Power industry

VIGNANAJYOTHIINSTITUTEOFMANAGEMENT
CORPORATE FINANCE
MANAGEMENT
TERM PAPER
Presented By:
Group No. 7

I
TABLE OF CONTENTS
TATA POWER.................................................................................................................................................1
NTPC Limited.................................................................................................................................................2
POWER GRID CORPORATION OF INDIA LIMITED..........................................................................................3
TORRENT POWER LIMITED ...........................................................................................................................5
SUZLON ENERGY LIMITED.............................................................................................................................6
CAPITAL STRUCTURE.....................................................................................................................................8
CAPITAL STRUCTURE IN A PERFECT MARKET............................................................................................8
CAPITAL STRUCTURE IN THE REAL WORLD...............................................................................................9
TOTAL CAPITAL STRUCTURE OF A FIRM..................................................................................................10
FINANCIAL STATEMENTS OF THE COMPANIES.......................................................................................12
FINANCIAL CONDITIONS .........................................................................................................................12
FINANCIAL SOURCES OF THE COMPANIES..............................................................................................15
WORKING CAPITAL POLICY .........................................................................................................................19
WORKING CAPITAL CYCLE OF COMPANIES.............................................................................................20
WORKING CAPITAL POLICIES ..................................................................................................................24
DIVIDENDS AND DIVIDEND POLICIES..........................................................................................................26
TYPES OF DIVIDEND: ...............................................................................................................................26
Dividend policy........................................................................................................................................26

II
CONCEPT OF DIVIDEND...........................................................................................................................27
INVESTMENT OF COMPANIES.....................................................................................................................29
REFERENCES................................................................................................................................................33

III
TABLE OF FIGURES
Figure 1: Capital Structure of a firm............................................................................................................10
Figure 2: Graph of Financial Sources of the Companies .............................................................................15
Figure 3: Graph for debt and Equity of Companies ....................................................................................16
Figure 4: Debt/Equity Ratios of Companies................................................................................................17
Figure 5: Working Capital Cycle: .................................................................................................................19
Figure 6: Working capital cycle in manufacturing business........................................................................20
Figure 7: Graph for WCC of Torrent Power Ltd...........................................................................................20
Figure 8: Graph for WCC of NTPC ...............................................................................................................21
Figure 9: Graph of WCC for Power Grid Corp. of India...............................................................................22
Figure 10: Graph of WCC for Suzlon Energy Ltd. ........................................................................................23
Figure 11: Graph of WCC for TATA Power ..................................................................................................23
Figure 12: Graph for WCC of Companies....................................................................................................24
Figure 13: Graph of Total Investment of Companies..................................................................................32

IV
LIST OF TABLES
Table 1: Financial Statement of companies for FY 2013-2014 ...................................................................13
Table 2: Debt and Equity of Companies......................................................................................................16
Table 3: Calculating Working capital cycle (WCC) of Torrent Power..........................................................20
Table 4: Calculating Working capital cycle (WCC) of NTPC.........................................................................21
Table 5: Calculating Working capital cycle (WCC) of Power Grid Corp. of India ........................................22
Table 6: Calculating Working capital cycle (WCC) of Suzlon Energy Ltd.....................................................22
Table 7: Calculating Working capital cycle (WCC) of TATA Power..............................................................23
Table 8: WCC of Companies........................................................................................................................24
Table 9: EPS, DPS and Share Price of Companies........................................................................................28
Table 10: Dividend Payout & Dividend Yield Ratios of the Companies ......................................................28
Table 11: Investment of Torrent Power Ltd. in FY 2014.............................................................................29
Table 12: Investment of NTPC in FY 2014...................................................................................................29
Table 13: Investment of TATA Power in FY 2014........................................................................................30
Table 14: Investment of Power Grid Corp. in FY 2014................................................................................30
Table 15: Investment of Suzlon Energy Ltd. in FY 2014..............................................................................31
Table 16: Total Investment of Companies ..................................................................................................31

1
TATA POWER
Tata Power is India's largest integrated power
company with a significant international presence.
The Company has an installed generation
capacity of 8581 MW in India and a presence in
all the segments of the power sector viz
Generation, Transmission, Distribution and
Trading. It has successful public-private partner
ships in Generation, Transmission and
Distribution in India namely "Tata Power Delhi
Distribution Limited" with Delhi Vidyut Board
for distribution in North Delhi, 'Powerlinks
Transmission Ltd.' with Power Grid Corporation
of India Ltd. for evacuation of Power from Tala
hydro plant in Bhutan to Delhi and 'Maithon
Power Ltd.' with Damodar Valley Corporation
for a 1050 MW Mega Power Project at
Jharkhand. It is one of the largest renewable
energy players in India has developed country's
first 4000 MW Ultra Mega Power Project at
Mundra (Gujarat) based on super-critical
technology. Recently, Tata Power has been
selected to work as a Distribution Franchisee
(DF) in Jamshedpur Circle of Jharkhand State
Electricity Board (JSEB).
Its international presence includes strategic
investments in Indonesia through 30% stake in
coal mines and a geothermal project; in
Singapore through Trust Energy Resources to
securitise coal supply and the shipping of coal
for its thermal power generation operations; in
South Africa through a joint venture called
‘Cennergi' to develop projects in 16 different
countries in Africa; in Australia through
investments in enhanced geothermal and clean
coal technologies and in Bhutan through a hydro
project in partnership with The Royal
Government of Bhutan. With its track record of
technology leadership, project execution
excellence, world class safety processes,
customer care and driving green initiatives, Tata
Power is poised for a multi-fold growth and
committed to 'lighting up lives' for generations to come.
Type Public Company
Traded as
NSE: TATAPOWER
BSE: 500400
BSE SENSEX Constituent
Industry Electric utility
Founded 1911
Founder Dorabji Tata
Headquarters Mumbai, Maharashtra, India
Key people
Cyrus Pallonji Mistry(Chairman)
Anil Sardana (CEO and MD)
Services
Electricity generation and distribution
natural gas exploration, production,
transportation and distribution
Net income 12766 million (2013)
Number of
employees
4,126 (March 2013)
Parent Tata Group
Website www.tatapower.com

