SUMMER TRAINING REPORT

10May2010
10May to 19June2010
2010

Submitted By:-
By:

Praveen Kumar

GJU09091(3 sem)
 INDEX

• INFORMATION ABOUT

TRANING

• ACKNOWLEDGEMENT

• INTRODUCTION

ABOUT NTPC

• ABOUT BTPS

• FINANCE DEPARTMENT

• STUDY ON ECONOMIC VALUE

ADDED
Training at BTPS

I was appointed to do six-week training at this esteemed organization from 10

May to 19 June 2010. In these six weeks. I was assigned to visit various

division of the Finance department which is as follow:

1. Establishment

2. Commercial

3. Cash & Bank

4. Books Section

5. Concurrence(Works)

6. Concurrence(Purchase)

7. Works Payment

8. Store Payment
This six-week training was a very educational adventure for me. It was really

amazing to see the plant by yourself and learn how finance, which is one of

our daily requirements of life, is managed in the production of electricity.

This report has been made by self-experience at BTPS. The material in this

report has been gathered from my textbooks, senior student report, and

trainer manual provided by training department. The specification &

principles are at learned by me from the employee of each division.

(PRAVEEN KUMAR)
 ACKNOWLEDGEMENT

With profound respect and gratitude, I take the opportunity to convey my

thanks to complete the training here.

I do extend my heartfelt thanks to Mrs. Rachna Singh for providing me

this opportunity to be a part of this esteemed organization.

I am extremely grateful to all the financial staff of BTPS/NTPC for their

co-operation and guidance that helped me a lot during the course of

training. I have learnt a lot working under them and I will always be

indebted of them for this value addition in me.

I would also like to thank the training in charge of NIILM SCHOOLOF

BUSINESS (NEW DELHI) and all the faculty member of FINANCE

department for their effort of constant co-operation

Which have been significant factor in the accomplishment of my industrial

Training

I do extend my heartfelt thanks to Navneet Goel DGM (FINANCE)

(PRAVEEN KUMAR)
 NTPC

NATIONAL THERMAL POWER

CORPORATION LTD
 NTPC PROFILE

1. Scenario of power sector in India

2. Company Profile:-

Introduction

History

Evolution

Mission

Vision
3. Organizational Structure
4. Core Value
5. Station Detail
6. Diversified Growth
7. Operation Growth
8Award Details
9. SWOT Analysis
10. Competitors overview
11. Future Expansion
SCENARIO OF POWER IN INDIA

Growth of economy calls for a watching rate of growth in infrastructure

facilities. Power sector is one of the major aspects of this infrastructure

building. Some prominent people like the Ex Chairman of GE Jack Welch

’t have a chance to stand in the

have gone to the extent of saying, “you don’

21st century without lots of power………Without this you miss the next

revolution.” Moreover, the growth rate of demand for power in developing

countries is generally higher than that of GDP. In India, the elasticity ratio

was 3.06 in 1st plan, and peaked at 5.11 during 3rd plan and came down to

‟s. For 90‟

1.65 in 80‟ ‟s a ratio of around 1.5 was projected. Hence, in order to

support a growth of GDP of around 7% the rate of growth of power supply of

10%is required. If we look at current scenario, electricity consumption in

India has more than doubled in the last decade, outpacing the economic

growth. If we analyze the various statistics of Indian power sector, we will find

that the generating capacity has gone up tremendously from a meager

1712MW in 1950 to a whooping 112000MW today.

Generating capacity has grown manifold from 1,712 MW in 1950 to more

than 112,000 MW today.

At the same as a result of growing installed capacity, the power produced has

also gone up. In 1950, the total power produced by Indian power sector was a

meager 50BU and that is now 587.3BU. The Indian govt. emphasized
emphasize the need

of independence in power generation and in all subsequent five-year

five plans the

allocated budget for power sector development was increased. But despite all

these efforts by our govt., there is an acute power shortage in the country.

GROWTH OVER YEARS: installed capacity around the end of

period:
 Installed capacity(MW)
250000

200000

150000

100000

50000

Installed capacity(MW) MW
company profile:-
profile

Introduction:
India’s largest power company, NTPC was set up in 1975 to accelerate power development

in India. NTPC is emerging as a diversified power major with presence in the entire value

chain of the power generation business. Apart from power generation, which is the

mainstay of the company, NTPC has already

al ventured into consultancy, power trading, ash

utilization and coal mining.

The total installed capacity of the company is 31,704 MW (including JVs) with 15 coal

based and 7 gas based stations, located across the country. In addition under JVs, 3

stations are coal based & another station uses naptha/LNG as fuel. By 2017, the power
p

generation portfolio is expected to have a diversified fuel mix with coal based capacity of

around 53000 MW, 10000 MW through gas, 9000 MW through Hydro generation, about
2000 MW from nuclear sources and around 1000 MW from Renewable Energy Sources

(RES).
RES). NTPC has adopted a multi
multi-pronged
pronged growth strategy which includes capacity

addition through green field projects, expansion of existing stations, joint ventures,

subsidiaries and takeover of stations.

NTPC has been operating its plants at high efficiency levels. Although the company has

18.10% of the total national capacity it contributes 28.60% of total power generation due to

its focus on high efficiency.

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25%
5 as

fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed

company in November 2004 with the government holding 89.5% of the equity share

capital. The rest is held by Institutional Investors and the Public. The issue was a

resounding success. NTPC is among the largest five companies in India in terms of market

capitalization.
History:

The company was incorporated on 7 November, 1975 under the Companies Act as a

private limited company under the name National Thermal Power Corporation Private

Limited, and the word 'Private' was deleted on September 30, 1976 consequent upon the

Notification issued by the Government of India. Exempting government companies from

The use of word 'private'. In their name.

On September 30,1985, our Company was converted from a Private Limited company into

a public limited company.Subsequently,

company.Subsequently,the
the name of our Company was changed to its

present name NTPC LIMITED and a fresh certificate of incorporation was issued on

October 28, 2005.

Major events:

1975 - Incorporation of Company.

1977 - NTPC acquired the ffirst patch of land at Singrauli.

The first batch of executive trainees joined the company.

1978 – Takeover of management of the Badarpur Project.

construction of the first transmission network singrauli – korba
1982 - Commissioning of the first 200MW unit at Singrauli
Center for education at Power Management Institute, Delhi

established.

First direct foreign currency borrowing . a consortium of foreign

banks,

led by Standard Chartered Merchant Bank extends a loan of GBP

298.41 million for the Rihand project

project.

1983 – in the very first year of commercial operation , NTPC earned a profit
of Rs 4.51 corer in the financial year 1982-83.

1984 - The transmission line based on High Voltage Direct Current

(¡°HVDC¡±) technology, commissioned for power transmission from

Rihand to Delhi Singrauli project received World Bank loan of US$

150 million through GOI.

1985 –This year marked the completion of decade (1975- 1985) of NTPC’s
existance.NTPC achieved a generating capacity of 220 MW commissioning
11 unites of 200 MW each at its various projects in country.
The GOI approved the setting of three gas based combined cycle projects
 by NTPC in KAWAT in Gujrat,
Gujrat, Auraiya in U.P. and Anta in Rajasthan.
For these projects,
projects the WORLD BANK agreed to provide US$ 48 million,
which was the largest single loan in the history of bank.

1986 - Synchronized first 500MW unit at Singrauli Our Company

became one of the first PSUs to issue bonds in the debt market.
market

1987 – Crossed the 5,000 MW installed capacity mark.

1988 - The First syndicated Japanese loan of 30 billion JPY raised.

raised

1989 - Consultancy division of our Company launched First unit

(88 MW) of our Company’s first gas based combined cycle power

plant at Anta, Rajasthan commissioned

commissioned.

1990 – Total installed capacity crossed 10,000MW.

1992 - First acquisition by our Company of Feroze Gandhi

Unchahar Thermal Power Station (2x210MW) from Uttar

Pradesh Rajya Vidyut Utpadan Nigam of Uttar Pradesh The

 transmission systems owned by our Company were transferred

to Power Grid Corporation of India Limited (¡°PGCIL¡±) pursuant

to legislation by the Parliament of India.

India

1993 - IBRD extended direct loan of US0 million to our

Company under time slice concept for its projects.
projects

1994 - 15,000 MW of installed capacity achieved Maiden

declaration of dividend of Rs. 650 million Jhanor-Gandhar

Gandhar

(Gujarat) becomes our first thermal power station to have

commissioned an integrated Liquid Waste Treatment Plant.

Plant

1995 – NTPC celebrated 20yrs of its existence.

A new logo was adopted.
NTPC took over the 460 MW Talcher Thermal Power Station from
Orissa State Electricity Board.
Bo

1997 - 'Navratna' status granted by the GoI100 billion units

generation in one year achieved A consortium of foreign
 banks led by Sumitomo Bank, Hong Kong extends foreign

currency loan of 5 billion Japanese Yen for the first time

without GOI guarantee.

guarantee

1998 - Commissioned the first Naphtha based plant at

Kayamkulam with a capacity of 350 MW
MW.

