XAVIER INSTITUTE OF SOCIAL SERVICE

(Ranchi,

Jharkhand)

ANALYSIS OF REVENUE FROM CONSULTANCY SERVICES AT

POWER GRID CORPORATION OF INDIA LIMITED Gurgaon, Haryana

AS A PART OF SUMMER INTERNSHIP PROGRAMME Under the Guidance of Mr. Harihara Rath(Manager Finance & Accounts, PGCIL) & Prof. Arup Mukherjee (Faculty Member, XISS, Ranchi) From 22.04.2012 To 15.06.2012 (8 Weeks)

Submitted by:Shresth Kotish XAVIER INSTITUTE OF SOCIAL SERVICE Ranchi - 834001

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APPROVAL SHEET
This is to certify the Summer Project entitled Analysis of Revenue from Consultancy Jobs at Power Grid Corporation of India Limited has been prepared by Mr.Shresth Kotish in partial fulfillment of the requirement for the award of the Post Graduate Diploma in Management (Finance) at Xavier Institute of Social Service (XISS), Ranchi. The study embodies the data collected, analyzed and compiled by the researcher under the guidance of the undersigned guide of the institute and thereby approved as indicating the proficiency of the researcher.

Prof. Arup Mukherjee Bhowani. Project Guide.

Prof. Bhaskar Coordinator. Summer Internship

Dr. Ratnesh Chatturvedi. HOD Finance.

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Declaration
I hearby declare that the project report entitled has been prepared by me during the period from under the guidance of Mr. Harihara Rath(Manager- Finance & Accounts) and Prof. Arup Mukherjee, Faculty Member Xavier Institute of Social Service, Ranchi. I also declare that the project has not been submitted nor shall it be submitted in future to any other University or Institution for the award of any other degree or diploma.

Date: Place:

Signature (Shresth Kotish)

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ACKNOWLEDGEMENT
It was really a great experience to work for a company of the stature of POWERGRID. We find great pleasure in expressing our deep sense of gratitude towards all those who have made it possible for us to complete this project with success. Their contribution, big or small, was valuable to us for the completion of the project. First of all, we would like to thank Mr.Harihara Rath (Manager Finance & Accounts) who gave us an opportunity to do a project for this esteemed company and also helped us immensely as our external guide. He provided us with valuable knowledge, gave us precious time and shared his experience with the company and recent developments that are taking place in the same organization.

A special thanks to our mentors from the institute Prof. Dr. Ratnesh Chaturvedi (Department of Finance) & Prof. Arup Mukherjee (Department of Finance), who provided us with their immense support and constantly guided us throughout the project and without their guidance the project could not has been easily completed. Last but not the least a special thanks to our friends and family for standing by us and helping us in various ways for successful completion of this Project.

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CONTENTS
Serial No
1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.1 2.2 2.3 2.4 3 3.1 3.2 3.3 3.4 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8

Topics
Introduction to the Topic Structure of Power Sector Electricity Act 2003 Problems and issues concerned with Power Sector Globalization of Power Sector Players of the Sector Licensees Interrelationship between players Market Share of the major players and HHI National Grid Introduction Formation of National Grid Development of National Grid Distribution of Power Sector Research Methodology Justification of the Study Sources of Information Scope of Study Limitations of Study Company Profile An Overview Company History and Incorporation POWERGRID - The Company Vision and Mission of the Company Objectives of the company Milestones Achieved POWERGRID's Performance Fields of Operation/ Services offered by POWERGRID

Page No.
7 8 10 11 12 12 13 13 13 14 14 15 15 16 17 17 18 19 19 20 21 22 23 24-25 26-29

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5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 6 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 7 8 9

Analysis of Companies(PGCIL, NTPC , NHPC) Areas of Consultancy Service offered by POWERGRID Process of Obtaining a consultancy assignment Method Of Bidding Joint Venture Comparison of Earnings through Consultancy Change in Earnings through Consultancy in comparison to Total Earnings Comparison of Composition of Earnings through Consultancy Role of Finance Department in Consultancy Jobs at PGCIL Analysis of Revenue FiveYear Summary Operating Results Five Year Summary Financial Position Balance Sheet as at 31st march 2011 Profit & Loss Account for the year ended 31st March 2011 Graphical Representation of data Ratio Analysis of Data Comparative Position Statement as at 31st March 2011 Comparative Income Statement as at 31st March 2011 Conclusion Recommendations Bibliography

30-33 34-36 36-37 37-38 39 39 40-41 41-43

45 46-47 48-49 50-51 51-54 55-59 60-61 62-63 64-65 66 67

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Introduction to the Topic

Analysis of Revenue from Consultancy Services at power Grid Corporation of India Limited has been prepared by a
The Project Report on the topic : student of PGDM Program at Xavier Institute of Social Service, after undergoing 8 weeks of Summer Training as a part of FINANCE curriculum. The Internship has been undertaken at: POWERGRID Corporation of India ltd. Corporate centre SAUDAMINI Plot no.2, Sector-29 Gurgaon-122001 under the guidance of Mr. Vikash Chandra Thakur, Manager- Finance & Accounts). Power Grid Corporation of India ltd. (POWERGRID), Indias principal player in Electric power transmission and a Navratna company, was incorporated on October 23, 1989 as a Public Limited Company, wholly owned by the Government of India. It has been carrying out its responsibilities efficiently in the construction, operation and maintenance of inter-state transmission systems and operation of Regional Power Grids. It has been notified as the Central Transmission Utility (CTU) of the country. Besides being a monopoly in the transmission sector it also has extended its operations in the telecom business by laying overhead optic fibre network of 25000 kms (as on May 2012) for telecom connectivity to all major towns & cities. The network leases bandwidth to clients like Bharat Sanchar Nigam, Videsh Sanchar Nigam, Tata Teleservices, Reliance communications and Bharti Airtel. With a net worth of Rs.21351.37 (FY 2010-11) the financial performance of POWERGRID has been improving consistently mainly on account of commissioning of new projects over the years. POWERGRID continues to give major thrust to R&D activities and seamless integration of new technologies to achieve sustainable growth and to improve quality of power supply while optimizing upon the cost of delivered power. The Company has undertaken several

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technological innovations aimed at conserving Right-of-Way (ROW), minimizing impact on natural resources & human habitat and cost effectiveness in evacuation of power from the future generation projects. The Company has been continuously upgrading and up-rating its existing transmission lines to meet the short-term requirements. This project focuses on the Revenue analysis of the organization and mainly taking into account the Consultancy Service. Power Grid Corporation has diversified into consultancy sector since 1995. Using its expertise in the energy sector, the company in recent times has not only acquired major national projects but is also providing consultancy to other foreign countries. Since the company has ventured into this sector since a decade, this part of the operation is of prime focus and there may be chances that the company improves into this and generated higher revenue. Apart from primarily focusing on Consultancy service and revenue, the project also analyses the total operational income of the organization, with the prime motive to detect areas that can help the organization increase its profitable income.

To remain a financially progressive organization in emerging market conditions, POWERGRID is taking all possible steps to improve its financial strength by taking up other kind of synergetic business such as consultancy assignments at National and International level in transmission, distribution, telecom etc. Based on its in-house expertise in various facets of transmission and telecom sectors, POWERGRID has been offering consultancy services. Besides various domestic assignments, the Company is taking keen interest in development of transmission system in the neighboring countries viz. Bhutan, Nepal, Afghanistan and Sri Lanka.