2
NTPC Limited
NTPC Limited is also known as
National Thermal Power Corporation
Limited and is an Indian Central Public Sector
Undertaking (CPSU) under the Ministry of
Power, Government of India, engaged in the
business of generation of electricity and allied
activities. It is a company incorporated under
the Companies Act 1956 and a "Government
Company" within the meaning of the act. The
headquarters of the company is situated at New
Delhi. NTPC's core business is generation and
sale of electricity to state-owned power
distribution companies and State Electricity
Boards in India. The company also undertakes
consultancy and turnkey project contracts that
involve engineering, project management,
construction management and operation and
management of power plants. The company
has also ventured into oil and gas exploration
and coal mining activities. It is the largest
power company in India with an electric power
generating capacity of 42,964 MW. Although
the company has approx. 18% of the total
national capacity it contributes to over 27% of
total power generation due to its focus on
operating its power plants at higher efficiency
levels.
It was founded by Government of India in
1975, which held 75% of its equity shares on
31 March 2013(after divestment of its stake in
2004, 2010 and 2013). In May 2010, NTPC
was conferred Maharatna status by the Union
Government of India. It is ranked 424th in in
the Forbes Global 2000 for 2014.
Type Government-owned corporation
Public company
Traded as BSE: 532555
NSE: NTPC
BSE SENSEX Constituent
CNX Nifty Constituent
Industry Electric Utility
Founded 1975
Headquarters New Delhi, India
Key people Arup Roy Choudhury
(Chairman & MD)
Services Electricity generation and distribution
natural gas exploration, production,
transportation and distribution
Revenue INR 73904 Crores (2013-14)
Net income INR 13834 Crores (2013-14)
Number of
employees
25,484 (March 2013)
Website www.ntpc.co.in

3
POWER GRID CORPORATION OF INDIA LIMITED
Power Grid Corporation of India
Limited (POWERGRID) is an Indian state-owned
electric utilities company headquartered in Gurgaon,
India. POWERGRID transmits about 50% of the total
power generated in India on its transmission network.
Its subsidiary company, Power System Operation
Corporation Limited (POSOCO) handles power
management for Power Grid. POWERGRID also
operates a telecom business under the name
POWERTEL.
Power Grid Corporation of India Limited was
incorporated on October 23, 1989 under the
Companies Act, 1956 with an authorized share
capital of Rs. 5,000 Crore (subsequently enhanced to
Rs. 10,000 Crore in Financial Year (FY) 2007-08) as
a public limited company, wholly owned by the
Government of India.
Its original name was the 'National Power
Transmission Corporation Limited', and it was
changed with planning, executing, owning, operating
and maintaining high-voltage transmission systems
in the country. On 8 November 1990, the National
Power Transmission Corporation received its
Certificate for Commencement of Business. Their
name was subsequently changed to Power Grid
Corporation of India Limited, which took effect on
October 23, 1992.
Type Government-owned corporation
Traded as NSE: POWERGRID
BSE: 532898
Founded 23 October 1989
Headquarters Gurgaon, India
Area served India
Key people Shri RN Nayak
(Chairman and MD)
Products transmission and distribution;
energy trading
Revenue 157.21 billion (2013–14)
Net income 44.97 billion (2013–14)
Number of
employees
10,000 (2012)
Website powergridindia.com

4
POWERGRID started functioning on management basis with effect from August, 1991 and
subsequently it took over transmission assets from NTPC, NHPC, NEEPCO, NLC, NPC, THDC,
SJVNL etc. in a phased manner and it commenced commercial operation in 1992-93. In addition
to this, it also took over the operation of existing Regional Load Despatch Centers (RLDCs) from
Central Electricity Authority (CEA), in a phased manner from 1994 to 1996, which have been
upgraded and modernized with State of-the-art Unified Load Despatch and Communication
(ULDC) schemes. Consequently, National Load Despatch Centre (NLDC) was established in 2009
for overall coordination at National level.
According to its mandate, the Corporation, apart from providing transmission system for
evacuation of central sector power, is also responsible for Establishment and Operation of
Regional and National Power Grids to facilitate transfer of power within and across the Regions
with Reliability, Security and Economy on sound commercial principles. Based on its performance
POWERGRID was recognized as a Mini-ratna category-I Public Sector Undertaking in October
1998 and conferred the status of "Navratna" by the Government of India in May 2008.
POWERGRID, as the Central Transmission Utility of the country, is playing a major role in Indian
Power Sector and is also providing Open Access on its inter-State transmission system.

