A Project Report

on
‘AN ANALYSIS ON THE CAPITAL STRUCTURE’
Of
GSPC Pipavav Power Company Ltd.

In partial fulfillment of the requirements of Summer Internship Programme in the Masters in
Business Administration programme of Gujarat Technological University

Submitted to:
Prof. Neha Rohera (NRIBM)

Submitted by:
Manali Sharma
(Enroll. No. : 137350592152)
Batch 2013-2015

N R INSTITUTE OF BUSINESS MANAGEMENT
























N. R. INSTITUTE OF BUSINESS MANAGEMENT (GLS-MBA)

CERTIFICATE

This is to certify that Ms. Manali Sharma, Enrollment No. 137350592152, student of N.R.
Institute of Business Management (GLS-MBA) has successfully completed her Summer Project
on “An Analysis On Capital Structure” at “GSPC Pipavav Power Project” in partial fulfillment
of the requirements of MBA programme of Gujarat Technological University. This is her
original work and has not been submitted elsewhere.



Dr. Hitesh Ruparel Prof. Neha Rohera
Director Project Guide


Date:
Place: Ahmedabad






DECLARATION

I Manali Sharma, Enrollment No. 137350592152, student of N R Institute of Business
Management hereby declare that I have successfully completed this project on „Working Capital
Management and Analysis‟ in the academic year 2013-2014.

I declare that this submitted work is done by me and to the best of my knowledge; no such work
has been submitted by any other person for the award of degree or diploma. I also declare that all
the information collected from various secondary and primary sources has been duly
acknowledged in this project report.



Manali Sharma
(Enroll. No.: 137350592152)











PREFACE

Masters of Business Administration is a professional course which helps create ambitious
business administrators and entrepreneurs ready to face the world. Theoretical knowledge alone
is would be useless unless the practical implication of it is not known. Hence, practical exposure
towards any management topic becomes a necessity.

Being a student of business administration, theoretical concepts have been well known to us by
the classroom teachings. The purpose for taking up this project is to sharpen our management
skills practically, by using the theories that we learnt.

Business world needs well implemented practical knowledge. And so to complete the knowledge
we gathered the following project has been undertaken.

This training provides us students with a great opportunity of learning and experiencing the
business world, both at the same time. A management student, who still is new to the practical
world, learns the working of various units by the training. Hence, this project has been designed
with the objective of knowing oil exploration industry in detail and doing a „Capital Structure
Analysis‟ for the same.







ACKNOWLEDGEMENT

I am glad to extend my profound gratitude and humble appreciation to all those who rendered
their valuable help for the successful completion of this project report titled- An Analysis of the
Capital Structure of GPPC.

I would like to thank Mr.Rajat Bakshi, Manager F&A Dept. for giving me his valuable time,
deep insights of the company, priceless guidance and apt knowledge in the oil exploration arena.

Business world needs well implemented practical knowledge. And so to complete the knowledge
I gathered the following project which has been undertaken.

This training provides me as a student great opportunity of learning and experiencing the
business world, both at the same time. A management student, who still is new to the practical
world, learns the working of various units by the training. Hence, this project has been designed
with the objective of knowing power exploration industry in detail and doing a „Capital Structure
Analysis‟ for the same.









EXECUTIVE SUMMARY

 This project comprises of many things in which the centre theme is to analyse the capital
structure of the GPPC.
 During Analysis various ratios and approaches are being used to do a proper analysis on
the capital structure of the firm.
 Moreover the Introduction of the industry,company and the topic is given in the detail
below.
 Main Motto of the analysis of this firm was to study its capital structure and make results
that can be helpful to the firm in long run and taking any strategic decision.
 Along with analysis the SWOT and PESTLE Analysis is also done to know the current
Scenario of the firm in various aspects and Market.
 Analysis is totally being carried out on the basis of the Balance sheets of the firm under
proper guidance.
 During analysis various new experience was done with exposure of corporate world.
 At last the project ends with few Recommendations made by me after analyzing the
capital structure of GPPC in brief with a short conclusion about the project at the end of
the project.
 The Annexure contains the Balance Sheets studied or used for analysis in the Project.







Table of Contents
CHAPTER -1 RESEARCH METHODOLOGY ........................................... 9
Literature Review .................................................................................. 11
Problem Statement ................................................................................. 17
Objectives .............................................................................................. 18
Scope of the Study .................................................................................. 19
Research Type ....................................................................................... 19
Data Collection Method .......................................................................... 21
Data Analysis Tool : ............................................................................... 22
Nature of the Result : ............................................................................. 23
CHAPTER – 2 INTRODUCTION TO INDUSTRY ................................... 24
History .................................................................................................. 25
CHAPTER–3 INTRODUCTION TO COMPANY ..................................... 35
CHAPTER-4 INTRODUCTION TO TOPIC ............................................. 42
CHAPTER-5 SWOT ANALYSIS & PESTLE ANALYSIS ......................... 51
CHAPTER-5 ANALYSIS ......................................................................... 57
Current Ratio ........................................................................................ 58
Debt Equity Ratio .................................................................................. 61
Return on investments ............................................................................ 64
Proprietary Ratio ................................................................................... 67
N.I Approach ......................................................................................... 70
N.O.I Approach ..................................................................................... 74
M.M Approach ...................................................................................... 79
CONCLUSION ......................................................................................... 84
RECOMMENDATIONS ........................................................................... 85
BIBLIOGRAPHY ..................................................................................... 88
ANNEXURES ........................................................................................... 89

Chart Index











Figure No
Chart Name Page No
1.1 Current Ratio
1.2 Debt Equity Ratio
1.3 Return on Investment
1.4 Proprietary Ratio
1.5 Net Income Approach
1.6 Net Operating Income Approach
1.7 Long Term Debt
CHAPTER -1 RESEARCH METHODOLOGY











Literature Review























1. (Inc., 2013) In the website the meaning of capital structure has been explained. Capital
structure is a term that describes the proportion of a company's capital, or operating
money, that is obtained through debt versus the proportion obtained through equity.
Capital structure decisions are complex ones that involve weighing a variety of factors.
Capital structure is a term that describes the proportion of a company's capital, or
operating money, that is obtained through debt versus the proportion obtained through
equity.