Structure of Power sector

In December 1950 about 63% of the installed capacity in the Utilities was in the private sector and about 37% was in the public sector. The Industrial Policy Resolution of 1956 envisaged the generation, transmission and distribution of power almost exclusively in the public sector. As a result of this Resolution and facilitated by the Electricity (Supply) Act, 1948, the electricity industry developed rapidly in the State Sector. The Electricity (Supply) Act, 1948, provides an elaborate institutional frame work and financing norms of the performance of the electricity industry in the country. The Act envisaged creation of State Electricity Boards (SEBs) for planning and implementing the power development programmers in their respective States. The Act also provided for

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creation of central generation companies for setting up and operating generating facilities in the Central Sector. The Central Electricity Authority constituted under the Act is responsible for power planning at the national level. In addition the Electricity (Supply) Act also allowed from the beginning the private licensees to distribute and/or generate electricity in the specified areas designated by the concerned State Government/SEB. During the post independence period, the various States played a predominant role in the power development. Most of the States have established State Electricity Boards. In some of these States separate corporations have also been established to install and operate generation facilities. In the rest of the smaller States and UTs the power systems are managed and operated by the respective electricity departments. In a few States private licenses are also operating in certain urban areas. From, the Fifth Plan onwards i.e. 1974-79, the Government of India got itself involved in a big way in the generation and bulk transmission of power to supplement the efforts at the State level and took upon itself the responsibility of setting up large power projects to develop the coal and hydroelectric resources in the country as a supplementary effort in meeting the countrys power requirements. The National thermal Power Corporation (NTPC) and National Hydro-electric Power Corporation (NHPC) were set up for these purposes in 1975. North-Eastern Electric Power Corporation (NEEPCO) was set up in 1976 to implement the regional power projects in the North-East. Subsequently two more power generation corporations were set up in 1988 viz. Tehri Hydro Development Corporation (THDC) and Nathpa Jhakri Power Corporation (NJPC). To construct, operate and maintain the inter-State and interregional transmission systems the National Power Transmission Corporation (NPTC) was set up in 1989. The corporation was renamed as POWER GRID in 1992.

The policy of liberalization the Government of India announced in 1991 and consequent amendments in Electricity (Supply) Act have opened new vistas to involve private efforts and investments in electricity industry. Considerable emphasis has been placed on attracting private investment and the major policy changes have been announced by the Government in this regard which are enumerated below: The Electricity (Supply) Act, 1948 was amended in 1991 to provide for creation of private generating companies for setting up power generating facilities and selling the power in bulk to the grid or other persons.

Financial Environment for private sector units modified to allow liberal capital structuring and an attractive return on investment. Up to hundred percent (100%) foreign equity participation can be permitted for projects set up by foreign private investors in the Indian Electricity Sector.

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Administrative & Legal environment modified to simplify the clearances of the projects. Policy guidelines for private sector participation in the renovation and modernization of power plan in 1995. In 1995, the policy for Mega power projects of capacity 1000 MW or more and supplying power to more than one state introduced. The Mega projects to be set up in the regions having coal and hydel potential or in the coastal regions based on imported fuel. The Mega policy has since been refined and Power Trading Corporation (PTC) incorporated recently to promote and monitor the Mega Power Projects. PTC would purchase power from the Mega Power Projects and sell it to the SEBs. In 1995 GOI (Government Of India) came out with liquid fuel policy permitting liquid fuel based power plants to achieve the quick capacity addition so as to avert a severe power crisis. Liquid fuel linkages (Naphtha) were approved for about 12000 MW Power plant capacities. GOI has promulgated Electricity Regulatory Commission Act, 1998 for setting up of Independent Regulatory bodies both at the Central level and at the State level viz. The Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commission (SERCs)

AT the Central and the State levels respectively. The main function of the CERC is:

1. To regulate the tariff of generating companies owned or controlled by the Central Government, 2. To regulate the tariff of generating companies, other than those owned or controlled by the Central Government, if such generating companies enter into or otherwise have a composite scheme for generation and 3. Sale of electricity in more than one State to regulate the inter-state transmission of energy including tariff of the transmission utilities, 4. To regulate inter-state bulk sale of power and to aid & advise the Central Government in formulation of tariff policy.

The CERC was constituted on 24.7.1998.

The main functions of the CERC are: 1. To determine the tariff for electricity wholesale bulk, grid or retail, 2. To determine the tariff payable for use by the transmission facilities to regulate power purchase and procurement process of transmission utilities and distribution utilities,

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3. To promote competition, efficiency and economy in the activities of the electricity industries etc. Subsequently, as and when each State Government notifies, other regulatory functions would also be assigned to SERCs.

The Electricity Laws (Amendment) Act, 1998 passed with a view to make transmission as a separate activity for inviting greater participation in investment from public and private sectors. The participation by private sector in the area of transmission is proposed to be limited to construction and maintenance of transmission lines for operation under the supervision and control of Central Transmission Utility (CTU)/State Transmission Utility (STU). On selection of the private company, the CTU/STU would recommend to the CERC/SERC for issue of transmission license to the private company.

The Electricity Laws (Amendment) Act, 1998 provides for creation of Central and State Transmission utilities. The function of the Central Transmission Utility shall be to undertake transmission of energy through inter-state transmission system and discharge all functions of planning and coordination relating to inter-state transmission system with State Transmission Utilities, Central Government, State Governments, generating companies etc.

Electricity act 2003:

Enacted in year 2003, it has created a new paradigm for the development of power sector in India. It has abolished monopoly of the State Electricity Board created under the Electricity (Supply) Act 1948 and has created a new competitive framework for the development of the power sector in India with focus on the consumers and safeguarding their interests by independent Regulatory Commissions. The Act has eliminated/reduced entry barriers in the entire chain of the electricity supply business. It marks the culmination of the process beginning in the mid nineties of States enacting their own Reform Acts and the enactment of the Electricity Regulatory Commission Act of 1998 which brought into place the Central Electricity Regulatory Commission and authorized the state to create Regulatory Commissions at State level, if they wished to do so.

Salient Features of the Electricity Act 2003 The Act provides for: a) Generation of electricity is free from licensing. Impact: More industries will be encouraged to setup captive power plants. Also, the time required for setting up a power plantfrom the proposal to the completion stagewill be shortened considerably. b) Captive generation freely permitted, for both or a one-to-one basis, as small as or a group captive basis
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Impact: Captive Power Plants (CPPs) will be allowed to use power not only for captive use but also to sell to other licensees. This will allow captive generators to sell excess power at more remunerative prices than before, and thus raise the capacity utilization to existing plants and also encourage new capacity addition. c) Open access for captive use on payment of wheeling charges. Impact: This will allow open access to transmission lines, thus allowing them to bypass the SEBs and sell power directly to the distribution and trading licensees. d) Consumers would have a right for non-discriminatory open access to transmission/distribution network subject to payment of surcharges to meet current level of cross subsidy as well as the applicable wheeling charges. Impact: With this freedom to buy and sell power, initially in the wholesale market and eventually in the retail market, the end-user will benefit both in terms of choice of supplier and reliability of supply. e) Stand alone Generation/Distribution of Electricity for Rural areas Permitted. Impact: This will allow potential private entrants to enter the distribution business, while putting pressure on incumbents to enhance performance and customer service. f) Mandatory purchase of power from renewable sources by the distribution licensee. Single Buyer model is completely abolished. Impact: This will bring competition in the industry. Competition among players will also enhance efficiency and led to better customer service standards.