5
TORRENT POWER LIMITED
Torrent Power is one of the leading
brands in the Indian power sector, promoted by
the Rs.13116 crore Torrent Group, a group
committed to its mission of transforming life by
serving two of the most critical needs - healthcare
and power. Torrent Pharmaceuticals Ltd., the
flagship company of the Torrent Group, is a
major player in the Indian pharmaceuticals
industry with a vision of becoming a global entity
in the arena.
With an all-round experience in generation,
transmission and distribution of power, and a
proven track record of implementing large power
projects, Torrent Power is the most experienced
private sector player in Gujarat.
Torrent Power foresaw the prospects in the power
sector much before the liberalization, when it
took-over an ailing power cable company in 1989
(now known as Torrent Cables Limited) and
successfully turned it around.
The high points of Torrent’s foray into power
however were the acquisitions of two of the
India’s oldest utilities – The Surat Electricity
Company Ltd and The Ahmedabad Electricity
Company Ltd. Torrent turned them into first rate
power utilities comparable with the best, in terms
of operational efficiencies and reliability of
power supply.
Torrent has a generation capacity of 3202 MW and distributes power to 2.87 million customers
annually in Ahmedabad, Gandhinagar, Surat, Bhiwandi and Agra. Recently the company
implemented a 1200 MW gas based power project at Dahej in South Gujarat.
Type: Public
NSE: TORNTPOWR
Industry: Energy
Founded: 1996
Headquarters: Ahmedabad, India
Products: Sale and distribution,
electricity generation and
distribution, wind power,
energy trading
Revenue: INR 88 billion (2014)
Number of
employees:
7200 (2014)
Parent: Torrent Group
Slogan: Transforming Life
Website: torrentpower.com

6
SUZLON ENERGY LIMITED
Suzlon Energy Limited is ranked as the
world’s fifth largest wind turbine supplier, in terms
of cumulative installed capacity and market share, at
the end of 2013. The company’s global spread
extends across Asia, Australia, Europe, Africa and
North and South America with over 24,200 MW of
wind energy capacity installed, operations across
over 30 countries and a workforce of over 10,000.
The Group has headquartered at Suzlon One Earth
in Pune, India which comprises Suzlon Energy
Limited and its subsidiaries.
Suzlon's story began in 1995 when founder Tulsi
Tanti was managing a 20-employee textile company.
Due to the erratic availability of power locally, and
its rising costs, the highest business expenditure after
the raw materials was electricity. The cost of
electricity also offset any profits made by the
company. After providing electricity for his own
company, Tanti realized that other companies in
India could also greatly benefit from being sold wind
power technology and advised on its use. With the
help of some of his friends in Rajkot, he moved into
wind energy production as a way to secure the textile
company's energy needs, and founded Suzlon Energy. Suzlon adopted a business model wherein
clients would be responsible for 25% of the up-front capital investment and Suzlon would arrange
the remaining 75% on loan. Initially banks were hesitant to fund loans for this model but by 2008
40-50 Indian banks were financing wind power projects for Suzlon clients.
The company manufactures blades, generators, panels, and towers in-house and large or offshore
turbines through its subsidiary Senvion. The company is integrated downstream and
delivers turnkey projects through its project management and installation consultancy, and
operations & maintenance services. Suzlon has offices, R&D and technology centers,
manufacturing facilities and service support centers spread across the globe.
Type Public company
NSE: SUZLON
Industry Renewable energy
Founded 1995
Founder Tulsi Tanti
Headquarters Pune, India
Key people Tulsi Tanti, Chairman
Products Wind Turbines
Revenue 204.0286
billion(US$3.2 billion)
(2014)

