improvement in the performance of Badarpur, Unchahar, and Talcher by NTPC LTD stand ... NTPC LIMITED SIPAT SUPER THERMAL POWER PROJECT.
CASH MANAGEMENT OF NTPC Limited, Shrepat,Chhattisgarh, 2011
Narendranath Guria Research Scholar Guru Ghasidas Central University Bilaspur(C.G) India
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Contant
OVERVIEW OF ORGANISATION GROTH OVER YEARS POWER GENERATION DIVERSIFIED GROWTH FUTURE PLANS OF NTPC LIMITED SWOT ANALISIS OF NTPC LIMITED NTPC LIMITED SEEPAT PLANT OBJECTIVES OF THE PROJECT UNDER STUDY CASH MANAGEMENT CONCLUSION BIBILOGRAPHY
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OVERVIEW
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 ventured into consultancy, power trading, ash utilisation and coal mining. NTPC ranked 341st in the ‘2010, Forbes Global 2000’ ranking of the World’s biggest companies. NTPC became a Maharatna company in May, 2010, one of the only four companies to be awarded this status. The total installed capacity of the company is 34,854 MW (including JVs) with 15 coal based and 7 gas based stations, located across the country. In addition under JVs, 5 stations are coal based & another station uses naptha/LNG as fuel. The company has set a target to have an installed power generating capacity of 1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix comprising 56% coal, 16% Gas, 11% Nuclear and 17% Renewable Energy Sources(RES) including hydro. By 2032, non fossil fuel based generation capacity shall make up nearly 28% of NTPC’s portfolio. NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of the total national capacity, it contributes 27.40% of total power generation due to its focus on high efficiency.
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GROWTH OVER YEARS & POWER GEGENERATION
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At NTPC, People before Plant Load Factor is the mantra that guides all HR related policies. NTPC has been awarded No.1, Best Workplace in India among large organisations and the best PSU for the year 2010, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its expansive CSR initiatives, NTPC strives to develop mutual trust with the communities that surround its power stations. In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% 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. In February 2010, the Shareholding of Government of India was reduced from 89.5% to 84.5% through Further Public Offer. The rest is held by Institutional Investors and the public.
Share Holding Pattern as on 31.03.2011 FIIs MUTUAL FUNDS Banks, Fis, Insurance Cos. INDIAN PUBLIC Bodies Corporate NRIs/OCBs/others GOI
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DIVERSIFIED GROWTH
As per new corporate plan, NTPC plans to become a 75 GW company by the year 2017 and envisages to have an installed capacity of 128 GW by the year 2032 with a well diversified fuel mix comprising 56% coal, 16% gas, 11% nuclear energy, 9% renewable energy and 8% hydro power based capacity. As such, by the year 2032, 28% of NTPC’s installed generating capacity will be based on carbon free energy sources. Further, the coal based capacity will increasingly be based on high-efficient-lowemission technologies such as Super-critical and Ultra-Super-critical. Along with this growth, NTPC will utilize a strategic mix of options to ensure fuel security for its fleet of power stations. Looking at the opportunities coming its way, due to changes in the business environment, NTPC made changes in its strategy and diversified in the business adjacencies along the energy value chain. In its pursuit of diversification NTPC has developed strategic alliances and joint ventures with leading national and international companies. NTPC has also made long strides in developing its Ash Utilization business. Hydro 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 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. Renewable Energy: In order to broad base its fuel mix NTPC has plan of capacity addition of about 1,000 MW through renewable resources by 2017. Nuclear Power: A Joint Venture Company "AnushaktiVidhyut Nigam Ltd." has been formed (with 51% stake of NPCIL and 49% stake of NTPC) for development of nuclear power projects in the country. 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 blocks to be developed through joint venture route. Power Trading: 'NTPC VidyutVyapar 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, ‘National Power Exchange Ltd.’, a JV of 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 disposal into an opportunity. Ash is being used as a raw material input by 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 cement grinding units in the vicinity of NTPC stations.
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Power 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 GraminVidyutikaranYojana’programme for rural electrification. 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 Kerala Ltd. (TELK) for manufacturing and repair of transformers.
Coal
project
state
MW
1. Indira Gandhi STPP- JV with IPGCL & HPGCL ( 3 x 500)
Haryana
1000
2. Sipat I (2 x 660)
Chhattisgarh
1320
3. Simhadri II Unit - IV( 500)
Andhra Pradesh
500
4. Vallur I -JV with TNEB ( 2 x 500)
Tamilnadu
1000
5. Vallur Stage-I Phase-II -JV with TNEB ( 1 x 500)
Tamilnadu
500
6. Bongaigaon(3 x 250)
Assam
750
7. Mauda ( 2 x 500)
Maharashta
1000
8. Rihand III(2X500)
Uttar Pradesh
1000
9. Vindhyachal-IV (2X500)
Madhya Pradesh 1000
10. Muzaffarpur Expansion (2x195) – JV with BSEB
Bihar
390
11. Nabinagar TPP-JV with Railways (4 x 250)
Bihar
1000
12. Barh II (2 X 660)
Bihar
1320
13. Barh I (3 X 660)
Bihar
1980
hydro
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Vision “To be the world’s largest and best power producer, powering India’s growth.” Mission
“Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco-friendly technologies and contribute to society.”
Core Values – BCOMIT Business Ethics Customer Focus Organisational& Professional Pride Mutual Respect & Trust Innovation & Speed Total Quality for Excellence
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POWER GENERATION Presently, NTPC generation power from coal and gas with an installed capacity of 31704 MW ,NTPC is the largest power generating major in the country . it has also diversified into hydro power ,coal mining ,power equipment manufacturing, oil and gas exploration, power trading & distribution. With an increasing presence in the power value chain NTPC is well on its way to becoming an ‘’Integrated Power Major’’.