Problems & Issues Concerned with Power Sector

The most important issues being faced in the power sector are the irrational and unremunerative tariff structure. Power Supply to agriculture and domestic consumers is heavily subsidized. Only a part of this subsidy is recovered by SEBs through cross subsidization of tariff from commercial and industrial consumers. The SEBs, in the process, have been incurring heavy losses. If the SEBs were to continue to operate on the same lines, their internal resources generation during the next ten years will be negative, being of the order of Rs.(-) 77,000crore. This raises serious doubts about the ability of the States to contribute their share to capacity addition during the Ninth Plan and thereafter. This highlights the importance of initiating power sector reforms at the earliest and the need for tariff rationalization.

Secondly, the initial response of the domestic and foreign investors to the private participation in power sector. There have been delays relating to finalization of power purchase agreements, guarantees and counter-guarantees, environmental clearances, matching transmission networks and legally enforceable contracts for fuel supplies. Uncertainties about fuel supply arrangements and the difficulty in negotiating arrangements with public sector fuel suppliers, which concern penalties for non-performance, is another area of potential difficulty. It is important to resolve these difficulties and evolve a framework of policy which can

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ensure a reasonable distribution of risks which make power sector projects financially attractive

Globalization of the Sector

Post 1991 many international players evinced interest in the Indian power sector. Oil and gas giants expand into electric power, renewable, coal and energy services, becoming full-scale energy multinationals. They adopt global strategies and extend their activities and investments into all parts of the world. GOI provided several sops to attract the international funds and that made many international players to enter into some form of relationship with the large Indian companies to venture into the power sector.

Players of the Sector

The Indian Constitution includes the power industry on the Concurrent List - it is the combined responsibility of both the central and state governments. The ESA allows the setting up of three types of utilities:

State Electricity Boards

The SEBs generates, supply, and distribute electricity within a state. The ESA also permits them to undertake activities related to the electrical equipment business such as leasing out its generating stations, conducting investigations and granting loans to licensees. An SEB enjoys all the powers and obligations of licensees under the Indian Electricity Act of 1910.

As mentioned earlier, SEBs was formed under ESA and is wholly owned by their state governments. Therefore, state governments play a pervasive role in SEB operations, including the appointment of board members, approval of capital expenditures and financing, tariffs setting, subsidies payable, and overseeing private sector participation. SEBs is involved in all aspects of electricity production (generation, transmission and distribution) except fuel supply an account for approximately 65% of the power generated in India.

Central Generating Companies

Until 1991, the ESA allowed only central and state governments to establish generating companies. Generating companies are responsible for supplying power to the grid without the specific responsibility of retail distribution. In this category the major players are: NTPC, NHPC, and PGCI. Since 1991, however, a generating company merely needs to be registered under the Companies Act, 1956. Independent power producers (IPPs) now fall under this category.

Licensees
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Licensees are private sector utilities licensed by the government to generate and/or supply power within a specified area. Licensees may be of three types: Power generation and supply licensees, power generation licensees and power distribution licensees.

Interrelationship between players

Unlike other industries, the performance of the power sector players is linked to each other. This inter-dependence can be explained by taking the help of the Value Chain Concept. The industry value chain and the players across the chain are shown in the exhibit:

GENERATION
NTPC , NHPC , NPC, SEBs and IPPs

TRANSMISSION
PCGIL , Gridco and SEBs

DISTRIBUTION
SEBs , Licencees like BSES and Cisco Market Shares of the major players and HHI
State sector: State Electricity Boards Central Generating Companies: Central Electricity Board Licensees: Private Sector : 52.5% : 34.0% : 13.5%

Govt. controlled

The above data clearly shows that the power sector to a great extent is dominated by the government controlled sectors and organizations

National Grid

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Introduction
Formation of a strong National Power Grid has been recognized as a flagship endeavor to steer the development of Power System on planned path leading to cost effective fulfillment of the objective of Electricity to All at affordable prices. A strong All India Grid would enable exploitation of unevenly distributed generation resources in the country to their optimum potential by providing enhanced margins in inter-regional transmission system. These margins, together with open access in transmission, would facilitate increased real time trading in electricity leading to market determined generation dispatches thereby resulting in supply at reduced prices to the distribution utilities and ultimately to consumers benefit.

Formation of National Grid

The Eastern Region and the North-Eastern Region have been operating in parallel since 1992 being connected by a 220 kV double circuit transmission line and more recently by a 400 kV D/C transmission line. Western Region was interconnected to ER-NER system synchronously through 400kV Rourkela-Raipur D/C line in 2003, operational sings the Central India system consisting of ER-NER-WR. With installation of TCSC, the transmission -capacity of Rourkela-Raipur 400kV D/C line was increased to 1400MW. The Northern region, had asynchronous radial mode and HVDC back-to-back inter-regional transmission connectivity of 600 MW with the Eastern region, and 1000 MW with the Western region, was also synchronously integrated with the ER/NER/WR system with commissioning of the 400kV Muzaffarpur-Gorakhpur line on 26th August 2006. The Muzaffarpur Gorakhpur 400kV D/C quad line with fixed series capacitor and TCSC has added 2000 MW to the ER-NR inter-regional transmission capacity. Towards the Southern region, asynchronous interconnections of 1700 MW between SR and WR and 600 MW between SR and ER providing a total of 2300 MW of interregional transmission capacity was existing at the beginning of the X plan. With 2000 MW TalcherKolar HVDC Bipole line, and second 500 MW HVDC back-to back module at Gazuwaka, both between SR and ER, the total inter-regional capacity connecting to SR has increased to 4800 MW. As of now all inter-regional transmission links of the Southern region are either asynchronous radial mode lines or HVDC inter-connections. Synchronous integration of the Southern region with rest of Indian grid would be firmed up after having experience of synchronous operation of NR+ER+NER+WR system. One point AC interconnection through Parli Raichur 400kv link supplemented with HVDC links has been proposed for this. The target is to firm up this scheme in the first year of 11th Plan so that synchronous interconnection of All India system could be realized within the 11th Plan period.

Development of National Grid

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As on today, the inter-regional transmission capacity of 11,450 MW is existing and interregional energy exchanges of more than 12 billion kWh in a year thus contributing to greater utilization of generation capacity. The program was to achieve inter-regional capacity of 15750 MW by the end of 10th Plan and about 37,150 MW by the end of 11th Plan. Additional 3000 MW through creation of Siliguri HVDC terminal on Bishwanath Chariyali Agra 800kV HVDC bi-pole line is also being considered during 11th Plan itself. This would increase the target of inter-regional capacity by 2011-12 from 37150 MW to 40150 MW.

Distribution of Power Sector

The Power Sector, on the basis of function can be distributed into 3 heads, i.e.; Generation, Transmission & Distribution

Generation
Electricity has been generated for the purpose of powering human technologies for at least 120 years from various sources of energy. The first power plant was run on wood, while today we rely mainly on coal, nuclear, natural gas, hydroelectric, and petroleum power and a small amount from solar energy, wind generators and geothermal sources.

