Financials of Power Grid Corp

Income Statement (Jun '11) Quarterly Net Sales Other Income PBDIT Net Profit 2202.49 143.24 1988.71 705.29 (Mar '11) Balance Sheet Annual Total Share Capital 8388.70 Net Worth 711.10 Total Debt 7762.42 Net Block 2696.89 Investments Net Current Assets Total Assets 4629.73 21367.00 43230.15 37223.98 1365.05 -618.88 64597.15

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Groups: Power - Generation/Distribution Company Last Price Market Cap NTPC 166.90 137,616.80 NHPC 24.05 29,583.29 Tata Power 1,021.10 24,231.44 Reliance Power 84.65 23,745.40 Adani Power 88.95 19,391.41 more... Simple Moving Averages - Power Grid Corp Days BSE NSE

30 50 150 200

103.84 105.65 102.15 101.03

103.90 105.71 102.23 101.11

Company Profile General Description

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POWERGRID, in line with its mandate, is discharging its responsibilities efficiently in Construction and Operation & Maintenance of inter-State transmission system and operation of Regional Power Grids. It has been notified as the Central Transmission Utility (CTU) of the country. Based on its impeccable performance in a short span of time, POWERGRID was recognized as the Miniratna CategoryI PSU by GoI w.e.f. Oct98. POWERGRID achieved many milestones & established benchmarks in various areas of its business operations and is playing a strategic role in Indian Power Sector in establishing & maintaining transmission infrastructure. Recognising POWERGRIDs sterling performance, Government of India conferred the status of Navratna to POWERGRID w.e.f 1st May, 2008. Establishment of National Grid POWERGRID has planned to create a strong and vibrant National Grid in the country in a phased manner to ensure optimum utilization of generating resources, conservation of ecosensitive right of way and for having flexibility to accommodate uncertainty of generation plans. Towards this, a perspective transmission plan has been evolved for strengthening the regional grids and to support the generation capacity addition program of about 78,000 MW during XI Plan. A framework for inter-regional interconnection has been evolved to establish National Grid in a phased manner. In line with the perspective plan, various inter-regional transmission schemes have been commissioned/ undertaken for implementation/ planned by POWERGRID. Inter-regional power transfer capacity of National Grid has been enhanced to about 17,000 MW in FY 2007-08. Four major power regions of the country namely, North-Eastern, Eastern, Western and Northern are now operating as one synchronous grid (same frequency). Southern Regional grid is connected to this synchronous grid through HVDC links. Grid Management In 1994, the Government of India entrusted POWERGRID with further responsibility of controlling the existing load despatch centres in the country with a view to achieve better grid management and operation.For overall improvement and better grid management in the country, POWERGRID modernised all the Regional Load Dispacth Centres (RLDCs) with the state-ofthe-art Unified Load Despatch & Communication (ULDC) schemes at a cost of about Rs. 2,000 Crore. These modernised RLDCs are greatly contributing to bring quality and economy in operation of power system besides improving data availability, visibility and transparency. For overall co-ordination, National Load Despacth Centre (NLDC) at Delhi with back up at Kolkata is under implementation and is expected to be completed by May 2008. Telecom POWERGRID diversified into Telecom business to utilize spare telecommunication capacity of its Unified Load Dispatch Centre (ULDC) schemes, leveraging its country wide transmission infrastructure. As a part of this, POWERGRID has installed over 20,000 Km. Telecom Network

and connectivity has been provided to all metros, major cities & towns including State capitals in North-Eastern Region, Jammu & Kashmir, etc. Presently, POWERGRID is one of the few telecom players with a marked presence in remote areas and is providing highly reliable services to various customers. The Company has acquired IP-II, ISP and NLDO licences to provide a variety of services .From its telecommunication business, POWERGRID received revenue of Rs. 125 Crore during FY 2007-08, a growth of 62% over last year (Rs. 77 Crore). Today, POWERGRID is serving major telecom players in mobile & NLDO segment. Distribution Management POWERGRID has taken lead role and making valuable contribution in Govt. of Indias nation building schemes of Accelerated Power Development and Reforms Programme (APDRP) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) aimed at bringing qualitative improvement in the distribution sector. Under APDRP, POWERGRID is acting as Advisor-cumConsultant (AcC) to lend its managerial and technical expertise for improvement of distribution system in 177 distribution circles/ towns/ schemes spread over 18 States costing about Rs. 6,626 Crore. Out of this, 81% of the schemes have been commissioned and the remaining sanctioned schemes are expected to be completed by March, 2009. POWERGRID is also implementing some of these schemes on deposit work basis under bilateral arrangement in the States of Bihar, Goa, Meghalaya, Uttar Pradesh, Tripura and Gujarat at a cost of about Rs. 1,100 Crore, 90% of which have been completed.Under RGGVY, POWERGRID had entered into a quadripartite agreement with Rural Electrification Corporation (REC), State Government and State Power utility, for undertaking rural electrification works in the country. POWERGRID has been assigned the job for execution of rural electrification in 68 districts covering 87,300 Villages at an estimated cost of about Rs. 9,400 Crore. Cumulatively till Mar2008, POWERGRID has established infrastructure for electrification of 22,082 villages including 3 lac BPL connections under rural electrification programme.

DEFINITIONS OF WORKING CAPITAL: The following are the most important definitions of Working capital: 1) Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow . 2) Working capital represents the total of all current assets. In other words it is the Gross working capital , it is also known as Circulating capital or Current capital for current assets are rotating in their nature. 3) Working capital is defined as The excess of current assets over current liabilities and provisions . In other words it is the Net Current Assets or Net Working Capital .