Debt includes loans and other types of credit that must be repaid in the future, usually
with interest. Equity involves selling a partial interest in the company to investors,
usually in the form of stock. In contrast to debt financing, equity financing does not
involve a direct obligation to repay the funds. Instead, equity investors become part-
owners and partners in the business, and thus earn a return on their investment as well as
exercising some degree of control over how the business is run.

Since capital is expensive for small businesses, it is particularly important for small
business owners to determine a target capital structure for their firms. Capital structure
decisions are complex ones that involve weighing a variety of factors. In general,
companies that tend to have stable sales levels, assets that make good collateral for loans,
and a high growth rate can use debt more heavily than other companies. On the other
hand, companies that have conservative management, high profitability, or poor credit
ratings may wish to rely on equity capital instead.

2. (Investopedia, 2013) The capital structure is how a firm finances its overall operations
and growth by using different sources of funds. Debt comes in the form of bond issues or
long-term notes payable, while equity is classified as common stock, preferred stock or
retained earnings. A mix of a company's long-term debt, specific short-term debt,
common equity and preferred equity. The capital structure is how a firm finances its
overall operations and growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes payable, while equity is
classified as common stock, preferred stock or retained earnings. Short-term debt such as
working capital requirements is also considered to be part of the capital structure.

A company's proportion of short and long-term debt is considered when analyzing capital
structure. When people refer to capital structure they are most likely referring to a firm's
debt-to-equity ratio, which provides insight into how risky a company is. Usually a
company more heavily financed by debt poses greater risk, as this firm is relatively
highly levered.

3. (Analysis, 2014) The following report has shown in detail the meaning of capital
structure and cost of capital. The cost structure methods can be known by this methods.
Impact of Taxation on Corporate Financing: Tax is levied on the profits of the company.

Tax is also levied on the dividends received by the shareholders in their hands though
such dividends are declared out of after tax profits. Thus the corporate entity and the
owners suffer tax twice in a sense. This pushes the cost of equity capital. On the other
hand interest paid on the debt capital is a deductible expenditure and hence company does
not pay tax on interest on debt capital. This reduces the cost of debts. Debt is a less costly
source of funds and if the finance manager prudently mixes debt and equity, the weighted
average cost of capital will get greatly reduced.

Depreciation is not an outgo in cash but it is deductible in computing the income subject
to tax. There will be saving in tax on depreciation and such savings could be profitably
employed. Thus both interest and depreciation provide tax shield and have a tendency to
increase EPS. Further the unabsorbed depreciation can be carried forward indefinitely
and this will be helpful for loss making concerns which start earning profits in future. The
depreciation loss of one company can be carried forward for set off in another company‟s
profits in the case of amalgamations in specified circumstances and such a provision will
help growth of companies and rehabilitation of sick units. The finance manager of
amalgamating company will bear this benefit for the tax shield it carries in planning the
activities.

Thus the impact of tax will be felt in cost of capital, earnings per share and the cash
inflows which are relevant for capital budgeting and in planning the capital structure.

Tax considerations are important as they affect the liquidity of the concerns. They are
relevant in deciding the leasing of the assets, transactions of sale and lease back, and also
in floating joint venture in foreign countries where tax rate and concessions may be
advantageous. Tax implications will be felt in choosing the size and nature of industry
and in its location as the tax laws give fillip to small units producing certain products and
incentives are given for backward areas. Tax considerations in these matters are relevant
for purposes of preserving and protecting internal funds.

4. (Froot & Jeremy, 1998) A framework has been developed for analyzing the capital
allocation and capital structure decisions which are faced by the financial institutions.
Our model incorporates two key features:
 Value maximizing banks have a well founded concerned with risk management.
 All the risks they face can be frictionlessly hedged in the capital market.
The primary goal shown in the paper is to develop a conceptual framework for capital
budgeting that blends some of the most desirable features to both the classical approach
and the RAROC bank practitioner approach.

5. (Myers, 1983) This paper is intended to remind you of Fischer Black's well-known note
on "The Dividend Puzzle," which he closed by saying, "What should the corporation do
about dividend policy? We don't know." I will start by asking, "How do firms choose
their capital structures?" Again, the answer is, "We don't know." The capital structure
puzzle is tougher than the dividend one. Writers on "managerial capitalism" have
interpreted firms' reliance on internal finance as a byproduct of the separation of
ownership and control: professional managers avoid relying on external finance because
it would subject them to the discipline of the capital market.

The modified pecking order story recognizes both asymmetric information and costs of
financial distress. Thus the firm faces two increasing costs as it climbs up the pecking
order: it faces higher odds of incurring costs of financial distress, and also higher odds
that future positive-NPV projects will be passed by because the firm will be unwilling to
finance them by issuing common stock or other risky securities.

The firm may choose to reduce these costs by issuing stock now even if new equity is not
needed immediately to finance real investment, just to move the firm down the pecking
order. In other words, financial slack (liquid assets or reserve borrowing power) is
valuable, and the firm may rationally issue stock to acquire it. (I say "may" because the
firm which issues equity to buy financial slack faces the same asymmetric information
problems as a firm issuing equity to finance real investment.) The optimal dynamic issue
strategy for the firm under asymmetric information is, as far as I know, totally unexplored
territory.

6. (Kennon, 2013) The term capital structure refers to the percentage of capital (money) at
work in a business by type. Broadly speaking, there are two forms of capital: equity
capital and debt capital. Each has its own benefits and drawbacks and a substantial part of
wise corporate stewardship and management is attempting to find the perfect capital
structure in terms of risk / reward payoff for shareholders. This is true for Fortune 500
companies and for small business owners trying to determine how much of their startup
money should come from a bank loan without endangering the business.

Of course, how much debt you take on comes down to how secure the revenues your
business generates are - if you sell an indispensable product that people simply must
have, the debt will be much lower risk than if you operate a theme park in a tourist town
at the height of a boom market. Again, this is where managerial talent, experience, and
wisdom comes into play. The great managers have a knack for consistently lowering their
weighted average cost of capital by increasing productivity, seeking out higher return
products, and more.

The capital structure of a business is the mix of types of debt and equity the company has
on its balance sheet. The capital or ownership of a business can be evaluated by knowing
how much of the ownership is in debt and how much in equity. The company's debt
might include both short-term debt and long-term debt (such as mortgages), and equity,
including common stock, preferred shares, and retained earnings. Capital structure is
sometimes referred to as a company's debt to equity ratio.