Transmission
Electric power transmission, a process in the delivery of electricity to consumers, is the bulk transfer of electrical power. Typically, power transmission is between the power plant and a substation near a populated area. Due to the large amount of power involved, transmission normally takes place at high voltage (110 kV or above). Electricity is usually transmitted over long distance through overhead power transmission lines. Underground power transmission is used only in densely populated areas due to its high cost of installation and maintenance, and because the high reactive power gain produces large charging currents and difficulties in voltage management.

Distribution
Electricity distribution is the penultimate stage in the delivery (before retail) of electricity to end users. It is generally considered to include medium-voltage (less than 110 kV) power lines, electrical substations and pole-mounted transformers, low-voltage (less than 1000 V) distribution wiring and sometimes electricity meters.
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RESEARCH METHODOLOGY
Justification of the Study:

Sources of Information:
The topic of study for the project is such that the data needs to be very specific, accurate and up to date. The analysis, interpretation and conclusion of the project shall entirely depend upon the data collected. Keeping this into mind the data has been collected from sources that are very trust worthy and accurate. The project required both Qualitative as well as Quantitative data. Qualitative data was required with regards to study of Consultancy Service. This also included some amount of Quantitative data, but large part of quantitative data was covered with the Revenue analysis part of the project. Thus the project information collection was carried out by a mix of Exploratory Research and Descriptive Research Method. Exploratory Research helped to understand the area of study and to know about it better. The different services that add up to Operations of the company were studied. During this prime focus was given to Consultancy Service. This basic and primary study was done with the help of various in-house articles and magazines of the company, found in the Company Library. Once this was done, the second part was to study about Consultancy Services and its various types. This was done by studying various Draft Reports and Tender Reports that were submitted by the company for different types of Consultancy Service with various Countries and States. This helped to know, the different types of Consultancy Services the company provides and the entire process of grabbing a tender. In the third phase, the Descriptive Research Method was used to collect data and understand the working and performance of the company. The data for the project was collected from various Annual Reports of the company, Audit Reports of various years, Quarterly Performance Reports prepared by department of Finance. This helped us collect data for the project analysis. The Sources of Information Include:Various Consultancy Draft Reports Audit Reports of different Years
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Annual Reports of Various Years

Scope of the Study:

The scope of Study on the topic of the project The comparative analysis of business and valuation of POWER GRID CORPORATION OF INDIA LTD with its competitors is very broad. Valuation in itself is a very huge and broad topic, which can be analyzed in various ways and through various methods. Its analysis and Interpretation cannot be confined to a single method/ way. There are different types of Valuation Methods that could have been used. Studying and to Analyze the same is a task that is very wide and time consuming. The study can be done though various sources and the sources are large in number. The analysis of the data can also be done with the help of various tools and different methods. Thus it can be said that the scope of study of the topic is quite huge and broad.

Limitations the Study:

The topic of Study is huge and is bound to various limitations. Firstly, it has time constraint. The project needs to be complete in 8 weeks, which is short duration to study deeply the performance of a company which has a turnover in crores. Secondly, another limitation of study is the free access to all possible sources of data. As Interns, it is practically impossible to gain free access to all possible sources of information that can help up study the project better and then analyze the same. Thirdly, limitation also lies in the fact that the company has Monopoly in the field of Transmission and Consultancy Service in India, due to its expertise. Due to this, it is next to impossible to find a competitor of the company, whose financial data can help us make a comparison between the two company performances and better analyze the same. Lastly, being in the learning phase, it cannot be ignored that there may be perspectives which may have been missed by me, while studying the topic and working on the project.

Inspite of all these limitations, the best efforts have been put in, so that the data can be collected accurately and the best possible analysis can be done.

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COMPANY PROFILE
An Overview: Incorporated in 1989 for transmitting bulk power across the country Central Transmission Utility in India Navratna PSU Worlds leading Transmission Utility o EHV-AC and HDVC Transmission lines- 82,338 CKM o EHV-AC and HDVC substations- 135Nos A listed company in India with 69.42% shares owned by the Government of India and rest by Public. Carries >400 Billion Units of Power (>51% of Indias power generation presently around 800 Billion Units) as on 31st May 2012. Consistently maintained transmission Network availability of over 99% About 1,800 kms ok (+/-) 800kV HVDC system under implementation 1200 kV UHV AC system under development. Smart Grid- Wide Area Monitoring, Adaptive Islanding, Voltage Security Assessment, Dynamic Security Assessment under planning. GPS/GIS(Global Positioning/Information System) based survey techniques. Automation of Sub Stations Telecom National Long Distance (NLD) operator & Internet Service Provider with about 25000 Km Optical Fibre Network Dividend paying company since 1993-94 Consistently rated Excellent by Government of India Dominant Leadership in Emerging Power Market Existing Business of Transmission, Grid Management, Consultancy, Telecom

Company History and Incorporation:

Power Grid Corporation of India limited (POWERGRID) was incorporated on October 23, 1989 with an authorized share capital of 10,000 Crore as a Public Limited Company, wholly owned by the Government of India. In 1980 the Rajadhyaksha Committee on Power Sector Reforms submitted its report to the GoI suggesting extensive reforms in the Indian power sector. Based on the recommendations of the Rajadhyaksha Committee, in 1981 the GoI took the policy decision to form a national power grid which would pave the way for the integrated operation of the central and regional transmission systems. Pursuant to this decision, to form a national power grid, the company was incorporated in 1989 under the Companies Act, 1956 as National Power Transmission Corporation Limited. The name of the company was changed to its present name Power Grid

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Corporation of India Limited on October 23, 1992 after a fresh certificate of incorporation being issued. This was done because the abbreviated form of the company name resembled to that of NTPC limited. POWERGRID started functioning on management basis with effect from August, 1991 and it took over transmission assets from NTPC, NHPC, NEEPCO and other Central/Joint Sector Organizations during 1992-93 in a phased manner. In addition to this, it also took over the operation of existing Regional Load Dispatch Centers from CEA, in a phased manner, which has been upgraded with State of-the-art Unified Load Dispatch and Communication (ULDC) schemes. 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.

POWERGRID the Company:

POWERGRID is a Navratna Company for more than four years now. The Navratna status provides the organization with powers to undertake new transmission projects of any amount without Government approval. POWERGRID is also entrusted with role of Central Transmission Utility (CTU) by Government of India. In this role, the company operates as one of the chief agencies responsible for the planning and development of the countrys nationwide power transmission network, including interstate networks. As CTU, the company is required to: (a) Undertake transmission of electricity through the inner state transmission system; (b) Discharge all functions of planning and co-ordination relating to inter-state transmission system, with certain specified authorities and stakeholders; (c) ensure development of an efficient, coordinated and economical system of interstate transmission lines for smooth flow of electricity from generating stations to load centres; and (d) provide non discriminatory open access to its transmission system for use by any licensee or generating company on payment of transmission charges and to any

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consumer on payment of transmission charges and a surcharge thereon in accordance with the Electricity Act.

Vision and Mission of the Company:

Vision
World Class, Integrated, Global Transmission Company with Dominant Leadership in emerging Power Markets, ensuring Reliability, Safety and Economy.

