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Investment Decision
(Payback period &
NPV)
For
Submitted to-
2
Date-
CERTIFICATE
3
(Coordinator, IMBA) (Faculty, IMBA)
Index:
• Opening of the project… 5
• Foreign Direct Investment… 6
• FDI in India… 7
• Areas of investment… 9
• Investing Company’s Profile (Enel)… 10
• Why Enel…?? 13
• Location… 15
• Why Jharkhand…?? 16
• Numerical assessment of the project… 19
• Conclusion & recommendation… 23
• Bibliography… 24
4
Opening…
Every economy has its own characteristics. Indian
economy also has. Some of its characteristics are-
• Poor infrastructure
5
Foreign Direct
Investment-
FDI refers to capital
inflows from abroad that invest in the production
capacity of the economy. It is a more preferred
form of external finance. It benefits an economy
by-
• triggering technology
spillovers,
• assisting human capital
formation,
• contributing to international
trade integration and
particularly exports,
• helping create a more
competitive business
environment,
• enhancing enterprise
development,
• increasing total factor
productivity and,
• more generally, improving the
efficiency of resource use.
6
FDI in India-
Foreign direct investment
(FDI) in India has played an important role in the
development of the Indian economy. FDI in India
has - in a lot of ways - enabled India to achieve
a certain degree of financial stability, growth and
development. This money has allowed India to
focus on the areas that may have needed
economic attention, and address the various
problems that continue to challenge the country.
7
A number of projects have been announced in
areas such as electricity generation, distribution
and transmission, as well as the development of
roads and highways, with opportunities for
foreign investors.
Areas of Investment-
8
Areas that need special attention
are health care, infrastructure, electricity generation,
real estate, etc. We have considered electricity
generation or energy sector as our area of interest for
this project.
Investing Company
9
Profile-
Enel (Ente Nazionale per l'Energia eLettrica) is an
Italian energy provider, the third-largest in Europe by
market capitalization. Formerly a state-owned
monopoly, it is now partially privatized with Italian
government control: the largest shareholders are the
Italian Ministry of Economy & Finance (13.9%) and
the state-run bank Cassa Depositi e Prestiti (17.4%).
• Industry- Energy
• Founded- 27 November 1962
• Headquarter- Rome, Italy
10
• Areas served- Italy, Spain, France,
Belgium, Greece, Bulgaria, Slovakia,
Romania, Russia, USA, Chile, Nicargua, El
Salvador, Panama, Costa Rica and Brazil
• Products- Natural Gas and Electricity
production & distribution
• Revenue- €73.38 billion (2010)
• Operating income- €11.26 billion
(2010)
• Profit- €5.390 billion (2010)
• Total assets- €168.05 billion (end
2010)
• Total equity- €53.55 billion (end
2010)
11
In a nutshell, Enel is Italy’s largest power company,
and Europe’s second listed utility by installed
capacity. It is an integrated player, active in the power
and gas sectors. Enel operates in more than 40
countries worldwide, has around 95,000 MW of net
installed capacity and sells power and gas to more
than 61 million customers.
Why Enel…??
12
€ 3,036 million in 2006 to € 3895 million in 2007 to €
3977 million in 2008 to € 5293 million in 2009.
According to Forbes, the net profit of
Enel stood around € 5390 million at the end of 2010.
Net Borrowings
2009
Net Profit 2008
2007
EBIT
2006
EBITDA
Proceeds
13
Location-
While selecting the location for a
project few things are essentially considered-
availability of raw materials, cheap and plenty of man
power, transportation facilities, connectivity with the
market, government policies, etc. Keeping these
points in mind the best suited place for Enel to invest
is Jharkhand.
14
Why Jharkhand-
15
4500
4000
3500
3000
2500 Potential
2000 Installed
1500 Untapped
1000
500
0
Thermal Hydel
All fig. in MW
16
Roads: The total length of roads in the State is 4,311
km. This inlcudes 1,500 km national highways and
2,711 km state highways.
Railways: The State has a well-developed railway
system. Ranchi, Bokaro, Dhanbad, Jamshedpur are
some of the major railway stations.
Aviation: Ranchi is connected with Delhi, Patna and
Mumbai. Jamshedpur, Bokaro, Giridih, Deoghar,
Hazaribagh, Daltonganj and Noamundi have air
strips.
The development of power sector is also given
highest priority in the stateʹs
economic planning to bridge the gap between
demand and supply.
17
Considering the need and
scope of the energy sector and also considering the
investment potential of Enel, it is recommended to
invest Rs. 100 cr. on electricity generation project in
Jharkhand for a period of 5 years in initial stage.
18
Year Cash inflow Cumulative cash
inflow
01 20,oo,oo,000 20,00,00,000
02 40,00,00,000 60,00,00,000
03 30,00,00,000 90,00,00,000
04 40,00,00,000 1,30,00,00,000
05 60,00,00,000 1,90,00,00,000
= 3.25 years
19
The NPV method discounts inflows and
outflows to their present value at the appropriate cost
of capital and sets the present value of cash flows
against the present value of outflows. Thus, the net
present value is obtained by subtracting the present
value of cash outflows.
20
Net Present Value= Cash inflow – Cash outflow
By formula:
NPV= Rs. (1,05,73,00,000 – 1,00,00,00,000)
= Rs.5,73,00,000
COMMENT:
We can see that NPV of the project is positive.
Thus, this project should be considered by Enel.
21
requirements (except in some odd circumstances). These
facts altogether suggest that there is a favorable condition
for investment in this project.
BIBLIOGRAPHY
22
• Website of Forbes
23