7. (Struct, 2014) Capital structure describes how a corporation finances its assets. This
structure is usually a combination of several sources of senior debt, mezzanine debt and
equity. Wise companies use the right combination of senior debt, mezzanine debt and
equity to keep their true cost of capital as low as possible. Depending on how complex
the structure, there may in fact be dozens of financing sources included, drawing on funds
from a variety of entities in order to generate the complete financing package. Capital
structure is what describes the relationship of these financing sources as they appear on
the corporation‟s balance sheet.





Problem Statement





















Capital Structure is how a company finances its operations. The three most basic ways to finance
are through debt, equity, and, for a small business, personal savings. Capital structure usually
refers to how much of each type of financing a company holds as a percentage of all its
financing. In general, a company with a high level of debt compared to equity is thought to carry
higher risk.
GPPC gets its financing from various banks and GSPC units. GPPC has an efficient
administering of its capital. Hence, the efficiency level of capital structure is to be noted in order
to find ways to manage the capital in a way that it is efficient and effective for the company,
GSPC.

Objectives










 The objective of capital structure is minimizing the WACC cost.
 To understand how a firm can through its financing decisions.
 To show how to take account of a firm‟s financing mix in evaluating investment
decisions.
 To understand how a firm can create value through its financing decisions.
 To show how to take account of a firm‟s financing mix in evaluating investment
decisions.

Scope of the Study

To gain accurate results for the study of the working capital analysis the balance sheets of the
last 8 years have been taken into account. The scope of the study has been limited to GSPC only
rather than the entire petroleum industry.

Research Type

As the aim of the research is to check the efficiency of GPPC‟s capital structure, the research
method applied is Applied Research. The research shall also include Historical Research and
Ex-Post Facto Research as the secondary data of the company shall be used for the research.
The research results shall determine whether the working capital management is efficient or not
and hence it is a Conclusive Research.
The Research Proposal that is being created is for academic purpose. The Research Design
developed is a Cross-Sectional Research Design.
- Applied Research
In general, applied research is an investigation to acquire new knowledge, directed toward a
specific problem that needs to be solved, or an objective that needs to be met. It can also be
described as an application of problem solving and knowledge. In marketing, applied research is
directed toward a current need of the public, with the purpose of developing results or a product
that can be applied to the need, or that can solve the problem at hand. Human Resources
personnel or consultants usually perform this type of research because they are motivated by
solving a specific problem or issue within an organization. Applied research is different from
basic research because basic research tries to uncover relationships between variables or
motivated by the general understanding of how things work, and isn‟t as problem-oriented as
applied research.



- Ex-Post Facto Research
Ex-Post Facto is a term used to designate action taken to change the effect given to a set of
circumstances. This action relates back to a prior time, and imposes this new effect upon the
same set of circumstances that existed at the time of the occurrence.
When referring to law or legislation, establishing ex post facto laws is prohibited by the U.S.
Constitution. In scientific terms it could refer to research conducted into a particular
phenomenon conducted AFTER it has taken place.Ex post facto research is the process
beginning with a phenomenon and going backward in time to identify casual factors.
"The term ""Ex Post Facto, in simple English, means ""After the Fact"", or in other words,
retroactive. In criminal law, it can mean that laws cannot be applied retroactively." after the fact
answers about what happened to the measured variable

- Historical Research
Historical research can show patterns that occurred in the past and over time which can help us
to see where we came from and what kinds of solutions we have used in the past. We usually
will see that what we do today is specifically rooted in the past. Understanding this can add
perspective on how we examine current events and educational practices. It can also show us that
we do not need to continually reinvent the wheel because we should always start with what
history tells us.

- Conclusive Research
Providing information which helps the manager decide on a correct decision, conclusive research
consists of formal research procedures including clearly defined goals and needs. Usually, a
questionnaire is designed in conjunction with a sampling plan. There must be a clear link
between the alternatives in the evaluation and the information that is to be collected. This line of
research can include simulation, surveys, observations and experiments.


- Cross-Sectional Research Design
Cross-sectional research is used to examine one variable in different groups that are similar in all
other characteristics. Learn more about cross-sectional research in this lesson, and test your
knowledge with a quiz at the end.

Cross-sectional research studies are based on observations that take place in different groups at
one time. This means that there is no experimental procedure, so no variables are manipulated by
the researcher. Instead of performing an experiment, you would simply record the information
that you observe in the groups you are examining. Because of this, a cross-sectional research
study can be used to describe the characteristics that exist in a group, but it cannot be used to
determine any relationship that may exist. This method is used to gather information only. The
information may then be used to develop other methods to investigate the relationship that is
observed.

Data Collection Method:

Secondary Methods:
 Company Publications
 Annual Reports of the Company
Data Analysis Tool :













The following shall be calculated in order to check the working capital efficiency:
 Valuation Approach
 Cash Flow Approach
 Operating Leverage
 Financial Leverage
 Combined Leverage
 NI Approach
 NOI Approach
 MM Approach
 Traditional Approach

Nature of the Result :

The result being drawn shall be in the form of a Conclusion. It shall be a Conclusive result as
the result being drawn would be showing the current efficiency of the capital structure in the
company.
Also, suggestions shall be drawn for the company so that the capital usage can be improved.


















CHAPTER – 2 INTRODUCTION TO INDUSTRY












History











Although electricity had been known to be produced as a result of the chemical reactions that
take place in an electrolytic cell since Alessandro Volta developed the voltaic pile in 1800, its
production by this means was, and still is, expensive. In 1831, Michael Faraday devised a
machine that generated electricity from rotary motion, but it took almost 50 years for the
technology to reach a commercially viable stage. In 1878, in the US, Thomas Edison developed
and sold a commercially viable replacement for gas lighting and heating using locally generated
and distributed direct current electricity.

The world's first public electricity supply was provided in late 1881, when the streets of the
Surrey town of Godalming in the UK were lit with electric light. This system was powered from
a water wheel on the River Wey, which drove a Siemens alternator that supplied a number of arc
lamps within the town. This supply scheme also provided electricity to a number of shops and
premises to light 34 incandescent Swan light bulbs.