Mission
To become a Global Transmission Company with Dominant Leadership in Emerging Power Markets with World class capabilities by: World Class- Setting superior standards in capital project management and operations for the industry and ourselves. Global- Leveraging capabilities to consistently generate maximum value for all stake holders in India and in emerging and growing economies. Inspiring, Nurturing and empowering the next generation of

professionals. Achieving continuous improvements through innovation and state of the art technology. Committing to highest standards in health, safety, security and environment.

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Objectives of the Company:

The Corporation has set following objectives in line with its mission and its status as "Central Transmission Utility" to:

Undertake transmission of energy through Inter-State Transmission System. Discharge all functions of planning and coordination relating to Inter-State Transmission System witho o o o o o o o o State Transmission Utilities; Central Government; State Government; Generating Companies; Regional Electricity Boards; Authority; Licensees; Transmission Licensees; Any other person notified by the Central Government on this behalf.

Exercise supervision and control over the interstate transmission system Efficient Operation and Maintenance of Transmission Systems. Establish/augment and operate all Regional Load Dispatch Centers Communication facilities.

and

To facilitate private sector participation on Transmission system through Independent Private Transmission Company, Joint Ventures. To assist various SEBs and other utilities in up gradation of skills & sharing of expertise by organizing regular conferences, tailor-made training workshops directed

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towards specific technological and O&M areas and extending laboratory facilities for testing purposes etc. Restoring power in quickest possible time in the event of any natural disasters like super-cyclone, flood etc. through deployment of Emergency Restoration Systems. To provide consultancy services at national and international levels in transmission sector based on the in-house expertise developed by the organization.

Milestones Achieved
July 2010: Approval to the Follow-on Public Offer of POWERGRID March 2010: Certificate for Commencement of Business issued to Power System Operation Corporation Limited. March 2009: POWERGRID`s wholly owned subsidiary, Power System Operation Corporation Limited, was incorporated. May 2008 : POWERGRID was notified as a Navratna Company. October 2007: POWERGRID`s Listing of Equity Shares on the Stock Exchanges. December 1998: POWERGRID was notified as the Central Transmission Utility by the Government of India. POWERGRID continues to be the CTU under the Electricity Act, 2003 as per the notification issued by the GoI on November 27, 2003. October 1998 : POWERGRID was notified as a Mini Ratna ( Category I) Company by the Government of India. 1996-1994: Control of the five regional dispatch and communication centre was transferred to POWERGRID in a phased manner. POWERGRID undertook the unified load dispatch and communication project (ULDC) under which modernized load dispatch facilities have been established in each of the five regional centres. The establishment of a national load dispatch centre is also underway. 1994: The Government of India entrusted POWERGRID with the responsibility of controlling the existing load despatch centres in the country with a view to achieve better grid management and operation.

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August 1993: The transmission assets of Tehri Hydro Development Corporation Limited are transferred to POWERGRID. January 1993: The National Thermal Power Corporation Limited, the National Hydro Electric Power Corporation Limited and the North-Eastern Electric Power Corporation Limited (Acquisition and Transfer of Power Transmission Systems) Ordinance (Power Transmission Systems Ordinance) was enacted , pursuant to which the right, title and interest of these three power generating companies in relation to the power transmission system, comprising of the main transmission lines, including the extra high voltage alternative current transmission lines and the HVDC lines, and sub-stations, owned by them, were acquired by the Government of India and transferred to Company, with effect from April 1, 1992 April 1992: Transmission assets of Neyveli Lignite Corporation Limited were taken over by POWERGRID under the Neyveli Lignite Corporation Limited (Acquisition and Transfer of Power Transmission System) Act, 1994.

April 1991: The transmission assets of Nuclear Power Corporation Limited were transferred to POWERGRID.

POWERGRIDs Performance

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Fields of Operation/ Services offered by POWERGRID

Establishment of Transmission System:

Our core business is the transmission of electric power. As on 1st April`12, we own and operate more than 92,946 Ckt. kms network of transmission lines, 1,24,525 MVA transformation capacity and 150 nos. substations that constitutes most of Indias interstate and inter-regional electric power transmission system and carries electric power across India. As on April 1st, 2012, we have 80 transmission projects in various stages of implementation which include 22 nos. Generation linked Projects with cost of approx. Rs. 51,890 Crores, 33 nos. system strengthening Projects with cost of approx. Rs. 22322 Crores & 25 nos. Projects for IPPs/ LTOA with cost of approx. Rs. 43,104 Crores. These projects involve approximately 51,523 circuit kilometers of transmission lines and 84 substations with a total power transformation capacity of approximately 159355 MVA and 10250 MW of HVDC. The budgeted cost of these projects is Rs. 117316 Crores. POWERGRID has undertaken development of 11 nos. High Capacity Transmission Corridors to facilitate power transfer from various upcoming IPP generation projects. Most of these generation projects are envisaged in the State of Orissa, Chhattiagrh, Jharkhand,
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Madhya Pradesh, Sikkim, Andhra Pradesh, Tamil Nadu etc. The transmission corridors mainly comprise of high capacity 765kV double circuit line, 800kV HVDC system, 765/400kV Pooling Stations at different locations. In addition, POWERGRIDs works also involve development of transmission system of 6 UMPPs each of 4000MW capacity as well as other central sector generation projects and grid strengthening schemes. The transmission scheme mainly involves establishment of 765kV AC and 800kV HVDC system. It is envisaged to develop about 50,000 circuit km EHV transmission lines at 400kV and above level and about 60 nos. EHV substations with about 110,000 MVA transformation capacity in next 6-7 years.

Grid Management:
For overall improvement and better grid management in the country, POWERGRID has modernized all the Regional Load Dispatch Centres (RLDCS) with the state-of-the-art Unified Load Despatch & Communication (ULDC) schemes at a cost of about Rs. 2,000 Crore. These modernized RLDCs are greatly contributing to bring quality and economy in the operation of the power system besides improving data availability, visibility and transparency. With the adoption of state-of-the-art operational practices, proactive preventive maintenance, implementation of ABT, the modernization of RLDCs coupled with training & deployment of expert manpower and round the clock vigil for grid management, no major grid disturbances in the country have been encountered for the last 6 years. Further, tripping of lines and minor grid disturbances in regional grids have come down so significantly that it can be reckoned as a benchmark achievement. For overall co-ordination, National Load Despatch Centre (NLDC) at Delhi, with back up at Kolkata, has been successfully commissioned on 25 February 2009 and running satisfactorily. Since the Grid Management Responsibility is shifted to POWERGRIDs wholly owned subsidiary M/s POSOCO, the RLDC and NLDC are being managed by POSOCO. POWERGRID has spearheaded the implementation of Availability Based Tariff (ABT) across the country, which has a built-in commercial mechanism to reward proper grid behavior. This has significantly stabilized vital grid parameters, i.e. voltage and frequency thereby improving the quality of power.

O&M of Transmission System:

The Electricity Act requires every transmission licensee to comply with the technical standards of operation and maintenance in accordance with the Grid Standards as specified by the CEA The duties of a transmission licensee under the Electricity Act include amongst others: (a) to build, maintain and operate an efficient and economic inter/intra state transmission system; and (b) to provide non-discriminatory open access to its transmission system for use by any licensee or generating company on payment of transmission charges and to any consumer on payment of transmission charges and a surcharge thereon in accordance with the Electricity Act.