7
Suzlon has design and R&D teams and facilities in India, Germany, Denmark and The
Netherlands. The international sales business of Suzlon is managed out of Aarhus, Denmark, while
its global management office is in Pune, India.
Suzlon crossed 8,000 megawatts of cumulative installations in India in September 2010. Suzlon
has cumulatively added over 7,600 megawatts of wind power capacity for over 1,700 customers
in India across 40 sites in eight States. Suzlon accounts for nearly half of the country’s total wind
installations.
In the key states of Tamil Nadu, Maharashtra and Gujarat, Suzlon’s installation base is over 1,000
megawatts each (Over 1GW). Leading corporate such as the Bajaj Group, the Birla Group, MSPL,
DLF, the Tata Group, the Reliance Group, the ITC Group, L&T, as well as public sector companies
like GSPL, HPCL, Indian Railways, Rajasthan Mines & Minerals, GACL, GSPC, GSFC, Indian
Oil, ONGC and State Bank of India (SBI, Nuclear Power Corporation of India Limited (NPCIL),
NALCO, GAIL, Vedanta Group (HZL), DLF Group, amongst others, have chosen Suzlon for their
wind power projects. Suzlon is India's leading wind turbine manufacturer with nearly 50 percent
YoY market share. The company has eight manufacturing facilities across the country. Suzlon has
a workforce of over 10,000 employees globally.
As of August 2014, Suzlon's debt was over 8000 crores. On 22 January 2015, Suzlon announced
the sale of Senvion SE, its wholly owned subsidiary, to Centerbridge Partners, a private equity
firm in a deal valued at 7200 crores. The deal is expected to ease Suzlon's debt burden. In a
further equity infusion, Dilip Shanghvi Family and Associates (DSA), run by Dilip Shanghvi, the
founder and managing director of Sun Pharmaceutical, agreed to purchase a 23 percent stake in
Suzlon for a sum of 1800 crores. The deal will see Tanti's holding shrink to 24 percent, but
management control will still remain with the Tanti family.

8
CAPITAL STRUCTURE
In finance, capital structure refers to the way a
corporation finances its assets through some combination of
equity, debt or hybrid securities. A firm's capital structure is
then the composition or 'structure' of its liabilities.
For example, a firm that sells Rs. 20 crore in equity and Rs. 80 crore in debt is said to be 20%
equity financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this
example, is referred to as the firm's leverage. In reality, capital structure may be highly complex
and include tens of sources.
The Modidliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the
basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical
result since it assumes away many important factors in the capital structure decision. The theorem
states that, in a perfect market, the value of a firm is irrelevant to how that firm is financed. This
result provides the base with which to examine real world reasons why capital structure is relevant,
that is, a company's value is affected by the capital structure it employs. These other reasons
include bankruptcy costs, agency costs, taxes, information asymmetry, to name some. This
analysis can then be extended to look at whether there is in fact an optimal capital structure: the
one which maximizes the value of the firm.
CAPITAL STRUCTURE IN A PERFECT MARKET
Assuming a perfect capital market i.e. no transaction or bankruptcy costs, perfect information;
firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't
affected by financing decisions. Modigliani and Miller made two findings under these conditions.
Their first 'proposition' was that the value of a company is independent of its capital structure.
Their second 'proposition' stated that the cost of equity for a leveraged firm is equal to the cost of
equity for an unleveraged firm, plus an added premium for financial risk. That is, as leverage
increases, while the burden of individual risks is shifted between different investor classes, total
risk is conserved and hence no extra value created.
Their analysis was extended to include the effect of taxes and risky debt. Under a classical tax
system, the tax deductibility of interest makes debt financing valuable; that is, the cost of capital
decreases as the proportion of debt in the capital structure increases. The optimal structure, then
would be to have virtually no equity at all.

9
CAPITAL STRUCTURE IN THE REAL WORLD
If capital structure is irrelevant in a perfect market, then imperfections which exist in the real world
must be the cause of its relevance. The theories below try to address some of these imperfections,
by relaxing assumptions made in the M&M model.
 Trade-off theory:
Trade-off theory allows the bankruptcy cost to exist. It states that there is an
advantage to financing with debt (namely, the tax benefit of debts) and that there is a cost
of financing with debt (the bankruptcy costs of debt). The marginal benefit of further
increases in debt declines as debt increases, while the marginal cost increases, so that a
firm that is optimizing its overall value will focus on this trade-off when choosing how
much debt and equity to use for financing. Empirically, this theory may explain differences
in D/E ratios between industries, but it doesn't explain differences within the same industry.
 Pecking order theory:
Pecking Order theory tries to capture the costs of asymmetric information. It states
that companies prioritize their sources of financing (from internal financing to equity)
according to the law of least effort, or of least resistance, preferring to raise equity as a
financing means ―of last resort‖. Hence internal debt is used first, and when that is
depleted debt is issued, and when it is not sensible to issue any more debt, equity is issued.
This theory maintains that businesses adhere to a hierarchy of financing sources and prefer
internal financing when available, and debt is preferred over equity if external financing is
required. Thus, the form of debt a firm chooses can act as a signal of its need for external
finance. The pecking order theory is popularized by Myers (1984) when he argues that
equity is a less preferred means to raise capital because when managers (who are assumed
to know better about true condition of the firm than investors) issue new equity, investors
believe that managers think that the firm is overvalued and managers are taking advantage
of this over-valuation. As a result, investors will place a lower value to the new equity
issuance.
 Agency Costs:
There are three types of agency costs which can help explain the relevance of capital
structure.
 Asset substitution effect:
As D/E increases, management has an increased incentive to
undertake risky (even negative NPV) projects. This is because if the
project is successful, shareholders get all the upside, whereas if it is
unsuccessful, debt holders get all the downside. If the projects are