Additionally, Robert Hammond, in December 1881, demonstrated the new electric light in the
Sussex town of Brighton in the UK for a trial period. The ensuing success of this installation
enabled Hammond to put this venture on both a commercial and legal footing, as a number of
shop owners wanted to use the new electric light. Thus the Hammond Electricity Supply Co. was
launched. Whilst the Godalming and Holborn Viaduct Schemes closed after a few years the
Brighton Scheme continued on, and supply was in 1887 made available for 24 hours per day.

In early 1882, Edison opened the world‟s first steam-powered electricity generating station at
Holborn Viaduct in London, where he had entered into an agreement with the City Corporation
for a period of three months to provide street lighting. In time he had supplied a number of local
consumers with electric light. The method of supply was direct current (DC).

It was later on in the year in September 1882 that Edison opened the Pearl Street Power Station
in New York City and again it was a DC supply. It was for this reason that the generation was
close to or on the consumer's premises as Edison had no means of voltage conversion. The
voltage chosen for any electrical system is a compromise. Increasing the voltage reduces the
current and therefore reduces the required wire thickness. Unfortunately it also increases the
danger from direct contact and increases the required insulation thickness. Furthermore some
load types were difficult or impossible to make work with higher voltages. The overall effect was
that Edison's system required power stations to be within a mile of the consumers. While this
could work in city centres, it would be unable to economically supply suburbs with power.[1]

The mid to late 1880's saw the introduction of alternating current (AC) systems in Europe and
the U.S. AC power had an advantage in that transformers, installed at power stations, could be
used to raise the voltage from the generators, and transformers at local substations could reduce
voltage to supply loads. Increasing the voltage reduced the current in the transmission and
distribution lines and hence the size of conductors and distribution losses. This made it more
economical to distribute power over long distances. Generators (such as hydroelectric sites)
could be located far from the loads. AC and DC competed for a while, during a period called the
War of Currents. The DC system was able to claim slightly greater safety, but this difference was
not great enough to overwhelm the enormous technical and economic advantages of alternating
current which eventually won out.

High tension line in Montreal, Quebec, Canada
The AC power system used today developed rapidly, backed by industrialists such as George
Westinghouse with Mikhail Dolivo-Dobrovolsky, Galileo Ferraris, Sebastian Ziani de Ferranti,
Lucien Gaulard, John Dixon Gibbs, Carl Wilhelm Siemens, William Stanley, Jr., Nikola Tesla,
and others contributed to this field.

While high-voltage direct current (HVDC) is increasingly being used to transmit large quantities
of electricity over long distances or to connect adjacent asynchronous power systems, the bulk of
electricity generation, transmission, distribution and retailing takes place using alternating
current.

All forms of electricity generation have positive and negative aspects. Technology will probably
eventually declare the most preferred forms, but in a market economy, the options with less
overall costs generally will be chosen above other sources. It is not clear yet which form can best
meet the necessary energy demands or which process can best solve the demand for electricity.
There are indications that renewable energy and distributed generation are becoming more viable
in economic terms. A diverse mix of generation sources reduces the risks of electricity price
spikes.

Thermal power plants are one of the main sources of electricity in both industrialized and
developing countries. The variation in the thermal power stations is due to the different fuel
sources (coal, natural gas, naptha, etc). In a thermal power plant, one of coal, oil or natural gas is
used to heat the boiler to convert the water into steam. In fact, more than half of the electricity
generated in the world is by using coal as the primary fuel.

The function of the coal fired thermal power plant is to convert the energy available in the coal to
electricity. Coal power plants work by using several steps to convert stored energy in coal to
usable electricity that we find in our home that powers our lights, computers, and sometimes,
back into heat for our homes. The working of a coal power plant is explained in brief:

Firstly, water is taken into the boiler from a water source. The boiler is heated with the help of
coal. The increase in temperature helps in the transformation of water into steam. The steam
generated in the boiler is sent through a steam turbine. The turbine has blades that rotate when
high velocity steam flows across them. This rotation of turbine blades is used to generate
electricity. A generator is connected to the steam turbine. When the turbine turns, electricity is
generated and given as output by the generator, which is then supplied to the consumers through
high-voltage power lines.

Apart from thermal power plants, there are other types of energy resources being used to
generate electricity. The various types of energy sources include hydro electricity, solar power,
wind power, nuclear power, etc.

Hydro electricity

Hydroelectric power or hydroelectricity is electrical power which is generated through the
energy of falling water. A hydroelectric power plant uses the force of the water to push a turbine
which in turn powers a generator, creating electricity which can be used on-site or transported to
other regions. This method of energy generation is viewed as very environmentally friendly by
many people, since no waste occurs during energy generation. It is the most widely used form of
renewable energy.

Solar Power
Solar power is energy that is derived from the sun and converted into heat or electricity. It is a
versatile source of renewable energy that can be used in an amazing number of applications.
Energy from the sun can be converted into solar power in two ways. The first way of obtaining
solar power involves the use of photoelectric applications. Photoelectric applications use
photovoltaic cells in converting energy from the sun into electricity. The second way involves
the use of solar thermal applications wherein heating a transfer fluid is done to produce steam to
run a generator.



Wind Energy
Wind power is power which is derived from wind. There are a number of ways to collect and use
wind power, and wind power is among the most ancient forms of energy used by humans.Wind
power is the conversion of wind energy into a useful form of energy, such as using wind turbines
to make electricity.

Nuclear Power
Nuclear energy is produced in two different ways. In one method, large nuclei are split to release
energy. Here, nuclear energy originates from the splitting of uranium atoms in a process called
fission. At the power plant, the fission process is used to generate heat for producing steam,
which is used by a turbine to generate electricity. In the other method, small nuclei are combined
to release energy.

In a coal based power plant coal is transported from coal mines to the power plant by railway in
wagons or in a merry-go-round system. Coal is unloaded from the wagons to a moving
underground conveyor belt. This coal from the mines is of no uniform size. So it is taken to the
Crusher house and crushed to a size of 20mm. From the crusher house the coal is either stored in
dead storage( generally 40 days coal supply) which serves as coal supply in case of coal supply
bottleneck or to the live storage(8 hours coal supply) in the raw coal bunker in the boiler house.
Raw coal from the raw coal bunker is supplied to the Coal Mills by a Raw Coal Feeder. The Coal
Mills or pulverizer pulverizes the coal to 200 mesh size. The powdered coal from the coal mills
is carried to the boiler in coal pipes by high pressure hot air. The pulverized coal air mixture is
burnt in the boiler in the combustion zone.

