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2012
Submitted By:
Group No: 13, Section - D
Anup Abhipsit PGP27205
Mohan Majhi PGP27224
Prasoon Kumar PGP27236
Seemant PG...
Table of Contents
SECTION – 1 ...............................................................................................
THE EXISTING AND EMERGING MACRO-ENVIRONMENT FOR NTPC................................................. 18
HOW THESE FORCES ...
Q3. COMPANY AND ITS KEY RIVALS ..............................................................................................
Section– 1
Introductionto Energy Sector inIndia: An Analysis of Current Situation
Electricity,aswe knowit,playsa crucial r...
Source: www.ntpc.co.in
Preparing in advance for our country’s growth challenges, the company has set a target to have an i...
Vision, Missionand Core Values
Vision
"A world class integrated power major, powering India’s growth, with increasing glob...
fuel security company has ties up with Coal India Limited and for further supply NTPC is also exploring coal
acquisition o...
by itspowerstationstoconvertthe challenge of ashdisposal intoanopportunity.Ashisbeingusedasaraw material
inputforcementcom...
11% nuclear,8%hydro, 6% wind and 3% solar. NTPC is investing in non-conventional energy sources like solar and
nuclear ene...
pronged strategy like ambitious growth targets, broad fuel mix choices, technology choices and measures to deal
withlikely...
PriorVersionofCompanystrategy
WhenNTPCwas establisheditsgoal wastofulfill the continuouslyincreasing demand of power in In...
Section- 2
NTPC Strategic visionstatement
“To be the world’s largest and best power producer, powering India’s growth”
Ana...
Shortcomings in Company’s Vision Statement
Vague:
The vision statement fails to mention on what parameters the company aim...
Currently the Board of directors compromised of members who have vast experience in engineering, project
management, finan...
employees. Apart from that it provides housing facilities, school facilities, health facilities, recreation
facilities, ch...
Total Qualityfor Excellence
For total quality e.g. from employees, technology, HR management, operation system, pollution ...
Section- 3
The existing and emerging macro-environment for NTPC
In this rising Indian economy many factors are changing ra...
Technical
Technical factors like equipment manufacturing, renewable technology, improvements in operation efficiency,
effi...
Opportunities and risks presented by PESTEL
Political
Opportunity
 Liberalization increases demand of power, there for pr...
Environmental
Opportunity
 Move towards cleaner form of energy
 Earning through carbon trading by using renewable resour...
Handlingissuesrelatedto landacquisitionandenvironmental clearances
Land acquisition and getting environmental clearances i...
Section– 4
Business Model ofNTPC Ltd.
Sources of revenue
1) Sales from power generation
i) Thermal Power: This is major re...
Source:www.moneycontrol.com
Net Profitand GrossProfitMargin:
The net profit of the company shows an increasing trend but t...
threat to NTPC because planning part of strategy with longer view is on right path but the
implementation part of the stra...
for values in Performance Management Systems; Conducts training programs on values, including sessions
on values in key pr...
NTPC and Indian Oil Corporation Limited (IOCL) have signed a MoU for collaborative research for import
substitution of Lub...
Threat of substitute products or services
Electric power as such has very less substitute products; however the generation...
DYNAMICITY IN THE EXTERNAL ENVIRONMENT THAT CAN ALTER THE DRIVING FORCES
FOR THE INDUSTRY AND CONSEQUENTLY THE KSFS AS WEL...
decisions on tariff rule also impact the profitability of the industry and it can affect the viability of many power
proje...
Financing
Law prohibiting foreign investment is hampering the development of new plants.
Regulation
Legal dynamics directl...
Influence on key success factor
Fuel security
Better financed industry is able to make acquire its fuel from international...
3. Bargaining power of customers (buyers)
For the buyers from grids, the bargaining power is very less as these grids oper...
2. Threat of substitute products or services
Currently NTPC depends heavily on only coal for thermal electricity generatio...
Major players in power sector
The major playersinIndianpower sector apart from NTPC are TATA power, Reliance power and Jin...
Among the rival TATA power is a major threat to the company as a conglomerate of a TATA they have better
assess to coal fi...
resource forpowergeneration.Afterstricterlawsagainstdeforestationplantsetisnow become aproblemfor NTPC
speciallythe hydrop...
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
NTPC Ltd. Strategy Analysis
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NTPC Ltd. Strategy Analysis

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NTPC Corporate Strategy Analysis

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NTPC Ltd. Strategy Analysis

  1. 1. 2012 Submitted By: Group No: 13, Section - D Anup Abhipsit PGP27205 Mohan Majhi PGP27224 Prasoon Kumar PGP27236 Seemant PGP27250 STRATEGIC MANAGEMENT - I NTPC Ltd. FINALSUBMISSION Submitted to Prof. A. K. Jain
  2. 2. Table of Contents SECTION – 1 .....................................................................................................................................................5 INTRODUCTION TO ENERGY SECTOR IN INDIA: AN ANALYSIS OF CURRENT SITUATION...............5 NTPC LTD.: A BRIEF INTRODUCTION.........................................................................................................5 VISION, MISSION AND CORE VALUES..........................................................................................................7 ACTION TO STRENGTHEN COMPETITIVE CAPABILITIES AND CORRECT COMPETITIVE WEAKNESS.......................................................................................................................................................7 ACTIONS AND APPROACHES USED IN MANAGING R&D PRODUCTION, SALES, AND MARKETING AND FINANCE AND OTHER KEY ACTIVITIES.............................................................................................8 R&D Production ........................................................................................................................................................................................................8 Finance .......................................................................................................................................................................................................................8 Market ........................................................................................................................................................................................................................8 ACTIONS TO DIVERSIFY THE COMPANY’S REVENUES AND EARNINGS BY ENTERING NEW BUSINESS..........................................................................................................................................................8 ACTIONS TO STRENGTHEN COMPETITIVENESS VIA STRATEGIC ALLIANCES AND COLLABORATIVE PARTNERSHIPS ..............................................................................................................9 ACTIONS TO RESPOND CHANGING MARKET CONDITIONS AND OTHER EXTERNAL FACTORS......9 ACTIONS TO CAPTURE EMERGING MARKET OPPORTUNITIES AND DEFEND AGAINST COMPANY’S BUSINESS PROSPECTS.......................................................................................................... 10 SECTION - 2................................................................................................................................................... 13 NTPC STRATEGIC VISION STATEMENT................................................................................................... 13 Analysis of strategic vision statement of NTPC Ltd. ......................................................................................................................................13 Shortcomings in Company’s Vision Statement...............................................................................................................................................14 NTPC BOARD OF DIRECTORS.................................................................................................................... 14 EVALUATION OF COMPANY’S STANDING ON CORE VALUES AND ETHICS ....................................... 15 SECTION - 4................................................................................................................................................... 18
  3. 3. THE EXISTING AND EMERGING MACRO-ENVIRONMENT FOR NTPC................................................. 18 HOW THESE FORCES INTERACT WITH EACH OTHER, AND THEREBY INFLUENCE THE INDUSTRY AND COMPETITIVE FORCES ...................................................................................................................... 19 OPPORTUNITIES AND RISKS PRESENTED BY PESTEL ......................................................................... 20 KEY SUCCESS FACTOR................................................................................................................................. 21 Industry level..........................................................................................................................................................................................................21 Firm level.................................................................................................................................................................................................................22 SECTION – 5 .................................................................................................................................................. 23 BUSINESS MODEL OF NTPC LTD............................................................................................................... 23 Sources of revenue ...............................................................................................................................................................................................23 Financial Analysis ..................................................................................................................................................................................................23 EVALUATION OF COMPANY’S STANDING ON CORE VALUES AND ETHICS ....................................... 25 DYNAMICITY IN THE EXTERNAL ENVIRONMENT THAT CAN ALTER THE DRIVING FORCES FOR THE INDUSTRY AND CONSEQUENTLY THE KSFS AS WELL AS THE INTER-RELATIONSHIPS WITHIN THE FIVE FORCES......................................................................................................................... 29 5-FORCES ANALYSIS FOR ONE LEVEL BACKWARDS (BUYERS OF NTPC)......................................... 32 5-FORCES ANALYSIS FOR ONE LEVEL FORWARD (SUPPLIERS OF NTPC) ........................................ 33 MAJOR PLAYERS IN POWER SECTOR....................................................................................................... 35 MAJOR COMPLEMENTORS, SHAPERS AND INFLUENCERS OPERATING ON THE FIRM AND BUYERS GIVING A CLEAR IDEA OF THEIR IMPACT ON THESE PLAYERS.......................................... 36 Porter’s Five Forces...............................................................................................................................................................................................37 The limitations of applying five forces for NTPC ............................................................................................................................................37 SECTION – 6 .................................................................................................................................................. 39 Q1. HOW WELL THE COMPANY’S PRESENT STRATEGY WORKING?.................................................. 39 Collaborative partnership and strategic alliance with others .....................................................................................................................39 Q2. WHAT ARE THE COMPANY’S RESOURCE STRENGTHS AND WEAKNESS AND ITS EXTERNAL OPPORTUNITIES AND THREATS? ............................................................................................................ 41