Recognizing its excellent performance and vast potential, Government of India has identified NTPC LTD as one of the jewels of Public Sectors ‘Navratnas’- a potential global giant. NTPC LTD has also demonstrated its ability in turning around sub- optimally performing stations. The phenomenal improvement in the performance of Badarpur, Unchahar, and Talcher by NTPC LTD stand testimony to this. Regional Spread of Generating Facilities (in MW Commissioned) Region Northern NCR Western Eastern Southern All India
Coal 5490 2035 6360 7400 3600 -
Gas 2312 2293 -
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Hydro 350 -
Total 5490 4347 8653 7400 3950 29840
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Detailed Information of the Plants with their Capacities (in MW) and Production (in MU) SWOT ANALYSIS of NTPC LIMITED Page 13 of 42
STRENGTH OF NTPC LIMITED I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII.
The company has kept itself sufficient liquid fund to meet any kind of cash requirement. Efficient working capital of the plant. Efficient and timely completion of projects. A minimum risk factor. Best integrated project management system. Company with excellent records and high profit. An early starter, more than 30 years experience in power sector. One amongst the nine jewels of India called ‘Navratnas’. Highly motivated and dedicated workers and officers. Excellent growth prospect with significant additions, modifications and replacements. Employee friendly personnel policies. Low project cost of NTPC LTD’s plant.
One of the listed companies on BSE & NSE.
WEAKNESSESS of NTPC LIMITED Depleting raw materials. Some of the pants of NTPC LTD has become old and need investment for replacement or modifications. OPPORTUNITIES for NTPC LIMITED I. II. III. IV.
Demand and supply gap. Upcoming hydro & nuclear sector. Use opportunities in the consultancy services both abroad as well as in India. Growth in power sector
CHALLENGES in NTPC LIMITED Varying price of raw materials makes working costly. Huge competitions from SEB’s, Reliance Energy & TATA Power and other private players in power industries. Coming up of other sources of power generation and consumption. Huge capital requirement for expansion, diversification, horizontal and vertical integration.
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Future plans of ntpc ltd NTPC has formulated a long term Corporate Plan upto 2032. In line with the Corporate Plan, the capacity addition under implementation stage is presented below: PROJECT
STATE
MW
Coal 1.
Indira Gandhi STPP- JV with IPGCL & HPGCL ( 3 x Haryana 500)
1000
2. Sipat I (2 x 660)
Chhattisgarh
1320
3. Simhadri II Unit - IV( 500)
Andhra Pradesh 500
4. Vallur I -JV with TNEB ( 2 x 500)
Tamilnadu
1000
5. Vallur Stage-I Phase-II -JV with TNEB ( 1 x 500)
Tamilnadu
500
6. Bongaigaon(3 x 250)
Assam
750
7. Mauda ( 2 x 500)
Maharashta
1000
8. Rihand III(2X500)
Uttar Pradesh
1000
9. Vindhyachal-IV (2X500)
Madhya Pradesh 1000
10. Muzaffarpur Expansion (2x195) – JV with BSEB
Bihar
390
11. Nabinagar TPP-JV with Railways (4 x 250)
Bihar
1000
1. Koldam HEPP ( 4 x 200)
Himachal Pradesh
800
2. TapovanVishnugad HEPP (4 x 130)
Uttarakhand
520
3. Singrauli CW Discharge(Small Hydre)
Uttar Pradesh
8
Hydro
Total
14088
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NTPC LIMITED SIPAT SUPER THERMAL POWER PROJECT
At a glance: - P.O. Sipat, Dist- Bilaspur, Chattisgarh. Location: -
22 kms. from Bilaspur, Chattisgarh.
Installed Capacity: - 2* 500 MW – Stage II 3* 660 MW – Stage I Units Commercialized: - Stage II, 1st unit on 19th June, 2008 Water Source: - from Hasdeo right bank canal (22km) Coal Mines: - Dipka Mines of SECL Ltd., Korba. Coal Transportation: - By MGR (Merry Go Round) process. Page 16 of 42
Highlights
Super critical technology first time in India. 765Kv transmission system 1st time in India. 100 mtr. Wide peripheral green belt around the project. Submerged ash dykes. OBJECTIVES OF THE STUDY I. II. III.
To study the cash management system of the firm. To know firms operating efficiency. To assess the relation between cash with assets & liabilities.
CASH MANAGEMENT Introduction: Cash management is a broad term that refers to the collection, concentration, and disbursement of cash. It encompasses a company's level of liquidity, its management of cash balance, and its short-term investment strategies. In some ways, managing cash flow is the most important job of business managers. If at any time a company fails to pay an obligation when it is due because of the lack of cash, the company is insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such a dire consequence should compel companies to manage their cash with care. Moreover, efficient cash management means more than just preventing bankruptcy. It improves the profitability and reduces the risk to which the firm is exposed. Cash management is particularly important for new and growing businesses. As Jeffrey P. Davidson and Charles W. Dean indicated in their book Cash Traps, cash flow can be a problem even when a small business has numerous clients, offers a superior product to its customers, and enjoys a sterling reputation in its industry. Companies suffering from cash flow problems have no margin of safety in case of unanticipated expenses. They also may experience trouble in finding the funds for innovation or expansion. Finally, poor cash flow makes it difficult to hire and retain good employees. It is only natural that major business expenses are incurred in the production of goods or the provision of services. In most cases, a business incurs such expenses before the corresponding payment is received from customers. In addition, employee salaries and other expenses drain considerable funds from most businesses. These factors make effective cash management an essential part of any business's financial planning. "Cash is the lifeblood of a [store]," wrote Richard Outcalt and Patricia Page 17 of 42
Johnson in Playthings. "Without cash for inventory, payroll, and other expenses, an emergency is imminent." When cash is received in exchange for products or services rendered, many small business owners, intent on growing their company and tamping down debt, spend most or all of these funds. But while such priorities are laudable, they should leave room for businesses to absorb lean financial times down the line. The key to successful cash management, therefore, lies in tabulating realistic projections, monitoring collections and disbursements, establishing effective billing and collection measures, and adhering to budgetary restrictions. Objectives
There are two basic objectives of cash management. They areI. II.
To meet the cash disbursement needs as per the payment schedule. To minimize the amount locked up as cash balances.