10
undertaken, there is a chance of firm value decreasing and a wealth
transfer from debt holders to shareholders.
 Underinvestment problem:
If debt is risky, the gain from the project will accrue to debt
holders rather than shareholders. Thus, management have an
incentive to reject positive NPV projects, even though they have the
potential to increase firm value.
 Free cash flow:
Unless free cash flow is given back to investors,
management has an incentive to destroy firm value through empire
building and perks etc. Increasing leverage imposes financial
discipline on management.
 Arbitrage :
A capital-structure arbitrageur seeks opportunities created by differential pricing of
various instruments issued by one corporation. Consider, for example, traditional bonds
and convertible bonds. The latter are bonds that are, under contracted-for conditions,
convertible into shares of equity. The stock-option component of a convertible bond has a
calculable value in itself. The value of the whole instrument should be the value of the
traditional bonds plus the extra value of the option feature. If the spread, the difference
between the convertible and the non-convertible bonds grows excessively, then the capital-
structure arbitrageur will bet that it will converge.
TOTAL CAPITAL STRUCTURE OF A FIRM
Figure 1: Capital Structure of a firm
TOTAL CAPITAL
EQUITY CAPITAL
Equity
Preference share capital
Retained Earnings
DEBT CAPITAL
Term loans
Debentures
long term loans

11
 A firm has to maintain a proper balance between
 Long Term Funds & Short Term Funds
 Loan Funds & Own Funds
 The following options are available to a firm:
 Capital structure with equity share only
 Capital structure with equity share & preference share
 Capital structure with equity share & debenture
 Capital structure with equity share, debenture & preference share
EQUITY CAPITAL
Advantages:
1. Payment of dividend only when there is sufficient profit.
2. Management need not to make provision for repayment of finance.
3. Control over management remains with equity share holders.
4. Company does not require to mortgage its assets for issue of equity share, so mortgage
asset for long term debt in future can be created.
Disadvantages:
1. The expenses for procurement of capital through equity share is more.
2. Benefit of trading on equity can‘t be obtained.
3. Equity dividend is not tax deductible.
4. This may sometimes leads to over capitalization
DEBT CAPITAL
Advantages:
1. The administrative & issuing cost are normally lower than raising equity capital.
2. Cost advantage due to the ability to set debt interest against profit for tax purposes.
3. The pre tax rate of interest is invariably lower, than the return required by equity capital
suppliers.
4. Company can obtain benefit of trading on equity.

12
Disadvantages:
1. Payment of interest whether there is profit or loss.
2. Capacity of creating future debt for the company reduces.
3. There is fear of loss of control over management.
4. Assets are mortgaged to debenture holders so, they have first right on all assets of the
company.
FINANCIAL STATEMENTS OF THE COMPANIES
A company’s financial statements provide various financial information that investors and
creditors use to evaluate a company’s financial performance. Financial statements are also
important to a company’s managers because by publishing financial statements, management can
communicate with interested outside parties about its accomplishment running the company.
Different financial statements focus on different areas of financial performances.
FINANCIAL CONDITIONS
A company’s financial conditions are of a major concern to investors and creditors. As capital
providers, investors and creditors rely on a company’s financial conditions for both the safety
and profitability of their investments. More specifically, investors and creditors need to know
where their money went and where it is now. The financial statement of balance sheet addresses
such issues by providing detailed information about a company’s asset investments. The balance
sheet also lists a company’s outstanding debt and equity components, and so debt and equity
investors can better understand their relative positions in a company’s capital mix

13
Table 1: Financial Statement of companies for FY 2013-2014

15
FINANCIAL SOURCES OF THE COMPANIES
Figure 2: Graph of Financial Sources of the Companies
The financial sources of the companies like Equity share capital, Reserves & surplus and debt are
shown in the graph above. The total debt of Power Grid is the highest which means that the
company has been dependent more on the debt for meeting their financial needs. On the other side
NTPC has the highest equity share capital to fund their company but also has large amount of
funding through debt. Where in small players like Torrent Power, Suzlon Energy and Tata Power,
Tata Power has the highest debt and Suzlon Energy has the highest funding through Equity
amongst them.
DEBT/EQUITY RATIO:
Debt/Equity Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
The debt to equity ratio is used to measure the riskiness of a company's financial structure.
The ratio is closely monitored by lenders and creditors, since it can provide early warning that an
organization is so overwhelmed by debt that it is unable to meet its payment obligations.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
Torrent Power NTPC Power Grid Corp Suzlon Energy Tata Power
Rs.Cr.----->
Equity Share Capital Share Application Money Reserves Total Debt

16
Table 2: Debt and Equity of Companies
Company
Total
Debt
Shareholder's
Equity
Debt/Equity
Ratio
Torrent Power 5,593.71 6,176.56 0.91
NTPC 62,405.75 85,815.32 0.73
Power Grid Corp 84,007.68 34,459.63 2.44
Suzlon Energy 8,335.23 2,825.98 2.95
Tata Power 10,255.52 13,127.36 0.78
Figure 3: Graph for debt and Equity of Companies
The proportion of debt & shareholder’s equity for the companies can be seen from the graph
above.
The two major players in the power industry i.e. NTPC and Power Grid Corporation follow
different strategy to meet their financial needs. Power Grid Corporation has higher debt whereas
NTPC has higher shareholder’s equity compared to the debt.
0.00
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
140,000.00
160,000.00
Torrent Power NTPC Power Grid
Corp
Suzlon Energy Tata Power
Debt & Shareholder's Equity
Total Debt Shareholder's Equity

