de France has a strategic partnership with the firm Petronet LNG in India for the construction and operation of an LNG receiving terminal. On the American continent, Gaz de France is notably involved in transmission and distribution in Mexico, and in natural gas distribution and storage in Quebec, Canada.
Duke Energy
Duke Energy is a diversified energy company with a portfolio of natural gas and electric businesses, both regulated and non-regulated, and an affiliated real estate company. Duke Energy supplies, delivers and processes energy for customers in North America and selected international markets. Franchised Electric & Gas Service Duke Energy offers electric service to 3.7 million customers in the Carolinas, Kentucky, Indiana and Ohio and retail gas to 500,000 customers in Kentucky, Indiana and Ohio. Our service area covers approximately 47,000 square miles in the Midwest and Southeast.
2005-07
RELIANCE ENERGY LTD
121
Our fleet of power plants generates approximately 28,000 megawatts of electricity from a variety of fuel sourcesfrom hydroelectric to coal, oil and natural gas to nuclear. We invite you to learn more about our different operations in the five states that we serve. Natural Gas Transmission Duke Energy Gas Transmissions natural gas operations include more than 17,500 miles of transmission pipeline and 250 billion cubic feet of storage capacity in the United States and Canada. Our pipelines connect major natural gas supply basins from the Gulf Coast, midcontinent and Canada with rapidly growing markets in Canada and the northeastern and southeastern United States. In North America, were the largest owner of salt cavern natural gas storage facilities, which provide ready-to-move, environmentally sound natural gas storage. Our storage facilities are strategically located near pipeline hubs offering interconnections to serve markets throughout North America. Midstream Natural Gas Duke Energy Field Services (DEFS), headquartered in Denver, Colorado, leads the midstream industry as one of the nations largest natural gas gatherers, the largest natural gas liquids (NGLs) producer, and one of the largest NGL marketers. DEFS gathers raw natural gas through 56,000 miles of gathering pipe in six of the major U.S. natural gas regions. The gas is processed at 54 owned or operated plants. It gathers and transports approximately 6.8 trillion British thermal units of raw natural gas daily. DEFS also owns or operates 11 fractionating facilites, and eight propane terminals. DEFS sells its NGLs to a variety of customers, ranging from large, multi-national distributors. petrochemical and refining companies to small propane
2005-07
RELIANCE ENERGY LTD
122
DEFS created a new master limited partnership in December 2005, DCP Midstream Partners, LP. DEFS owns the general partnership of DCP Midstream Partners, and manages and operates it assets in Louisiana and Texas. DEFS is a 50-50 jont venture between Duke Energy and ConocoPhillips. . Wholesale Electric Generation In North America, Duke Energy generates and sells wholesale electricity to utilities, cooperatives, municipalities and other large energy users to support electric reliabilityespecially during times of high demand. The fleet features some of the most efficient facilities in the nation. In Latin America, Duke Energys primary assets include over 4,000 net megawatts of hydroelectric and thermal generating capacity . Energy Marketing Duke Energy is an active energy marketer in the U.S. We can leverage our extensive knowledge and assets to provide customers with an integrated approach and total solution to all energy needs from our diverse portfolio of assets Real Estate Through Crescent Resources, LLC, we develop and manage real estate throughout the southeastern and southwestern United States. Telecommunications We offer telecommunications services through many channels.
2005-07
RELIANCE ENERGY LTD
123
Reason for growth for above mentioned companies Proper policy frame work of their respective governments as they have identified as major driver for industrial growth and development. These company were able to grow so fast because were they continuously looking for technological up gradation and highest preference is given to latest machinery and it also impact the tax as amount of depreciation increases due to purchase of Fixed assets. Trend manpower and advance technology to support the day to day operation. Out of these companies most of the owned or control by their respective governments has being given autonomy be it financing or going for consolidation. Every mentioned company has gone for mergers and acquisitions for the purpose of consolidation be it domestic or overseas. These companies have also gone for alternate source of energy like nuclear power and wind energy. Like British energys major generation comes from its eight nuclear power plants. All of the mentioned companies has gone for ADR in NYSE in order to gain global presence. Every mentioned company is pursuing distribution along with generation. They have their own retail ventures for the purpose of distribution. Most of the company is operating in the atmosphere of market driven tariff which is largely depend upon demand and supply. It help them get proper return of their generation capacity. Thus it is clearly visible that above mentioned companies are given enough support by their government but it cant be disaccorded that it is their own strategy which has made them profitable and market leader.
2005-07
RELIANCE ENERGY LTD
124
Why & Where is Power Sector lacking After discussing the reason for growth of sample companies, Lets discuss why and where PC is lacking: Lack of global policy initiative i.e. company is still engaged in fulfilling the domestic need of electricity. High manpower ratio/MW, which forces the company to incurs the extra administrative cost especially when organization is one of the best remuneration paying organization. It is largely government owned and requires approval for every major policy decision, which delays the process of decision-making. Being a public sector undertaking, it is forced to take initiatives in those projects, which are at times not profitable. Biggest example of such initiative is Dabhol Power Plant. Company is accused for not being aggressive. It hasnt gone for any overseas or domestic mergers & acquisitions to consolidate its market position. Company lacks the international exposure like ONGC. While its JVs are providing more profit to second partner. Majority of plants are coal based. Since raw material is scare it creates lots of problem to the company as it increase the cost of generation. So above are the reasons for failure of NTPC of not being a global player. Though most of them are due of poor policy initiative and burden which NTPC carry of being a Public Sector Undertaking
2005-07
RELIANCE ENERGY LTD
125
2005-07
RELIANCE ENERGY LTD
126
2005-07
RELIANCE ENERGY LTD
127
2005-07
RELIANCE ENERGY LTD
128
2005-07

Deepti Project

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Deepti Project

Загружено:

Авторское право:

Доступные форматы

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

RELIANCE ENERGY LTD Installed Capacities

Table 3: Trends in the power sector (utilities only) *Provisional @ April-December

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Current Status of Rural Electrification

Indian Institute of Finance

8 53% 20% 18% 78% 21% 23% 50%

Table 4: Eight States with substantial number of villages to be electrified

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

RELIANCE ENERGY LTD

RELIANCE ENERGY LTD

Infrastructure and services

Mechanical Civil Electrical Instrumentation & Environmental

RELIANCE ENERGY LTD

7.59 MW Wind Farm Project at Jogimatti in the district of Chitradurga in Karnataka.

Indian Institute of Finance

RELIANCE ENERGY LTD Distribution

Stock Price Movement of Reliance

Indian Institute of Finance

RELIANCE ENERGY LTD

Daily Return of Reliance vis-a-vis NSE

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD Company Overview-NTPC

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD LNG:

RELIANCE ENERGY LTD

Power Trading Corporation of India Limited

RELIANCE ENERGY LTD

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Power Finance Corporation

RELIANCE ENERGY LTD

Indian Institute of Finance

Performance Highlights (2005-06)

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance

RELIANCE ENERGY LTD

Indian Institute of Finance