Capital Structure Working Capital Dividend & Dividend Policies Investment & Diversification

1. CONCEPTS OF CAPITAL
STRUCTURE & WORKING
CAPITAL POLICIES
(POWER INDUSTRY)
Presented By:
GROUP NO. 7

2. POWER INDUSTRY
India is the world’s eleventh largest
economy by nominal GDP and fourth
largest by Purchasing Power Parity. The
eleventh five‐year plan of India’s Planning
Commission set an ambitious target of 9
percent GDP growth for the plan period
(2007‐2012). Critical to the ability to
sustain this growth going forward is the
availability and affordability of energy.
At present, India’s energy supply is
skewed in favor of non‐renewable energy
sources. India is one of the largest buyers
of crude oil in world, while it meets most
of its demand for coal through its sizable
domestic reserves. However, the country
has actively begun to explore other
avenues, such as nuclear power and solar
power.
Source: http://www.iea.org (2008)

3. COMPANIES
TATA POWER
NATIONAL THERMAL POWER CORPORATION LIMITED (NTPC)
POWER GRID CORPORATION OF INDIA LIMITED
TORRENT POWER
SUZLON ENERGY LIMITED

4. 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.
• 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

5. NATIONAL THERMAL POWER
CORPORATION LIMITED (NTPC)
•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 pla
•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

6. 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 charged with planning, executing, owning,

7. 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.
•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,

8. 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.
•Suzlon's story began in 1995 when founder Tulsi Tanti was managing
a 20-employee textile company.
•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.
•The company manufactures blades, generators, panels, and

9. CAPITAL
STRUCTURE

10. 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
TOTAL CAPITAL
EQUITY CAPITAL
Equity
Preference share capital
Retained Earnings
DEBT CAPITAL
Term loans
Debentures
long term loans

11. CAPITAL STRUCTURE OF A FIRM
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

12. DEBT CAPITAL
Advantages:
I. The administrative & issuing cost are normally lower than raising equity capital.
II. Cost advantage due to the ability to set debt interest against profit for tax
purposes.
III. The pre tax rate of interest is invariably lower, than the return required by equity
capital suppliers.
IV. Company can obtain benefit of trading on equity.
Disadvantages:
I. Payment of interest whether there is profit or loss.
II. Capacity of creating future debt for the company reduces.
III. There is fear of loss of control over management.

13. EQUITY CAPITAL
Advantages:
I. Payment of dividend only when there is sufficient profit.
II. Management need not to make provision for repayment of finance.
III. Control over management remains with equity share holders.
IV. 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:
I. The expenses for procurement of capital through equity share is more.
II. Benefit of trading on equity can‘t be obtained.
III. Equity dividend is not tax deductible.
IV. This may sometimes leads to over capitalization

14. FINANCIAL SOURCES OF THE
COMPANIES
472.45
8,245.46
5,231.59
497.63 237.330 0 0 162.02 0
5,704.11
77,569.86
29,228.04
2,166.33
12,890.03
5,593.71
62,405.75
84,007.68
8,335.23
10,255.52
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

15. DEBT/EQUITY RATIO
Debt/Equity Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
Company
Total
Debt
Shareholder
's Equity
Debt/Equit
y Ratio
Torrent
Power
5,593.7
1 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
8,335.2
3 2,825.98 2.95
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

16. CAPITAL STRUCTURE OF THE
COMPANIES
8%
92%
TORRENT POWER LTD
Equity
Debt
12%
88%
NTPC
Equity
Total Debt
6%
94%
POWER GRID
CORPORATION
Equity Total Debt
6%
94%
SUZLON ENERGY
Equity Total Debt
56%44%
TATA POWER
Equity Total Debt

17. WORKING CAPITAL

18. WORKING CAPITAL
•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
Negativ
e
Current assets are less than current
liabilities

19. 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.

20. CALCULATING WORKING CAPITAL
CYCLE (WCC)

21. WORKING CAPITAL CYCLE OF
POWER GRID CORPORATION
POWER GRID
CORP.
Mar
'14
(Days
)
Mar
'13
(Days
)
Mar
'12
(Days)
Mar
'11
(Days
)
Mar
'10
(Days)
Inventory
Turnover Period
17 16 16 285 0
Debtors Turnover
Period
36 42 47 1258 92
Creditors Turnover
Period
219 -319 66 3247 280
WCC -166 377 -3
-
1704
-188
-166
377
-3
-1704
-188
Mar '14 Mar '13 Mar '12 Mar '11 Mar '10
NumberofDays

22. WORKING CAPITAL CYCLE OF
COMPANIES
Torrent Power NTPC
Power Grid
Corp
Suzlon Energy Tata Power
WCC (2014) 0 58 -166 -2 -17
0
58
-166
-2
-17
-200
-150
-100
-50
0
50
100
NUMBEROFDAYS
WCC OF COMPANIES (2014)

23. WORKING CAPITAL POLICIES
Cash Policies:
 Do not invest funds in illiquid investment vehicles
 No investment duration shall exceed the forecasting
period
 All deposited funds must be insured
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

24. CONT..
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
Accounts Payable Policies:
 Do not pay accounts payable early
 Require purchase orders for amounts exceeding Rs. ___
 Disallow purchases exceeding the department budget

25. DIVIDENDS & DIVIDEND
POLICIES

26. DIVIDENDS
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:
 Cash Dividends:
This is the most common form of dividend. Cash dividends are
those dividends when simply cash is paid out of the profits.
 Share Repurchases:
The Company repurchases the stock. Shareholders pay tax
only on the capital gains portion.

27. CONT..
 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.
 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.
 Right Issue:
With the issued rights, existing shareholders have
the privilege to buy a specified number of new shares from the

28. DIVIDEND POLICIES
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.
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:
 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.

29. CONT..
 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.
 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.

30. MOST COMMON TYPE OF DIVIDEND
MEASURE
Level of dividends often measured by dividend yield:
Dividend yield =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 (𝐷𝑃𝑆)
𝑆𝑡𝑜𝑐𝑘 𝑃𝑟𝑖𝑐𝑒
Dividend yield measures percentage return earned by investor from
dividends alone.
Firm’s dividend policy can be measured by payout ratio:
Dividend payout ratio =
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 (𝐷𝑃𝑆)
𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 (𝐸𝑃𝑆)

31. DIVIDEND PAYOUT RATIO & DIVIDEND YIELD
RATIO
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
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%

32. INVESTMENT &
DIVERSIFICATION

33. DIVERSIFICATION
TATA POWER:
Investment in JV’s : Rs. 158.71 Cr
Tubed Coal Mines Ltd. ,Mandakini Coal Company Ltd and Dagachhu
Hydro Power Corporation Ltd.
Unrelated diversification: Rs. 9375.67 Cr
Tata services Ltd, Indian exchange Ltd.
Investment in Associates : Rs. 85.15 Cr
Yashmun Engineers Ltd. , The Associated Building Co. Ltd , Tata
Projects Ltd.

34. INVESTMENT
TATA POWER NTPC
POWER GRID
CORP.
TORRENT
POWER LTD
SUZLON
ENERGY
TOTAL INVESTMENT (Rs. Cr) 12362.45 9757.86 998.62 2612.49 7730.07
12362.45
9757.86
998.62
2612.49
7730.07
0
2000
4000
6000
8000
10000
12000
14000
TOTAL INVESTMENT
TOTAL INVESTMENT (Rs. Cr)

35. THANK