17
Figure 4: Debt/Equity Ratios of Companies
Funding through debt or shareholder’s equity, both carries their cost and thus both have their
pros and cons. It depends on the type of company and its requirements of the funds.
The company can fund through loans and debentures but it has interest which is to be paid even
if the company doesn’t earn whereas in case of financing through equity, the company doesn’t
need to pay to the shareholders in case of losses. Thus it is important that the company changes
its capital structure on the basis of its needs of fund and future goals.
CAPITAL STRUCTURE OF THE COMPANIES
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Torrent
Power
NTPC Power Grid
Corp
Suzlon
Energy
Tata Power
Debt/Equity Ratio
8%
92%
TORRENT POWER LTD
Equity
Debt
12%
88%
NTPC
Equity
Total Debt

18
6%
94%
POWER GRID CORPORATION
Equity Total Debt
6%
94%
SUZLON ENERGY
Equity Total Debt
56%44%
TATA POWER
Equity Total Debt

19
WORKING CAPITAL POLICY
Working Capital is the capital available for conducting the day to day operation of the business
and consists of current assets and current liabilities.
Working Capital can be viewed as a whole but interest is usually focused on the individual
components such as inventories or trade receivables. Working capital is effectively the net current
assets of a business.
Working Capital can either be:
Positive Current assets are greater than current liabilities
Negative Current assets are less than current liabilities
WORKING CAPITAL CYCLE
The working capital cycle (WCC) is the amount of time it takes to turn the net current assets and
current liabilities into cash. The longer the cycle is, the longer a business is tying up capital in its
working capital without earning a return on it. Therefore, companies strive to reduce its working
capital cycle by collecting receivables quicker or sometimes stretching accounts payable.
Figure 5: Working Capital Cycle:

20
Figure 6: Working capital cycle in manufacturing business
WORKING CAPITAL CYCLE OF COMPANIES
Table 3: Calculating Working capital cycle (WCC) of Torrent Power
Torrent Power
Mar '14
(Days)
Mar '13
(Days)
Mar '12
(Days)
Mar '11
(Days)
Mar '10
(Days)
Inventory Turnover Period 12 11 0 0 0
Debtors Turnover Period 32 31 29 32 32
Creditors Turnover Period 44 48 47 27 26
WCC 0 -6 -18 5 6
Figure 7: Graph for WCC of Torrent Power Ltd.
0
-6
-18
5
6
Mar '14 Mar '13 Mar '12 Mar '11 Mar '10
NumberofDays

21
The WCC of Torrent Power Ltd. had been getting better from 2010 till 2012 i.e. the company was
utilizing the time of payment to the creditors. But from 2012 to 2014 the time period for payment
to creditor decreased gradually thus the company is clearing the accounts payable and is not able
to utilize the account receivable.
Table 4: Calculating Working capital cycle (WCC) of NTPC
NTPC
Mar '14
(Days)
Mar '13
(Days)
Mar '12
(Days)
Mar '11
(Days)
Mar '10
(Days)
Creditors Turnover Period -4 -8 -23 -25 -100
WCC 58 61 65 76 153
Figure 8: Graph for WCC of NTPC
The WCC of NTPC has decreased three fold of its value in 2010. The company’s management is
getting efficient in collecting the accounts receivable from the customers and has also increased
the CTP. But still the WCC can be lowered by decreasing the DTP.
58 61 65
76
153
NumberofDays

22
Table 5: Calculating Working capital cycle (WCC) of Power Grid Corp. of India
POWER GRID CORP.
Mar '14
(Days)
Mar
'13
(Days)
Mar '12
(Days)
Mar '11
(Days)
Mar '10
(Days)
Creditors Turnover Period 219 -319 66 3247 280
WCC -166 377 -3 -1704 -188
Figure 9: Graph of WCC for Power Grid Corp. of India
The WCC of Power Grid Corporation in 2014 is better when compared to other years as the DTP
is lowest of all time and the CTP is high enough to take the advantage of the money received from
the customers which can be utilized in working capital.
Table 6: Calculating Working capital cycle (WCC) of Suzlon Energy Ltd.
Suzlon Energy
Mar '14
(Days)
Mar '13
(Days)
Mar '12
(Days)
Mar '11
(Days)
Mar '10
(Days)
Creditors Turnover Period 276 746 122 -89 -2
WCC -2 95 105 391 481
-166
377
-3
-1704
-188
NumberofDays