1999 - Our Company.s Dadri thermal power project, Uttar

Pradesh adjudged the best in India with a PLF of 96.12%

Dadri thermal power project, Uttar Pradesh certified with

ISO 14001

2000 - Commenced constr

construction of the first hydro – electricity power
project of 800 MW capacity in Himachal Pradesh.

2002 - Three wholly owned subsidiaries, viz., NTPC Electric

Supply Company Limited, NTPC Hydro Limited and NTPC

Vidyut Vyapar Nigam Limited incorporated ESP

[Electrostatic precipitators) set up at Talcher power plant

20,000 MW installed capacity mark exceeded.

exceeded

2003 - Our Company undertook debt re-structuring.

re Raised
 funds through bonds (Series XIII and XIV) Construction of

first hydro-electric
electric power project of 800 MW capacity in

Himachal Pradesh commenced after the investment approval.

2004 - The award of contract for the first Super Critical Thermal
Power Plant at Sipat Reached a total installed capacity of 22,249
MW with the Talcher Unit V getting synchronized on May 13, 2004
Our Company.s Feroze Gandhi Unchahar Thermal station achieves
a record PLF of 87.43% in current year up from 18.02% in February
92 when it was taken over by us LIC extends credit facility for
Rs. 70 billion. Rs. 40 billion is in the form of unsecured loans and
Rs30
30 billion is in the form of bonds Our Company makes its debut issue
of euro bonds amounting to USD 200 million in the international
market First coal mining block allotted Listing of our Equity Shares
on the Stock Exchanges
Exchanges.

2005 - Our Company received the International Project Managem

Management

Award 2005 for its Simhadri project at the International Project

Management Association World Congress. Oil block allocated under
NELP V Our Company adopted core values 'BCOMIT'
(Buisness Ethics, Customer Focus, Organisational Pride, Mutual
Respect and Trust, Innovation and Speed and Total Quality for
Excellence) Our Company ranked as the Third Great Place to work
for in India for second time in succession by a survey conducted
by Grow Talent and Business World 20052005.

2006 - Badarpur Thermal Power Station having an installed capacity

of 705 MW transferred to our Company.

2007 - MOC, GOT granted in-principle

in principle approval for allocation of a new
 coal block, Chatti-Bariatu
Chatti Bariatu (South) to our Company subject to the
conditions stipulated in the approval letter. The share of reserves
is estimated to be 354 Million Tonnes
Tonnes.

2008 - Our Company adjudged as the Star PSU - 2008

Board expanded by appointment of five independent Directors
India Power Award conferred on Centre for Power Efficiency and
Environmental Protection
Protection.

2009 - Memorandum of understanding entered into with the Nuclea

Power Corporation of India Limited (NPCIL) for development of
nuclear power in India 30,000 MW installed capacity mark crossed
Long term fuel supply agreement signed with Coal India Limited
for supply of coal to our power stations for a period of 20 years
Our Company acquired 44.6% of presently paid-up
paid up capital of
Kerala and Transformers and Electricals Kerala Limited from
Government of Kerala at a total consideration of Rs. 313.4 million,
subject to final price to be based on the valuation of the assets
of Kerala and Transformers and Electricals Kerala Limited.
Kerala and Transformers and Electricals Kerala Limited is
engaged in manufacturing and repair of heavy duty transformers
International Gold Star Quality Award conferred on Centre for
Power Efficiency and Environmental Protection.
NTPC enters MOU with Nuclear Power Corpo
Corporation
ration of India Ltd.
(NPCIL) to work together for development of Nuclear Power in India
and for this purpose to form a Joint Venture Company for setting up
Nuclear Power Projects.
Evolution:-

NTPC was established in 1975 with

1975 100% ownership by the Government Of
India. In the last 30 years , NTPC has grown
into the largest power utility in India.

In 1997 , GOV granted NTPC status oo

1977 of “Navratan” being one of the nine jewe

jewels of India, enhancing the powers to
the Board Of Directors.

NTPC became a listed company with

majority Government ownership 89.5%

2004 NTPC becomes third largest by market

capitalization or listed companies.
 The company rechristened as NTPC
LTD
2005 LTD in line with its changing business
portfolio and transform itself from a
thermal power utility to an integrated
utility.

National Thermal Power Corporation

2008 is the largest power generation com-

com
pany in India. Forbes Global 2000 &
2009 ranked it 317th in the world.

Memorandum of understanding
that into with the Nuclear Power
2009 Corporation of India Ltd(NPCIL).
In India 30,000MW installed capa-
capa
city mark crossed.
A public sector company, it was incorporated in the year 1975 to accelerate power

development in the country as a wholly owned company of

of the Government of India. At

present, Government of India holds 89.5% of the total equity shares of the company and

the balance 10.5% is held by FIIs, Domestic Banks, Public and others. Within a span of 31

years, NTPC has emerged as a truly national power company, with power generating

facilities in all the major regions of the country.

Today NTPC is the largest power generating company in India and contributes one-fourth
one

of the thermal energy generated in the country. NTPC has 463 ranking the world top class

‟s companies which are improved from last year rank i.e. 486. Over all these years
2000‟

NTPC has been an organization which has delivered expected performance in all the

spheres of its business activities and meeting all the challenges for growth and operation

through adoption of excellent management system and practices.

The success of NTPC is the result of a modest but systematic beginning. NTPC known as

‟S have central govt. and the finding agencies as one of their

the NAVRATANS of PSU‟

major stakeholder. Railway are the major supplier of NTPC.

If anything which is manufactured is to be sold out. In the same manner NTPC also has
some of its buyers. The main buyers who purchase electricity from NTPC are; the state
‟S) and the state govt.
electricity board (SEB‟

Goal of establishment: To bridge the huge electricity supply--demand gap and the
State Electricity Boards were not able to cope up with the situation.
Mission:-

“Develop and provide reliable power, related products and services at competitive
prices, integrating multiple energy sources with innovative and eco–friendly
eco
technologies and contribute to society"

• Make a reliable and available quality power in increasingly large quantities at

competative prices and ensure timely realization of revenues.

• Adopt a broad based capacity portfolio including Hydro Power , LNG Nuclear
Power , and non- conventional and eco
eco- friendly fuels.

• Plan and speedily implement power projects using state of the art tecnologie
 • Develop a strong portfolio of profitable business in overseas market including

technical services, generating assets etc.

• Continuously attract and develop committed human resources to match world

w

standards.

• Leads developmental efforts in the Indian power sector including assisting state

utility reform, policy recover.

• Be a socially
cially responsible corporate utility with thrust on environment protection,

ash utilization, community development, energy conservation.

Contribution of different sources of power generation:

 THERMAL

HYDRO

OTHER

NUCLEAR

THERMAL 93392.64

HYDRO 36647.76

NUCLEAR 4120

OTHERS 13242.41
VISION:-
“To be one of the world’s largest and best power utilities, powering India’s
growth.”

“A world class integrated power major, powering India’s growth,

with increasing global presence."

To realize this vision, NTPC has drawn up a detailed Corporate Plan for the period 1997
1997-
2012 which represents the company's collective optimism and enthusiasm, inspired by a
glorious past, a vibrant present and a brilliant future. The Plan has been prepared in-house
in
in consultation the committed, competent and confident members of the NTPC family. The
road map that has been charted out was after a thorough scan of the strengths and
weaknesses within the organization as well as opportunities and threats in the environm
environment.

Considering multidimensional opportunities in the energy sector, NTPC will adopt a multi-
multi
pronged growth strategy for capacity addition through Greenfield sites, expansion of
existing stations, takeovers and joint ventures. The capacity addition plans that we have
drawn up for the fifteen-year
year period using all the above strategies to enable the corporation
to become a 40,000 MW company by 2012 A.D. National Thermal Power Corporation Ltd.
(NTPC) a global giant in the power sector was set up on 7th November
Novemb 1975, with an
objective to accelerate the electricity generation by planning, promoting and organizing
integrated development of thermal power in India. ‟s core business is
NTPC‟
engineering, construction and operation of power generating plants. It also
provides consultancy in the area of power plant constructions and power generation to
companies in India and abroad. As on date the installed capacity of NTPC is 27,904 MW
through its 15 coal based (22,895 MW), 7 gas based (3,955 MW) and 4 Joint
Venture Projects
rojects (1,054 MW). NTPC acquired 50% equity of the SAIL Power Supply
Corporation Ltd. (SPSCL). This JV company operates the captive power plants of
Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has
28.33% stake in Ratnagiri Gas & Powe
Powerr Private Limited (RGPPL) a joint venture
company between NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB
Holding Co. Ltd.