Generally in modern boilers tangential firing system is used i.e. the coal nozzles/ guns form
tangent to a circle. The temperature in fire ball is of the order of 1300 deg.C. The boiler is a
water tube boiler hanging from the top. Water is converted to steam in the boiler and steam is
separated from water in the boiler Drum. The saturated steam from the boiler drum is taken to
the Low Temperature Superheater, Platen Superheater and Final Superheater respectively for
superheating. The superheated steam from the final superheater is taken to the High Pressure
Steam Turbine (HPT). In the HPT the steam pressure is utilized to rotate the turbine and the
resultant is rotational energy. From the HPT the out coming steam is taken to the Reheater in the
boiler to increase its temperature as the steam becomes wet at the HPT outlet. After reheating
this steam is taken to the Intermediate Pressure Turbine (IPT) and then to the Low Pressure
Turbine (LPT). The outlet of the LPT is sent to the condenser for condensing back to water by a
cooling water system. This condensed water is collected in the Hotwell and is again sent to the
boiler in a closed cycle. The rotational energy imparted to the turbine by high pressure steam is
converted to electrical energy in the Generator.



Coal Preparation
Fuel preparation system: In coal-fired power stations, the raw feed coal from the coal storage
area is first crushed into small pieces and then conveyed to the coal feed hoppers at the boilers.
The coal is next pulverized into a very fine powder, so that coal will undergo complete
combustion during combustion process.
pulverizer is a mechanical device for the grinding of many different types of materials. For
example, they are used to pulverize coal for combustion in the steam-generating furnaces of
fossil fuel power plants.
Types of Pulverisers: Ball and Tube mills; Ring and Ball mills; MPS; Ball mill; Demolition.
Dryers: they are used in order to remove the excess moisture from coal mainly wetted during
transport. As the presence of moisture will result in fall in efficiency due to incomplete
combustion and also result in CO emission.
Magnetic separators: coal which is brought may contain iron particles. These iron particles may
result in wear and tear. The iron particles may include bolts, nuts wire fish plates etc. so these are
unwanted and so are removed with the help of magnetic separators.
The coal we finally get after these above process are transferred to the storage site.

Purpose of fuel storage is two –
 Fuel storage is insurance from failure of normal operating supplies to arrive.
 Storage permits some choice of the date of purchase, allowing the purchaser to take
advantage of seasonal market conditions. Storage of coal is primarily a matter of
protection against the coal strikes, failure of the transportation system & general coal
shortages.

There are two types of storage:
 Live Storage(boiler room storage): storage from which coal may be withdrawn to supply
combustion equipment with little or no remanding is live storage. This storage consists of
about 24 to 30 hrs. of coal requirements of the plant and is usually a covered storage in
the plant near the boiler furnace. The live storage can be provided with bunkers & coal
bins. Bunkers are enough capacity to store the requisite of coal. From bunkers coal is
transferred to the boiler grates.
 Dead storage- stored for future use. Mainly it is for longer period of time, and it is also
mandatory to keep a backup of fuel for specified amount of days depending on the
reputation of the company and its connectivity.There are many forms of storage some of
which are –
 Stacking the coal in heaps over available open ground areas. As in (I). But placed under
cover or alternatively in bunkers.
Allocating special areas & surrounding these with high reinforced concerted retaking walls.
Boiler and auxiliaries
A Boiler or steam generator essentially is a container into which water can be fed and steam can
be taken out at desired pressure, temperature and flow. This calls for application of heat on the
container. For that the boiler should have a facility to burn a fuel and release the heat. The
functions of a boiler thus can be stated as:-

To convert chemical energy of the fuel into heat energy
To transfer this heat energy to water for evaporation as well to steam for superheating.
The basic components of Boiler are: -
Furnace and Burners
Steam and Superheating
a. Low temperature superheater
b. Platen superheater
c. Final superheater









CHAPTER–3 INTRODUCTION TO COMPANY














GSPC Pipavav Power Company Ltd. (GPPC) is public limited company incorporated under the
Companies Act 1956. The company is jointly promoted by Gujarat State Petroleum Corporation
Ltd. (GSPC) and Gujarat Power Corporation Limited (GPCL) in year 2006.

While GSPC is a reputed and leading Government of Gujarat PSU engaged in the business of Oil
and Gas. As a part of this initiative, GSPC group had, in 2000, initiated a program to expand its
presence within the value chain by entering into power generation by setting up a Special
Purpose Company - Gujarat State Energy Generation Limited (GSEG) which has developed 156
MW gas-based combined cycle power plant in Hazira, Gujarat.Further expanding its presence in
the energy value chain, GSPC promoted Gujarat State Petronet Limited (GSPL) to set up a gas
grid infrastructure in Gujarat as a service provider to enable transmission of gas at medium to
high pressure across various centers in Gujarat. GSPL has set up a 1659 Kms operational grid in
Gujarat and is implementing another 1000 KMs in the state Gujarat.

The Pipavav power project, that was conceived way back around 1990 by the then GEB.
Considering the capacity of GSPC and its group companies to handle projects right from concept
to commissioning, supported by efficient operation and maintenance, Government of Gujarat has
asked GSPC to take the lead in development of Pipavav power project along with GPCL. GSPC
Pipavav Power Company Ltd. (GPPC) is a Special Purpose Vehicle to implement a power
project catering to energy requirements in Gujarat, especially the Saurashtra region






Key Facts at a Glance




Name GSPC Pipavav Power Company Ltd.
Composition Public Ltd.
Registered Office GSPC Bhavan, Near Udyog Bhavan, Sector 11,
Gandhinagar – 382 011
Authorized Capital Rs. 2,000 million
Paid up Capital Rs. 368.90 million
Promoters Gujarat State Petroleum Corporation Ltd. (GSPC) &
Gujarat Power Corporation Ltd. (GPCL)

Vision of GSPC Group

“To be a globally competitive total energy company, involved in exploration and production,
transportation, generation and management of energy resource, through an integrative synergistic
process, in order to maximize shareholder value, with a firm commitment to customers and the
environment.”

