INTRODUCTION: Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. 13 Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm. Composition of working capital Major Current Assets 1) Cash 2) Accounts Receivables 3) Inventory 4) Marketable Securities Major Current Liabilities 1) Bank Overdraft 2) Outstanding Expenses 3) Accounts Payable 4) Bills Payable

The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. Main theme of the theory of working capital management is interaction between the current assets & current liabilities. CONCEPT OF WORKING CAPITAL: There are 2 concepts: Gross Working Capital Net Working Capital Gross working capital: - It is referred as total current assets. Focuses on, Optimum investment in current assets: Excessive investments impairs firm s profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its inability to meet its current obligations. Therefore there should be adequate investment in current assets. Financing of current assets: Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities. Net working capital (NWC) defined by 2 ways, Difference between current assets and current liabilities 14

Net working capital is that portion of current assets which is financed with long term funds. NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES If the working capital is efficiently managed then liquidity and profitability both will improve. They are not components of working capital but outcome of working capital. Working capital is basically related with the question of profitability versus liquidity & related aspects of risk.

PLANNING OF WORKING CAPITAL: Working capital is required to run day to day business operations. Firms differ in their requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn sufficient return from its operations. WCM is a significant facet of financial management. Its importance stems from two reasons:

Investment in current asset represents a substantial portion of total investment. Investment in current assets and level of current liability has to be geared quickly to change in sales. Business undertaking required funds for two purposes: To create productive capacity through purchase of fixed assets. To finance current assets required for running of the business. The importance of WCM is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are necessary for earning profits. However, sales do not 16 convert into cash instantly; there is invariably a time lag between sale of goods and the receipt of cash. WC management affect the profitability and liquidity of the firm which are inversely proportional to each other, hence proper balance should be maintained between two. To convert the sale of goods into cash, there is need for WC in the form of current asset to deal with the problem arising out of immediate realization of cash against good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or cash cycle. WORKING CAPITAL CYCLE: A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm.

Operating Cycle for the year 2004-05 a. RMCP = Average Stock x 360 = 54 days

Annual Consumption b. WIPCP = Average Stock x 360 = 21 days

Cost of Production c. FGCP = Average Stock x 360 = 5 days

Cost of Goods Sold d. Debtors Conversion Period = Average Debtors x 360 = 123 days Cost of sales e. Payables Deferral Period = Average Creditors x 360 = 87 days Cost of Goods Sold Gross operating Cycle = 54 + 21 + 5 + 123 = 203 days Net Operating Cycle = 203 87 = 116 days Operating Cycle for the year 2003-04 1 RMCP = 59 days 2 WIPCP = 24 days 3 FGCP = 4 days 4 Debtors Conversion Period = 149 days 5 Payable Deferral Period = 132 days. 26 Gross operating Cycle = 59 + 24 + 4 + 149 = 236 days Net Operating Cycle = 236 132 = 104 days Operating Cycle for the year 2002-03 1 RMCP = 48 days

2 WIPCP = 23 days 3 FGCP = 5 days 4 Debtors Conversion Period = 181 days 5 Payable Deferral Period = 162 days. Gross operating Cycle = 48 + 23 + 5 + 181 = 257 days Net Operating Cycle = 257 162 = 95 days Operating Cycle for the year 2001-02 a. RMCP = 64 days b. WIPCP = 27 days c. FGCP = 9 days d. Debtors Conversion Period = 112 days e. Payable Deferral Period = 137 days. Gross operating Cycle = 64 + 27 + 9 + 112 = 212 days Net Operating Cycle = 212 137 = 75 days

Types of working capital: 1) PERMANENT AND 2) VARIABLE WORKING CAPITAL 27 The need for current assets arises because of the operating cycle. The operating cycle is a continuous process and, therefore, the need for current assets is felt constantly. But the magnitude of current assets needed is not always a minimum level of current assets which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent, or fixed, working capital. It is permanent in the same way as the firms fixed assets are. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital, will fluctuate. For example, extra inventory of finished goods will have to be maintained to support the peak periods of sales, and investment in receivable may also increase during such periods. On the other hand, investment in raw material, work-in-process and finished goods will fall if the market is slack. The extra working capital, needed to support the changing production and sales activities is called FLUCTUATING, or VARIABLE, or TEMPORARY working capital. Both kinds of working capital PERMANENT and TEMPORARY - are necessary to facilitate production and sale through the operating cycle, but temporary-working capital is created by the firm to meet liquidity requirements that will last only temporary working capital. It is shown that permanent working capital is stable over time. While temporary working capital is fluctuating- sometimes increasing and sometimes decreasing. However, the permanent capital is difference

between permanent and temporary working capital can be depicted through figure.

Conclusion: Working capital management is of critical importance to all companies. Ensuring that sufficient liquid resources are available to the company is a pre-requisite for corporate survival. Companies must strike a balance between minimizing the risk of insolvency (by having sufficient working capital) with the need to maximize the return on assets, which demands a far less conservative outlook.

RESEARCH METHODOLOGY Primary Data: The information is collected through the primary sources like: Talking with the employees of the department. Getting information by observations e.g. in manufacturing processes. Discussion with the head of the department. Secondary Data: The data is collected through the secondary sources like: Annual Reports of the company. Office manuals of the departmen. Magazines, Reports in the company. Policy documents of various departments

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