\\

Organizational Structure:
Structure:-

Organization structure includes three levels of management i.e. corporate level including

top management, then region level comprising management of SBU regional level

management & last as planning level management as GMs of various plants

Core Value:

This corporate plan provides details of the overall agenda for NTPC. The successful

delivery of this agenda would require a committed work force that identifies with and

supports the vision. To ensure realization of this corporate agenda, a set of core values
v

should be central to, and govern each activity of the organization. Known as one of the

‟S of the PSU‟
NAVRATAN‟ PSU‟S NTPC has its following core values. They are known as

(BCOMIT):

Business Ethics

Customer Focus

Organizational & Professional Pride

Mutual Respect & Trust

Innovation & Speed

Total Quality for Excellence

Station Detail::-

Coal Based Power Stations:

Stations

COAL BASED(Owned by STATE COMMISSIONED

NTPC) CAPACITY(MW)

1. Singrauli Uttar Pradesh 2,000

2. Korba Chhattisgarh 2,100
3. Ramagundam Andhra Pradesh 2,600

4. Farakka West Bengal 1,600

5. Vindhyachal Madhya Pradesh 3,260

6. Rihand Uttar Pradesh 2,000

7. Kahalgaon Bihar 2,340
8. NCTPP, Dadri Uttar Pradesh 1,330
9. Talcher Kaniha Orissa 3,000
10. Feroze Gandhi, Unchahar Uttar Pradesh 1,050

11. Talcher Thermal Orissa 460

12. Simhadri Andhra Pradesh 1,000

13. Tanda Uttar Pradesh 440

14. Badarpur Delhi 705
15. Sipat-II Chhattisgarh 1,000

Total 24,885
Hydro Based Power Projects:
Projects

NTPC has increased thrust on hydro development for a balanced portfolio for long term

sustainability. The first step in this direction was taken by initiating investment in Koldam

Hydro Electric Power Project located on Satluj river in Bilaspur district of Himachal

Pradesh. Two other hydro projects under construction are Tapovan Vishnugad and

Loharinag Pala. On all these projects construction activities are in full swing.
swing
 HYDRO BASED STATE APPROVED
CAPACITY(MW)

1. Koldam (HEPP) Himachal 800

Pradesh
2. Loharinag Pala (HEPP) Uttarakhand 600
3. Tapovan Vishnugad Uttarakhand 520
(HEPP)
Total 1,920

Gas/Liquid Fuel Based Power Stations:

Stations

The details of NTPC gas based power stations are as follows:-

follows

GAS BASED STATE COMMISSIONED

(Owned by NTPC) CAPACITY(MW)

1. Anta Rajasthan 413

2. Auraiya Uttar Pradesh 652
3. Kawas Gujarat 645
4. Dadri Uttar Pradesh 817
5. Jhanor-Gandhar Gujarat 648
6. Rajiv Gandhi CCPP Kerala 350
Kayamkulam
7. Faridabad Haryana 430

Total 3,955
Diversified Growth:-
NTPC’s quest for diversification started with its foray into Hydro Power. It has, since then,
been moving towards becoming a highly diversified company through backward, forward
and lateral integration. The company is well on its way to becoming ‘an Integrated
Integ Power
Major’, having entered Hydro Power, Coal Mining, Power Trading, Equipment
Manufacturing and Power Distribution. NTPC has made long strides in developing its Ash
Utilization business. In its pursuit of diversification, NTPC has also developed strategic
st
alliances and joint ventures with leading national and international companies.

Hydro Power:
Power:

In order to give impetus to hydro power growth in the country and to have a balanced
portfolio of power generation, NTPC entered hydro power business wit
with the 800 MW
Koldam hydro project in Himachal Pradesh. Two more projects have also been taken up in
Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects
of capacities up to 250 MW.

Coal Mining:

In a major backward integration move to create fuel security, NTPC has ventured into coal
mining business with an aim to meet about 20% of its coal requirement from its captive
mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC,
including 2 blockss to be developed through joint venture route. Coal Production is likely to
start in 2009-10.

Power Trading:

'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was created for
trading power leading to optimal utilization of NTPC’s assets. It is the second largest
power trading company in the country. In order to facilitate power trading in the country,
coun
‘National Power Exchange Ltd.’, a JV between NTPC, NHPC, PFC and TCS has been
formed for operating a Power Exchange.

Ash Business:

NTPC has focused on the utilization of ash generated by its power stations to convert the
challenge of ash disposall into an opportunity. Ash is being used as a raw material input for
cement companies and brick manufacturers. NVVN is engaged in the business of Fly Ash
export and sale to domestic customers. Joint ventures with cement companies are being
planned to set up
p cement grinding units in the vicinity of NTPC stations.

Power Distribution:
Distribution:

‘NTPC Electric Supply Company Ltd.’ (NESCL), a wholly owned subsidiary of NTPC, was
set up for distribution of power. NESCL is actively engaged in ‘Rajiv Gandhi Gramin
Vidyutikaran Yojana’programme for rural electrification and also working as 'Advisor
cum Consultant' for Ministry of Power for implementation of Accelerated Power
Development and Reforms Programme(APDRP)
Programme(APDRP) launched by Government of India.

Equipment Manufacturing:

Enormous growth in power sector necessitates augmentation of power equipment

manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge Ltd. for
power plant equipment manufacturing. NTPC has also acquired stake in Transformers
and Electricals Kerela Ltd. (TELK) for manufacturing and repair of transformers.
Operation Growth:-
Growth

In terms of operations, NTPC has always been considerably above the national average.

The availability factor for coal based power stations has increased from 89.32% in 1998-99
1998

to 91.76% in 2009-10,
10, which compares favourably with international standards. The PLF

has increased from 76.6% in 1998-99

1998 to 90.81% during the year 2009-10.
10.
The table below shows that while the installed capacity has increased by 62.15% in the last
twelve years the generation has increased by 99.84%.

DESCRIPTION UNIT 1998-99 2009-10 % OF INCREASE

Installed Capacity MW 17,786 28,840 62.15

Generation MUs 1,09,505 2,18,840 99.84

The table below shows the detailed operational performance of coal based stations over the
years.

OPERATIONAL PERFORMANCE OF COAL BASED NTPC STATIONS

Year Generation(BU) PLF(%) Availability

Factor (%)
2009- 218.84 90.81 91.76
10
2008- 206.94 91.14 92.47
09
2007- 200.86 92.24 92.12
08 188.67 89.43 90.09
2006-
07
2005- 170.88 87.52 89.91
06
2004- 159.11 87.51 91.20
05
2003- 149.16 84.40 88.79
04
2002- 140.86 83.57 88.70
03
2001- 133.20 81.11 89.09
02
2000- 130.10 81.80 88.54
01
1999- 118.70 80.39 90.06
00
1998- 109.50 76.60 89.36
99
Award Details:-
Details
NTPC has a glorious record of excellence in every field of its activities ever since its

inception in 1975. Leading the country’s power sector with a vision to become a 75,000

MW company by 2017, we take pride in our people and their performance which has been

acknowledged time and again at various national and international fora.

S.no Awards Instituted by Remarks

1. Company Rankings Business Standard. Star Company (Public

Award Sector Undertaking) of the
year
2. Environment Awards Institute of Directors. Significant contribution in
protecting the environment

3. HR Awards World HRD congress Great Places to Work & for

innovative HR practices.

4. Safety Awards Institute of Directors for Occupational Health &

Safety -2008’

5. Performance Awards IPMA International Project

Management Award 2008.

6. International Gold Star Centre for Power Recognition of outstanding

Award for Quality 2009
Efficiency & commitment to Quality,
Environmental Excellence and Leadership
Protection (CenPEEP) contributing towards the
success for India in the
business world.

7. India Pride Awards Union Home Minister. For excellence in Energy

Shri P. and Power Category.
Chidambaram
8. ICAI Award The Institute of For
or Excellence in Financial
Chartered Accountants Reporting
of India
S.no Awards Instituted by Remarks

9. International Project International Project Project Excellence in

Management Management Association Vindhyachal – Stage III
Award,2008 (IPMA) (2X500 MW).
project was implemented in
record time with excellent
environmental and
economic performance
The Project Excellence
Award is annually awarded
to the most successful
project teams in the world
10. Exim Excellence Award Confederation of Indian ‘Significant Achievement’
2008 Industry(CII) Strong Commitment to
Excel’
11. India Power Awards Council of Power Utilities Its commitment to address
2008 the issues of environment
protection in India, while
simultaneously supporting
economic growth and
development.

12. Enterprise Excellence Indian Institution of For its financial and

Award Industrial Engineering operational strength
assessed under 5
perspectives - Financial
Strength, Achievements,
Internal Processes,
Innovation & Learning and
External Customer
Orientation.
SWOT Analysis:-
Analysis

Strengths

Threats SWOT Weakness

Opportunitie

Strengths:
Strengths:

 Largest market share in domestic power generation and a broad customer

portfolio across the country.
 Excellent track record of performance in project implementation and plant
operation.

 Diversified thermal generation portfolio multiple and fuels.

 Navaratna status.

 High brand equity among shareholders.