  4. 4. Q3. COMPANY AND ITS KEY RIVALS ........................................................................................................ 42 Q4. ARE THE COMPANY’S PRICES AND COSTS COMPETITIVE?........................................................... 43 Q5. WHAT WHAT STRATEGIC ISSUES AND PROBLEMS MERIT FRONT-BURNER MANAGERIAL ATTENTION?................................................................................................................................................. 44 SECTION – 7 .................................................................................................................................................. 46 SWOT ANALYSIS FOR NTPC....................................................................................................................... 46 Risk and caveats within SWOT analysis ...........................................................................................................................................................48 Business situation and competitive position ..................................................................................................................................................49 On the financial front ...........................................................................................................................................................................................49 Competitive Position ............................................................................................................................................................................................50 CORE COMPETENCES ANALYSIS OF NTPC............................................................................................... 50 Nurturing of core competence ...........................................................................................................................................................................50 VALUE CHAIN ANALYSIS OF NTPC............................................................................................................ 51 LINKAGES IN THE KSFS, VALUE-CHAIN ACTIVITIES AND CORE COMPETENCES............................. 52 OVERALL COMPETITIVE POSITION IN INDUSTRY AND FUTURE GROWTH PROSPECTS .............. 53 SECTION – 8 .................................................................................................................................................. 55 Q1.STRATEGY IS THE RESULT OF CHOICES EXECUTIVES MAKE........................................................ 55 Q.2 -IT IS ABOUT WHERE TO PLAY (TARGET CUSTOMERS E.G. THE PRODUCT AND GEOGRAPHIC SCOPE) ........................................................................................................................................................... 56 Q.3- HOW TO WIN THE MARKET?............................................................................................................ 56 Q.4-IT IS DIFFERENT FROM VISION, GOALS, PRIORITIES, VALUE-CHAINS ETC., BUT HAVE STRONG INTERDEPENDENT-WOVEN LINKAGES................................................................................... 57 SECTION- 9.................................................................................................................................................... 59 DIVERSIFICATION ....................................................................................................................................... 59 REFERENCES................................................................................................................................................. 61
  5. 5. Section– 1 Introductionto Energy Sector inIndia: An Analysis of Current Situation Electricity,aswe knowit,playsa crucial role in the growthany economyespeciallyan emerging economy like India. The growth in Indian power sector has been significant since independence and India today is the 5th largest producer of power in world. The power generating capacity has increased from 1,362 MW in 1947 to over 1, 85,496 MW by end of 2011. About 65.66% of the electricity consumed in India is generated by thermal power plants, 20.88% by hydroelectric power plants, 2.57% by nuclear power plants and 10.86% by Renewable Energy Sources. More than 50% of India's commercial energy demand is met through the country's vast coal reserves. The country has alsoinvestedheavily in recent years in renewable energy utilization, especially wind energy. The entire value chainof the powersectoris dominatedbythe central andstate sectorutilities.Forinstance,inthe generationspace, out of the overall capacityof 185 GW, the share of central and state utilitiesstandsat30% and45% respectively;and that of private sectorstandsat 25%. Despite significantgrowthinelectricitygenerationover the years, the shortage of power continues to exist primarily on account of growth in demand for power outstripping the growth in generationandcapacityadditionsin power generation. India experiences gap in supply of energy and peak power requirements. The average energy deficit was 9.1 percent and the average peak power deficit was 12.8 percent between2003 and 2010. The gap betweendemandandsupplyhasincreasedinthe lastfew years,leadingto regular power shortages. Source: CEA, Power Scenario at a Glance, July 2010 NTPC Ltd.: A Brief Introduction National Thermal PowerCorporationLtd. (NTPC) aglobal giantinthe powersector.Itwassetupon 7th November 1975, withanobjective toaccelerate the electricitygenerationbyplanning, promoting and organizing integrated developmentof thermal powerinIndia.NTPCscore businessisengineering,constructionand operation of power generating plants. It has also ventured into consultancy, power trading, ash utilization and coal mining in for companies in India and abroad. As on date the installed capacity of NTPC is 36014 MW through its 15 coal based (22,895 MW), 7 gas based (3,955 MW) and 5 Joint Venture Projects (1,054 MW). NTPC, with a rich experience of engineering,constructionandoperationof over30,000 MW of thermal generatingcapacity,isthe largestand one of the most efficient power companies in India, having operations that match the global standards.
  6. 6. Source: www.ntpc.co.in Preparing in advance for our country’s growth challenges, the company has set a target to have an installed power generating capacity of 1, 28,000 MW by the year 2032. .The capacity will have a diversified fuel mix comprising56% coal, 16% Gas, 11% Nuclearand17% Renewable EnergySources(RES) including hydro. By 2032, non fossil fuel based generation capacity shall make up nearly 28% of NTPC’s portfolio. NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of the total national capacity, it contributes 27.40% of total power generation due to its focus on high efficiency. Source: www.ntpc.co.in Evolution 1975 NTPC was setup to bridge huge supply demand gap as State Electricity Boards were not able to cope up with the situation 1997 Governmentof IndiagrantedNTPCthe statusof “ Navratna”, beingnine jewelsof Indiaforcontinuousgood performance 2004 NTPCbecame listedcompanywithmajority govt. Ownership of 89.11%. NTPC became 3 rd largest Company by market capitalization 2005 NTPC rechristened itself as a limited company in line With changing business portfolio and transforms itself from thermal power utility to an integrated power Utility 2008 NTPC Ltd. becomes largest power generation company Of India. Forbes Global 2000 ranks NTPC at 411th Position in the world 2010 NTPC Ltd. was awarded “Maharatna” status by Govt. of India for strong and sustained financial performance
  7. 7. Vision, Missionand Core Values Vision "A world class integrated power major, powering India’s growth, with increasing global presence." Mission 1. Make available reliableandqualitypowerinincreasinglylarge quantitiesat competitive prices and ensure timely realisation of revenues 2. Adopt a broad based capacity portfolio including hydro power, LNG, nuclear power, and non-conventional and eco-friendly fuels 3. Plan and speedily implement power projects using state-of-the-art technologies 4. Be an integrated utility by implementing strategic diversifications in areas such as power trading, distribution, transmission, coal mining, coal beneficiation etc 5. Developastrong portfolioof profitable businesses in overseas markets including technical services, generation assets etc 6. Continuously attract and develop competent and committed human resources to match world standards 7. Lead fundamental and applied research for adoption of state-of-the-art technologies, breakthrough efficiency improvements and new fuels 8. Lead developmental effortsinthe Indianpowersectorincludingassisting state utility reform, policy advocacy etc 9. Be a socially responsible corporate entity with thrust on environment protection, ash utilisation, community development, and energy conservation Core Values – BECOMITTED Business Ethics Environmentally & Economically Sustainable Customer Focus Organizational & Professional Pride Mutual Respect & Trust Innovation & Speed Total Quality for Excellence Transparent & Respected Organization Enterprising Devoted Action to strengthencompetitive capabilities and correct competitive weakness Competitive capabilities NTPC is known for its plant efficiency and huge capabilities of generating power. Currently its power generating capacityis around 36000MW. It has 15 coal basedand7 gas basedpowerplants and huge network of power supply gives it a huge advantage in market as market leader ; about 30% of country’s power need is met by NTPC. Huge expertiseinpowerplantoperationactivitiesandpowerplantconstruction gives NTPC a leading edge. Its employee base is large andwell experienced and its employee friendly scheme and safety records make it one of the sought places to work and attract best talent form all across India. NTPC is the only company in India to have 20 year agreement with coal India Limited for supply of coal. NTPC has huge amount of liquid cash to meet any situation. Competitive weakness NTPChas seenunforeseendelaysinprojectcompletionanduncertaintyof fuel supply. It has also new threats from nuclear power generating plants. It has delays in procurement of machines in employee section there is no performance based promotion system in hand. Correcting competitive weakness For avoiding delays in procurement of equipments NTPC has tied up with BHEL to set up a manufacturing plant. NTPChas changedthe processof awardingcivil packagesandthishasresultedin reduction in agreement delays. To reduce land Requirement Company’s engineering department has planned compact plant design and township layout. The NTPC poweplants involves many agencies and issues and for operation purpose there may arise many contractual issue which cause a lot of delays for that company is working towards an efficient contract model. For
  8. 8. fuel security company has ties up with Coal India Limited and for further supply NTPC is also exploring coal acquisition opportunities in Indonesia, Mozambique, Australia and South Africa. Actions and approaches used in managing R&Dproduction,sales, and marketing and finance and other key activities R&D Production NTPC research wing NTPC Energy Technology and Research Alliance is working on climate change, waste management and reliability supports for its station. NTPC is also working with eminent scientists and academic institutions and now is planning to establish a solar and PV research facility in collaboration with KFW Germany. Finance Company’s strategy is to give its share holder higher amount of returns for that company always strive to reduce plantsetup cost and maintenance expenses. NTPC has around 550 institutional investor and 8 lakh retail investor. Company provides the capital market with shareholder relevant information. The company’s borrowing rate has beenaround7% in2011 and debtto equityratioisaround0.64 andalwaystriesto manage a prudentdebt to equity ratio.The companyalwaystriestoget bestborrowingofferingsandcurrently in tie up with SBI for Rs 100 bn loan. It also raises capital through international bond market and recently it raised a $ 500 mn. Market NTPChas customerrelationshipmanagementisconcernedwithcustomerrequirementandassesthe assescustomer satisfaction index. Actions to diversify the company’s revenues and earnings by entering new business NTPC‟s quest for diversification started with its foray into Hydro Power. It has, since then, been moving towards becomingahighlydiversified company through backward, forward and lateral integration. The company is well on its way to becoming, an Integrated Power Major having entered Hydro Power, Coal Mining, Power Trading, Equipment Manufacturing and Power Distribution. NTPC has made long strides in developing its Ash Utilization business.Initspursuitof diversification,NTPChasalsodevelopedstrategicalliancesandjoint ventures with leading national and international companies. Hydro Power In orderto give impetustohydropowergrowthinthe countryand to have balancedportfolioof power generation, NTPC entered hydro power business with the 800 MW Koldam hydro projects in Himachal Pradesh. Two more projects have also been taken up In Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW. Coal Mining In a major backwardintegrationmove tocreate fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Coal Production is likely to start in 2009-10. Power Trading NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was created for trading power leading to optimal utilization of NTPC‟s assets. It is the second largest power trading company in the country. In order to facilitate power trading in the country National Power Exchange Ltd.‟, a JV between NTPC, NHPC, PFC and TCS has beenformedforoperatingaPowerExchange. Ash Business NTPC has focusedon the utilization of ash generated