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Power Grid Corporation of India Ltd. takes continuous action regarding operation and maintenance to seek to ensure compliance with prescribed standards as well as to achieve high availability of the system for uninterrupted power supply to customers. The maintenance of the ISTS involves the routine inspection and overhaul of transmission system assets and the replacement of components. Condition assessment and monitoring techniques are used to help optimise maintenance intervals and reduce system outages. POWERGRID has developed flexible working practices to take advantage of the system conditions for day-today maintenance work and also modify their annual maintenance programme according to generation maintenance schedules. Techniques such as live-line working are also used to enable certain types of maintenance to be carried out without taking transmission lines out of service. Emergency restoration systems (ERSs) are used for early restoration in case of natural disasters and other exigencies.

Telecom:
With the vision to bridge the digital divide in the country and ensure that benefits on information revolution reach the entire length and breadth of the country, POWERGRID has diversified into Telecom utilizing right of way on its Extra High Voltage Power Transmission Network infrastructure in the country with its brand name as POWERTEL. Among the Telecom players POWERGRID is the only utility in the country having overhead optic fiber network using OPGW (Optical Ground Wire) on power transmission lines. POWERGRID has an all India Broad Band Telecom Network of about 20,733 kms with multiple self resilient rings for backbone as well as intra city access networks connecting nore than 129 cities across the country and ensuring a reliability of more than 99.9%. POWERGRID has following Telecom Licenses:

Infrastructure Provider Category - I (IP-I license) NLD License for providing end-to-end bandwidth ISP category A license to provide internet services in the country

Services Provided on POWERGRIDs network :The Network is capable of managing 32 channel DWDM system, connecting all the metros and remote locations in North East and Jammu & Kashmir. The balance network deploys SDH (STM 16/STM 4) systems. The following services are available on POWERGRIDs network:

E1/E3/DS3/STM1/STM4/STM16 Leased Line Ethernet Private Leased Line Multi-site LAN Interconnect plus Internet Access Internet bandwidth

Unique Features of POWERGRID Telecom Network: Most of the POWERGRIDs optic fiber backbone network is laid overhead on the extra high voltage Power transmission lines .The Telecom network on the Transmission lines has proved to be sturdy and secure, rodent menace free, vandalism proof which offers it distinct advantage over the underground optic fiber. The other advantages are:
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Instant bandwidth allocation on POWERGRIDs Telecom route End to end connectivity Instant up gradation to higher capacity Better Service Level Services catering to the specific needs of the customers High reliability, high quality service in a cost effective manner

International Business:
International Business Department is created with the objective to spread POWERGRIDs engineering services in Power Transmission Business across the world. The objective is strategic to POWREGRIDs growth plans; to de-risk domestic operations by way of diversified geographic presence, to gear up for next competitive phase and to learn international best practices. POWERGRID, the 3rd largest transmission utility in the world, is continuously setting best power transmission practices that are well acknowledged by multi lateral funding agencies like The World Bank, ADB, JBIC etc who have extended multibillion loans to POWERGRID in establishing transmission network in India. POWERGRID has been so far assigned more than 300 nos. of consultancy assignments by national and international clients in Construction of Transmission Lines and Substations, Load Dispatch Centre, Distribution and Rural Electrification. POWERGRID has taken up more than 30 international assignments in countries like Afghanistan, Bangladesh, Bhutan, Dubai, Nepal, Nigeria and Srilanka. The biggest advantage of POWERGRID is that unlike many of the renowned consultants, POWERGRID itself is one of the largest practicing transmission utility with experience in Engineering, Design, Procurement, Construction, Project Management, Construction Supervision, Up gradation of Transmission System, Operation and Maintenance of transmission system. POWERGRID has a highly experienced and skilled talent pool of over 9350 full time employees which is its biggest strength in successfully implementing domestic and international projects. Very few consultants in the world have this kind of trained manpower that POWERGRID has today. POWERGRID has rich and varied power transmission experience which it can replicate in global projects and service clients to maximum satisfaction.

Consultancy & JointVenture

POWERGRID has been providing consultancy services since early days of its inception in 1992-93. It has a client base of more than 125 nos. in power sector. Building upon vast inhouse experience of executing and maintaining over 93000 circuit kms of transmission lines and 150 EHV substations, POWERGRID provides the one stop consultancy services to utilities covering entire gamut of services pertaining to Transmission System.

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ANALYSIS OF COMPANIES (PGCIL, NHPC, NTPC)

Financial Year 2009-10 To Financial year 2011-12

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OWNERS COMPOSITION PGCIL Share Holding Pattern SI. NO. 1 2 3 4 5 6 7 Category President of India Indian Public FIIs Bodies Corporate Mutual Funds Banks & FI Others %To Equity 69.42 4.57 12.93 4.51 2.97 2.61 2.99

NHPC Share Holding Pattern SI. NO. 1 2 3 4 5 6 7 Central Govt/ State Govt. FII Indian Public Banks, FI and Institutions Corporate Bodies Mutual Funds & UTI Others 86.36 1.38 6.62 2.03 1.86 1.19 .19

NTPC Share Holding Pattern SI. NO. 1 2 3 4 5 6 7 Govt of India FII Indian Public Banks & FIs Private Bodies Mutual Funds Others 84.5 3.53 2.04 6.92 1.48 1.40 0.13

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DIVIDEND POLICY The declaration and payment of dividends on Equity Shares will be recommended by Board and approved by shareholders, at their discretion, and will depend on a number of factors, including but not limited to guidelines issued by the DoE, profits, capital requirements, contractual obligations, restrictive covenants under loan and financing arrangements and the overall financial condition of the Company. The dividend and dividend tax paid by PGCIL during the last three Fiscals is presented below. Face value of equity shares(in Rs. Per share) Interim dividend(in Rs. millions) Dividend(in Rs. millions) Dividend per equity share Interim Dividend rate (%) Final Dividend Rate (%) Fiscal 2010 10 Fiscal 2011 10 Fiscal 2012 10

2104.5

2315.1

3703.9

4208.8 1.5 5 10

5787.2 1.25 5 12.5

6065 2.11 8 13.1

PGCIL pays dividends twice a year to its shareholders in the year 2011-12 the dividend payout was 34% and the DPS has also been increasing ,it paid 2.11 Rs per share to its shareholders compared to 2010-11 in which the co. paid 1.75 Rs per share. The Dividend payout has also shown an increasing trend, it was 30% in the year 2010-11 and as mentioned above it was 34% in 2011-12. The major reason behind this is that the co. was sincerely working to expand its business in other areas like telecom, consultancy etc which improved the financial performance of the co. The turnover of the co. is also increased which also helped the profits to increase.

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12000 10000 8000 6000 4000 2041 2000 0 2009-10 2010-11 7504 9099

10785

Profit(in crores) Turnover 2697 3255

2011-12

When it comes to the dividend policy of the other cos. in the same sector i.e NTPC and NHPC NTPC pay dividends twice a year as the trend of the last 3 year has shown and the amount of dividend that has been paid to the shareholders has increased every year. The co. is consistent on its payout. The dividend payout in 200910,2010-11 & 2011-12 are 42%, 40% and 41% respectively. NHPC on the other hand is trying to make its shareholders happy by paying some dividend out of its profits every year. It paid 0.7 Rs per share in the year 2012 w hich is the highest paid so far. The profit of the co. has not been that good but still it paid 31% of its profits to its shareholders as dividend.