 Strong
rong balance sheet – ability to raise low cost debt.

 Engineering skills in project configuration and package design.

 Turnaround ability for old plants – demonstrated in the takeover plants of Talcher,
Tanda and Unchahar.

 High credit rating that is indicative

indicative of the confidence of lenders.

 In house training facility (PMI),CENPEEP, R&D etc that assist in development

of the sector.

Weakness:
Weakness:

 Low risk diversification of business portfolio consists primarily of

generation assets.

 Poor
oor financial health of customer.
  Functional orientation hampering across functional perspective in decision
making.

 Long and multi layered procurement process leading to long lead times and
process delay.

 Fragmented IT architecture.

 Gaps in HR systems such as performance management, awards and incentive

career development.

 Hierarchy
erarchy for decision making that effects responsiveness.

 Role ambiguity and dilution within different lends of the organization.

Opportunities :

 Expand generation capacities by putting up thermal & hydro capacities,

maintain the position of a dominant generating utility in the Indian Power sector.

 Broad base fuel mix by considering imported coal, gas, domestic coal,
nuclear power etc.With a mitigate fuel risk and maintaining lo
long
ng run
competitiveness.
  Expand services for EPC, R&M, and O&M activities in the domestic

as well as international market.

 Backward integrate into fuel management to exercise greater control and

understanding of supply economics.

 Lead the development and commercial deployment of non – conventional

energy
gy sources especially in the distributed generation mode.

 Improve collections by trading, direct sales to bulk customers and the active
role in allocation of new plants.

 Execute increased number of power plants that classify for Mega Power
Projects status, thereby reducing the cost of the p
projects and power generated.

 Forward integrate into the distribution business in India.

Threats:
Threats:

 Limited experience of operating in a truly liberalized environment with

competition.
 Limited experience of operating in an independently regulated system.

 Redirecting power may be constrained by inter-

inter regional connectivity

 Downward regulatory and competitive pressure on tariffs.

 Stringent norms for approval of increase in capital costs for projects in

event of time overrun.

 Stringent environmental norms in the future may add to the cost of

generation.

 Absence of an independent regular for coal industry and the delay in

private investments lending to the risk of low availability of coal in the future.
Competitors overview
overview:-

Tata Power:
Power:

‟s largest private sector power utility. Its revenues are $ 1 bn. Its Profit
Tata power is India‟

after tax is $ 137 mn. Its generation capacity is 2300 MW. Out of that in Mumbai,

the capacity is 1800 MW. It has presence in generation, transmission and distribution of

power. It supplies power to Mumbai and Delhi regions.

Business strategy:

The core business of Tata Power Company is to generate, transmit and distribute

electricity. The Company operates in two business segments: Power and Other services.

The Power segment is engaged in generation, transmission and distribution of electricity.

electrici

The other services segment includes electronic equipment, broadband services, and project

consultancy and oil exploration.

Reliance Energy:
Energy:-

Reliance Energy Ltd (REL) formerly known as Bombay Suburban Electric Supply
(BSES)
is a part of the Anil Dhirubhai Ambani Group. It is an integrated power utility
company in

the private sector in India which came into existence when it took over BSES in 2002.

The company is the sole distributor of electricity to consumers in the su

suburbs of Mumbai.

It also runs power generation, transmission and distribution businesses in other parts of

Maharashtra, Goa and Andhra Pradesh. REL has significant presence in the field of

execution of the Power projects on EPC (Engineering, Procurement and Commissioning)

basis.
Future Expansion:-
Expansion
NTPC has formulated a long term Corporate Plan upto 2017. In line with the Corporate

Plan, the capacity addition under implementation stage is presented below:

PROJECT STATE MW
S.no Coal
1. NCTPP II ( 2 x 490) Uttar Pradesh 980
2 Korba III ( 1 x 500) Chhattisgarh 500
3 Sipat I (3 x 660) Chhattisgarh 1980
4. Farakka III ( 1 x 500) West Bengal 500
5. Indira Gandhi STPP-
STPP JV with IPGCL & HPGCL ( 3 Haryana 1500
x 500)

6. Simhadri II ( 2 x 500) Andhra Pradesh 1000

7. Vallur I -JV
JV with TNEB ( 2 x 500) Tamilnadu 1000
8. Vallur Stage-II Phase-II
Phase -JV with TNEB ( 1 x 500) Tamilnadu 500
9. Bongaigaon(3 x 250) Assam 750
10. Mauda ( 2 x 500) Maharashta 1000
11. Rihand III(2X500) Uttar Pradesh 1000
12. Vindhyachal-IVIV (2X500) Madhya 1000
Pradesh
13. Nabinagar TPP-JV JV with Railways (4 x 250) Bihar 1000
14. Barh II (2 X 660) Bihar 1320
15. Barh I (3 X 660) Bihar 1980
Hydro
1. Koldam HEPP ( 4 x 200) Himachal 800
Pradesh
2. Loharinag Pala HEPP ( 4x 150) Uttarakhand 600
3. Tapovan Vishnugad HEPP (4 x 130) Uttarakhand 520
Total 17930
 BTPS

BADARPUR THERMAL POWER

STATION
BTPS PROFILE

Introduction

Organizational Structure

Company Social Responsibility

Awards
 Introduction::-

BADARPUR THERMAL POWER STATION is owned by GOVT. OF INDIA,

Ministry of Energy and is managed by NATIONAL THERMAL POWER
CORPORATION (NTPC) since 1 April , 1978. At the time of change over
management the installed capacity was 300 MW and under NTPC two more unites of 210
MW, each were erected
rected and commissioned.

BTPS was conceived in 1965 to meet the growing electricity demand of Northern Region.
The site construction work started in 1968 and plant became operational with the
commissioning of its first unit on 26th July 1973, 2nd unit in ;74 , 3rd unit in ’75 , 4th unit in
’78 & 5th unit in ’8 last 29 years & in the 30 year operation BTPS has been moving
from strength to strength. It achieved new heights in Generation, Availability and
substantial reduction in inputs; thereby
thereby demonstrating overall efficiency in plant
performance, towards its end-objective
end objective of providing power to the Capital. In spite of the
old & ageing unites, PLF of BTPS has remained higher than the National Average for the
last 16 consecutive years. In the top
t 20 power station of India BTPS has got 8th position in
current FY and Achieved all our MOU Targets with Excellent Rating.

There is total five unites in the thermal power station , details of the various unites are:

3 units * 95 = 285

2 units * 210 = 420

The installed
lled capacity of the BTPS is 705 MW.

The coal sources include:

CCL (Center Coal Field Ltd.)

BCCL (Bharat Coking Coal Ltd. )

ECL (Eastern Coal Field Ltd.)

The water supplied is taken from Agra irrigation canal and is used for cooling. There are

cooling towers provided so that the plant can operate in the closed cycle. BTPS is designed

and engineered by the central water and power.

Organizational Structure
Structure:-

s.no Structure Numbers, Quantity,

Rupees , MW,
Location
1.
Approved capacity 705 MW

2.
Installed capacity 705 MW

3.
Location New Delhi

4.
Coal source Jharia and Bokaro (Bihar)

5. Delhi, since 1 April, 1987.

Beneficiary state

6.
Water source Agra canal

7. 3 units
Unit sizes * 95

2 units
* 210

8. Executive : 374
Manpower Supervisor : 217
Workmen : 1079

9.
Coal Consumption 3.9 Million Tones P.A.

10.
Residential Quarters 1201
Corporate Social Responsibility:-
Responsibility
BTPS plays a important role in Corporate Social Responsibility activities like creating a
better environment , increasing industrial harmony and improving the standard of life of
its employees.

Betterment
of
Environment

Human
Resources CSR Social Role
Development

Industrial
Harmony
Efforts For the betterment of Environment:
As a responsible corporate citizen the station has been making concrete effort in making
the environment clear and pollution free.

Generation of green-power,
green , major thrust to contain the emission level, mass tree
plantation, careful ash disposal and productive ash utilization.

Social Role:

BTPS has progressive philosophy which aims to enhance the quality of life of its employees
and the general masses. Among the facilities provided are self sufficient township with two
schools namely KENDRIYA VIDYALAYA and NOTRE DAME, shopping
centers, banks, mother dairy outlet, recreational facilities, hospital, medical amenities and
sports facilities.
The villagers in the vicinity have been assisted medically by setting up free
medical
cal camps for eye operation, cancer detection, and diabetes and family measures.

Industrial Harmony
Harmony:

Communication channels with unions and association and regular periodic meeting helps
in reducing employee grievances to a minimum level.
Some of the schemes in operation are adult literacy, worker’s education,
worker’s participation in management etc.
Human Resources Development:

BTPS conducts regular training for skill up gradation. Multi-

Multi skilling is being stressed for

exploiting the potential for the employees in different disciplines. Careful training has

resulted in increase in the ratio of the million unit’s generation per man.
Awards Bagged by BTPS:
BTPS has bagged many awards and certification not only for its plant management, safety

measure but also for its sensitive corporate role.