23
Figure 10: Graph of WCC for Suzlon Energy Ltd.
Suzlon’s WCC has been decreasing gradually which shows that the management is getting
efficient to meet its day to day need. Still the DTP and ITP is very high which can be reduced to
get better WCC.
Table 7: Calculating Working capital cycle (WCC) of TATA Power
TATA Power
Mar '14
(Days)
Mar '13
(Days)
Mar '12
(Days)
Mar '11
(Days)
Mar '10
(Days)
Creditors Turnover Period 102 -17 -63 -47 -71
WCC -17 65 151 171 181
Figure 11: Graph of WCC for TATA Power
-2
95 105
391
481
NumberofDays
-17
65
151
171
181
NumberofDays
Axis Title

24
WCC of TATA Power has been negative for the first time when compared to previous years, thus
shows that it has been doing good for past years.
Table 8: WCC of Companies
Company Torrent Power NTPC
Power Grid
Corp
Suzlon
Energy
Tata
Power
WCC (2014) 0 58 -166 -2 -17
Figure 12: Graph for WCC of Companies
When the WCC of the companies are compared with one another, we notice that all the companies
except for NTPC have a good balance between the DTP and CTP. The CTP of Power Grid
Corporation is very high with low DTP thus indicating that the management is efficient and is able
to meet the day to day financial needs efficiently.
WORKING CAPITAL POLICIES
1. Cash Policies:
 Do not invest funds in illiquid investment vehicles
 No investment duration shall exceed the forecasting period
 All deposited funds must be insured
0
58
-166
-2
-17
-200
-150
-100
-50
0
50
100
T ORRE NT
P OW E R
NT P C P OW E R GRID
C ORP
S UZLON
E NE RGY
T A T A P OW E R
NUMBEROFDAYS
WCC OF COMPANIES (2014)

25
2. Accounts Receivable Policies
 Do not allow payment terms greater than decided days
 Fix the maximum credit offered a customer
 Stop customer credit once days outstanding exceed
 Stop customer credit if a customer check does not clear the bank
3. Inventory Policies
 Review inventory on hand exceeding __ days of usage.
 Adopt just-in-time purchasing on qualified raw materials and merchandise.
 Drop shipped inventory is the preferred stocking method
4. Accounts Payable Policies
 Do not pay accounts payable early
 Require purchase orders for amounts exceeding Rs. ___
 Disallow purchases exceeding the department budget

26
DIVIDENDS AND DIVIDEND POLICIES
Dividends are payments made by a corporation to its shareholder members. It is the portion of
corporate profits paid out to stockholders.
TYPES OF DIVIDEND:
1. Cash Dividends:
This is the most common form of dividend. Cash dividends are those dividends
when simply cash is paid out of the profits.
2. Share Repurchases:
The Company repurchases the stock. Shareholders pay tax only on the capital gains
portion.
3. Stock Split:
It increases the number of shares in a public company. The price is adjusted such
that the before and after market capitalization of the company remains the same
and dilution does not occur.
4. Bonus Issue:
It is a free share of stock given to current shareholders in a company, based upon
the number of shares that the shareholder already owns. While the issue of bonus
shares increases the total number of shares issued and owned, it does not change
the value of the company.
5. Right Issue:
With the issued rights, existing shareholders have the privilege to buy a specified
number of new shares from the firm at a specified price within a specified time.
Dividend policy is concerned with taking an implicit or explicit decision of the Board of
Directors regarding paying cash dividend in the present or paying an increased dividend at a later
stage to the shareholders.

27
The policy a company uses to decide how much it will pay out to shareholders in dividends from
PAT and this decision is considered a financing decision
Dividend policy can be of two types:
1. Residual dividend policy:
The amount of dividend is simply the cash left after the firm makes desirable
investments using NPV rule. The rule is- if the company does not have any
positive NPV projects to invest in, then it should pay shareholders dividend.
2. Dividend Stability Policy:
The fluctuation of dividends created by the residual policy significantly
contrasts with the certainty of the dividend stability policy. With the
stability policy, quarterly dividends are set at a fraction of yearly earnings.
This policy reduces uncertainty for investors and provides them with
income.
3. Hybrid Dividend Policy:
The final approach is a combination between the residual and stable
dividend policy. Using this approach, companies tend to view the
debt/equity ratio as a long-term rather than a short-term goal.
CONCEPT OF DIVIDEND
Dividends paid by the firms are viewed positively both by the investors and the firms. The
firms which do not pay dividends are rated low by investors thus affecting the share price.Dividend
policy is challenging for the directors and financial manager of a company, as different investors
have different views on present cash dividends and future capital gains. Also regarding the extent
of effect of these dividends on the share price. Due to this controversial nature of a dividend policy
it is often called the dividend Puzzle.
 Most common type of dividend Measure:
 Level of dividends often measured by dividend yield:
Dividend yield =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑆𝑡𝑜𝑐𝑘 𝑃𝑟𝑖𝑐𝑒
Dividend yield measures percentage return earned by investor from dividends
alone.