Basic problems in Cash Management: Cash management involves the following four basic problem given below:1. Controlling level of cash – Determining the amount of cash to be retained in hand / in current accounts/ in units is the most important part of cash management. Most of the times businesses are able to project the extent of their cash payment .However at times emergency situations may arise when payments have to be made urgently .Hence most of companies like to retain minimum level of free cash for meeting exigencies. However determining what constitutes the minimum cash is a very difficult decision.
2.
Controlling inflows of cash
Forecasting accurately the inflows from sale of goods is another important part of managing cash. This helps the company in tagging the payments along with the projected inflows and determines cash levels. However during turbulent business environment or in scenarios if extreme competition accurately predicting the correct amount of cash inflows becomes a near impossible task for companies. 3.
Controlling outflows of cash
All businesses like to have stringent control on the outflow of cash. Ideal condition will be to accurately predict the periodicity and quantum of payments. Though companies’ tries to keep outflows on a tight leash many times the payment requirements may not match with the best laid plans since as in the case of inflows outflows are also governed by external factors mostly beyond the control of the firms. 4.
Optimum investment of surplus cash
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The deployment of surplus cash in a profitable manner is another important challenge in Cash Management. This process of managing the funds so as to ensure smooth working of business while earning good interest on idle funds is known as treasury management. Funds when invested for longer periods generate higher income while short term investment normally lower returns. However, blocking funds in long term investments reduces flexibility in payments that comes along with a highly liquid cash position. Hence Treasury management usually involves a tradeoff between liquidity and profitability from the investment of funds. Determining safety level for cash: The finance manager has to take into account the minimum cash balance that the firm must keep to avoid risk or cost of running out of funds. Such minimum level may be termed as “safety level of cash”. The finance manager determines the safety level of cash separately both for normal periods and peak periods. Under both cases he decides about two basic factors. They are:1. Desired days of cash: It means the number of days for which cash balance should be sufficient to cover payments. 2. Average daily cash flows: This means average amount of disbursements which will have to be made daily.
Criteria for investment of surplus cash: In most of the companies there are usually no formal written instructions for investing the surplus cash. It is left to the discretion and judgment of the finance manager. While exercising such judgment, he usually takes into consideration the following factors Security: This can be ensured by investing money in securities whose price remains more or less stable. Liquidity: This can be ensured by investing money in short term securities including short term fixed deposits with banks. Yield: Most corporate managers give less emphasis to yield as compared to security and liquidity of investment. So they prefer short term government securities for investing surplus cash. Maturity: It will be advisable to select securities according to their maturities so the finance manager can maximize the yield as well as maintain the liquidity of investments.
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Cash Management in NTPC: Concept:Cash management has changed significantly over the past 2 decades for two reasons. First, from the early 1970s to the late 1980s, there was an upward trend in interest rate that increased the opportunity cost of holding cash. This encouraged financial manager to search for more efficient ways of managing cash. Second, technological developments, particularly computerized electronic funds transfer mechanism changed the way cash is managed. Most cash management activities are performed jointly by the firm and its banks. Effective cash management encompasses proper management of cash inflow, and outflows, which entails (1) improving forecasts of cash flows, (2) synchronizing cash inflows and outflows, (3) using floats, (4) accelerating collections, (5) getting available funds to where they are needed, and (6) controlling disbursement. Most businesses are conducted by large firms, many sources and make payments from a number of different cities or even countries. For example, companies such as IBM, General Motors, and Hewlett-Packard have manufacturing plants all around the world, even more sales offices, but most of the payments are made from the cities where manufacturing occurs, or else from the head office. Thus a major corporation might have hundreds of bank accounts, and since there is no reason to think that inflows and outflows will balance in each account, a system must be in place to transfer funds from where they come into where they are needed, to arrange loans to cover net corporate shortfalls, and to invest net corporate surpluses without delay. The efficiency of the firm's cash management program can be enhanced by the knowledge and use of various procedures aimed at accelerating cash inflows, and controlling cash outflows With reference to the control of inflows and outflows, float is an important technique to reduce the length of the cash cycle. When a firm receives or makes payments in the form of Cheque etc., there is usually a time gap between the time the Cheque is written and when it is cleared. This time gap is known as float. The float for the paying firm refers to the time that elapses bank balance exceeds the book balance. However, if the available bank balance is less than the book balance, then the firm has net negative float. If a firm has positive net float (i.e. the payment float is more than the receipt float), it can issue more Cheque even if the net bank balance shown by the books of account may not be sufficient. A firm with a positive net float can use it to its advantage and maintain a smaller cash balance than it would have in the absence of the float. For example, a firm has a payment float of Rs. 1, 00,000 and receipt float of Rs, 80,000. This firm has positive net float, which may be ascertained as follows: Net float=Payment float-Receipt float = Rs. 1, 00,000 - 80,000= Rs. 20,000. The course of action adopted by a firm to manage the payment and the receipt float is known as playing the float, which has emerged as an important technique of cash management in most of the firms. Float management helps avoiding stagnation of funds. Money paid by Cheque by customers to the firm but not yet available to the latter, as it is tied in the float is stagnant money. Similarly, Cheque issued but no presented t the firm's bank is stagnant money. This can be used by a proper and careful float management. Since what matters is the available balance, as a finance manager you should try to maximize the net float. This means that you should strive to speed up collections and delay disbursements.
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MANAGEMENT OF FLOAT Speeding Up Collections When a company receives payments through Cheque that arrive by mail, all the three components of collection time are relevant. The financial manager should take steps for speedy recovery from debtors and for this purpose proper internal control system should be installed in the firm. Once the credit sales have been affected, there should be a built-in mechanism for timely recovery from the debtors. Periodic statements should be prepared to show the outstanding bills. Incentives offered to the customers for early / prompt payments should be well communicated to them. Once the cheques / drafts are received from customers, no delay should be there in depositing these receipts with the banks. The time lag in collection of receivables can be considerably reduced by managing the time taken by postal intermediaries and banks. To speed up collection, companies may also use lockboxes and concentration banking which are essentially systems for expeditious decentralized collection.