  9. 9. by itspowerstationstoconvertthe challenge of ashdisposal intoanopportunity.Ashisbeingusedasaraw material inputforcementcompaniesandbrickmanufacturers.NVVN isengagedinthe businessof Fly Ash export and sale to domesticcustomers.Jointventureswithcementcompaniesare beingplannedtosetupcementgrindingunitsinthe vicinity of NTPC stations. Power Distribution NTPC Electric Supply Company Ltd.‟ (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of power.NESCLisactively engaged in „Rajiv Gandhi Gramin Vidyutikaran Yojana‟programme for rural electrification and also working as 'Advisor cum Consultant for Ministry of Power for implementation of Accelerated Power Development and Reforms Program (APDRP) launched by Government of India. Equipment Manufacturing Enormous growth in power sector necessitates augmentation of Power equipment manufacturing capacity. NTPC has formedJVswithBHEL and Bharat Forge Ltd. forpower plant equipment manufacturing. NTPC has also acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers. Actions to strengthencompetitiveness viastrategic alliances andcollaborative partnerships NTPC hasa strategicalliance withcoal India limited for a period of 25 years where CIL will provide coal linkages to NTPC,whichinturn securesthe smoothrunof powergeneration in the company. It has also established a strategic alliance withacoal company inAustraliafromwhere itwill importcoal.These stepsare takenwithaview to make it fuel sufficient. NTPC has also tie up with many companies for power generation. Collaborative partnerships 1. Partnership with GPCL and GEB Gujarat for power generation at Pipavav 2. Bharatiaya Rail Bijli Company a joint venture between Indian Railway and NTPC for power generation 3. PTC India Limited for power trading a joint venture between NTPC, Power Grid Corp. and PFC 4. Utility power tech with Reliance power for construction and erection of power plants 5. NTPC-Alstom joint venture for modernizations of power plants in India and abroad Strategic alliance 1. NTPC-Alstom joint venture for modernizations of power plants in India and abroad 2. NTPC-SSCL global venture for development, operations and maintenance of coal blocks 3. NTPC-BHEL project limited for manufacturing equipments 4. BF-NTPC energy system limited for facilitation of casting and forging 5. NTPC-NHPC-TCS–PFCcollaborate to form National Power Exchange Limited to operate power exchange at National level Actions to respondchanging market conditions and other external factors In last ten years the business environment of power sector has changed considerably bringing in various opportunitiesandthreatsforNTPCLtd. like introductionof Electricityact 2003, entrance of private players in power sector,highvolatilityinfuelsupplies,emergence of new technologies,stringentenvironmental laws, growing stress on renewableenergy,etc.Torespondtothese changesNTPCLtd. hastakenfollowinginitiatives:NTPChasexpanded generationcapacitiesbyinvestingconsiderablyinthermal andhydrocapacitiestomaintainitsleadershipposition in IndianpowersectorChoosingabroad base fuel mix of importedcoal,gas,domesticcoal, nuclear power with a view to mitigate fuel riskstomaintainlongruncompetitiveness.Due toincreasedenvironment awareness govt. is under pressure to reduce pollution. NTPC is moving towards non–fossil power source and by year 2032 it will consist of
  10. 10. 11% nuclear,8%hydro, 6% wind and 3% solar. NTPC is investing in non-conventional energy sources like solar and nuclear energy to tackle future environmental concerns. Adopting backward integration into fuel management to exercise greater control on fuel supplies. Bidding aggressively for Ultra Mega Power Projectsas theyhelpinreducingcostof developing the projects and power generated. Adopting forward integrate into the power distribution business in India Actions to capture emerging market opportunities and defend against company’s business prospects Withdemandfor powerspiraling,thishasalmostdoubledinthe lastdecade andiscontinuingtogrow at a rate even faster.To fulfillthe unquenchingthirstfor power of a growing country like India it is very important for a company like NTPC to look for, Expansion of its generating capacities by putting up thermal and hydro capacities, thus maintaining the position of a dominant generating utility in the Indian Power sector. This is being done by Broad base fuel mix byconsideringimportedcoal,gas,domesticcoal,nuclear power etc. with a view to mitigate fuel risks and maintainlongruncompetitiveness. NTPC is also expanding its services for EPC, R&Mand O&Mactivities in the domesticaswell asinternational markets.The companyisalsousingbackwardintegrationintofuel management to exercise greatercontrol andunderstandingof supplyeconomicsandforwardintegrationintothe powerdistribution of India.Itisa leaderinthe developmentandcommercial deploymentof non-conventionalenergysourcesespecially in the distributed generation mode. It is further improving its collections by trading, direct sale to bulk customers and the active role inallocationinnewplants.Itisalsoexecutingincreasednumber of power plants that classify for Mega Power Projects status, thereby reducing the cost of the projects and power and power generated. UndoubtedlyNTPCisamarketleaderwithworldclassoperational efficiency and effectiveness and its further foray intodifferentemergingmarketsmakesit even more aggressive to further enhance its competitiveness on a global scale. Actions to enter new geographic product markets or existing ones NTPCis gettingglobalisedandenteringnewmarketsespeciallyin Asia. Company has tied up with Ceylon Electricity Board with 50:50 partnerships for a power project. It is also planning to venture into Bangladesh with an alliance with Bangladesh Power Development Board. It has also a project lined up in Bhutan. NTPC is planning to export power from both Bangladesh and Bhutan. Actions to gain sales and market share via lower prices more performance features more appealing design or customer service In power sector unlike other sectors the market share is gained by building capacities as there is lack of supply to meetdemand.Soto capture greatershare of market,NTPCLtd.is investingheavilyinnewerprojectsand expanding capacitiesinexistingprojects.Forgreatercustomersatisfactionitisalso improving operational practices to provide qualitypower.Toexpandthe relationshipwithexistingcustomersitalsoofferingotherservicesinadditionto power supplieslike energy consulting, distribution consulting, etc. NTPC Ltd. is also investing in newer technology to cut operational as well as project development cost so as to provide lower cost electricity to customers. Actions to strengthen market standing and competitiveness by acquiring or merging with other companies For consolidating its market position the company is adding capacities by acquiring loss making state electricity boards(SEB) and transformingthemintoprofitmakingentitiesbyexcellentoperational practices.Few examples are Tanda thermal plant, Unchahar thermal power plant, Badarpur power plant and Talcher thermal power plant. This strategy seems quite effective in the light that to grow its market share company and maintain its leadership positionNTPCneedstoaddcapacitiesata greaterrate but latelydue toincreasedcompetition from private players NTPC has not been winning competitive bids for new power plant projects. Hence by acquiring and transforming these SEBs the company has found a new way to maintain its leadership. Conclusion Company is using multi-
  11. 11. pronged strategy like ambitious growth targets, broad fuel mix choices, technology choices and measures to deal withlikelychangesinemergingbusinessenvironmenttoremaincompetitive,retainitsleadership position in Indian power sector and increase its global presence. From strategic point of View Company is in very strong position, it has made all types of diversification and integration strategies to leverage its position in power sector. But at the same time challenges for the company has increased many folds since it has been attuned to its monopolistic position which has changed significantly after power sector reforms leading to entrance of private players in the market. One major example is, its failure to bag even a single Ultra Mega Power Projects (UMPP) out of four awarded so far which eventually went to private players. As entry of private players has increased competition in bidding for power plants it has posed serious threat to NTPC because planning part of strategy with longer view is on right path but the implementation part of the strategy is bigger question mark which the company needs to ask if it aspires to maintain its leadership position. On the other hand to ensure security of its fuel supply, the planning part of strategy is good but it has not been able implement it. One recent example is severe shortage of coal supplies for its thermal power plant even though it has long term strategic alliance with Coal India Ltd. Its process of acquiring coal mines in foreign countries is also on slow track which is currently hurting its production and if this issue is left unattended may affect company’s growth. The esteemed project management capabilities of the company is also under question mark as it has failed to finish various projectsontime like BarhPowerProject(3300 MW), hence increasingprojects which is sooner or later going to hurt it’slongtermprofitability.Asthere isextreme shortage of powerplantequipmentinIndiathe strategy to from joint ventureswithBHELand Bharat Forge is a pragmaticstepwhichwill help it to leverage its position in longer run .So, this gives a huge opportunity for NTPC to leverage its financial, technological and human capital to consolidate its positioninpowerindustry of India. The strategy to diversify by entering in new businesses and in new geographic locationisa alsoa well thoughtoutplanwhose positive effectswillbe evidentincomingyears,Since sooner or later private companies will be giving strong competition in thermal power generation business, NTPC will be able to maintain its profitability by dominating other related businesses like hydro power, power trading, consulting, distributionandcoal mining. Overall NTPC has chosen the right path while planning for strategies but the real test liesinthe implementationof these strategieswhich is going to decide whether the company will be able to realize its vision and mission.
  12. 12. PriorVersionofCompanystrategy WhenNTPCwas establisheditsgoal wastofulfill the continuouslyincreasing demand of power in India and acquire leadership position. To achieve this goal NTPC chose the strategy of achieving faster growth by building thermal power generation capacity and running it with excellent operational efficiency. Adaptive reactions to changing circumstances In due course of time the company realized that to achieve itsgoal of providingpowerandmaintaining its leadership position it needed to focus on other sources energy also namely Hydro power, Nuclear power and renewable energy. Company chose the path of backward as well as forwardintegrationtobecome integratedpowerutilitytostrengthenitspositioninchangingbusinessenvironment. After power sector reforms and entry of private players in power sector to remain competitive in the market companyexpandeditbusiness portfolio and entered in power sector consulting , power trading, distribution, coal mining, etc. New initiatives plus ongoing strategy elements continued from prior periods Achieving growth targets by choosing Greenfield projects as well as by acquiring loss making SEBs ,forming joint ventures and expanding existing power plants. To leverage it experience in power plant it is going for international projects as well. Abandoned strategy State-run NTPC Ltd, India’s biggest power generation utility, may be changing its strategy of securing critical fuel supplies by seeking long-term coal supply agreements with buying overseas and indigenous mines outright. New version of strategy Achieve leadership position at global level through Diversified growth
  13. 13. Section- 2 NTPC Strategic visionstatement “To be the world’s largest and best power producer, powering India’s growth” Analysis of strategic vision statement of NTPC Ltd. Graphic The vision statement says that company wants to become world’s largest and best power producer with main emphasis on contributing to the growth of India which clearly portrays that the company aims to achieve leadership position in terms of size and best business practices at global level. While striving to set it footprints at global level the company emphasizes on its role and commitment towards contributing to growth of India. Directional The vision statement sets a forwards looking course for the company which is to attain leadership position at global level in power sector. This gives a sense of direction to the employees where the company aims to head, hence guiding them to align their actions accordingly. Focused The term “world’s largest” in the vision statement provides guidance to the managers in decision making regarding the activities needs to be done to achieve the above mentioned status. Vision statement also clearly mentions about the business in which the company wants to achieve this status i.e. in power sector, in which its core competency lies. The term “best power producer” in the vision statement is too broad and doesn’t specify how the company aims to achieve that. There are various facets to the word “best” in power sector i.e. in terms of production efficiency, in terms of project management efficiency, in terms of ethical behavior, in terms of environmentally safe behavior, etc. But the vision statement fails to clearly specify that. Flexible Vision statement mentions that company wants to achieve leadership role in power sector which is flexible, as the company’s core business lies in thermal power but with changing market environment it is open to go in Hydro power, Nuclear power and re-new able power. Feasible Looking at the historical growth profile and plans of large scale expansion, the company can achieve world’s largest power status. similarly the production efficiency of the company suggests that in due course of time it can also achieve “best “ in terms of efficiency but as the ‘best’ in what terms is missing ,it is difficult to judge the feasibility . Desirable The path chosen makes good business sense as it is beneficial for all stakeholders especially Indian public as there is huge shortage of power and by achieving largest power producer it may solve increasing power woes at the same time provide profitable returns to shareowners. Easyto communicate The basic idea behind the strategic vision is easy to understand but a little vagueness is still prevalent due to absence of clearly mentioned parameters on which the company aims to achieve excellence.
