Managerial Accounting

Managerial Accounting

Power Sector Company : Operating Efficiencies

History of the Power Sector in India

• The industry has mainly developed through State controlled instruments.

• Until 1975 – dev. mainly through SEBs/electricity departments controlled by the respective state government

• 1975 – The Electricity (supply) Act was amended. Intervention of the central government in development of generation facilities led to the formation of NTPC, NHPC

• Effect of this intervention started being felt in early 80’s.

Power Generation in India

Sources of Electricity in India

Three Companies Chosen

Company Market Capitalisation (Rs Cr)[1]

NTPC 98,244.71

Tata Power 16,376.53

NHPC 17,823.78

Three top Power companies in terms of Market capitalization

NTPC•NTPC Limited (National Thermal Power Corporation Limited) is an Indian Central Public Sector Undertaking (CPSU) under the Ministry of Power, Government of India, engaged in the business of generation of electricity

• NTPC's core business is generation and sale of electricity to state-owned power distribution companies and State Electricity Boards in India

•The total installed capacity of the company is 45,548 MW with 18 coal based and 7 gas based stations

•NTPC accounts for 17.7 percent of the country’s capacity and it contributes 25.6 percent of total power generation

NHPC

• NHPC was incorporated in 1975 following the government's amalgamation of three hydroelectric power projects that were being executed by the Central Hydroelectric Projects Control Board

• NHPC has become the largest hydroelectric power developer in the country with 86 per cent of equity held by government

• NHPC is a Mini Ratna Category-I Enterprise of the Govt. of India with an authorised share capital of Rs. 1,50,000 Million

• During the financial year 2013-2014 , NHPC Power Stations achieved the generation of 18386 MU.

Tata Power•Tata Power is an Indian electric utility company based in Mumbai, Maharashtra, India and is part of the Tata Group

•The Company has an installed generation capacity of 8669 MW in India and a presence in all the segments of the power sector viz Generation (thermal, hydro, solar and wind), Transmission, Distribution and Trading

•Its international presence includes a 30 percent stake in coal mines and a geothermal project in Indonesia, and a hydroproject in Bhutan in partnership with The Royal Government of Bhutan

•In the year 2014, the company acquired a 39.2MW wind farm at Jamnagar in Gujarat and commissioned a 25-MW solar power project at Palaswadi in Maharashtra

Efficiency Ratios

Asset Turnover Ratio Fixed Asset Turnover Ratio

Inventory Turnover RatioReceivables Turnover RatioAverage Collection periodAverage Payment periodAverage Holding Period

Efficiency Ratios

Plant Load Factor

• PLF ( %) = Total generation Installed capacityIt is a performance indicator which indicates the

exact loadability of the power plant.

Asset Turnover Ratio

• Asset turnover ratio = Gross Sales / Total assets

• It represents how efficiently a company uses its assets to generate sales

• Higher the ratio, better is the asset utilization by the company

Industry Average:

FY 2014-15 FY 2013-14 FY 2012-13

NTPC 0.375045259723839 0.40457994350229 0.411276104254029

NHPC 0.122697654652527 0.102578296204779 0.0974356481056784

Tata Power 0.258666930463431 0.284676363329156 0.341141485772541

0.03

0.08

0.13

0.18

0.23

0.28

0.33

0.38

0.43

Asset Turnover Ratio

NTPC NHPC Tata Power

Fixed Asset Turnover Ratio

• Fixed asset turnover ratio = Gross sales / Fixed assets

• It is a better performance indicator than the asset turnover ratio for comparing a capital intensive sector

Industry average: 0.65

FY 2014-15 FY 2013-14 FY 2012-13

NTPC 0.462779194933875 0.520061977304531 0.550782011068945

NHPC 0.153680445887358 0.128919027468146 0.125452132534834

Tata Power 0.290876358021878 0.321948159389473 0.394425322859378

0.05

0.15

0.25

0.35

0.45

0.55

Fixed Asset Turnover Ratio

NTPC NHPC Tata Power

Inventory Turnover Ratio

• Inventory turnover ratio = Cost of goods sold inventories

• The lesser the inventory level, the greater the cash available for meeting day-to-day operating needs and investment in productive assets

• Higher the inventory turnover ratio, better is the inventory management by the company

Average Holding Period

• Average Holding Period = Days / months in an year Inventory turnover ratio

FY 2014-15 FY 2013-14 FY 2012-13

NTPC 36.8033498706432 26.9984060628803 22.3483169806537

NHPC 4.43918556360028 4.76533490818199 3.92235154112523

Tata Power 28.1356890833839 29.8369343918728 28.9866741655571

2.50

7.50

12.50

17.50

22.50

27.50

32.50

37.50

Average Holding Period

NTPC NHPC Tata Power

Industry average : 18.25

Debtors Turnover Ratio

• Receivables turnover ratio = Gross sales Receivables• Measures the efficacy of a firm’s credit policy

and collection mechanism• High RTO shows how effectively the receivable

are converted into cash

Average Collection periodAverage Collection

Period = Days/Months in an Year Debtors Turnover Ratio

FY 2014-15 FY 2013-14 FY 2012-13

NTPC 37.5508237831508 26.2283006915091 29.5521581688822

NHPC 133.991179389173 122.859153988413 140.828709047532

Tata Power 66.2684234959113 55.423385102384 49.513744255836

10.00

30.00

50.00

70.00

90.00

110.00

130.00

150.00

Average Collection Period

NTPC NHPC Tata Power

Industry average: 68.86

Average Payment period

• Average payment period = Days/ Months in a year

Creditors turnover ratio

FY 2014-15 FY 2013-14 FY 2012-13

NTPC 36.8033498706432 26.9984060628803 22.3483169806537

NHPC 4.43918556360028 4.76533490818199 3.92235154112523

Tata Power 28.1356890833839 29.8369343918728 28.9866741655571

2.507.50

12.5017.5022.5027.5032.5037.50

Average Payment Period

NTPC NHPC Tata Power