Lock Boxes Under a lock box system, customers are advised to mail their payments to special post office boxes called lockboxes, which are attended to by local collection banks, instead of sending them to corporate headquarters. The local bank collects the Cheque from the lock box once or more a day, deposits the Cheque directly into the local bank account of the firm, and furnishes details to the firm. Thus the lock box system (i) cuts down the mailing time, because Cheque are received at a nearby post office instead of at corporate headquarters, (ii) reduces the processing time because the company does not have to open the envelopes and deposit the Cheque for collection, and (iii) shortens the availability delay because the Cheque are typically drawn on local banks. In India, the lock=box system is not popular. However, commercial banks usually provide service to their large clients of (i) collecting the cheques from the office of the client, and (ii) sending the high value cheques to the clearing system on the same day. Both these services help reducing the float of the large clients. However, these benefits are not free. Usually, the bank charges a fee for each cheque processed through the system. The benefits derived from the acceleration of receipts must exceed the incremental costs of the lock box system, or the firm would be better without it. When is it worthwhile to have a lock box? The answer depends on the costs and benefits of maintaining the lock box. Suppose that your company is thinking of setting up a lock box. You gather the following information:
Average number of daily payments : 50
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Average size of payment : Rs. 8000 Savings in mailing and processing time : 2 days Annual rental for the lock box : Rs. 3000 Bank charges for operating the lock box : Rs. 72,000 Interest rate : 15% The lock box will increase your company's collected balance by: 50 items day x Rs. 8,000 per item x 2 days saved = Rs 800,000 The annual benefit in the form of interest saving on account of this is: Rs 800,000 x 0.15= Rs 120,000 The annual cost of the lock box is: Rs 3,000 (rental) + Rs 72,000 (bank charges) = Rs 75,000 Since the interest saving exceeds the cost of the lock box, it is advantageous to set up the lock box. More so because your company also saves on the cost of processing the Cheque internally. Concentration Banking A firm may open collection centers (banks) in different parts of the country to save the postal delays. This is known as concentration banking. Under this system, the collection centers are opened as near to the debtors as possible, hence reducing the time in dispatch, collection etc. The firm may instruct the customers to mail their payments to a regional collection centre / bank rather than to the Central Office. The Cheque received by the regional collection centre are deposited for collection into a local bank account. Surplus funds from various local bank accounts are transferred regularly (mostly daily) to a concentration account at one of the company's principal banks. For effecting the transfer several options are available. With the vast network of branches set up by banks regional / local collection centres can be easily established. To ensure that the system of collection works according to plan, it is helpful to periodically audit the actual transfers by the collecting banks and see whether they are are in conformity with the instruction given. The concentration banking results in saving of time of collection, and hence results in better cash management. However, the selection of collection centres must be based on the volume of billing / business in a particular geographical area. It may be noted that the concentration banking also involve a cost in terms of minimum cash balance required with a bank or in the form of normal minimum cost of maintaining a current account. Concentration banking can be combined with the lock box arrangement to ensure that the funds are pooled centrally as quickly as possible. Electronic Fund Transfer Page 22 of 42
The banking system has responded to the growing need to speed up the transfer of money from one firm to another. For example, the 'CHAPS' system in the UK (Clearing House Automated Payments System) permits same-day cheque clearance and CHIPS (Clearing House Interbank Payment System), a computerized network, enables the electronic transfer of international dollar payments. These systems provide two benefits to the larger firms, which use them. First, there is greater certainty as to when money will be received and section, they can reduce the time that money is in the banking system. Companies can take other action to create a beneficial float. They could bank frequently to avoid having cheques remaining in the accounts office for more than a few hours. They could also encourage customers to pay on time, or even in advance, of the receipt of goods and services by using the direct debit system through which money is automatically transferred from one account to another on a regular basis. Many UK consumers now pay direct debit. In return they often receive a small discount. From the producer's viewpoint this not only reduces the float but also avoids the onerous task of chasing late payers. Also retailers now have terminals which permit electronic funds transfer at the point of sale (EFTPOS) - money taken from customer’s accounts electronically using debit card. Delaying Payments Just as a firm can increase its net float by speeding up collections, it can also do so by slowing down disbursements. A common temptation is to increase the mail time. For example, Acme Ltd. may pay its suppliers in Cochin with Cheque sent from its Calcutta office and its suppliers in Ludhiana with Cheque mailed from its Chennai office. However such gimmicks provide only a short-term benefit and finally turn out ot be self-defeating when suppliers discover the poly and adjust their price and credit terms appropriately. While maximizing disbursement float is a questionable practice, firms can still make payments. The following may be one in this respect. Ensure that payments are made only when they fall due and not early. Centralize disbursements. This helps in consolidating funds at the head office, scheduling payments more effectively, reducing unproductive cash balances at region / local offices, and investing funds more productivity. However, care must be taken that the goodwill and credit rating of the firm is not affected. Payments to creditors need not be delayed otherwise it may be difficult to secure trade credits at a later stage. Arrange with suppliers to set the due dates of their bills to match with company's receipts. Synchronization of cash outflows with cash inflows helps a company to get greater mileage from its cash resources.