  14. 14. Shortcomings in Company’s Vision Statement Vague: The vision statement fails to mention on what parameters the company aims to achieve “best power producer” status. Due to lack of specifics on this part, the managers won’t be able to set the course of action. The vision statement should have clearly mentioned on what parameters the company aims to acquire best position in the world. Not distinctive: The vision statement fails to capture any distinctiveness of the company which sets it apart from other players in the industry. Every power company wishes to become “largest” and “best” at some point of time. Too reliantonsuperlatives The use of “largest”, “best” and “global” in the vision statement seems too generic as it fails to portray any specific course of action being pursued by the company. Too broad The “best” part of the vision statement is too broad; for example does the company wants to achieve excellence in terms of efficiency, environmentally friendly behavior, etc. All these questions remain unanswered New Visionstatement To become world’s largest environmentally responsible integrated power producer achieving excellence in operational activities, powering India’s growth NTPC Board ofDirectors NTPC is one of India’s Maharatna Public Sector Company. Its Board of Directors guide the overall direction and philosophy of the company and they all have the united vision “To be world largest and best power producer, powering India’s growth “. Aligning with its vision, mission and strategy NTPC has code of conducts for its directors. For Promoting ethical and responsible decision making the company’s code of conduct plays an essential guiding hand. Boards of directors are bounded by the law to act in an unselfish manner for the best interest of the company without ignoring ethics and moral values. Composition of Board of Directors NTPC Board, at present, comprises of six full time functional Directors and the Managing Director who is also the Chairmanof the company.Company’sfunctional directors are highly experienced professionals in their functional areas; provide directions to the management on operational issues, adoption of systems and best practices in management and oversight of compliance of various legal and other requirements. The Company has nine IndependentDirectorsandtwodirectors nominated by the administrative ministry. The Independent Directors on the Board of the company are appointed by the Government of India through an elaborate procedure of selection which encompasses induction of professionals and experts in relevant field through a “Search Committee” by the Government of India.
  15. 15. Currently the Board of directors compromised of members who have vast experience in engineering, project management, finance, Operations, economics, administration, auditing, mining and vigilance. Many of the Board Members have excellent career records and many of them have been awarded by various institutions for their service. Although NTPC is power generating company and make sense to have Board Members mainly from engineering back ground but as the company is planning to be global there need to be directors who have experience in multinational companies and can give great values to the company if it wants to foray into international Market. NTPC also don’t have any legal expert on its board and so is the case with Human resource Management. Company has planned to diverse in power generation source but there is no such indication on the Board of director as there is no any expert representing renewable energy resources like nuclear, solar or wind currently. Role of Board of Directors  The primary role of the Board is that of trusteeship to protect and enhance value for various stakeholders like consumers, shareholders and the society at large  oversees the Company’s strategic direction, reviews corporate performance, authorizes and monitors strategic decision, ensures regulatory compliance and safeguards interests of shareholders  ensures that the Company is managed in a manner that fulfils stakeholders aspirations and societal expectations  Provide directions to the management on operational issues, adoption of systems and best practices in management and oversight of compliance of various legal and other requirements  set up several Committees with specific functions and powers when required Evaluation of Performance of Board of Directors The performance of the Board and the Directors are evaluated by the Ministry of Power which is the administrative Ministry for the Company. For evaluating the performance of the company the Government has instituted a system of target setting which is agreed to between the company and the Government through a Memorandum of Understanding (MOU). The MOU system defines the evaluation criteria in advance on parameters like financials performance, productivity, human resource development activities, project implementation, and operation performance in order to have objective evaluation of Central Public Sector Enterprise (CPSE). Performance of functional directors on the Board is also evaluated through a performance evaluation system at two levels- first evaluation at the level of Chairman & Managing Director and the second at the level of Ministry. The performance reports of all directors are reviewed by the Chairman & Managing Director and forwarded to the Ministry for evaluation. Evaluationof company’s standing on Core values and Ethics BusinessEthics NTPC is a company which business practices scores high on ethics and CSR. NTPC is one of the best places to work in India and its HR policies are among the best in industries. NTPC as a company has a weightage for values in Performance Management Systems; Conducts training programs on values, including sessions on values in key programs; it rewards value based behavior and it has a Value Actualization Task force. Work culture in NTPC is one of the best in industry. It has a very robust recruiting process and selects the best of the talents. It has a very extensive training program and provides a good compensation for its
  16. 16. employees. Apart from that it provides housing facilities, school facilities, health facilities, recreation facilities, child care leave to post retirement medical benefits for its employee. Environmentally&EconomicallySustainable Environment is always a top priority for the company. Although its business impacts the environment in a big way it takes measure to minimize it. It has an Environment policy and Environment management system to minimize the impact arising out due to power generation. NTPC uses best technologies to function efficiently so that waste production will be low. It provides a green belt around its plants so to minimize pollution. Even during designing of new power plant NTPC integrates many environmental provisions into consideration and uses best pollution control measures. Customerfocus NTPC is a company which not only works for it customer but society as a whole. It tries to produce power at low cost by working efficiently. Recently there was a dispute between RIL and NTPC on purchase of gas. NTPC discarded RIL offering on view of long term benefits of its customer which it feel otherwise will have to pay 17000 CR INR extra. Organizational &ProfessionalPride NTPC is the most respected power company in India. It is also among the top 500 companies in Forbes list of global firms in 2011. NTPC begged the best performing PSU in 2010 and there are much recognition from various institutions for its organizational capabilities and performance excellence. NTPC has still some problems in project management and performance appraisal system; though it is working on project management there is no actions to improve performance appraisal system. Mutual Respect& Trust NTPC is fully committed to achieving high standards of corporate governance and developing mutual trust via expansive CSR initiatives. Through its expansive CSR initiatives NTPC strives to develop mutual trust with the communities that surround its Power Stations. NTPC has also partnered with state and central govt. to establish quality ITI centre across India. Expanding its outreach in the area of social concern, NTPC has started a scholarship scheme to promote the educational interests of the Scheduled Caste/Scheduled Tribe/Physically Challenged students and thus helping them in shaping their careers as well. Motivatingself&others NTPC motivates itself to be a social responsible and high performing institution. It sets safety standards that are become industry norms and its CSR activities are e among the highest in industry. Innovation&Speed NTPC uses best technology for its plant. But it still has low investment in R&D. although recently it has a set up a Project Monitoring Centre for monitoring new projects. NTPC recently formed NETRA in 2009 for conducting research in Climate change, waste management, new & renewable energy, efficiency improvement and cost reduction besides providing scientific support to NTPC and external utilities for improving availability, reliability and efficiency. NTPC and Indian Oil Corporation Limited (IOCL) have signed a MoU for collaborative research for import substitution of Lubricants, Bio–Fuels, Corrosion, NDT, and R&D Infrastructure in 2010. Although project completion in time is still a major concern for the company which depends upon different civil works company, instruments suppliers and various government clearances.
  17. 17. Total Qualityfor Excellence For total quality e.g. from employees, technology, HR management, operation system, pollution control system everything need to be in right place. NTPC has truly been able to enforce quality in many fields and been recognized by various institution for its efforts. Transparent&Respected Organization NTPC has a good record of transparency though recently in 2008 it overstated its profit by 900 crore by including a disputed receipt which is against the accounting standards. NTPC former finance director was once involved in a fraud of 2 crore which was unearthed in 1999. In a contract between NTPC and a TPE a Russian firm, a NTPC employee was involved in fraud to award the contract to the Russian firm which was later found and contract with TPE was cancelled. Learning from history NTPC is trying to be more transparent has taken steps towards it. The Company is fully compliant with Clause 49 of the Listing Agreement requirements relating to Corporate Governance prescribed by SEBI. Company had set up an Audit Committee before it became mandatory. It has the Committee on Management Controls and it has also a Fraud Prevention Policy, which, again are not mandatory. Various Committees of the Board oversee the important aspects of the Company's functioning, including award of large value contracts, investors' grievances, financial reporting, management control systems, approval of Feasibility Reports and investment decisions. The Company's disclosure practices are transparent and practical. NTPC has tie up with Transparency International, India to implement the Integrity Pact program. Enterprising NTPC is now moving into uncharted water i.e. to renewable resource and not only focusing on coal based power plants. NTPC is also setting up plants in Sri Lanka and Bangladesh. In India NTPC has 18 joint ventures and five subsidiaries in areas such as electricity distribution, services, energy efficiency, equipment manufacturing, power trading, power exchange and coal mining. In addition, the company has announced plans to form a joint venture with the Asian Development Bank and Kyuden International Corp. Devoted NTPC is devoted to growth of India by contributing towards the power sector. It is also devoted to strong CSR activities and well being of its employee, environment, society & stakeholders.