Management & Board of Directors
Sr. No. Name of Director Office Address
1 Shri D J Pandian, IAS Principal Secretary,
Energy & Petrochemicals
Dept. 5th Floor, Block No. 5,
New Sachivalaya,
Gandhinagar- 382010

2 Shri Tapan Ray, IAS Managing Director,
GSPC Ltd, GSPC Bhavan,
Sector-11, Gandhinagar-
380011

3 Shri L. Chuaungo, IAS Managing Director,
Gujarat Urja Vikas Nigam
Limited

Sardar Patel Vidyut Bhavan,
Race Course Circle,

Vadodara-390007.
4 Dr. P K Das (Retd.), IAS


Health, Safety & Environment Policy
GPPC recognizes that the protection of the health and safety of employees and others involved
and the protection of environment are of prime importance at every level of management. It is
committed to achieve the goal of incident free operations and to achieve this…


GPPC will :
Establish integrated HSE management system
Seek continual improvement in performance
Strive to ensure that contractors and sub-contractors meet as a minimum the same standard as
GPPCL‟s employees
Identify HSE hazards and assess/manage the associated risks
Comply with all applicable laws and regulations
Ensure compliance with the policy through a process of training, involvement, review and audit

In finance, capital structure refers to the way a corporation finances its assets through some
combination of equity, debt, or hybrid securities. A firm's capital structure is then the
composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and
$80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of
debt to total financing, 80% in this example, is referred to as the firm's leverage.[citation needed]
In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio
is the proportion of the capital employed of the firm which come from outside of the business
finance, e.g. by taking a short term loan etc.

The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the
basis for modern thinking on capital structure, though it is generally viewed as a purely
theoretical result since it disregards many important factors in the capital structure process
factors like fluctuations and uncertain situations that may occur in the course of financing a firm.
The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This
result provides the base with which to examine real world reasons why capital structure is
relevant, that is, a company's value is affected by the capital structure it employs. Some other
reasons include bankruptcy costs, agency costs, taxes, and information asymmetry. This analysis
can then be extended to look at whether there is in fact an optimal capital structure: the one
which maximizes the value of the firm.

GSPC Pipavav Power Company Limited (GPPC), plans to set up a 1,053 MW gas-fired
combined cycle power plant project at Pipavav in Gujarat, a top company official said. GPPC is
a a Special Purpose Vehicle (SPV) set up by GSPC (Gujarat State Petroleum Corporation) along
with GPCL (Gujarat Power Corporation Ltd) to implement a power project catering to energy
requirements in Gujarat.















CHAPTER-4 INTRODUCTION TO TOPIC










Capital structure is the composition of long-term liabilities, specific short-term liabilities like
bank notes, common equity, and preferred equity which make up the funds with which a
business firm finances its operations and its growth. The capital structure of a business firm is
essentially the right side of its balance sheet.

Capital structure, broadly, is composed of the firm's debt and equity. There are considerations by
management and the stakeholders over what mix of debt and equity to use. Should more debt
financing be used in order to earn a higher return? Should more equity financing be used to avoid
the risk of debt and bankruptcy?

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CapitalStructure's comprehensive deal databases contain detailed records of high yield bond
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country, sector, lead bank, private equity sponsor, transaction type, deal type and date range.
For stock investors that favor companies with good fundamentals, a "strong" balance sheet is an
important consideration for investing in a company's stock. The strength of a company's balance
sheet can be evaluated by three broad categories of investment-quality measurements: working
capital adequacy, asset performance and capital structure. In this article, we'll look at evaluating
balance sheet strength based on the composition of a company's capital structure.

A company's capitalization (not to be confused with market capitalization) describes the
composition of a company's permanent or long-term capital, which consists of a combination of
debt and equity. A healthy proportion of equity capital, as opposed to debt capital, in a
company's capital structure is an indication of financial fitness.

Evaluating A Company's Capital Structure

For stock investors that favor companies with good fundamentals, a "strong" balance sheet is an
important consideration for investing in a company's stock. The strength of a company's balance
sheet can be evaluated by three broad categories of investment-quality measurements: working
capital adequacy, asset performance and capital structure. In this article, we'll look at evaluating
balance sheet strength based on the composition of a company's capital structure.

A company's capitalization (not to be confused with market capitalization) describes the
composition of a company's permanent or long-term capital, which consists of a combination of
debt and equity. A healthy proportion of equity capital, as opposed to debt capital, in a
company's capital structure is an indication of financial fitness.

Clarifying Capital Structure Related Terminology
The equity part of the debt-equity relationship is the easiest to define. In a company's capital
structure, equity consists of a company's common and preferred stock plus retained earnings,
which are summed up in the shareholders' equity account on a balance sheet. This invested
capital and debt, generally of the long-term variety, comprises a company's capitalization, i.e. a
permanent type of funding to support a company's growth and related assets.

A discussion of debt is less straightforward. Investment literature often equates a company's debt
with its liabilities. Investors should understand that there is a difference between operational and
debt liabilities - it is the latter that forms the debt component of a company's capitalization - but
that's not the end of the debt story.

Among financial analysts and investment research services, there is no universal agreement as to
what constitutes a debt liability. For many analysts, the debt component in a company's
capitalization is simply a balance sheet's long-term debt. This definition is too simplistic.
Investors should stick to a stricter interpretation of debt where the debt component of a
company's capitalization should consist of the following: short-term borrowings (notes payable),
the current portion of long-term debt, long-term debt, two-thirds (rule of thumb) of the principal
amount of operating leases and redeemable preferred stock. Using a comprehensive total debt
figure is a prudent analytical tool for stock investors.

It's worth noting here that both international and U.S. financial accounting standards boards are
proposing rule changes that would treat operating leases and pension "projected-benefits" as
balance sheet liabilities. The new proposed rules certainly alert investors to the true nature of
these off-balance sheet obligations that have all the earmarks of debt.

For stock investors that favor companies with good fundamentals, a "strong" balance sheet is an
important consideration for investing in a company's stock. The strength of a company's balance
sheet can be evaluated by three broad categories of investment-quality measurements: working
capital adequacy, asset performance and capital structure. In this article, we'll look at evaluating
balance sheet strength based on the composition of a company's capital structure.
A company's capitalization (not to be confused with market capitalization) describes the
composition of a company's permanent or long-term capital, which consists of a combination of
debt and equity. A healthy proportion of equity capital, as opposed to debt capital, in a
company's capital structure is an indication of financial fitness.