To name few awards Meritorious Productivity, Incentive Awards,

Safety Award, Vishwakarma Rashtriya

Rashtriya Puraskar, Delhi Sharmik

Sujhao Yojana, Environment Excellence Awards, Best Young

Manager Awards, Quality Circle Best Of The Session Awards,

Environment Awards etc.

The station is proud recipient ISO 9002 and 14001 certification by the Bureau of

Indian Standard (BIS). The BTPS hospital has also been awarded the ISO 9002

certification.
FINANCE
 FINANCE

Sources of revenue & Expenditure

Accounting policies

Function of finance department

 Finance Management in NTPC:
National Thermal Power Corporation Ltd(NTPC), some of the largest power sectors in

the country has its objectives to manage the financial operations in accordance with sound

commercial utility practice and to generate returns as per government guidelines. The

finance function can be described as a function concer

concerned
ned with raising resources at least

cost, optimizing the use its resources, maximizing profits and minimizing wises. Finance is

associates with records keeping of all transactions in accordance with accepted principle of

accounting.

NTPC have the corporate office who are mainly concerned with planning, policy making

and major finance investment and

and expenditure decisions besides, control , cash

management and consolidation of account.

The Main Sources of Revenue & Expenditure of BTPS:

Sources of Revenue:

Sale of energy.

Rest from residential building.

 Interest

Depreciation reserve fund.

Investment.

Bank deposits.
deposits

Over standing dues.

Other receipts

Sources of Expenditure:
Expenditure

Fuel.

Water chargee
 Lubricants and Grease.

Salaries, Wages and Allowances contribution to provident fund.

Repair and Maintenance:

Maintenance

Building and civil works

Boiler plant and equipment, Cash handling equipments.

Ancillary equipment.

Cooling water system and wolfing tower.

Electrical equipment.
 Miscellaneous charges

Depreciation.

General Administration Charges:

Salaries and allowances contribution to provident and other funds.

Welfare and Administrative expenses.

Other Charges::
Interest on Government capital A/C.

Interest on Government current A/C.

Accounting policies:-
policies

Revenue:

1. Fixed Assets

Fixed assets are shown at historical cost.

Deposits, payment/ liabilities made provision towards compensation ,

rehabilitation and other expenses relate to land in possession are treated as

cost of land.

In the case of commissioned assets, where final settlement of bills with

contracts is yet to be effected , capitalization is done on provisional basis

subject to necessary adjustment in the year of settlement.

2. Capital work in progress

In respect of supply
upply cum executive contracts the value of supply received at site

and accepted is taken as capital work in progress.

Interest on capital expenditure financed out of Government capital. It is

treated as revenue expenditure.

Incidental expenditure during construction for the year is appointed to capital

work in progress.
Inventories:
Inventories are valued at cost, an weighted average basis.

Value of scrap including steel scrap is accounted of in the accounts as and when

sold.

Expenditure:
Depreciation is charged on straight line method.

Depreciation on fixed assets is provided from the year following that in which the
assets become available for use.
Function of finance department
department:

Cash in bank

Establishment
Coal

Finance
department

Store section Concurrence

Work station

This department handles all the process starting from coal handling to generation

and transmission of electricity

electricity.
Brief Detail of finance section:-
section

Cash In Bank:
There are two section in it:

Receipt: In this all the money from sales will go to the company’s centralise

corporate sector

Payments : It involves employee refund, tour advance, water charges,

electricity charges, hospital charges etc.

This section also do the periodic reconciliation of bank statement.

NTPC has accounts in three banks: Central bank of India, state bank of India & ICICI.

ESTABLISHMENT:
This section covers benefits for the employeees. The benefits includes child education,

increment, provident fund, medical etc.

Briefly

Child education:
education any employee who is having 2 kids will get Rs 900/month

from kg to 12th and after school Rs 2000/month for college + Rs 2000 extra for hostel
fee. All this payment is made only after the receipt is submitted to the finance

department by the employee. However the employees children are elso entitled for

the merit scholarship which is Rs.9000/month.

Increment : this is given to the employee on the basis of their designation.

For workmen category that is from W1 toW8: 3% of basic pay

For W8 and above which supervisor category: 3.5% of basic

basic pay

For all the executive : 4% of basic pay

Medical: This facility is for all the regular employees and their dependents.

Under the medical facility all the hospitals which is outside the company premises

should registered under the CGHS (central government health scheme). The main

reason for this registration is that all the medical payments is non taxable which is

a sort of bonus for the company.

NTPC has an agreement with the hospitals outside the company premises which is

known
own as their panel hospitals so any employee goes to that hospital he/she will not

have to pay any amount from their pocket they just have to submit the receipt of

their bill to the finance department and they will pay on their behalf.

Provident fund: : Under

nder this the company will pay 12% of their basic pay

out of which 8.33% goes to pension and rest goes to the fund. However the
 employee, in case of emergency can withdraw from their fund as a loan which they

have to refund according to their paying capacity.

capaci

Along with these benefits there are many other benefits which the company offers

to their employees like:

Conveyance maintenance: like for motor cycle, for all the executive will get

Rs.1595/month, all supervisor will get Rs. 1190/month & all workmen will get rs. 790/

month.

Transport allowance: For all the executive Rs.675/month, for all supervisors Rs.

540/month,for all workmen Rs.435/month.

House rent allowance: This is 30% of basic pay. Those who are not staying in

company’s quarter will get this

t allowance.

Fixed compensatory allowance: 5% of basic pay for those who do not live in

company quarters and 1110% of basic pay for those who live in company quarters.

Lease: those who do not live in company quarters and who do not want HRA (only for

executive level) will get 17130/month as lease.

CONCURRENCE :

This department actually verifies the requirement which is raised by the indenting

department and also verifies the amount which is charges by the supplier is genuine or not.

This section take care of purchase concurrence and works concurrence. Purchase

concurrence involves purchase of various office items and works concurrence involves

hiring servicing consultancy etc.

WORK STATION :

This section involves repairs & maintenance of various office item and plant item like

repair of machinery, oiling in fans, maintenance of A.C., computers etc. under this section

billing is also done after deducting the TDS under section 194(k). at the time of payment

tax is deducted from the bill of supplier

supplier and the balance is paid to the supplier. At the end

of the year tax certificate is given to the supplier.

STORE SECTION :
It involves the payment of the material. Material involvea coal, other office expenses like

furniture, almirahs, capital goo

goods like boiler, maintenance charges.
The payment through this section is direct or via bank. However the main supplier of

capital goods is BHEL.

Another important fact in this section is that approx Rs 1 cr. Per annum is spent on the

filteration of water. The water is supplied by Agra canal which stores Yamuna water but

due to toxicity element huge expenditure incurred every year for the filteration.

COAL:
basically there are three supplier of coal

CCL (Central Coal field limited): They supply coal for rs 1000/metric

tonne. According to NTPC, their coal is of very low grade.

BCCL(Bharat cooking coal limited): They supply coal for rs

950/metric tonne.

ECI (Eastern coal fields limited): They supply coal of rsv2200/metric

tonne.

There was a very interesting fact which I came across in this section is that the cost

of transportation (freight charges) exceeds the cost of coal.

 There is very precise information regarding the freight charges which I came to

know:

From 3 - 5 Km : There will be no cost

5 - 10 Km : rs 40

10 - 20 :rs 70

More than 20 Km : on actual basis (depend upon slabs of transport company).

C & M department(contracts and material):

This is another department which is related with finance department. Any item regarding
re

the plant whether parts of machinery or even a new machine is first approve by this

department and then finance department comes into picture This department is

responsible for issuing of tenders regarding the various plant items. Under this depart
department

there are three types of tenders

Single tender: This type of tender is issued for particular supplier of materials

like original equipment manufacturer. For NTPC, BHEL is the original equipment

manufacturer.
 Limited tender : This type of tender is issued when the items are limited. It is

issued for the limited supplier.

Open tender : This type of tender is issued when the purchasing items are

substantial and huge amount is involved. Any party can bid in this tender

Complete procedurefor purchasing any item is as follows:

Raising of inquiry by the indenting department

Budget presentation

Budget approval by the financial authority. At this point concurrence comes into

picture.

Selection of material

Material which is is to be purchased is as per the quality specification like ISO,

grades etc.

Availability of stock

Final list of materials with complete specification.

Collection of information both primary or secondry who can supply the required

material.

Quality checks
Based on the material and their specification tender is issued whether single, limited

or open tender is required

required.
Study On Economic Value Added

Research Methodology

Economic Value Added

Objective of the study

Background of EVA

Definition of EVA

Concept of EVA

Characteristics

Steps in EVA calculation

Interpretation

Calculation of Economic Value

Added
Research Methodology:-
Methodology

Meaning:
It is a way to systematically solve the research problem. It may be understood as a science

of how research is done scientifically. Under it we study the various steps that are generally

adopted by a researcher in studying his research problem along with the logic behind them.