  18. 18. Section- 3 The existing and emerging macro-environment for NTPC In this rising Indian economy many factors are changing rapidly. With this rapid macroeconomic changes many companyhas to monitortheirmacroenvironmentandadaptaccordingit.There are new legal lawsforindustry,new safety standards, and new laws for carbon emission, introduction of better technology & new competitors. Surely this period which is highly competitive and it’s imperative for companies to evolve and adapt for survival. These economicchangesalsoaffectedpowersectorandNTPCas a majorplayerinpower sector has to face the existing as well as emerging scenario. Indiacurrentlysuffersfromamajorshortage of electricity generation capacity, even though it is the world's fourth largest energy consumer after United States, China and Russia. The International Energy Agency estimates India needs an investment of at least $135 billion to provide universal access of electricity to its population. ElectricitydistributionnetworkinIndiaisinefficientcomparedtoothernetworksinthe world.India'snetworklosses exceeded32%in 2010, comparedto worldaverage of lessthan15%. Lossreductiontechnologies,if adoptedinIndia, can add about 30 GW of electrical power. Macro Economic Environment of NTPC Ltd Political environment NTPCbeinga nationalizedcompanyitspoliciesare governedbythe governmentof India.Indiangovernmentpolicies like rural electrification, power for all by 2012 requires NTPC to produce more electricity and distribute as its produce around30% of total power.Indiangovt. Agreementwith US govt. on supply of uranium for nuclear supply will enable NTPC to procure raw material for its nuclear power plant. Indian govt. now emphasizing on renewable energyresource andforeign directinvestmentisbeingallowed so competition from this region is expected. After liberalizationof the economymanyprivate sectorshasenteredthe powergenerationbusiness. Increase of wage for public sector employee by govt. has strained the financial position of NTPC. Economical The boominIndianeconomyandglobalizationhasaffected NTPC. Due to economic growth demand for power has increasedand Indian govt. has planned to add 20 GW. To sustain this demand NTPC has to add more power plants. Due to globalization NTPC has chance to enter new markets. NTPC is planning to enter neighboring countries like Bhutan, Bangladesh and Sri Lanka. NTPC now out sourcing coals from Australia, Mozambique, and Indonesia. For equipments NTPC is now in contact with Chinese’s companies to deliver equipments in time. India’s credit rating influenceNTPC,lowercredit rating cause financial problem like borrowing money at large interest. High exchange rate increases the cost of coal imports. Social Indian consumer changing and from survival to consumer mode and this implies high demand for electric power driven largely by Indian middle class. Society also getting more aware about renewable energy and sustainable resource andpeople will preferrenewable energyinfuture whichmayaffectelectricitydemandfromnonrenewable resource.Social awarenesshasalsoaffectedsettingupof plantsas now deforestationis problem and recent case of Himachal Pradeshwhere NTPChasto stopitsprojectin midway(afterinvestmentof 3000cr INR) shows that society is getting responsive towards environment and even coal mining is now a problem. Even concern against nuclear radiationiscausingproblemfor setting up plant as recent case of an agitation against nuclear power plant in Tamil Nadu.
  19. 19. Technical Technical factors like equipment manufacturing, renewable technology, improvements in operation efficiency, efficient usage of fuel are major technical factors that affect NTPC. Now super critical technology are getting introduced which produce 4000 MW. Equipment manufacturing is a major problem NTPC, usually BHEL used to be only provider of equipments but now NTPC is also importing from equipment manufacturers such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd etc. Renewable technology will be a major thrust in future. With the use of high and efficient boilers NTPC has been able to increase operation efficiency as well as able reduce fuel consumption. Environmental Thermal power plant produces carbon dioxide which is main contributor of the green house gases. After the emphasisonthe reductionof greenhouse gasesNTPChasto use betterpollutioncontrol methodanduse renewable resource forpowergeneration.Afterstricterlawsagainstdeforestationplantsetisnow become aproblemfor NTPC speciallythe hydropowerproject feasibility has been reduced. Even monsoon season coal mining gets hampered which affects the operation and even heavy monsoon causes project delays and increase cost. Legal Law like environmentprotectionact,worksafetylaws,tariff lawsaffectsNTPC. Many tariff regulations may hamper NTPC profitability. New tariff regulation pursuant in CERC and hydro policy 2008 can greatly reduce operational profitability.Now new projectsare awardedtothe companywhichproducesunitpoweratlowestcostbefore that it was throughpowerpurchasingagreementbetweencompaniesandstate govt.andNTPC hasbeenable to grab most of the projects but after the bidding process are based on tariff base NTPC lost many projects to TATA Power and Reliance. Even rising capital from foreign market is constrained by Indian Laws which hampers its development plans. Howthese forces interact witheach other, and thereby influence the industry and competitive forces The entire macroeconomic environment interacts with each other and affects the industry.  Recentpolitical responsivenesstowardsenvironmentconservation has created problem in land acquisition and setting up plants and hydro project.  Political decisiontoswitchtowardsrenewable resource hasaffectsontechnologydevelopmentonthisfield.  After liberalization introduced by govt. competition has been increased.  Social awareness on ecological factor comply Company to focus on renewable resource based energy production and use more efficient production technology and use efficient use of resource.  Govt. policiestoliberalize Indianeconomycausedeconomic development and for sustaining the economic growth you need power and this was a great opportunity for power sector.  Newdevelopmentsin technologylike pollution control measures, fuel efficiency, power generation from renewable source helps the industry to reduce environmental pollution  Political decision like “power to all by 2012” lead to development of super critical technology that leads to high efficient power generation and fuel utilization  Many govt. policies like hydro policy 2008 regulate the legal environment has implication on operational efficiency of NTPC  Legal environment forces industry to use better technology for pollution control increasing technical cost  Tariff basedbiddingpolicyfromgovt.force industryto use super critical technology and increase the initial investment  Govt. has policy on foreign investment and have formed laws that don’t allow foreign capital inflow into NTPC and lack of capital affects project funding
  20. 20. Opportunities and risks presented by PESTEL Political Opportunity  Liberalization increases demand of power, there for provided opportunity for growth  Renewable resource technology transfer for future power generation(123 agreement)  Strong support of the government and ties ups with many PSU like Coal India limited ,SBI  Easy to get access of natural resource Threat  Govt. policies like tariff based bidding for project allows its competitors to capture its market  Increase of wages by govt. policies decrease profitability  Changes of tariff policy affects profitability  Environmental policy can affect future projects feasibility Economic Opportunity  Globalization helps to enter new market i.e. south Asian countries  Supply of equipments from different vendors decrease supplier power  High growth rate implies more demand of power and an opportunity for the company Threat  Lower credit rating can lead to higher rate of borrowing  Higher exchange rate increase the cost of imported fuel Social Opportunity  Higher demand of power from consumer so growth opportunity  Stress on renewable energy so development of these power plant expected Threat  Non renewable resource power generation may take a hit  Land acquisition and deforestation is problem  High cost involvement in using better pollution control method  Unions in plant can offset operation Technical Opportunity  Super critical technology increase operational efficiency and lower consumption  Renewable energy resources for sustainable developments  Faster installation of power plant with better technology and can reduce cost of installation  Better pollution control device for environment Threat  High cost involvement in technology  Nuclear technology involved high risk
  21. 21. Environmental Opportunity  Move towards cleaner form of energy  Earning through carbon trading by using renewable resource Threat 1. Emission law forces better pollution control and increase operational control 2. New project developments become a tedious process due to clearance from different environmental laws. E.g. Kool dam hydro project abandoned after 5 years due t o its impact on ecology Legal Opportunity  To meetthe legal obligationneedto improve operational efficiency as well as find ways for more efficient technology to confirm to legal norms E.g. developments of super critical technology Better wastage management by using ash as an asset as it is legally required  Tariff policy force plants to be more efficient and less fuel usage(so that to provide power at lower cost) Threat  Environment law, work safety law increase plant cost(although necessary)  Tariff policy affects operational profitability  law against foreign investment affects plants investment Key success factor Industry level Operational efficiency Looking at the recent trends prevalent in Indian power sector, ability of timely project execution and operational efficiency of running the plants is one of the critical factors for success necessary for companies operating in this sector.Historicallyspeaking,profitabilityof variouscompanieshastakenahitdue to theirinabilitytoexecute power projectstimelyhence addingtothe overall costof projectwhichconsequentlybecomesdetrimental totheirgrowth. Othermajor factoris runningthe plantsefficientlybecause there is huge cost involved in fixed assets which can be recoveredonlybyefficientoperational activityandif a companydoesn’trunitsplantefficiently the timely recovery of investmentbecomesrisky.Few powercompanieshave capitaliseduponthis factor and have been successful and others who have not done are struggling. Fuel security With increase in the demand of power and to maintain continuous supply, a power sector company needs fuel. Therefore,the issue of fuelSecurityplaysanimportantrole fora powersectorcompany.The companycan achieve it either by entering into an agreement or by acquiring coal mines, the companies are also going for foreign acquisitionsice enteringintoagreementswithcoal companiesoracquiringit,soas to maintaincontinuoussupply of fuel. The company having a long term coal linkage or fuel supply agreement can go on with its production and can alsoexecute itsexpansionplans.Onthe otherhandit alsogivesadvantage intermsof maintainingcostefficiency,as the company without fuel will not be able to run the production process, this leads to buying coals from alternate resources which increases the cost efficiency .Improper supply of fuel leads to running of the plant at a lower production capacity, this leads to loss in the form of opportunity cost. Therefore Fuel security is considered to be one of the key success factors for the companies in this sector.