The equity part of the debt-equity relationship is the easiest to define. In a company's capital
structure, equity consists of a company's common and preferred stock plus retained earnings,
which are summed up in the shareholders' equity account on a balance sheet. This invested
capital and debt, generally of the long-term variety, comprises a company's capitalization, i.e. a
permanent type of funding to support a company's growth and related assets.

A discussion of debt is less straightforward. Investment literature often equates a company's debt
with its liabilities. Investors should understand that there is a difference between operational and
debt liabilities - it is the latter that forms the debt component of a company's capitalization - but
that's not the end of the debt story.

Among financial analysts and investment research services, there is no universal agreement as to
what constitutes a debt liability. For many analysts, the debt component in a company's
capitalization is simply a balance sheet's long-term debt. This definition is too simplistic.
Investors should stick to a stricter interpretation of debt where the debt component of a
company's capitalization should consist of the following: short-term borrowings (notes payable),
the current portion of long-term debt, long-term debt, two-thirds (rule of thumb) of the principal
amount of operating leases and redeemable preferred stock. Using a comprehensive total debt
figure is a prudent analytical tool for stock investors.

It's worth noting here that both international and U.S. financial accounting standards boards are
proposing rule changes that would treat operating leases and pension "projected-benefits" as
balance sheet liabilities. The new proposed rules certainly alert investors to the true nature of
these off-balance sheet obligations that have all the earmarks of debt.
This theory gives the idea for increasing market value of firm and decreasing overall cost of
capital. A firm can choose a degree of capital structure in which debt is more than equity share
capital. It will be helpful to increase the market value of firm and decrease the value of overall
cost of capital. Debt is cheap source of finance because its interest is deductible from net profit
before taxes. After deduction of interest company has to pay less tax and thus, it will decrease
the weighted average cost of capital.

For example if you have equity debt mix is 50:50 but if you increase it as 20: 80, it will increase
the market value of firm and its positive effect on the value of per share.

High debt content mixture of equity debt mix ratio is also called financial leverage. Increasing of
financial leverage will be helpful to for maximize the firm's value.
Determination of an optimal capital structure has frustrated theoreticians for decades. The early
work made numerous assumptions in order to simplify the problem and assumed that both the
cost of debt and the cost of equity were independent of capital structure and that the relevant
figure for consideration was the net income of the firm. Under these assumptions, the average
cost of capital decreased with the use of leverage and the value of the firm (the value of the debt
and equity combined) increased while the value of the equity remained constant.
Trade-off theory allows bankruptcy cost to exist. It states that there is an advantage to financing
with debt (the tax benefits of debt) and that there is a cost of financing with debt (the bankruptcy
costs and the financial distress costs of debt). The marginal benefit of further increases in debt
declines as debt increases, while the marginal cost increases, so that a firm that is optimizing its
overall value will focus on this trade-off when choosing how much debt and equity to use for
financing. Empirically, this theory may explain differences in Debt/Equity ratios between
industries, but it doesn't explain differences within the same industry.

Pecking Order Theory tries to capture the costs of asymmetric information. It states that
companies prioritize their sources of financing (from internal financing to issuing shares of
equity) according to least resistance, preferring to raise equity for financing as a last resort.
Internal financing is used first. When that is depleted, debt is issued. When it is no longer
sensible to issue any more debt, equity is issued.

This theory maintains that businesses adhere to a hierarchy of financing sources and prefer
internal financing when available, while debt is preferred over equity if external financing is
required. Thus, the form of debt a firm chooses can act as a signal of its need for external
finance.

The Pecking Order Theory is popularized by Myers (1984), when he argues that equity is a less
preferred means to raise capital because when managers (who are assumed to know better about
true condition of the firm than investors) issue new equity, investors believe that managers think
that the firm is overvalued and managers are taking advantage of this over-valuation. As a result,
investors will place a lower value to the new equity issuance.
Energy majors including Tata Power, Reliance ADA's Reliance Power and Sterlite Industries
have shown interest for equity partnership of 49 per cent in the state-run GSPC Pipavav Power
Company Ltd (GPPC), sources in the know informed.

A subsidiary of Gujarat State Petroleum Corporation (GSPC), GPPC expects to raise around Rs
450 crore through equity partnership from private players, the company officials informed. Last
month, GPPC had invited expressions of interest (EOI) from global companies for sale of
minority stake to an extent of 49 per cent in the company.

"As many as 12 companies have submitted their EOIs for equity partnership. Two of them are
foreign investor companies, while the rest are Indian companies having interest in energy sector.
Tata Power, Reliance Anil Dhirubhai Ambani Group's Reliance Power and Sterlite Industries are
among the big players, who have submitted EOIs for the equity partnership," said a source close
to the development.

A subsidiary of Hong Kong-based CLP Group, CLP India is also in the race to acquire stake in
the power company.

Owing to the lukewarm response received from the interested companies in the initial stage,
GPPC decided to extend the deadline to submit the EOIs by a week to October 1, 2012. "Over 50
per cent of the EOIs that we got, were received in the extended period," said a source. However,
the source informed that Gujarat-based power majors, Adani Power and Torrent Power have not
submitted EOIs.

"Now, the management will scrutinise the EOIs and ask qualifying companies to submit their
bids for the partnership. It is quite possible that all the companies may be asked to submit their
bids," the source mentioned.

GPPC has appointed SBI Capital Markets as financial advisor for soliciting equity participation
in the company, which is a special purpose vehicle (SPV) set up by GSPC along with Gujarat
Power Corporation Ltd (GPCL) to set up a power project catering to energy requirements in
Gujarat. As per the proposed shareholding of the company, GSPC will hold about 34 per cent
stake, while GPCL will hold 17 per cent, while 49 per cent will be given to private investors.
GPPC is setting up 702 megawatt (Mw) (2 x 351 Mw) gas-based power project at Kovaya
village, District Amreli in Gujarat with an estimated investment of Rs 2900 crore with
debt:equity ration of 80:20.
It has already signed the long term power purchase agreement (PPA) for a period of 20 years
with the state power utility, Gujarat Urja Vikas Nigam Limited (GUVNL).