It is necessary
cessary for the researcher to know not only the research methods/techniques but

also the methodology.

Objectives of research:

The purpose of the research is to discover answers to the questions through the application

of scientific procedures. The main aim

aim of research is to find out the truth which is hidden

and which has not been discovered as yet. Though each research study has its own specific

purpose, we think of research objectives as falling into a number of following broad

categories:

To gain familiarity
liarity with the phenomenon or to achieve new insights into it(studies

with these objects in view are termed as exploratory or formulative

research studies).
 To portray accurately the characteristics of particular individual, situations or a

group (studies with this object in view are termed as descriptive research).

To determine the frequency with which something occurs or with which it is

associated with
th something else(studies with this object in view are known as

diagnostic research).
research)

To test the hypothesis of a casual relationship between variables(studies with this

object in view are known as hypothesis-testing research studies).

studies)

Need & Importance

Importa of Research:

Research includes scientific and inductive thinking and it promotes the development

of logical habits of thinking and organization.

The role of several fields of applied economics, whether related to business or to the

economy as a whole, has greatly increased n modern times.

Research provides the basis for nearly all government policies in or economic

system.
 Research has its special significance in solving various operational and planning

problems of business and industry.

Research
arch is equally important for social scientists in studying social relationships

and in seeking answers to various social problems.

Methodology:-

Primary method:

In this method of data collection, data is collected either by the statistician himself or by his

correspondents or the person employed by him. It is obtained by design to fulfill the data

are original in character and are also generated in a large number of surveys conducted

mostly by government and by institutional and research bodies. Such collection can be

done in either of the following ways i.e.

Methods of collecting primary data are:

Direct Personal Investigation

Indirect Oral Investigation

Information from correspondents

 Mailed Questionnaire methods

Secondary Methods:

These are not originally collected but rather then obtained from published and

unpublished sources. If the investigator does not collect the data himself his representatives

uses the data that are already available(whether published or unpublished), the method of

collecting is known as “Secondary Method of Data Collection”. Methods or sources of

collecting primary data are:

1. Published:

Government publications
publications.

Private publications etc.

2. Unpublished:

Research institutional
inst and trade association.

Universities.

Labor bureau, research workers and scholars etc.

Methods of data collection used in this project:-
project:

 In this project the primary method of data collection used is the financial reports

and annual booklets of the company

company.

 In this project the second

secondary method of data collection used is:

Websites.

In this project, I have collected the data with the help of websites, search engines, in house

magazines, annual reports, books etc.

As far as methodology is concerned, this is mainly on assumption basis however, I will be

using capital expenditure decisions which include cost and benefits and appraisal criteria

like internal rate of return (IRR)

(IRR).

Limitations of Study:

No study is free from limitations which are caused by constraints of time, mone
money,

knowledge base and similar facts. An attempt was made to broad base the study as far as

possible, however it is but natural that the study also suffers from some limitations which

are mentioned below

It is practically very difficult to complete this project in a short span of time , hence time

constraint was one of the limitations.

limitations

The primary data collection is one of the limitations of this project as per the organization

rules and regulations, providing such data is against the rule.

Economic Value Added:-
Added

Objective of the Study:-

Study:
This study has the following objectives:
objectives:-

To examine whether NTPC has been able to generate value for its shareholders.

To compute the performance of the company by applying traditional performance

indicators like ROI and EVA

Also this study seeks to clarify the concept of EVA especially

from the viewpoint of business unit controlling. The objective

objective of the study is twofold.

Firstly, the study describes the theory and characteristics of EVA. This gives the

framework to discuss the main objectives: How companies should use EVA considering

both its favorable and unfavorable features? In this context,

context, the study also offers some

recommendations of how EVA should be used as a management tool. This study tries to

bring together the relevant theoretical issues and controlling practices.

Background of EVA:

EVA is not a new concept. An accounting perform

performance
ance measures called residual income is

defined to be operating profit subtracted with capital charge. EVA is thus one variation of
residual income with adjustments to how one calculates income and capital. The concept of

residual income was given by Alfred

Alfred Marshall in 1890. Marshall defined economic profit as

total net gains less the interest on invested capital at the current rate. The EVA concept is

often called Economic Profit (EP) in order to avoid problems caused by the trade marking.

On other hand the name “EVA” is so popular and well known that often all residual

income concepts are called EVA although they do not include even the main elements.

Definition of EVA:

EVA is a residual income that subtracts the cost of capital from the operating profit

generated by a business. In other words, EVA measures whether the operating profit is

enough, compared to the total cost of capital. EVA is simply after tax operating profit

minus the total annual cost of capital. Unlike the traditional measures of accounting profit

where only a part of the cost of capital(cost of debt) is deducted, EVA requires deductions

of full cost of capital(cost of debt as well as cost of equity).

Just earning profit is not enough, a business should earn sufficient profit to

cover
over its cost of capital and create surplus to grow. Stated simply, any profit

earned over and above the cost of capital is Economic Value Added.
Concept of EVA:

The idea behind the EVA is that shareholders must earn a return that compensates the risk

taken. In other words, equity capital has to earn at least same return as similarly risky

investments at equity markets. If that is not the case, then there is no real profit made and

actually the company operates at a loss from the view point of sharehold
shareholders. On the other

hand if EVA is zero, this should be treated as sufficient achievement because the

shareholders have earned a return that compensates the risk. This approach using average

risk adjusted market return as a minimum requirement is justified since

s that average

return is easily obtained from diversified long term stock market return reflects the

average return that the public companies generate from their operations. EVA is an

estimate of true “economic” profit or the amount by which earnings exceed

ex or fall

short of the required minimum rate of return that shareholder and lenders could get by

investing in other securities of comparable risk.

Characteristics of EVA:
EVA:-

The main theory behind EVA

EVA:

EVA measures whether the operating profit is enough compared to the total cost of capital

employed. EVA is defined as Net operating profit after taxes (NOPAT)

NOPAT) subtracted with a

capital charge:

EVA=NOPAT – CAPITAL COST

EVA=NOPAT –COST OF CAPITAL *CAPITAL EM

EMPLOYED
PLOYED

WHERE:

NOPAT =Net operating profit after tax or {EBIT(1

{EBIT(1--TAX)}

Cost of capital =Cost of equity *Proportion

oportion of equity from

capita +Cost of debt

*Proportion of debt from capital*(1-tax

capital*(1 rate).

Cost of capital or weighted average cost of capital (WACC) is the average cost of both

equity capital and interest bearing debt. Cost of equity capital is the opportunity return

from an investment with same risk as the company has.

Cost of equity is usually defined with Capital pricing model (CAPM). The estimation of

cost of debt is naturally more straightforward, since its cost is explicit. Cost of debt

includes the tax shield due to tax allowance on interest expenses.

Capital employed =capital +reserves and surplus +secured

loans+ unsecured loans.

Steps in EVA calculation

calculation:-

EVA computation requires some basic steps. The common steps are here that may be

modified due to the typical nature of business or processes where it has been used.

Step 1:

Collect and Review Financial Statements

EVA is based on the financial data produced by traditional accounting systems. Most of the

data come from either income statement or balance sheet both of which are available from

general purpose financial statements.

Step 2:-

Identify the company’s structure

A company’s capital structure comprises all of the money invested in the company

Either by the owner or by borrowing from outsiders. It is the proportions of debt

instrument and preferred and common stock of a company’s balance sheet.

However it can be computed by anyone of the following methods:

DIRECT METHOD: By adding all interest bearing debt (both short and long term) to

owner’s equity.

INDIRECT METHOD: By subtracting all non interest bearing liabilities from total

liabilities (or total assets).

Step 3:-

Determine the company’s weighted average cost of capital (WACC)

Estimation of cost of capital is a great challenge so far as EVA calculation for a company is

concerned. The cost of capital depends primarily on the use of fund, not the so
source. It

depends on other factors like financial structures, business risks, current interest level,

investors expectations and so on. It is the minimum acceptable rate of return on new

investment made by the firm from the viewpoint of the creditors and investors
in in the firm’s

securities. Some financial management tools are available in this case to calculate the cost

of capital. A common and simple method is Weighted Average Cost of Capital (WACC).
For calculating WACC we have to know a lot of other issues like

Components of capital employed like equity, debt etc

etc.

Respective weight of various components into total amount of capital employed.

employed

Factors that affect the risk and return of various components

mponents in a capital structure.

The overall cost of capital is the weighted average of the costs of the various components of

the capital structure

Step 4:-

Calculate the company’s Net Operating Profit after Tax (NOPAT)

NOPAT is a measure of a company’s

company’s cash generation capability from recurring business

activities and disregarding its capital structure. NOPAT is derived from NOP or EBIT

simply by subtracting calculated taxes from NOP [NOPAT=EBIT (1-

(1-TAX)]

Step5:-

Calculation of economic value added

Finally, the EVA can be calculated by subtracting capital charges from NOPAT i.e.