  22. 22. Handlingissuesrelatedto landacquisitionandenvironmental clearances Land acquisition and getting environmental clearances is posing great challenges for companies in power sector. Power companies are facing major constraints and delays regarding the availability of land and required environmentclearancesontime.There are instanceswhere evenaftergovernment’sinstructionto sell their land to landowners,the projectgetsdelayedforseveral yearshence affectingthe financial viabilityof projects. Landowners and Project affected persons (PAP) have collectively objected to project execution as there is clear mismatch between the interests of companies and expectation of other stakeholders. In this case it is imperative for the success that companies adopt proactive approach and manage expectations of these stakeholders. Firm level 1. Human capital Afterpowersectorreformsandentryof private players,the powersectorhasfaceda huge shortage of quality man- powerwhich is pushing up the cost and risk associated with power plants. In this situation NTPC Ltd. finds itself in enviable position in industry having highly skilled and experienced human capital conversant in project execution and power generation. Today new entrants in the industry need to build a talent pool which is a time consuming process.AsNTPCLtd. has operatedforalmost30 yearswithoutmuchcompetition, it has acquired best of talents in industryandat the same time nurtureditsownhumancapital whichhasbecome a competitive advantage for NTPC Ltd. today. Due to the job rotation policy in the company an employee gets exposed to various aspects of project executionaswell aspowergenerationenrichingtheirexperience.Innext10-15 yearswhenother companies will be investing and creating talent pool, NTPC Ltd. will be leveraging its strength of human capital and maintaining its competitive advantage in industry. 2. StrategicAllianceforEquipmentManufacturing Equipment shortage has been considered a significant reason for companies in power sector missing the plannedcapacityincrease hence affecting profitability of companies .The shortages has been primarily in the core components of power generation like boilers, turbines and generators .Companies wait for even years to get the requiredequipmenttostartthe productionprocess,thisdelayleadsto an increase in the overall cost of the project causing losses for the company. NTPC Ltd. was also facing the same problem but in order to counter the same it enteredintoajointventure withBHELfor manufacturingof the equipments,italsoenteredintoajointventure with Bharat Forge for facilitation of casting and forging and with Alstom for modernization of power plants in India and abroad.This strategicalliance of NTPCwithothercompaniesgivesitacompetitiveadvantage above others in terms of its equipments, modernization and maintenance of the power plants. Other companies have not taken such initiatives so far. This is therefore a key discriminating factor which sets aside NTPC from others.
  23. 23. Section– 4 Business Model ofNTPC Ltd. Sources of revenue 1) Sales from power generation i) Thermal Power: This is major revenue generator(more than 99%) for the company . The growth in company’s revenue is affected by new capacity addition and expansion of existing power projects. ii) Hydro Power: Production not started yet iii) Nuclear power: Production not started yet Power sector in India comes under regulatory environment which is governed by Central Electricity Regulatory Commission(CERC).CERCisresponsible for regulating tariff policy of power generating entities. This framework is different from other businesses where companies are free to fix prices of their products without any regulatory guidelinesfromgovernment.Revenueof powerutilitiesinIndiaare generatedbasedonPowerPurchase agreement (PPA) betweenState Electricityboards(SEBs) andpublicentitieslikeIndianRailways. NTPC has long term PPAs with several SEBs and it earns its revenue by selling power to these SEBs. Major revenue earner for the company is thermal power generation as NTPC has invested huge amount in Hydro and Nuclearpowerbutdue to longgestationperiodssales out of these businesses have not started coming as yet , so at this point of time it is difficult to estimate its revenue and profitability . 2) Consultancy (NESCL): Duringthe analysisperioditaccountsfor very minor part(less than 1%) of company’s revenues but it has increasing trend which is going to have positive impact on the company in due course of time . 3) Coal Mining: Revenues out of this business has not started coming as yet, since these projects have not become operational. 4) Power Trading : Revenue out of this business is below 1% of total revenue of NTPC Ltd. but it’s importance will be evident in coming years when further power reforms will be initiated and company would be in a better position to leverage its Integrated power company status. Financial Analysis Increase in sales turnover signifies that company ’strategy of adding capacity and running the plants with excellent operational efficiency is right on track. Effect of company’s venture in new businesses like nuclear power, coal mining, hydro power and re-newable energy sources can’t be traced here as revenue from these businesses have not started coming. We need to wait till functioning of these businesses start and some financial data becomes available.
  24. 24. Source:www.moneycontrol.com Net Profitand GrossProfitMargin: The net profit of the company shows an increasing trend but the rate of growth seems sluggish keeping in mind company is aiming for leadership position. This sluggishness can be attributed to various factors like high prices of fuel mix as well as delay in completion of various projects where huge amount of capital has been already invested but return has not yet started yet coming, which raises few questions about company’s ability to handle such situations in coming years. At the same time profit margin of the company has decreased over the years which can be attributed to fuel cost as well as maintenance and operation costs. Source: www.moneycontrol.com Earning per share : it has shown improvement over the years signifying that company’s strategy of finding newer ways like consulting and power trading to make more money is working. Hence new initiatives taken by company to expand its business is right on track. Conclusion Company is using multi-pronged strategy like ambitious growth targets, broad fuel mix choices, technology choices and measures to deal with likely changes in emerging business environment to remain competitive, retain its leadership position in Indian power sector and increase its global presence. From strategic point of View Company is in very strong position, it has made all types of diversification and integration strategies to leverage its position in power sector. But at the same time challenges for the company has increased many folds since it has been attuned to its monopolistic position which has changed significantly after power sector reforms leading to entrance of private players in the market. One major example is, its failure to bag even a single Ultra Mega Power Projects (UMPP) out of four awarded so far which eventually went to private players. As entry of private players has increased competition in bidding for power plants it has posed serious 0.00 50,000.00 100,000.00 Mar'11 Mar'10 Mar'09 Mar'08 Mar'07 Sales Turnover Sales Turnover 0 5 10 15 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Earnings Per Share Earnings Per Share 0.00 2,000.00 4,000.00 6,000.00 8,000.00 10,000.00 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Net Profit Net Profit 0 10 20 30 40 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Gross Profit Margin(%) Gross Profit Margin(%)
  25. 25. threat to NTPC because planning part of strategy with longer view is on right path but the implementation part of the strategy is bigger question mark which the company needs to ask if it aspires to maintain its leadership position. On the other hand to ensure security of its fuel supply, the planning part of strategy is good but it has not been able implement it. One recent example is severe shortage of coal supplies for its thermal power plant even though it has long term strategic alliance with Coal India Ltd. Its process of acquiring coal mines in foreign countries is also on slow track which is currently hurting its production and if this issue is left unattended may affect company’s growth. The esteemed projectmanagement capabilities of the company is also under question mark as it has failed to finish variousprojects on time like Barh Power Project(3300 MW), hence increasing projects which is sooner or later goingto hurt it’s longterm profitability. Asthere isextreme shortage of powerplantequipmentinIndiathe strategyto fromjointventures with BHEL and Bharat Forge is a pragmatic step which will help it to leverage its position in longer run .So, this gives a huge opportunity for NTPC to leverage its financial, technological and human capital to consolidate its position in power industry of India. The strategy to diversify by entering in new businesses and in new geographic location is a also a well thought out plan whose positive effects will be evidentin coming years, Since sooner or later private companies will be givingstrongcompetitioninthermal power generationbusiness, NTPCwill be able tomaintain its profitability by dominating other related businesses like hydro power, power trading,consulting,distributionandcoal mining. Overall NTPC has chosen the right path while planning for strategies but the real test lies in the implementationof these strategieswhichisgoingtodecide whetherthe companywill be able to realize its vision and mission. To be the world’s largest and best power producer, powering India’s growth. Evaluationof company’s standing on Core values and Ethics Business Ethics NTPC is a company which business practices scores high on ethics and CSR. NTPC is one of the best places to work in India and its HR policies are among the best in industries. NTPC as a company has a weightage
  26. 26. for values in Performance Management Systems; Conducts training programs on values, including sessions on values in key programs; it rewards value based behavior and it has a Value Actualization Task force. Work culture in NTPC is one of the best in industry. It has a very robust recruiting process and selects the best of the talents. It has a very extensive training program and provides a good compensation for its employees. Apart from that it provides housing facilities, school facilities, health facilities, recreation facilities, child care leave to post retirement medical benefits for its employee. Environmentally & Economically Sustainable Environment is always a top priority for the company. Although its business impacts the environment in a big way it takes measure to minimize it. It has an Environment policy and Environment management system to minimize the impact arising out due to power generation. NTPC uses best technologies to function efficiently so that waste production will be low. It provides a green belt around its plants so to minimize pollution. Even during designing of new power plant NTPC integrates many environmental provisions into consideration and uses best pollution control measures. Customer focus NTPC is a company which not only works for it customer but society as a whole. It tries to produce power at low cost by working efficiently. Recently there was a dispute between RIL and NTPC on purchase of gas. NTPC discarded RIL offering on view of long term benefits of its customer which it feel otherwise will have to pay 17000 CR INR extra. Organizational & Professional Pride NTPC is the most respected power company in India. It is also among the top 500 companies in Forbes list of global firms in 2011. NTPC begged the best performing PSU in 2010 and there are much recognition from various institutions for its organizational capabilities and performance excellence. NTPC has still some problems in project management and performance appraisal system; though it is working on project management there is no actions to improve performance appraisal system. Mutual Respect & Trust NTPC is fully committed to achieving high standards of corporate governance and developing mutual trust via expansive CSR initiatives. Through its expansive CSR initiatives NTPC strives to develop mutual trust with the communities that surround its Power Stations. NTPC has also partnered with state and central govt. to establish quality ITI centre across India. Expanding its outreach in the area of social concern, NTPC has started a scholarship scheme to promote the educational interests of the Scheduled Caste/Scheduled Tribe/Physically Challenged students and thus helping them in shaping their careers as well. Motivating self & others NTPC motivates itself to be a social responsible and high performing institution. It sets safety standards that are become industry norms and its CSR activities are e among the highest in industry. Innovation & Speed NTPC uses best technology for its plant. But it still has low investment in R&D. although recently it has a set up a Project Monitoring Centre for monitoring new projects. NTPC recently formed NETRA in 2009 for conducting research in Climate change, waste management, new & renewable energy, efficiency improvement and cost reduction besides providing scientific support to NTPC and external utilities for improving availability, reliability and efficiency.