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RATIO ANALYSIS OF DATA

Financial ratio analysis can reveal much about a company and its operations. However, there are several points to keep in mind about ratios. First, a ratio is a "flag" indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of a company's management and economic circumstances, financial analysis can tell much about a corporation. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right depends on the perspective of the analyst and on the company's competitive strategy. Third, financial ratios are meaningful only when compared with some standard, such as an industry trend, ratio trend, a trend for the specific company being analyzed, or a stated management objective.

Current Ratio
2010-11 1.5 : 1 2009-10 1.3 : 1 2008-09 1.4 : 1 2007-08 1.5 : 1

Current Ratio = Current Assets / Current Liabilities

Current Ratio of the company shows a slight fluctuation during the four years, but it is almost consistent. A Current Ratio of 1.5 in 2010-11 in comparison to 1.4 in 2009-10 shows that the current liabilities of the company is covered more. This is very good as it shows that the company can easily pay off its current liabilities.

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Absolute Liquid Ratio

2010-11 0.5 : 1 2009-10 0.4 : 1 2008-09 0.4 : 1 2007-08 0.5 : 1

Absolute Liquid Ratio = Liquid Assets/ Current Liabilities

Absolute Ratio has increased to 0.5:1 in 2010-11 in comparison to 0.4:1 as in 2009-10. Increase in Absolute liquidity Ratio signifies that the company has half the value of current liabilities in form of cash and bank to pay it off

Debt Equity Ratio

2010-11 65:35 2009-10 68:32 2008-09 66:34 2007-08 62:38

Debt Equity Ratio = Long Term Debt / Equity Fund

The proportion of equity in comparison to Debt has increased in 2010-11 in comparison to 2009-10. Inspite of Bonds issue and increase in loans as source of fund, this increase in Equity is mainly due to the increase in the Reserves and Surplus of the company. This increase in the Equity Proportion shows that the company is trying to increase the Equity Ownership and this instills positivity in the equity share holders.

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Net Profit to Capital Employed

2010-11 7.83% 2009-10 7.12% 2008-09 5.95% 2007-08 5.68%

Net Profit to capital Employed = (Net Profit during the year / Capital Employed)*100
The Net Profit to Capital employed ratio has increased over the years and for Financial Year 2010-11 it was 7.83%. This is a marked improvement in comparison to 2007-08 when the ratio was 5.68%. The continuous increase in the ratio signifies that the Net Profit return of the company over the capital employed has strengthened over the years.

Net Profit to Net Worth

2010-11 12.63% 2009-10 12.83% 2008-09 11.57% 2007-08 10.73%

Net Profit to Net Worth = (Net Profit during the year / Net Worth)*100
This ratio shows a slight fall in financial year 2010-11 when compared to that of financial year 2009-10. The fall of 0.20% is however merely effective.

Earnings Per Share

2010-11 6.19 2009-10 4.85 2008-09 4.02 2007-08 3.6

Earning Per Share = Net Earnings during the year / Total Shares
The earnings per share of the company has increased over the years, and in 2010-11 it was 6.19 in comparison to 2009-10 when it was 4.85. There has been a rise of 27.63% which shows that the earnings of the owners of the company has increased over the years. This is important in the context that it instills as sense of positivity and ownership among the share holders.

Fixed Assets to Long Term Funds

2010-11 0.99 2009-10 0.99 2008-09 0.98 2007-08 0.96

Fixed Assets to Long Term Fund = Fixed Assets / Long Term Funds
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The fixed assets to long term fund ratio is consistent in comparison to 2010-11. Ratio of 0.99 shows that Long term funds cover the total fixed assets of the company. This displays effective utilization of long term funds.

Interest Coverage Ratio

2010-11 1.21 times 2009-10 0.70 times 2008-09 0.36 times 2007-08 0.29 times

Interest Coverage Ratio = Profit Before Interest and Tax/ Interest paid during the year
This ratio has increased over the years and in the financial year 2010-11 it was 1.21 times. This is a 71.81% increase in comparison to financial year 2009-10. Ratio of 1.21 times shows that the interest paid by the company is well covered through its profits.

Dividend Coverage Ratio

2010-11 3.33 times 2009-10 3.23 times 2008-09 3.35 times 2007-08 2.87 times

Dividend Coverage Ratio = Profit After Tax / Dividend Paid during the year
The dividend coverage ratio is almost consistent over the years. Ratio of 3.33 times shows that the company is capable of paying 3.33 times the presend dividend it is paying. This displays the sound position of the company.

Working Capital Turnover Ratio

2010-11 17.16 times 2009-10 16.12 times 2008-09 - times 2007-08 14.42 times

Working Capital Turnover Ratio = Sales / Working Capital

The Working Capital Turnover Ratio has increased to 17.16 times in financial year 2010-11 in comparison to 16.12 times in financial year 2009-10. This ratio signifies that the present Sales is 17.16 times the working capital requirement of the company.

Return on Assets
2010-11 4.10% 2009-10 3.82% 2008-09 3.67% 2007-08 3.79%

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Return on Assets = (Profit After Tax / Total Assets)*100

The return on assets ratio is continuously increasing over they years. The ratio of 4.10% in financial year 2010-11 shows that the Profit After Tax of the company accounts to 4.10% of the Total Assets value of the company.

Return on Capital Employed

2010-11 0.0019 times 2009-10 0.0015 times 2008-09 0.0032 times 2007-08 0.0025 times

Return on Capital Employed = Net Profit / Capital Employed

The Return on Capital Employed has marginally increased in 2010-11 in comparison to 2009-10.

Net Profit Margin

2010-11 23.08% 2009-10 14.44% 2008-09 8.34% 2007-08 7.71%

Net Profit Margin = ( Profit Before Interest and Tax / Sales )* 100

Total Earning to Expenses (%)

2010-11 1.73 times 2009-10 1.57 times 2008-09 1.83 times 2007-08 1.60 times

Total Earnings to Expenses = Total Earnings / Total Expenses

The total earnings of the company in 2010-11 is 1.73 times the total expense. This ratio has increased from 1.57 in 2009-10 to 1.73 in 2010-11. This shows that the earnings of the company are capable of covering the expenses effectively.

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Valuation
Key Points in Valuation Risk free rate is taken as7.77 %, 7.99% &8.30% respectively for the year 2009-10,2010-11 & 2011-12 respectively. Market Risk premium has been taken at 8.75%. Beta is taken from annual risk and return profile. Terminal growth rate is taken as 5% which is less than the GDP growth rate of India to take care of the point that Stable companies will grow at a slower rate than GDP because a country would comprise of growing and stable companies.