ELECTRONIC DATA INTERCHANGE: WILL THE FLOAT DISAPPEAR? Electronic data interchange (EDI) refers to direct, electronic exchange of information between various parties. Financial EDI or FEDI, involves electronic transfer of information and funds between transacting parties. FEDI leads to elimination of paper invoices, paper Cheque, mailing handling and so on. Under FEDI, the seller sends the bill electronically to the buyer, the buyer electronically authorizes its bank o make payment, and the bank transfers funds electronically to the account of the seller at a designed bank. The net effect is that the time required to complete a business transaction is shortened considerably thereby virtually eliminating the float. Currently one of the drawbacks of FEDI is that it is Page 23 of 42
expensive and complex to set up the drawbacks of FEDI is that it is India. Further, many parties may not ready or willing to participate in it. However with the advancements in technology and the growth of Internet, e-commerce costs will fall significantly. This will induce more parties to participate in FEDI. As Ross (Wererfiled and Jordan Say: " As the use of FEDI increases (which it will) float management will evolve to focus much more on issues surrounding computerized information exchange and funds transfer. INTERNATIONAL CASH MANAGEMENT Cash Management domestic firms to child's play compared with that in large Multinational Corporation operating in dozens of countries, each with its own currency, banking system and legal structure. Unilever for example manufactures and sells all over the world. To operate effectively Unilever has numerous bank accounts so that some banking transactions can take place near to the point of business transaction can take place near to the point of business. Sales receipts from America will be paid into local banks there; Likewise many operating expenses will be paid for with funds drawn from those same banks. The problem for Unilever is that some of those bank accounts will have high inflows and others high outflows, so interest could be payable on one while funds are lying idle or earning a low rate of return in another. Therefore, as well as taking advantage of the benefit of having local banks carry out local transactions, large firms need to set in place a co-coordinating system to ensure that funds are transferred from where there is surplus to where they are needed. A single centralized cash management system is an unattainable idea for these companies, although they are edging towards it. For example, suppose that you are the treasurer of a large multination company with operations throughout Europe. You could allow the separate business to manage their own cash but that would be costly and would almost certainly result in each one accumulating little hoards of cash. The solution is to set up a regional system. In this case the company establishes a local concentration account with a bank in each country. Then any surplus cash is swept daily into central multicurrency accounts in London or another European banking center. This cash is then invested in marketable securities or used to finance any subsidiaries that have a cash shortage. Payments also can be made out of the regional center. For example, to pay wages in each European country, the company just needs to send its principal bank a computer file with details of the payment to be made, the bank then finds the least costly way to transfer the for the funds to be credited on the correct day to the employees in each country. Most large multinationals have several banks in each country, but the more banks they use, the less control they have over their cash balances. So development of regional cash management system favors banks that can offer a worldwide branch network.
Cash Management in Troubled Times Page 24 of 42
Many small business experience cash flow difficulties, especially during their first years of operation. But entrepreneurs and managers can take steps to minimize the impact of such problems and help maintain the continued viability of the business. Suggested steps to address temporary cash flow problems include: Create a realistic cash flow budget that charts finances for both the short term (30-60 days) and longer term (1-2 years). Redouble efforts to collect on outstanding payments owed to the company. "Bill promptly and accurately," counseled the Journal of Accountancy. "The faster you mail an invoice, the faster you will be paid. If deliveries do not automatically trigger an invoice, establish a set billing schedule, preferably weekly." Businesses should also include a payment due date. Offer small discounts for prompt payment. Consider compromising on some billing disputes with clients. Small business owners are understandably reluctant to consider
this step, but in certain cases, obtaining some cash—even if your company is not at fault in the dispute—for products sold/services rendered may be required to pay basic expenses. Closely monitor and prioritize all cash disbursements. Contact creditors (vendors, lenders, landlords) and attempt to negotiate mutually satisfactory arrangements that will enable the business to weather its cash shortage (provided it is a temporary one). In some cases, you may be able to arrange better payment terms from suppliers or banks. "Better credit terms translate into borrowing money interest-free," states the Journal of Accountancy. Liquidate superfluous inventory. Assess other areas where operational expenses may be cut without permanently disabling the business, such as payroll or goods/services with small profit margins. "Every operation struggling for survival is losing money in some of its components," observed Outcalt and Johnson. "[As you analyzed your business], you probably noticed some places where cash was bleeding out of your business without an adequate return. Plan to stop the bleeding; that is—cut out the losers."
Financial Results
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AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31ST MARCH 2011 (Rs./Lakh)
Stand Alone
Consolidated
Quarter ended 31.03.2011 (Unaudited)
Quarter Year ended Year ended Year ended Year ended ended 31.3.2011 31.3.2010 31.3.2011 31.3.2010 31.03.2010 (Audited) (Audited) (Audited) (Audited) (Unaudited)
3
4
5
6
7
8
1235339
5487400
4632259
5741846
4825645
37815
164524
189873
171566
193224
(c) Depreciatio 191 n Written Back (net) & Advance Against Depreciatio n recognised as Prior Period Sales
(1360)
184054
(1655)
189821
(2542)
Total (a+b+c)
1597952
1271794
5835978
4820477
6103233
5016327
972556
834598
3537378
2946274