EVA=NOPAT-CAPITAL
CAPITAL EMPLOYED*WACC

If the EVA is positive, the company created value for its owner. If the EVA is negative

owner’s wealth gets reduced.

SCOPE OF EVA:-
EVA fundamentally affects the Management System, motivation, mindset and

measurement aspects of the company.

In the present market scenario every second company is making an attempt to impress the

investors, with their excellent financial performance showing the high growth rate. With

investors, with their excellent financial showing the high growth rate. With the limited

resources available the investor is confused as to who is better and why? Here comes the

concept of EVA, which helps the investors in simplifying

simplifying investment decision making.

USES OF EVA:-
EVA:

Measures Of Value Added Performance:

EVA concept will help organizations in evaluating and measuring their performance both

qualitatively and quantitatively. It shows financial performance with a new pair of glasses

or offers new approach especially for the companies where equity is viewed as free source

of funds and performance is measured by some earnings figure.


Basis Of Decision Making:
It will help organization to align its management system to the EVA process. The EVA

based management system can provide the basis on which the companies can take

decisions related to the choice of strategy, investment activities related to research and

development , human development, capital allocation, mergers and acquisitions,

divesting business and goal setting.

Device To Design And Implement Plan :

It can form a basis to devise and implement incentive plan/bonus.

plan/bonus. This plan will ensure

that the only way in which managers can earn a high bonus is by creating more values for

shareholders. An EVA based incentive system will encourage managers to operate in such a

way as to minimize the EVA, not just of the operation they oversee,
oversee, but of the company as a

whole.

Benefits of EVA:-
EVA:

Provides insight of each period

It is a direct link to performance

Reduces cost of capital

 Improves operational efficiency

Better management of assets

Easy to communicate to the employees

Helps managers to make better decisions by charging their operations for the cost of

capital

Limitations of EVA:-

Not easy to use, too complicated for small business

Recommends inexpensive debts in order to reduce the cost of capital

A passive tool, measures past performance ways to improve EVA

EVA can be improved by investing in high return projects

projects. By increasing the rate of

return for the same capital base

Earn more profit without using more capital

Employ less capital

Invest capital in projec

projects with greater return potential
Interpretation:--
A positive EVA means the firm generated a return to invested capital that exceeds the

opportunity cost of capital.

The value of firm should increase

A negative EVA means the firm did not generate sufficient return to cover its cost of

capital.

The value of the firm should decline

Return On Investment (ROI):

A performance measures used to evaluate the efficiency of an investment or to compare the

efficiency of a number of different investments. The return on investment, often called a

company’s return on total assets, measures the overall profit made on an investment
inv

expressed as a percentage of the total invested. Like return on assets, or return on equity,

return on investment measures a company’s profitability and its management’s ability to

generate profits from the funds investors have placed at its disposal.
dispo

It is often said if a company’s operation cannot generate net profit as a percentage of the

amount invested greater than the interest rate on financial markets, its future is grim. In

finance rate of return also known as return on investment, rate of profit or sometimes just

return, is the ratio of money gained or lost on an investment relative to the amount of

money invested.
Return on investment analysis is one of the several approaches to build a financial business

case. The term means that the decision

decision makers evaluate the investment by comparing the

magnitude and training of expected gains to the investment costs.

Decision makers will also look for ways to improve ROI by reducing costs, increasing gains,

or accelerating gains.

The return on investment often called a company’s return on total assets, measures the

overall profit made on an investment expressed percentage of the amount invested. Like

return on assets, or return on equity return on investment measures a company’s

profitability and
d its management’s ability to generate profit from the funds investors have

placed at its disposal.

It is often said if a company’s operation cannot generate net profit as a percentage of the

amount invested greater than the interest rate on financial markets,

markets, its future is grim. In

finance rate of return also known as return on investment, rate of profit or sometimes just

return, is the ratio of money gained or lost on an investment relative to the amount of

money invested.

Return on investment analysis is one of the several approaches to build a financial business

case. The term means that the decision makers evaluate the investment by comparing the

magnitude and training of expected gains to the investment costs.

Decision makers will also look for ways to improve ROI by reducing costs, increasing gains,

or accelerating gains.
The return on investment often called a company’s return on total assets, measures the

overall profit made on an investment expressed percentage of the amount invested. Like

return on assets, or return on equity return on investment measures a company’s

profitability and its management’s ability to generate profit from the funds investors have

placed at its disposal.

CALCULATION OF RETURN ON INVESTMENT:

INVESTMENT:-

The basic return on investment can be found by dividing a company’s net profit(also called

as net earnings ) by the total investment (total debt plus total equity) and by multiplying by

100 to arrive at a percentage

Return on investment =net profit/ capital employed *100

Return
rn on investment is a very popular metric because of its versatility and simplicity.

That is, if an investment does not have appositive ROI or if there are other opportunities

with a higher ROI, then the investment should not be undertaken.

Calculation of Economic Value Added:-
Added

STATEMENT SHOWING EBIT & NOPAT:-

NOPAT

PARTICULARS 2007
2007-08 2008-09 2009-2010

INCOME

NET SALES 370501 419237 463226

OTHER INCOME 29676 33490 18987

400177 452727 482213

[A]

EXPENDITURE
FUEL COST 220202 271107 294627

EMPLOYEE COST 18960 24631 24123

DEPRICIATION 21385 23645 26500

OTHER 19100 19520 20271

EXPENDITURE
279647 338903 365521
[B]

EBIT (A-B) 120530 113824 116692

NOPAT=EBIT(1- 79562 75135 77028.389

TAX)
CAPITAL EMPLOYED:-
EMPLOYED

DEFINATION :-
Capital employed is the value of assets that contributes to a company’s ability to generate

revenue. In general, it represents the capital investment necessary for a business to

function. Consequently, it is not measures of assets, but of a capital investment; stocks or

share and long term liability.

PARTICULARS 2007-08 2008-09 2009-2010

NET WORTH

PAID & SHARE CAPITAL 82455 82455 82455

RESERVE 443931 491246 541920

& SURPLUS

DEBENTURE 13602 16889 19867

REDEMPTION RESERVE

A 539988 590590 644242

ADD-: SECURED LOANS 73147 89695 90799

ADD-: UNSECURED 198759 255981 287171

LOANS

B 271906 345676 377970

CAPITAL 811894 936267 1022212

EMPLOYED(A+B)
COMPUTATION OF WEIGHTED AVERAGE COST OF

CAPITAL (WACC) FOR THE YEAR 2007

2007-08

PARTICULARS AMOUNT WEIGHT COST TOTAL

Equity, reserve 539988 66.5 0.14 9.31

and surplus

Debt 271906 33.5 0.048 1.61

Total 811894 10.92

Weighted average cost of capital = ke * w1 + kd * w2

=.14*66.5 + 0.048*33.5

= 10.92%

Working notes -:

• Cost of equity is taken as

14% as per govt. norms

• Cost of Debt = Total interest expenses * {(1

{(1-effective
effective tax rate)/total borrowing}

= 17981*(1-0.3399)/244844
17981*(1
 =0.048

COMPUTATION OF WEIGHTED AVERAGE COST OF

CAPITAL (WACC) FOR THE YEAR 2008

2008-09

PARTICULARS AMOUNT WEIGHT COST TOTAL

Equity, reserve 590590 63.07 0.14 8.82

and surplus

Debt 345676 36.93 0.049 1.81

Total 936267 10.63

Weighted average cost of capital = ke * w1 + kd * w2

=0.14*63.07+ 0.049*36.93

= 10.63%

Working notes -:

• Cost of equity is taken as 14% as per the govt. norms

 • Cost of Debt = Total interest expenses * {(1
{(1-effective
effective tax rate)/total borrowing}

=20229*(1
=20229*(1-0.3399)/271906

= 0.049

Where effective tax rate is taken to be 33.99% as per income tax act

COMPUTATION OF WEIGHTED AVERAGE COST OF

CAPITAL (WACC) FOR THE YEAR 2009

2009-10

PARTICULARS AMOUNT WEIGHT COST TOTAL

Equity, reserve 644242 63.02 0.14 8.82

and surplus

Debt 377970 36.98 0.035 1.29

Total 1022242 10.11

Weighted average cost of capital = ke * w1 + kd * w2

= 0.14*63.02 + 0.035*36.98

= 10.11%
Working notes -:

• Cost of equity is taken as

• Cost of Debt = Total interest expenses * {(1

{(1-effective
effective tax rate)/total borrowing}

= 18089* (1-0.03399)/345678
(1

=0.0506

Comparison of EVA & ROI for the 3 financial years i.e. 2007-2008,
2007 2008-
2009,2009-2010:-

Statement showing EVA & ROI comparison of NTPC(In millions):-

millions)