Risk free rate calculations: The Indian government had 10-year Rupee bonds outstanding, with a yield to maturity of about 8.75% on January 1, 2012. In January 2012, the Indian government had a local currency sovereign rating of Baa3. The typical default spread (over a default free rate) for Baa3 rated country bonds in early 2012 was 2%. risk free rate= yield to maturity on the 10-year bond Default spread = 6.75% Power Grid Corporation of India Ltd. Valuation is done using a two stage model. WACC comes to 6.49%. And the final stock price is . The detailed valuation of PGCIL is : In Rs Cr. Mar '12 12 mths Profit Before Tax Interest EBIT Tax rate Depreciation 4597.6 1943.26 6540.86 10% 2572.54 Mar '11 12 mths 3824.73 1625.44 5450.17 10% 2199.39 Mar '10 12 mths 2626.32 1543.24 4169.56 10% 1979.69

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CAPEX Working Capital (C.A. - C.L.) Change in Working Capital

17814 -5041.12 -4154.53 (5200.16) 0.652 13.85% 9.04%

12005 -886.59 -421.02 (4479.44) 0.7 12.62% 8.84%

10617 -465.57 (4884.71) 0.69 12.80% 8.83%

FCFF
Retention Ratio (b) ROE (NI/Equity) Growth (b*ROE)

In Rs Cr. Total debt Interest paid Interest rate (I) Total Equity Wd We

Mar '12 12 mths 50972.41 1943.26 3.64% 23487.78 1.89% 98.11% 3.28% 8.30% 8.75% 0.59 13.06% 6.49% 6.82%

Mar '11 12 mths 40882.77 1625.44 3.98% 21351.37 1.75% 98.25% 3.58% 7.99% 8.75% 0.47 12.08% 6.50%

Mar '10 12 mths 34416.79 1543.24 4.48% 15913.51 1.28% 98.72% 4.04% 7.77% 8.75% 0.81 14.86% 7.46%

Kd = I (1-t)
Risk free rate (Rf) Market Risk Premium ( Rm - Rf ) Beta

K e = R f + e( R m - R f ) WACC = Wd * Kd + We * Ke Average WACC

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National Hydro Power Corporation Valuation is done using a two stage model. WACC comes to 6.49%. And the final stock price is . The detailed valuation of NHPC is :

NHPC In Rs Cr. Mar '12 12 mths 342.23 10% 918.22 3546 Mar '11 12 mths 374.53 10% 4600 Mar '10 12 mths 457.08 2859.1 10% 3800

Profit Before Tax Interest EBIT Tax rate Depreciation CAPEX Working Capital (C.A. C.L.) Change in Working Capital

3517.4 2877.41 2402.02 3859.63 3251.94

817.89 1033.95

6259.47 3832.58 3903.95 426.89 419.00 0.69 11.88% 8.20% -71.37 -783.99 0.66 9.28% 6.12% -192.86 0.21 8.98% 1.89%

FCFF
Retention Ratio (b) ROE (NI/Equity) Growth (b*ROE)

NHPC In Rs Cr. Mar '12 12 mths Mar '11 12 mths Mar '10 12 mths

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Total debt Interest paid Interest rate (I) Total Equity Wd We

19412.05 16692.98 13868.22 1943.26 3.64% 42.42% 57.58% 1.58% 8.30% 8.75% 0.99 16.96% 1625.44 3.98% 40.44% 59.56% 1.98% 7.99% 8.75% 0.7 14.11% 1543.24 4.48% 37.34% 62.66% 2.96% 7.77% 8.75% 0.8 14.77%

26353.53 24580.68 23273.19

Kd = I (1-t)
Risk free rate (Rf) Market Risk Premium ( Rm Rf ) Beta

K e = R f + e( R m - R f ) WACC = Wd * Kd + We * Ke Average WACC

10.44% 10.00%

9.20%

10.36%

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National Thermal Power Corporation NTPC In Rs Cr. Mar '12 12 mths Profit Before Tax Interest EBIT Tax rate Depreciation CAPEX Working Capital (C.A. C.L.) Change in Working Capital 12326.16 1711.64 14037.8 10% 2791.7 15954.42 21673.88 -398.72 Mar '11 12 mths 12049.6 1420.96 10% 2485.69 Mar '10 12 mths 10885.46 1808.93 10% 2650.06

13470.56 12694.39

12955.63 10467.13 22072.6 10758.16 11314.44 3,607.88 0.58 13.98% 8.11%

FCFF
Retention Ratio (b) ROE (NI/Equity) Growth (b*ROE)

(129.98) (9,660.88) 0.59 12.59% 7.43% 0.66 13.41% 8.85%

NTPC In Rs Cr. Total debt Interest paid Interest rate (I) Total Equity Wd Mar '12 12 mths 1943.26 3.64% 39.69% Mar '11 12 mths 1625.44 3.98% 38.41% Mar '10 12 mths 1543.24 4.48% 37.71%

48241.03 42348.16 37797.02

73291.17 67892.25 62437.42

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We

60.31% 39.69% 8.30% 8.75% 0.59 13.81%

61.59% 38.41% 7.99% 8.75% 0.47 14.11%

62.29% 37.71% 7.77% 8.75% 0.81 13.02%

Kd = I (1-t)
Risk free rate (Rf) Market Risk Premium ( Rm Rf ) Beta

K e = R f + e( R m - R f ) WACC = Wd * Kd + We * Ke Average WACC

Calculation of Intrinsic Value

22.33% 17.67%

14.84%

15.84%

1> Now we have to calculate the value of a share of PGCIL whose dividend in the year 2009-10 was 1.5 Rs. Per share and it is expected to grow at 8.83% but when it comes to long term growth it is considered to be 5% . The rate of return is 7.46%

Year 1

D0

FVIF.088,t Dt(D0*FVIF.088,t) PVIF.075,t 1.5 1.088 1.632 0.9302

PV 1.47

D2=1.5x1.15(1+0.05)=1.81 P2=[1.81/(.075-.05)]x1/(1+.075)2=62.95

2>> Now we have to calculate the value of a share of NHPC whose dividend in the year 2009-10 was and it is expected to grow at 8.83% but when it comes to long term growth it is considered to be 5% . The rate of return is 7.46%

Year 1

D0 FVIF.019 Dt(D0xFVIF.019,t) PVIF0.103,t 0.55 1.019 0.56 0.9066

PV 0.51

D2=.55x.1.03(1+.05)=.060 P2=[.60/(.103-.05)]x1/(1+1.103)2=12.82

3>> Now we have to calculate the value of a share of NHPC whose dividend in the year 2009-10 was Rs 3/share and it is expected to grow at 8.81% but when it comes to long term growth it is considered to be 5% . The rate of return is 17.7% Page 45

Year 1

D0

FVIF.081 Dt(D0*FVIF.081,t) PVIF0.177,t PV 3 1.081 3.243 0.85 2.76

D2=3x1.17(1+.05)=1.43 P2=[(1.43/0.177-.05)]x1/(1+0.177)2=112.60

Conclusion:
Company PGCIL NHPC NTPC Current Stock price Estimated Stock Price 107.9 62.95 19.7 12.82 162.75 112.60

If we compare the current stock price and the estimated stock price it seems that all the stocks are overvalue .Hence we recommend that you can hold the stocks at the current price but do not buy them.

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FINDINGS Power Grid is the largest power transmission co. in India . Company is more or less like a monopoly and there is hardly any investment from the private sector in this field. Whatever growth will come in the power transmission sector have to be in this company. As the private players are emerging the co. has to grow to match the capacity generation of power sector. Besides this the co. is likely to grow in years to come

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