3641435
3018766
Sl. Particulars
1 2
1 (a Net Sales 1551894 ) (Net of Electricity Duty) (b Other ) Operating Income
45867
2 Expenditure (a Fuel Cost )
Page 26 of 42
(b Employees 70819 ) Cost
74561
278971
241236
292226
252309
(c) Depreciatio 69814 n
73216
248569
265006
271969
289438
(d Other 98247 ) Expenditure
57316
284783
199965
341212
243333
(e Provisions )
28398
930
155215
1090
155277
1235
Total (a+b+c+d+e)
1239834
1040621
4504916
3653571
4702119
3805081
3 Profit from 358118 Operations before Other Income, Interest & Exceptional Items (1-2)
231173
1331062
1166906
1401114
1211246
4 Other Income
24950
88806
102533
87406
101483
5 Profit before 378674 Interest & Exceptional Items (3+4)
256123
1419868
1269439
1488520
1312729
6 Interest & 52995 Finance charges
48179
214908
180893
249287
207818
7 Profit after 325679 Interest but before Exceptional Items (5-6)
207944
1204960
1088546
1239233
1104911
8 Exceptional items
-
-
-
-
-
20556
-
Page 27 of 42
9 Profit(+)/Loss(-) 325679 from Ordinary Activities before Tax (7+8)
207944
1204960
1088546
1239233
1104911
(9762)
255332
194544
260216
197908
15941
39369
20913
44194
22963
(c) Fringe Benefit Tax (FBT)
-
-
269
0
270
Total (a+b+c)
6179
294701
215726
304410
221141
Less: FBT transferred to Expenditure during Construction / Development of coal mines
-
-
-
-
(5)
Tax Expenses 47495 (Net)
6179
294701
215726
304410
221146
1 Net Profit(+)/ 278184 1 Loss(-) from ordinary activity after tax (9-10)
201765
910259
872820
934823
883765
1 Extraordinary 2 Items (Net of tax expenses)
-
-
-
-
-
1 Tax Expenses: 0 (a Current Tax 61632 ) (b Deferred ) Tax
(14137)
47495
Page 28 of 42
1 Net Profit(+)/ 278184 3 Loss(-) for the year before Minority Interest (11-12)
201765
910259
872820
934823
883765
1 Minority 4 Interest in Consolidated Profit
-
-
-
(517)
(3)
1 Net Profit (+)/ 278184 5 Loss (-) for the year after Minority Interest (13-14)
201765
910259
872820
935340
883768
1 Paid-up Equity 824546 6 Share Capital (Face value of share Rs. 10/each)
824546
824546
824546
824546
824546
Debt
4318824
3779702
1 Reserves 8 excluding revaluation reserve as per Balance Sheet
5964679
5419196
6013910
5437182
1 Debenture 9 Redemption Reserve
223166
198672
11.04
10.59
11.34
10.72
1 Paid-up 7 Capital
2 Earning per 0 share - (EPS in Rs.) (a Basic and 3.37 diluted EPS
2.45
Page 29 of 42
)
before Extraordinary items (not annualised)
(b Basic and 3.37 ) diluted EPS after Extraordinary items (not annualised)
11.04
10.59
Equity
0.64
0.61
2 Debt Service 2 Coverage Ratio (DSCR)
2.57
3.92
2 Interest Service 3 Coverage Ratio (ISCR)
11.42
13.64
2 Debt 1 Ratio
2.45
11.34
10.72
2 Public 4 Shareholding (a Number of 127810322 ) shares 0
127810322 0
127810322 0
127810322 0
127810322 0
127810322 0
(b %age ) share holding
15.50
15.50
15.50
15.50
15.50
of 15.50
2 Promoters and 5 Promoter Group Shareholding (a Pledged/ ) Encumbere
Page 30 of 42
d -
Number of Shares
-
-
-
-
-
-
Percentage of share (as % of the total shareholdin g of promoter and promoter group)
-
-
-
-
-
-
Percentage of share (as % of the total share capital of the company)
-
-
-
-
-
(b Non) encumbere d -
Number of 696736118 Shares 0
696736118 0
696736118 0
696736118 0
696736118 0
696736118 0
-
Percentage 100.00% of share (as % of the total shareholdin g of promoter and promoter group)
100.00%
100.00%
100.00%
100.00%
100.00%
Page 31 of 42
-
Percentage 84.50% of share (as % of the total share capital of the company)
84.50%
84.50%
84.50%
84.50%
84.50%
SUMMARY OF ASSETS AND LIABILITIES AS AT 31st MARCH 2011 (Rs./Lakh)
Stand Alone Particulars
Consolidated
Year ended Year ended Year ended Year ended 31.03.2011 31.03.2010 31.03.2011 31.03.2010 (Audited) (Audited) (Audited) (Audited)
SOURCES OF FUNDS Shareholders’ Funds: (a) Capital
824546
824546
Page 32 of 42
824546
824546
(b) Reserves and Surplus
5964679
5419196
6013910
5437182
Deferred Revenue from 79205 Advance Against Depreciation
161084
79205
161084
Deferred Income from 6243 Foreign Currency Fluctuation
-
6243
-
Ash Utilisation Fund
-
-
5896
1062
(a) Secured Loans
991068
907992
1742640
1537643
(b) Unsecured Loans
3327756
2871710
3332843
2877210
Deferred Foreign Exchange 9654 Fluctuation Liability
6105
9667
6105
Deferred Tax Liability (net) 60295 after Recoverable
20925
67165
22971
Minority Interest
-
-
48505
27896
TOTAL
11263446
10211558
12130620
10895699
-
-
62
62
Fixed Assets incl. CWIP and 7750659 Construction Stores & Advances
6686560
8971821
7648619
Investments
1480709
835733
1177761
36517
45915
36525
334771
391083
353296
Loan Funds
APPLICATION OF FUNDS Goodwill on Consolidation
1234484
Deferred Foreign Currency 45915 Fluctuation Assets Current Assets, Loans And Advances (a) Inventories
363912
Page 33 of 42
(b) Sundry Debtors
792431
665146
839987
708081
(c) Cash and Bank balances 1618526
1445948
1785983
1605301
(d) Other current assets
104697
84404
107158
86802
(e) Loans and Advances
660113
551311
680321
568069
(a) Liabilities
1032048
768758
1243876
975792
(b) Provisions
275243
307058
283567
315033
Net Current Assets
2232388
2005764
2277089
2030724
Deferred Expenses from Foreign Currency Fluctuation
2008
-
2008
TOTAL
10211558
12130620
10895699
Less: Current Liabilities and Provisions
11263446
AUDITED SEGMENT-WISE REVENUE, RESULTS AND CAPITAL EMPLOYED FOR THE YEAR ENDED 31st March 2011 (Rs./Lakh)
Stand Alone Sl. Particulars
1 2 1 Segment Revenue
Consolidated
Quarter ended 31.03.2011 (Unaudited)
Quarter ended 31.03.2010 (Unaudited)
Year ended Year ended Year ended Year ended 31.03.2011 31.03.2010 31.03.2011 31.03.2010 (Audited) (Audited) (Audited) (Audited)
3
4
5
(Net Page 34 of 42
6
7
8
Sales) - Generation
1547114
1230529
5470455
4616867
5683996
4774991
- Others
4780
4810
16945
15392
57850
50654
- Total
1551894
1235339
5487400
4632259
5741846
4825645
- Generation
327128
197550
1209483
1015253
1267669
1049376
- Others
762
1664
5020
5816
13598
16085
- Total
327890
199214
1214503
1021069
1281267
1065461
(i) Unallocated 36450 Interest and Finance Charges
28584
143284
111682
174059
138312
(ii) Other (34239) Unallocable expenditure net of unallocable income
(37314)
(133741)
(179159)
(132025)
(177762)
Total Profit 325679 before Tax
207944
1204960
1088546
1239233
1104911
2 Segment Results (Profit before Tax and Interest)
Less
3 Capital Employed (Segment Assets Segment Liabilities) - Generation
4526023
3945020
4526023
3945020
5050764
4346095
- Others
425
5445
425
5445
29635
33623
- Un-allocated
2262777
2293277
2262777
2293277
1758057
1882010
Page 35 of 42
- Total
6789225
6243742
6789225
6243742
6838456
6261728
The operations of the company are mainly carried out within the country and therefore, geographical segments are not applicable.