  27. 27. NTPC and Indian Oil Corporation Limited (IOCL) have signed a MoU for collaborative research for import substitution of Lubricants, Bio–Fuels, Corrosion, NDT, and R&D Infrastructure in 2010. Although project completion in time is still a major concern for the company which depends upon different civil works company, instruments suppliers and various government clearances. Total Quality for Excellence For total quality e.g. from employees, technology, HR management, operation system, pollution control system everything need to be in right place. NTPC has truly been able to enforce quality in many fields and been recognized by various institution for its efforts. Transparent & Respected Organization NTPC has a good record of transparency though recently in 2008 it overstated its profit by 900 crore by including a disputed receipt which is against the accounting standards. NTPC former finance director was once involved in a fraud of 2 crore which was unearthed in 1999. In a contract between NTPC and a TPE a Russian firm, a NTPC employee was involved in fraud to award the contract to the Russian firm which was later found and contract with TPE was cancelled. Learning from history NTPC is trying to be more transparent has taken steps towards it. The Company is fully compliant with Clause 49 of the Listing Agreement requirements relating to Corporate Governance prescribed by SEBI. Company had set up an Audit Committee before it became mandatory. It has the Committee on Management Controls and it has also a Fraud Prevention Policy, which, again are not mandatory. Various Committees of the Board oversee the important aspects of the Company's functioning, including award of large value contracts, investors' grievances, financial reporting, management control systems, approval of Feasibility Reports and investment decisions. The Company's disclosure practices are transparent and practical. NTPC has tie up with Transparency International, India to implement the Integrity Pact program. Enterprising NTPC is now moving into uncharted water i.e. to renewable resource and not only focusing on coal based power plants. NTPC is also setting up plants in Sri Lanka and Bangladesh. In India NTPC has 18 joint ventures and five subsidiaries in areas such as electricity distribution, services, energy efficiency, equipment manufacturing, power trading, power exchange and coal mining. In addition, the company has announced plans to form a joint venture with the Asian Development Bank and Kyuden International Corp. Devoted NTPC is devoted to growth of India by contributing towards the power sector. It is also devoted to strong CSR activities and well being of its employee, environment, society & stakeholders. Threat of new competition NTPC works in the power industry which is characterized by very high level of initial investment and low to medium returns. The investment on technology, human resources, capital structures etc is also very high. Considered the very high initial investments and low margin, the bay back period on the investment is very long. Hence the advantage fornewcompaniesintothe industryislow tomoderate.InIndia,legal requirementsalsomake entry into power industry tough. Due to the above reasons the threat of new entrants to power generation in India is low to very low. Also guided by the very nature of the industry (Very high investment, low returns), the industry requires high level of consolidation. Hence incentives for new entrants into power industry as NTPC’s competitors are very low.
  28. 28. Threat of substitute products or services Electric power as such has very less substitute products; however the generation of electricity has few substitute methods other than the traditional methods of thermal power generation used by NTPC. New smaller organizationsworkinginthe fieldof SolarPower, Wind Power etc have entered into Indian market in recent years. Companies like Tata BP Solar, Kotak Urja Pvt. Ltd., Suzlon etc have entered Indian market providing very small to small scale productionof energyformeetingthe requirementsof individualsandsmall tomediumenterprises. Since these companies are providing low operating cost clean energy alternatives, many individuals and firms have gradually tried to use these services. The use of biogas for cooking and house warming also lessened the dependence onelectricitytoaverysmall scale.However given the huge demand and supply gap for power in India the threat from such companies is almost negligible for NTPC. Bargaining power of customers (buyers) With the Industrial revolution of India and large scale urbanization and rural electrification, the demand for electricity has increased manifold in recent years. The supply has always been in shortfall. Also the price of electricityanditssupplyismaintainedbythe Govt.of India.Hence itisverydifficultforthe buyers(individuals and firms) todictate the price for energyinIndia.Alsothe number of power producers is very small and their operationanddistributionisregulatedbythe govt.Hence the overall bargainingpowerof customersinIndiais very less mainly attributed to the demand and supply gap. Bargaining power of suppliers The importantsuppliersof NTPCinclude raw material (mainlycoal) providers and equipment providers. Since coal is a scarce natural resource and has several other industrial applications and commercial needs, it has alwaysbeeninshortsupply.Butthe price of coal is regulatedbythe govt.andNTPC has tied up with different mining companies (mostly govt. owned/regulated) to get its supply of coal at steady prices. Similarly NTPC purchases most of its equipments from BHEL and NTPC and BHEL have entered into a joint venture to meet the equipmentsneedsof NTPC.Howeverbothsupplyof raw material and equipments is much less compared to the requirement of NTPC. So the threat from equipment suppliers is low to medium. Intensity of competitive rivalry The major competitors of NTPC in India are other power generation companies like TATA Power, Relience Power,Hydro Electricity Generation companies and Nuclear Power Plants (Both owned and operated by the Govt.).Since the demandoutweighsthe supplyof powerinIndia,the intensityof competitionisnot very hi gh. AlsoGovt.of India and state govt.s regulate the supply, operation and price of electricity in India. Hence the threat from competitors is also very low.
  29. 29. DYNAMICITY IN THE EXTERNAL ENVIRONMENT THAT CAN ALTER THE DRIVING FORCES FOR THE INDUSTRY AND CONSEQUENTLY THE KSFS AS WELL AS THE INTER- RELATIONSHIPS WITHIN THE FIVE FORCES Dynamicity in the environment The industry environment consist of following factors 1. Political 2. Legal 3. Environmental 4. Economical 5. Social These factors influence the driving force of the industry i.e. 1. Customer need 2. Technology 3. Financing 4. regulations Dynamics in politics and effect on driving force and key success factor As NTPC is a national company, government decisions play an important role in deciding its fate apart from influencingthe powerindustry the political decisions made by central government controls the company. Political policy of central government like on foreign investment, tariff rule and on import of equipments influence the industryasa whole.Political decisionslike MoU with different African nations can provide industry to acquire coal, similar opportunity can be created by signing MoU with different European nations to provide nuclear fuel and renewable technologycanchange the dynamicsof industry.Governmentdecisions on foreign investment in power sector can also help the industry and private sector can also invest heavily on different project. Government
  30. 30. decisions on tariff rule also impact the profitability of the industry and it can affect the viability of many power projects. Affect on driving forces of the industry Customer need Political decisionlike rural electrificationwill surelyincreasethe demandof powerthisincreasingthe customerneed which will boost the industry. Technology Political decisionlike agreementswithdifferentnations to provide better technology will introduce the industry to better technology especially in nuclear and renewable source Financing Governmentdecisiontoallowforeigninvestmentinfinance sectorwill help the industry finance many projects and industry can explore different parts of power sector. Regulation Regulationof the central government on tariff rule impact profitability of many projects. Regulation on electricity theft can also help the power industry. Regulations on the environment front also impact the industry. Effect of driving force on key success factor Operational efficiency With availability of better technology the operational efficiency can increase the profit of the industry can also expand to renewable sector decreasing its dependency on coal. Many projects will be viable with introduction of new technology. Fuel security Fuel security can be provided by having a proper agreement with supplier as India is not self suffice in coal govt. agreementwithforeigncountrieswillhelpitsecure itsfuel. Even nuclear fuel if provided by other nations can help the industry to grow in that sector. Environmental clearance In India environmental clearance is hurdle for company to set up new plants as the issue is very sensitive and the government is stressing on environment protection getting clearances for new project is getting more di fficult, especially the hydro power has been affected badly. Dynamics on legal front Law like environmentprotectionact,worksafetylaws,tariff lawsaffectsNTPC. Many tariff regulations may hamper NTPC profitability. New tariff regulation pursuant in CERC and hydro policy 2008 can greatly reduce operational profitability.Now evenprojectsare awardedtothe companyaccording to the lowesttariff basiswhichhasincreased the competition in the industry. Affect on driving forces of the industry Customer need Customer need is directly not affected by the legal environment. Technology As the newpowerprojectsare awardedonthe basisof lowesttariff now companyare movingtocritical technology. And companies to minimize pollution are using better technology.
  31. 31. Financing Law prohibiting foreign investment is hampering the development of new plants. Regulation Legal dynamics directly influence the regulation environment. Tariff laws, environmental regulation and developmentsonKyotoprotocol will influence the industry at large. Worker safety law pollution control etc effect the plant profitability and viability thus deciding the outcomes of the industry. Affect on the key success factor Operational efficiency Operation efficiency has to be increased to meet the new criteria of low tariff rule so the industry needs to move towards efficient technology like critical technology. Environmental issues New laws on environmental issues are affecting the industry and for the matter company need to move towards renewable technology for future survivable. Dynamics of environment Powerplantrequireshuge landandthermal poweremitscarbondi-oxide.There isalwaysenvironed that is affected by power plant in bad ways specially the traditional way of power producing hamper the environment. Recent concern of the safety of environment has lead to much environmental regulation that is affecting the industry. Affects on driving forces Technology Environmental concern has force industry to move towards to better and renewable technology. Use better and efficient machines and implement better equipments to minimize emission. Regulation New regulation has been put forwarded by the govt. and rules are strictly followed now days to protect the environment impacting the industry. Affect on the key success factor Operational efficiency Environmental dynamics force industry to adopt efficient technology to minimize emission. Fuel security Due to new environmental laws many coal field are now unviable and fuel security has been a problem for the industry. Economical dynamicity Due to economicgrowthdemandforpowerhasincreased andIndian govt. has planned to add 20 GW. India’s credit ratinginfluence company,lowercreditratingbecause financial problemlike borrowingmoneyatlarge interest. High exchange rate increases the cost of coal imports. Driving force Customer need Economic boom increase power demand thus a boost for the industry. Financing Better economic situation increase credit rating of the country and industry can avail foreign loan in lower rates.