28
 Firm’s dividend policy can be measured by payout ratio:
Payout ratio =
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
 Data from Financial Statements
Table 9: EPS, DPS and Share Price of Companies
Company EPS DPS
Share
Price
Tata Power 4.02 1.25 74.55
NTPC 13.31 5.75 147.5
Torrent
Power
2.01 0.5 161.6
Power grid 8.6 2.58 144.8
Suzlon
Energy
-3.72 0 27.65
 Dividend Payout ratio:
Dividend Payout Ratio =
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 (𝐷𝑃𝑆)
𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 (𝐸𝑃𝑆)
=
0.5
2.01
= 24.88
 Dividend yield:
Dividend yield =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑆𝑡𝑜𝑐𝑘 𝑃𝑟𝑖𝑐𝑒
=
0.5
161.6
= 0.31%
Similarly, the dividend payout ratio & dividend yield can be calculated for other companies as
follows:
Table 10: Dividend Payout & Dividend Yield Ratios of the Companies
Company
Dividend
Payout Ratio
Dividend
yield
Tata Power 31.09% 1.68%
NTPC 43.20% 3.90%
Torrent Power 24.88% 0.31%
Power grid 30.00% 1.78%
Suzlon Energy 0.00% 0.00%

29
INVESTMENT OF COMPANIES
TORRENT POWER LIMITED
Table 11: Investment of Torrent Power Ltd. in FY 2014
Non-Current Investments: Rs. Cr
Tidong Hydro Power Limited 0.02
AEC Cements & Constructions Limited 0.61
Torrent Power Grid Limited 66.6
Torrent Energy Limited 1988.22
Torrent Pipavav Generation Limited 57.5
8.28% GOI Bond – 2032 0.99
8.97% GOI Bond – 2030 1.01
Total Current Investment 2114.95
Current Investments:
Birla Sun Life Cash Plus – Growth 123.32
IDFC Cash Fund – Growth 0.94
ICICI Liquid Plan - Regular – Growth 101.39
Kotak Liquid Scheme Plan A – Growth 81.24
SBI PLF- Regular Plan – Growth 88.99
Tata Liquid Fund Plan A – Growth 101.66
Total Current Investment 497.54
Total Investment 2612.49
NATIONAL THERMAL POWER CORPORATION LIMITED
Table 12: Investment of NTPC in FY 2014
Non-Current Investments: Rs. Cr
PTC India Ltd. 12
Subsidiary Companies 1267.23
Joint venture companies 5015.83
Share application money pending 174.38
Bonds 1651.46
Total Non-current Investment 8120.9
Current Investments:
8.50 % Tax-Free State Government Special Bonds 1636.96
Total Investment 9757.86

30
TATA POWER
Table 13: Investment of TATA Power in FY 2014
Non-current Investments Rs. Cr
Trade Investment
Equity shares fully paid
Investment in Subsidiaries (Quoted) 11.07
Investment in Subsidiaries (Unquoted) 9119.38
Associates 85.15
Investment in Others 1.36
Preference Shares, Investment in Subsidiaries 391.81
Other Investment
Statutory Investments 357.11
Non-trade Investments
Equity Shares fully Paid-up 2236.47
Government Securities 0.03
Total Non-current Investments 12361.09
Current Investments 1.36
Total Investments 12362.45
POWER GRID CORPORATION
Table 14: Investment of Power Grid Corp. in FY 2014
Trade Investment
Equity shares fully paid
PTC India Limited 12
Investment in Subsidiaries 30.69
Govt.Securities 180.44
Other Bonds 13.83
Current Investments
Govt.Securities 179.35
Other Bonds 5
Total Current Investments 184.35

31
SUZLON ENERGY
Table 15: Investment of Suzlon Energy Ltd. in FY 2014
Government Securities 0.01
Investment in Subsidiaries (Indian) 409.75
Investment in Subsidiaries (Overseas) 7320.3
Other than subsidiaries 0.01
Current Investments 0
Investment of companies for FY 2013-2014:
Table 16: Total Investment of Companies
COMPANY
TOTAL INVESTMENT
(Rs. Cr.)
TATA POWER 12362.45
NTPC 9757.86
POWER GRID CORP. 998.62
TORRENT POWER LTD 2612.49
SUZLON ENERGY 7730.07

32
Figure 13: Graph of Total Investment of Companies
The total investment done by the companies include Non-current investment and
current investment which give an idea of their future plans diversification.
12362.45
9757.86
998.62
2612.49
7730.07
0
2000
4000
6000
8000
10000
12000
14000
TATA POWER NTPC POWER GRID
CORP.
TORRENT POWER
LTD
SUZLON ENERGY
TOTAL INVESTMENT
TOTAL INVESTMENT (Rs. Cr)

33
REFERENCES
1. Annual Reports of the Companies from 2010 till 2014
 http://www.ntpc.co.in/annual-reports/1218/download-complete-
annual-report-2013-14-2013
 http://www.torrentpower.com/investors/pdfs/2014/tp_annual_report_1
3-14.pdf
 http://www.powergridindia.com/_layouts/PowerGrid/WriteReadData/
file/agm/2014/Annual%20Report%202013-14.pdf
 http://www.suzlon.com/images/investor_annual_result/22_Suzlon_An
nual_Report_2013-14.pdf
 http://www.tatapower.com/investor-relations/pdf/95Annual-Report-
2013-14.pdf
2. www.capitaline.com
3. www.moneycontrol.com
4. www.accountingtools.com

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