Notes: 1 The Subsidiaries and Joint Venture Companies considered in the Consolidated Financial Results are as follows a)
Subsidiary Companies
Ownership (%)
1
NTPC Electric Supply Company Ltd. 100 (incl. its Joint Venture Kinesco Power and Utilities Private Ltd *. with 50% holding)
2
NTPC Vidyut Vyapar Nigam Ltd.
100
3
NTPC Hydro Ltd.
100
4
Kanti Bijlee Utpadan Nigam Ltd.
64.57
Page 36 of 42
5
Bhartiya Rail Bijlee Company Ltd.
74
b)
Joint Venture Companies
1
Utility Powertech Ltd.
50
2
NTPC Alstom Power Services Private Ltd.
50
3
NTPC SAIL Power Company Private Ltd.*
50
4
NTPC - Tamilnadu Energy Company Ltd.*
50
5
Aravali Power Company Private Ltd.
50
6
Ratnagiri Gas and Power Private Ltd.
30.17
7
Meja Urja Nigam Private Ltd.
50
8
NTPC-BHEL Power Projects Private Ltd
50
9
BF-NTPC Energy Systems Ltd.*
49
10
Nabinagar Power Generating Company Private Ltd.
50
11
National Power Exchange Ltd.
16.67
12
NTPC-SCCL Global Ventures Private Ltd.
50
13
International Coal Ventures Private Ltd.*
14.28
14
Transformer and Electrical Kerala Ltd.*
44.6
15
Energy Efficiency Services Ltd.*
25
16
National High Power Test Laboratory Private Ltd.*
25
17
CIL-NTPC Urja Pvt. Ltd.*
50
All the above companies are incorporated in India. * The financial statements are un-audited. 2 a)
The Central Electricity Regulatory Commission (CERC) notified the Regulations, 2009 in January 2009, containing inter-alia the terms and conditions for determination of tariff applicable for a period of five years with effect from 1st April 2009. Pending determination of station-wise tariff by the CERC, sales have been provisionally recognized at Rs. 48,93,531 lakh (previous year Rs. 44,47,393 lakh) for the year ended 31st March 2011 on the basis of principles enunciated in the Page 37 of 42
said Regulations on the capital cost considering the orders of Appellate Tribunal for Electricity (APTEL) for the tariff period 2004-2009 including as referred to in para 2 (d). Regulations, 2009 provide that pending determination of tariff by the CERC, the Company has to provisionally bill the beneficiaries at the tariff applicable as on 31st March 2009 approved by the CERC. The amount provisionally billed for the year ended 31st March 2011 on this basis is Rs. 47,51,921 lakh (previous year Rs. 43,76,513 lakh). b)
For the units commissioned subsequent to 1st April 2009, pending the determination of tariff by CERC, sales of Rs. 4,52,839 lakh (previous year Rs. 1,73,540 lakh) have been provisionally recognised on the basis of principles enunciated in the Regulations, 2009. The amount provisionally billed for such units is Rs. 4,41,612 lakh (previous year Rs. 1,53,650 lakh).
c)
Sales of Rs. 80,087 lakh (previous year Rs. 11,933 lakh) pertaining to previous years have been recognized based on the orders issued by the CERC/APTEL.
d)
In respect of stations/units where the CERC had issued tariff orders applicable from 1st April 2004 to 31st March 2009, the Company aggrieved over many of the issues as considered by the CERC in the tariff orders, filed appeals with the APTEL. The APTEL disposed off the appeals favourably directing the CERC to revise the tariff orders as per the directions and methodology given. The CERC filed appeals with the Hon’ble Supreme Court of India on some of the issues decided in favour of the Company by the APTEL. The decision of Hon’ble Supreme Court is awaited. The Company had submitted that it would not press for determination of the tariff by the CERC as per APTEL orders pending disposal of the appeals by the Hon’ble Supreme Court. Considering expert legal opinions obtained that it is reasonable to expect ultimate collection, the sales for the tariff period 2004-2009 were recognised in earlier years based on provisional tariff worked out by the Company as per the directions and methodology given by the APTEL. As accountal of sales is subject to the decision of the Hon’ble Supreme Court of India, pending decision of the Hon’ble Supreme Court of India, a sum of Rs. 1,26,286 lakh included in debtors has been fully provided for during the year. Effect, if any, will be given in the financial statements upon disposal of the appeals.
e)
Consequent to issue of additional capitalisation orders by the CERC, advance against depreciation required to meet the shortfall in the component of depreciation to be charged in future years has been reassessed and the excess determined amounting to Rs. 7,975 lakh has been recognised as sales.