  32. 32. Influence on key success factor Fuel security Better financed industry is able to make acquire its fuel from international market. Social dynamicity Indian consumer changing and from survival to consumer mode and this implies high demand for electric power driven largely by Indian middle class. Society also getting more aware about renewable energy and sustainable resource andpeople will preferrenewable energyinfuture whichmayaffectelectricitydemandfromnonrenewable resource.Social awarenesshasalsoaffectedsettingupof plantsas now deforestationis problem and recent case of Himachal Pradeshwhere NTPChasto stopitsprojectin midway(afterinvestmentof 3000cr INR) shows that society is getting responsive towards environment and even coal mining is now a problem. Even concern against nuclear radiationiscausingproblemfor setting up plant as recent case of an agitation against nuclear power plant in Tamil Nadu. Customer need With the rise of the demand of electricity by the consumer industry has a boost Regulation Social awareness has caused the government to change the environmental law and thus industry has to cope with more stringent rule and moving towards renewable source of energy. Impact on driving forces Operational efficiency Social awarenessandenvironmentlawsforced industry to use better technology and renewable source of energy. Use better equipments reduce emission. Environmental clearance Social awareness has lead to better environment protection laws making the tough for the industry to acquire environment clearing Fuel security Fuel securityhasbeenaffectedbythe newenvironmentallawswhichare due torise concernoverenvironment as many coal producing sites are closed 5-Forces Analysis for One Level Backwards (Buyers of NTPC) The Buyersof NTPCis majorlyconstitutedby the Gridcompaniessupplyingelectricity to individual customers and mediumtolarge firmsandindustriespurchasingelectricityforownconsumption.The Five forces analysis of these organizations is given below: 1. Threat of new competition Since mostGrid companiesare eitherownedorcontrolledbythe govt.theiroperationishighlyregulated. It is very difficult for private firms to enter this business due to these govt. regulations. Hence for Grids the threat from new competition is very low. However for other manufacturing firms the threat from new competitors could be medium to high if the firm is operating in a purely market driven industry. 2. Threat of substitute products or services For the electricitygrids,the threatof substitutesisverylow asmost customers depend on electricity for their mostpowerneedsandthese gridshave monopolyintheirrespective areas.Howeverforotherfirmsthe threat from substitute products can be medium to high depending on their products and market.
  33. 33. 3. Bargaining power of customers (buyers) For the buyers from grids, the bargaining power is very less as these grids operate in a monopolistic market and the price of electricity is regulated by the govt. For other firms, the bargaining power is low to medium, since they dependheavily on electricity for their operation and autonomous production of electricity is very difficult both economically and technically. 4. Bargaining power of suppliers The bargaining power of NTPC as the sole supplier of electricity is medium to high. Although NTPC acts in a monopolistic market in most of the markets, its price and supply commitments are regulated by the govt. Hence bargaining power of NTPC is medium to high. 5. Intensity of competitive rivalry The competition faced by the grids is very low as they act in a monopolistic market. However the firms may face medium to high competition, depending on the market they operate in and the product they manufacture. 5-Forces Analysis for One Level Forward (Suppliers of NTPC) The suppliers of NTPC are majorly constituted by coal producers and heavy equipment manufacturers. The analysis of 5 competitive forces of these firms is given below. 1. Threat of new competition The threat fromnewcompetitionforcoal producersisverylow asalmostall coal minesare govt operated and coal is sold at govt. determined prices. Entry to mining is also govt. regulated. However the threat for new completion for heavy equipment manufacturers is medium as the demand for equipments is high and new foreign companies have started entering Indian market after deregulation.
  34. 34. 2. Threat of substitute products or services Currently NTPC depends heavily on only coal for thermal electricity generation. There is no change in coal usage by NTPC in near future. Hence the threat of substitutes for coal producers is very low. Similarly Equipment manufacturers the threat for substitute products is low to medium. 3. Bargaining power of customers (buyers) For both coal producers and equipment manufacturers the bargaining power of customers is low as these buyers have customized needs and suppliers are very less in the market. 4. Bargaining power of suppliers The 5. Intensity of competitive rivalry Intensity of competitive rivalry for coal producers is very less as the market is govt. regulated and for the equipment manufacturers the competition threat is medium. As similar equipments are produced by many firms competition is fairly high. Analysis of riskiness of NTPC’s current relationships with its Suppliers and Buyers and ability of NTPC to withstand shocks: NTPCin recentyearshas developedthe strategytobackwardintegrate withitssupplierstoevenoutthe effect of anyfluctuationsinsupplies.Ithastied up with coal mines or directly purchased them. Also it has formed a joint venture with BHEL to streamline the supplies of its equipment needs and even out any fluctuations in timely delivery. Alsosince NTPCoperatesina nearmonopolisticmarketwithdemandexceeding supply in a very high margin, NTPChas verylowriskfrom the buyers. Thissituation is expected to remain similar in near future until there are no major changes in Govt. regulations.
  35. 35. Major players in power sector The major playersinIndianpower sector apart from NTPC are TATA power, Reliance power and Jindal power. TATA Power 1. Tata Power has a presence in all aspects of Power- Thermal, Hydro, Solar, Wind, and Transmission & Distribution. 2. From its niche Power generation and distribution business in Mumbai, Tata Power is making a confident move towards a national presence in the power sector as well as communication and energy businesses. 3. Tata Power is extending its transmission and distribution operations nationally. 4. Tata Powerisimplementingcontinuousmodernizationandcostreductionstrategiestoemerge asa low cost power producer. Reliance power 1. Reduction of Cost of Power Generation 2. Ensuring Fuel Supply 3. Focusing on Power Deficit Regions 4. Establishing an Optimal Mix of Off-take Arrangements 5. Targeting Additional Revenue Sources 6. Activelypursuingopportunitiestotargetadditional revenue sources,including by selling carbon credits and fly ash. Jindla power 1. Focuson leveragingexperience of commissioning the1000 MW plant to build over 15000 MW of generation capacity� Diversify presence across the value chain by entering into transmission and distribution 2. Acquire, develop and operate power plants outside India 3. Establish presence in other forms of power generation such as gas, hydro, wind, nuclear and Focus on initiatives to achieve high PLF such as daily plant performance monitoring, scheduled Maintenance practices, condition monitoring 4. Leverage backward linkages of coal and water to reduce power generation cost 5. Continue to emphasize on sustaining, growing, nurturing and retaining qualified human resource Take effectivestepstominimize impactof operationsandsetuphydropowerprojectsthatleadto minimal resource depletion 6. Focus on environment management practices that include regular monitoring of impact across all parameters and minimizing incidence
  36. 36. Among the rival TATA power is a major threat to the company as a conglomerate of a TATA they have better assess to coal field better technology and huge and talented work force and financial Major complementors, shapers andinfluencers operating on the firm and buyers giving a clear idea of their impact on these players Political environment Political environment plays a major role in complementing, shaping and influencing any industry. NTPCbeinga nationalizedcompanyitspoliciesare governedbythe governmentof India.Indiangovernmentpolicies like rural electrification,powerforall by2012 requiresNTPCtoproduce more electricityandeven distribute in rural areas at a subsidizedrate.IndiangovernmentagreementwithUSgovt. on supply of uranium for nuclear supply will enable NTPCtoprocure raw material foritsnuclearpowerplant.Indiangovt.now emphasizingonrenewable energy resource and foreign direct investment is being allowed so competition from this region is expected. After liberalizationof the economymanyprivate sectorshasenteredthe powergenerationbusiness. Increase of wage for public sector employee by govt. has strained the financial position of NTPC. Economical The economicgrowth.the risingstandardof living,the boominIndianeconomyandglobalizationhasaffectedNTPC. Due to economic growth demand for power has increased and Indian govt. has planned to add 20 GW. To sustain thisdemandNTPChas to addmore powerplants.Due toglobalizationNTPChaschance to enternew markets. NTPC is planning to enter neighboring countries like Bhutan, Bangladesh and Sri Lanka. NTPC is also in agreements with countrieslike Australia,Mozambique,andIndonesia to get continuous coal supply. For equipments NTPC is now in contact withChinese’scompaniesto deliver equipments in time. India’s credit rating influence NTPC, lower credit ratingcause financial problemlikeborrowingmoneyatlarge interest. High exchange rate increases the cost of coal imports. So economical factors also plays a major role in shaping the industry as a whole. Social Indian consumer changing and from survival to consumer mode and this implies high demand for electric power driven largely by Indian middle class. Society also getting more aware about renewable energy and sustainable resource andpeople will preferrenewable energyinfuture whichmayaffectelectricitydemandfromnonrenewable resource.Social awarenesshasalsoaffectedsettingupof plantsas now deforestationis problem and recent case of Himachal Pradeshwhere NTPChasto stopitsprojectin midway(afterinvestmentof 3000cr INR) shows that society is getting responsive towards environment and even coal mining is now a problem. Even concern against nuclear radiationiscausingproblemfor setting up plant as recent case of an agitation against nuclear power plant in Tamil Nadu.Thishas led NTPC to take care of all the factors that can hinder its production plans .Now it is imperative for any company to take social issues in consideration before executing any projects. Technical Technical factors like equipment manufacturing, renewable technology, improvements in operation efficiency, efficient usage of fuel are major technical factors that affect NTPC. Now super critical technology are getting introduced which produce 4000 MW. Equipment manufacturing is a major problem NTPC, usually BHEL used to be only provider of equipments but now NTPC is also importing from equipment manufacturers such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd etc. Renewable technology will be a major thrust in future. With the use of high and efficient boilers NTPC has been able to increase operation efficiency as well as able reduce fuel consumption. Environmental Thermal power plant produces carbon dioxide which is main contributor of the green house gases. After the emphasisonthe reductionof greenhouse gasesNTPChasto use betterpollutioncontrol methodanduse renewable
  37. 37. resource forpowergeneration.Afterstricterlawsagainstdeforestationplantsetisnow become aproblemfor NTPC speciallythe hydropowerproject feasibility has been reduced. Even monsoon season coal mining gets hampered which affects the operation and even heavy monsoon causes project delays and increase cost. Legal Law like environmentprotectionact,worksafetylaws,tariff lawsaffectsNTPC. Many tariff regulations may hamper NTPC profitability. New tariff regulation pursuant in CERC and hydro policy 2008 can greatly reduce operational profitability.Now new projectsare awardedtothe companywhichproducesunitpoweratlowestcostbefore that it was throughpowerpurchasingagreementbetweencompaniesandstate govt.andNTPC hasbeenable to grab most of the projects but after the bidding process are based on tariff base NTPC lost many projects to TATA Power and Reliance. Even rising capital from foreign market is constrained by Indian Laws which hampers its development plans Porter’s Five Forces The limitations of applying five forces for NTPC In the case of NTPC some of the external forces were not applicable, which is discussed below: 1. BargainingPowerof Customers- With the entry of new players like Reliance, Tata, Jindal .The sector which was particularly dominated by government owned NTPC has started to face competition. The customers whichwere at the sole discretionof 1companynow have choices.But because of the wide spread presence of NTPCinIndiaand the amountof initial investmentrequiredtobe inthe sector and governmentsupportit is still no-1 in this sector with market share of more than 33 percent, but despite of all these there are limitednumbersof playersTherefore the customersare notthat free tohave bargainingpowerandavail the service of the company required.

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