Comparative analysis of balance sheet funding and project

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Comparative analysis of balance sheet funding and project in NTPC

Comparative analysis of balance sheet funding and project in NTPC

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  • 1. COMPARATIVE ANALYSIS OF BALANCE SHEET FUNDING AND PROJECT FINANCING AT NTPC
  • 2. ABOUT THE COMPANY  NTPC Limited is the largest thermal power generating company of India.  It's a public sector company, and was incorporated in the year 1975 to accelerate power development in the country as a wholly owned company of the Government of India.  At present, Government of India holds 89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs, Domestic Banks, Public and others.  The Company other business includes providing consultancy, project management and supervision, oil and gas exploration, power trading and coal mining.
  • 3.  As of march 31, 2011, the Company was executing two projects: Tapovan Hydro Electric Project and Rammam Hydro Electric Project.  As of March 31, 2011, the Company had installed capacity in India was 173626.4 mega-watts.  As of March 31, 2011, the Company had five subsidiaries: NTPC Electric Supply Company Limited, NTPC Vidyut Vyapar Nigam Limited, NTPC Hydro Limited, Kanti Bijlee Utpadan Nigam Limited and Bhartiya Rail Bijlee Company Limited.  It was conferred the status of “NAVRATNA” by GOL in 1997 which was raised to “MAHARATNA” in May, 2010.
  • 4. COMPETETITORS’ OVERVIEW  Tata Power  Reliance Energy  CESC  Adani Power  Torrent Power
  • 5. SWOT ANALYSIS OF NTPC  COMPETETIVE STRENGTH: - Leadership position in the Indian power sector - Strong cash flow - Effective project implementation - Sound customer relations and commercial performance - High operational efficiency of coal-based stations - Operational efficiency - Long term agreements for coal and gas supply - Strategic locations near fuel source - Ability to turn around underperforming stations - Strong balance sheet - Emphasis on corporate governance
  • 6. WEAKNESS: - Depleting raw material - Some plants have become old & need renovation & modernization  OPPORTUNITIES: - Huge demand & supply gap - Upcoming hydro & nuclear sector - Huge opportunities in consultancy services   THREATS: - Rising prices of raw material - Rising competition from private players like Reliance Energy, Tata Power etc.
  • 7. NTPC FUTURE STRATEGY  Maintain market leadership  Improve their operating performance  Pursue fuel security  Diversified fuel mix
  • 8. RESEARCH METHODOLOGY  - OBJECTIVE OF THE STUDY: To study the relative benefits of appraising the thermal project through balance sheet financing or financing via creating a special purpose entity & making comparative analysis on the basis of cost & benefits. LIMITATION OF STUDY: - This study is done from the perspective of NTPC Ltd. only. - Generic Approach in case of Project Assumptions.  METHODOLOGY ADOPTED: - Data collection is purely Secondary. - The analysis has been carried out on the basis of Project information, Assumptions & other necessary details given by NTPC. 
  • 9. ASSUMPTIONS           Gross capacity of power plant is at 1000 MW(500 * 2) COD of unit I is assumed to occur after 56 months from the date of main plant & unit –II is 6 months onwards (62 months after the contract) Date of project cost has to be taken at 30 Nov 2016 Rupee term loan: equity ratio is assumed to be 70:30 Plant load factor is taken at 85 % Auxiliary consumption is assumed at 7 % of the gross energy generated. Tariff has been taken as CERC (terms & conditions for determination of tariff ) regulation prevalent currently(except escalation in tax & O & M cost) Interest in case of debt under balance sheet financing - 11% Depreciation to be charged on the total cost assuming that total cost (except land cost) incurred on plant to be phased out in equal proportion on both the units. ROE & O & M expenses calculations of Unit I & II we take in equal proportions.
  • 10.  Interest in case of SPV route is- 12 %  Repayment in case of balance sheet financing -8 years ( 4 yrs after starting the project)  Interest in case of working capital financing from bank is taken at 11.75 %  Secondary fuel consumption is taken at 1 ml/Kwh  Cost of coal = Rs. 850/1000 kg(primary fuel )  Cost of secondary fuel = Rs. 40/1000 ml with an annual escalation of 0 %.  O & M expenses has been assumed at 0.125 Cr/MW with an annual escalation of 0 %  Working capital requirements has been assumed as 1 month ;O& M expenses ;spares =20 % of O & M expenses & coal cost & secondary fuel cost (2 months value taken)  Company act depreciation -5.28 %; subject to the asset being depreciated till 95 % of cost price.  CERC depreciation -5.28 % p.a. SLM for first 12 years & then spread evenly over the balanced life of the project.  The project life is assumed to be 25 years in line with the CERC guidelines prevalent currently.
  • 11. CONCLUSION  Balance Sheet Financing is the Favoured mode of Financing for the Company due to following reasons: - Long experience of the Company in Operation of Power plants - Strong Balance Sheet - Lower risk due to long term PPA which combines to allow the company to raise loans at significantly lower rates.  All these reasons helps to reduce the WACC of the company and it enjoys decent long term returns.