EVA CALCULATION 2006-07 2007-08 2008-09 2009-2010

EBIT 107668 120530 113824 126945

TAX RATE 33.99% 33.99% 33.99% 33.99%

NOPAT 71072 79562 75135 83796

CAPITAL 730812 811894 936267 1022242

EMPLOYED
WACC 11.33% 10.92% 10.63% 10.11%

EVA=NOPAT- (11729) (9097) (24390) (19553)

(CAPITAL
EMPLOYED*WACC)
ROI=(EBIT/CAPITAL 14.73% 14.85% 12.16% 12.42%
EMPLOYED)*100

Working notes (calculation of EVA)

Year 2006-07: 71072-(730812*0.1133)

(730812*0.1133)
 =(11729)

(811894*0.1092)
Year 2007-08: 79562-(811894*0.1092)

= (9097)

Year 2008-09: 75135-(936267*0.1063)

(936267*0.1063)

= (24390)

Year 2009-2010: 83796-(1022242*.1011)

(1022242*.1011)

= (19553)

Graphical representation:-
representation

0
2007 2008 2009 2010
-5000

-10000

-15000 EVA

-20000

-25000

-30000

Calculation of ROI
Year 2006-07:
07: 107668/730812*100

= 14.73%

Year 2007-08:
08: 120530/811894*100

= 14.85%
Year 2008-09
09 = 113824/936267*100

= 12.16%

Year 2009-2010:
2010: 126945/1022242*100

= 12.42%

Graphical representation:-
representation

16.00%

14.00%

12.00%

10.00%

8.00%
ROI
6.00%

4.00%

2.00%

0.00%
2007 2008 2009 2010
INTERPRETATION
INTERPRETATION-:
The above statement basically implies that unlike the traditional measure of accounting

measures of accounting profit where only a part of the cost of capital (cost of debt) is

deducted , EVA requires deduction of full cost of capital

capital (cost of debt as well the cost of

equity).

Return on investment measures a company’s profitability & its management’s ability to

generate profits from funds investors have placed at its disposal but just earning profit is

not enough, a business should earn sufficient profit to cover its cost of capital & create

surplus to grow.

Therefore it is advisable
ble to the company to follow the EVA method as it gives a more

rigorous. A positive EVA means the firm generated a return to invested capital that

exceeds the opportunity cost of capital i.e. the “value”

In this case of NTPC EVA comes out to be negative thereby

thereby implying that the profit of the

company did not added any value to the shareholder’s wealth but if we look at ROI is not

necessarily good for the shareholders the reason could be that ROI measures profitability ,

while EVA measures shareholder wealth.

wealth EVA focuses on after-tax
tax instead income instead

of before-tax
tax operating profit.

The reason for EVA being negative is the cost of capital being greater than the operating

profit of the firm i.e. there is no capital employed rather there is the capital erosion
ero taking

place. It shows that NTPC is not considering the cost aspects.

EVA vs. Return of Investment (ROI):-
(ROI)

There are two very good reasons why EVA is much better than ROI (RONA, ROCE,

ROIC) as a controlling tool and as a performance measure. There are as follows:

1. Steering failure in ROI

ROI:-
Increase in ROI is not necessarily good for shareholders i.e. maximizing ROI cannot be set

as a target. Increase in ROI would be unambiguously good only in the companies where

capital can be neither increased nor decreased.

2. EVA is more practical and understandable than ROI:-

ROI -

As an absolute and income statement based measure EVA is quite easily explained

to non-financial
financial employees and furthermore the impacts of different day-
day to- day

actions can be easily turned into EVA-figures

figures since an additional $100 cost

decreases EVA with $100. (ROI is neither easy to explain to employees nor can day-
day

to-day
day actions easily be expressed in terms of ROI)

This latter benefit if often totally forgotten in academic discussion

discussio since it cannot of

course, be visible in desk studies or empirical studies which try to trace the

correlation of EVA and share prices.

Reason 1 : Steering failure in ROI:-

ROI
 suppose of a SBU earning currently a return (ROI,ROIC,ROCE) of 30 % and

suppose that this SBU faces an investment opportunity producing a return of 20 %

(an error occurred while processing this directive)

• Before investment: Capital 100, Operating profit 30, Capital cost 100 %

• ROI = 30/100=30%, EVA=30 – (10%*100) = 20

• Investment’s capital requirement 20, return 20%/year : Thus increase in

yearly operating profit is 20 % *20= 4

• After investment : Capital 100, Operating profit 30, Capital Cost 10%

• ROI = 34/100= 28% , EVA = 34 – (10 % *120) = 22

• In this case decreasing ROI is good for the shareholders, thus ROI should

not be maximized and therefore it is problematic controlling tool.

• Usually large corporations have at least some very profitable units and

particularly these units are steered wrongly with ROI.

Reason 2: EVA is more practical and understandable than rate of

return(ROI):-

• Usually the rate of return is not used and totally understood at the lower level of

organization in the companies using ROI as the prime performance measure. i.e.

operating people
le do not use ROI while making day to day operation actions

• This kind of behavior is obvious since cost reduction, revenue increases capital

increases and reductions etc. are too difficult to convert into change of ROI with day

to activities

• Further thosee percentage would not be so informative to operating people than

absolute dollar changes in operating profit.

• This is even more understandable when we keep in mind that ROI is not an

unambiguous measure.

• Thus in ROI-steered
steered companies the capital base is left to very little attention in

operating people do not even realize that tying money in inventories or sales

receivables is costly.

• Therefore the meaning of capital efficiency is often forgotten and some operating

people do not even realize that tying mo

money
ney in inventories or sales receivables is

costly.

• EVA, in contrast to ROI, is an absolute measure easy to integrate into operating

activities since all cost reductions and revenue increases are already in terms of

EVA (reduction in all costs in one period = increase in EVA in the same period). In

the similar fashion capital increases/ reductions are also fairly easy to turn into

change of EVA.

• Furthermore EVA is (in contrast to ROI) an unambiguous measure i.e. always

increasing EVA increases the position of

o shareholders.

• It is also very common that in ROI

ROI-steered
steered companies many employees do not really

know what profitability is.

• Often many educated employees know something about the flaws of ROI and

therefore they have some vague conception that real profitability

profit might also

improve although ROI decreases.

FINDINGS:-

ROI increases in 2007-08

08 because of increase in EBIT but at the same time there is an

increase in Capital employed also thus implying that the effect of EBIT on ROI is more

as compared to that of capital employed.

During the year 2007-08

08 the ROI has gone up by 12 basic points whereas during the

year 2008-09,
09, the ROI has decreased by 269 basic points.. In the year 2009
2009-10, ROI

increased by 26 basic points.

As we see in the year 2007-08,

2007 08, EVA increases because of increase in EBIT & decrease in

cost of capital but in 2008

2008-09
09 it move towards negative as the cost of capital is more

than the operating profit. In the year 2009-10,

2009 10, EVA increases because of increase in

EBIT.

EVA is betterr than ROI as an indicator of creation of value.

Calculation reflects the idea that firm must earn enough to cover the cost of debt and

the opportunity cost of equity before it even begins to create value.

CONCLUSIONS:--

The EVA depicts the actual profits benefit over cost of capital employed where as ROI

shows actual profits over normal profits. Hence EVA is good measure of evluating

performance as it evaluate profit against cost.

If EVA is positive, that it indicates that the firm is adding

adding value to its shareholders. But if

EVA is negative , it shows that the firm is destroying value evan though it may be reporting

a positive or growing earning per share(EPS) or return on investment(ROI). This means, if

a firm wants to have an attractive invstment: it has to have a return that would exceed

other investment options with a similar risk.

EVA shows financial performance with a new pair of glasses or offers new approach

especially for the companies where equity is viewed as free source of funds
f and

performance is measured by some earning figure.

Inflation can distort the value of EVA. Furthermore EVA suffers from wrong

periodization Economic value added is a residual income variable. It is defined as Net

operating profit after tax subtrac

subtracted cost of capital tied in operations.

In a periodical performance measurement EVA can how-ever

how ever in some occasions give

misleading information because it suffers from the same shortcomings as (ROI). EVA

inspite of its fault seems to have importance for companies as a performance measurement

and controlling tool.

RECOMMENDATION
RECOMMENDATION:-

It is suggested that NTPC should take the following steps to change its negative EVA to

positive EVA such as:

Earning more profit without using more capital and this could be done by carry out

a cost analysis over product line or by doing analysis of expenses.

Change capital structure to reduce capital cost by employing less capital or invest

capital in projects with greater return potential.

Decrease overall cost of

of capitalby paying debts, loans etc. if sufficient funds are

available or it can buy back its equity.

APPENDICES
BIBLIOGRAPHY:-

BOOKS

1. EVA and value based management- a practical guide to implementation

2. Financial management and policy

3. Financial Management by I.M. Pandey.

4. Stern Stewart & co.(1991), The Quest for value. The EVA Management guide.

5. NTPC journals

6. MAFA

WEBSITES:-

www.ntpc.co.in

www.google.com

www.reliancepower.com

www.tatapower.com