f)
During the year, the CERC has issued tariff orders in respect of some of the stations in compliance with the judgement of APTEL mentioned at para d) above, and the beneficiaries were billed accordingly. Since the orders of CERC include those issues which have been challenged by them before Hon’ble Supreme Court, and are pending disposal, the impact thereof amounting to Rs. 25,222 lakh has been accounted as ‘Advance from customers’. Page 38 of 42
3 Sales includes Rs. 33,851 lakh (previous year (-) Rs. 71,993 lakh) on account of income tax recoverable from customers as per CERC Tariff Regulations, 2004 and Rs. 2,172 lakh (previous year Rs. 24,847 lakh) on account of deferred tax recoverable from customers as per CERC Tariff Regulations, 2009. 4 CERC has issued a draft notification dated 3rd September 2010 which inter-alia provides for upfront truing up of un discharged liabilities with regard to capital cost admitted by CERC before 1st April 2009. In anticipation of final notification an estimated amount of Rs. 26,359 lakh has been provided for towards tariff adjustment. 5 Provision for current tax for the year includes tax related to earlier years amounting to Rs. 5,602 lakh (previous year (-) Rs. 52,540 lakh). 6 During the year 2010-11, one unit of 490 MW at Dadri and one unit of 500 MW at Korba of the Company have been declared commercial w.e.f 31st July 2010 and 21st March 2011 respectively. 7 Effect of changes in Accounting Policies: a)
During the year, the Office of the Comptroller & Auditor General of India has expressed an opinion that power sector companies shall be governed by the rates of depreciation notified by the CERC for providing depreciation in respect of generating assets in the accounts instead of the rates as per the Companies Act, 1956. Accordingly, the Company revised its accounting policies relating to charging of depreciation w.e.f 1st April 2009 considering the rates and methodology notified by the CERC for determination of tariff through Regulations, 2009. In case of certain assets, the Company has continued to charge higher depreciation based on technical assessment of useful life of those assets. Consequent to this change, prior period depreciation written back is Rs. 1,11,650 lakh, depreciation for the year is lower by Rs. 27,962 lakh. As a result, fixed assets and profit before tax for the year is higher by Rs. 1,39,612 lakh.
b)
Due to the above change, the amount of advance against depreciation (AAD) required to meet the shortfall in the component of depreciation in revenue over the depreciation to be charged off in future years has been reassessed by the Company station-wise as at 1st April 2009 and the excess determined, amounting to Rs. 72,749 lakh has been recognised as prior period sales.
c)
Further, the amount recoverable from the beneficiaries on account of deferred tax materialised for the financial year 2009-10 has been reassessed and excess amount of Rs. 21,267 lakh is reversed as ‘Prior Period Sales’ with equivalent reduction in provision for tax of earlier years in the Profit and Loss Account.
d)
Further, due to the above change, deferred tax liability (net) and deferred tax recoverable from the beneficiaries as at 31st March 2010 amounting to Rs. 3,04,941 lakh and Rs. 2,84,016 lakh respectively have been reviewed and restated to Rs. 4,41,519 lakh and Rs. 3,80,969 lakh respectively. As a result, deferred tax liability as at 31.03.2010 has increased by Rs. 1,36,578 lakh out of which Rs. 96,953 lakh is recoverable from the beneficiaries as per Regulation 39 of Page 39 of 42
Regulations, 2009 and net increase is debited to provision for deferred tax. 8 Ministry of Power (MOP), Government of India (GOI) vide letter dated 24.12.2010 has communicated the discontinuation of one of the Hydro Power Projects of the Company in the State of Uttarakhand. Subsequently, the Company has issued Letter of Frustration to the suppliers/vendors of the project. MOP has sought details of expenditure incurred, committed costs, anticipated expenditure on safety and stabilization measures, other recurring site expenses and interest costs, as well as claims of various packages of contractors/vendors. Management expects that the total cost incurred, anticipated expenditure on safety and stabilization measures, other recurring site expenses and interest costs as well as claims of various packages of contractors/vendors for this project will be compensated in full. Hence, cost incurred on the project up to 31.03.2011 amounting to Rs. 74,882 lakh has been accounted as recoverable from GOI. 9 The Company is executing a thermal power project in respect of which possession certificates for 1,489 acres (previous year 1,489 acres) of land has been handed over to the Company and all statutory and environment clearances for the project have been received. Subsequently, a high power committee has been constituted as per the directions of GOI to explore alternate location of the project since present location is stated to be a coal bearing area. Aggregate cost incurred up to 31st March 2011 Rs. 19,019 lakh (previous year Rs. 18,310 lakh) is included in ‘Fixed Assets’. Management is confident of recovery of cost incurred, hence no provision is considered necessary. 10 During the quarter, the Company has paid an interim dividend of Rs. 3.00 per share (face value Rs. 10/-each) for the year 2010-11. The Board of Directors has recommended final dividend of Rs. 0.80 per share (face value Rs. 10/-each). The total dividend (including interim dividend) for the financial year 2010-11 is Rs. 3.80 per share (face value Rs. 10/-each). 11 The audited accounts are subject to review by Comptroller and Auditor General of India under section 619(4) of the Companies Act, 1956. 12 Formula used for computation of coverage ratios DSCR = Earning before Interest, Depreciation and Tax/(Interest net off transferred to expenditure during construction + Principal repayment) and ISCR = Earning before Interest, Depreciation and Tax/(Interest net off transferred to expenditure during construction). 13 Information on investors complaints pursuant to clause 41 of Listing Agreements for the quarter ended 31st March 2011
No. of complaints
Opening Balance
Additions
Disposals
Closing Balance
8
1813
1809
12
14 The above results have been reviewed by the Audit Committee of the Board of Directors in their meeting held on 10th May 2011 and approved by the Board of Directors in the meeting held on the Page 40 of 42
same day. 15 Figures for the previous year have been regrouped/ rearranged wherever necessary.
For and on behalf of Board of Directors Place: New Date: 10thMay 2011
sd/Delhi (A.K.SINGHAL) DIRECTOR (FINANCE)
CONCLUSION CASH MANAGEMENT The cash in the company represents cash on hand, remittances in transit, deposits and current accounts with scheduled banks NTPC has a good liquidity position and cash position is sufficient to meet all short term liabilities. The company has a good internal cash management system
BIBILIOGRAPHY
1. 2. 3. 4.
Financial Results of N.T.P.C. Financial Management (V.K. Shrivastav.) Company Information. (N.T.P.C.) House Journal of S.S.T.P.P. Page 41 of 42
5. NTPC website (ntpc.co.in)
Page 42 of 42