Also, the company has entered into a gas supply agreement (GSA) with GSPC for supply of
around 3.2 million standard cubic meter per day (MMSCMD) of gas.

The entire power project is expected to be commissioned by June 2013, while the first unit of
351 Mw is expected to be commissioned by December 2012. So far, over 90 per cent of the
physical work has been completed. The plant capacity can be scaled up to 1050 Mw.

GPPC also has set up a 5-Mw solar PV power plant at Gujarat Solar Park at Charanka Village in
north Gujarat at the cost of Rs 64.41 crore.











CHAPTER-5 SWOT ANALYSIS & PESTLE ANALYSIS

SWOT ANALYSIS







Strenghts
1. Vertically integrated company in field of hydrocarbon activities
2. Krishna Godavari Basin founded by GSPL was one of India's largest gas find
3. Strong backing by Gujarat Government with 95% stake owned by the government itself.
4. Many subsidiaries in across natural gas value chain
5. Strong business alliances with partners worldwide
6. Monetary assistance provided
7. Barriers of market entry
8. Domestic market
9. Existing distribution and sales networks.\
10. Reduced labor costs

Weakness
1. Intervention of Govt. policies affecting operations
2. Increasing costs and declining oil reserves
3. Business segments prone to changes in regulations
4.Future competition
5. Competitive market
6. High loan rates are possible
7. Investments in research and development.


Opportunities
1.India's growing energy requirements
2. More oil wells discoveries
3.Heavy industrialization causing an increase in demand for fuel
4.Demand-Supply gap in India
5. Income level is at a constant increase

Threats
1.Possibilities of reduction in subsidies on natural gas by government of India causing a fall in
demand
2.Economic instability and fluctuations in India's policies
3. Risks of SINKING investments of overseas assets which are in exploration stage in case of no
hydrocarbon discovery
4. Increase in labor costs.
.
Compititors
1. BPCL
2. HPCL
3. IOCL
4. Essar Oil Ltd.







PESTLE ANALYSIS



PESTLE analysis is a tools used to find out the current status and position of an organisation or
individual in relation to their external environment and current role. They can then be used as a
basis for future planning and strategic management.

The PESTLE analysis should be used to provide a context for the organisation‟s/individual‟s role
in relation to the external environment. It covers Political, Economic, Social, Technological,
Legal and Environmental factors.
Lets study the PESTLE analysis of GSPC in detail :
1. POLITICAL
 Locally in india GSPC is very well connectedand has very good relations with
Government of Gujarat and Central Government of india.
 Internationally it has very good relations with other countries after it took
decisions of going mulitinational.
 GSPC has very good Political relations with BJP which is leading party in Gujarat
and hence has various opportunity to grow.


2. ECONOMICAL
 Economic situation of GSPC is said to be very good due to its new projects and
decision of going multinational.
 Last Year it won 2 Bids out of 6 Bids in various foreign locations.
 In 2012-13 it reported Income of 53 crores from 45 crores in 2011-12.
 Profit for the period is 846.57 crores from 607.74 crores in 2011-12.

3. SOCIAL
 GSPC believes in education and learning are very Important for Nation‟s Future.
 Employment and Infrastructure facilities will be provided to the Youths of
Tallarevu Mandal.
 GSPC will spend 0.04% out of 4000 Cr in the region in which they were doing
Exploration in Mallavaram, Bhairavapalem, and Gadimoga.
 GSPC also taken initiative for safety awareness with “Suraksha Jagruti Abhiyan”

4. TECHNOLOGICAL
 GSPC created a record of Synchronizing the first Gas Turbine in record time of
17 Months and Second Turbine in 18 Months.
 GSPC generates Power on Natural gas and Steam rather than Coal.
 Advanced combined Cycle Technology implemented by GSPC makes efficient
use of fuel, low electricity charges, Low emission levels,etc

5. LEGAL
 Legal Factors consist of National and International Praposals and Collaboration of
GSPC
 In March 2013 GSPC made agreement with British Group for Long run Supply of
LNG.
 It also had many good relations with Egypt Government as well as Australian
Government in order to do exploration in that Countries.

6. ENVIRONMENTAL
 GSPC generates Power through Natural Gas i.e an environment friendly fuel.
 GSEG power plant of surat is most efficient power plant in country with lowest
emissions.
 GSPC is slowly switching from Coal to Gas as primary fuel in order to generate
electricity and lower pollution upto 50%.
Using steam and Gas combined Cycle for power Generation rather than Coal

















CHAPTER-5 ANALYSIS











Valuation Method

Current Ratio






















FIGURE : 1.1








Year 2009 2010 2011 2012 2013
Current Assets 108.72 328.5 2602.5 804.65 1635.38
Current Liabilities 41.65 57.37 18373.74 44244.79 99337.14
Current Ratio 2.61 5.73 0.14 0.02 0.02
Interpretation:

Current Ratio is a financial ratio which measures whether the or not a company ha enough
resources to pay its debt over the next business cycle by comparing the current assets and the
current liabilities.

The acceptable current ratio value varies from industry to industry. The ideal current ratio is
2:1.as seen in the above graph the current ratio has dropped to a high level in the year 2010-
2011. In the year 2010 the company had 5.73 current ratio which showed that the company had
so much cash on hand; it was poor on the investing of the cash. This means that the company
should have invested the cash in the right manner at the right time.

We can interpret that to cope witb the over gorwn ratio of the company, they opted for the
investment of the cash they had. But this was done too much that they depleted the current ratio
to a 0.14.

Now the situation arose that the company had invested so much and in the mean time policy
changes worked adverse for the company. The policy changes and government regulations
brought the working of the company at stake.

The current ratio over the last two years has been to 0.02 constant. The company though is
working onto increasing the current assets and making the working of the company more feasible
and easy.


Debt Equity Ratio























FIGURE : 1.2







Year 2009 2010 2011 2012 2013
Long Term Debt 553.57 2850 97795.52 139479.4 149106.7
Shareholder's Funds 3047.95 7111.97 3689.04 3617.96 2772.88
Debt Equity Ratio 0.18 0.40 26.51 38.55 53.77
Interpretation:
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets. Closely related to leveraging,
the ratio is also known as Risk, Gearing or Leverage. The two components are often taken from
the firm's balance sheet or statement of financial position (so-called book value), but the ratio
may also be calculated using market values for both, if the company's debt and equity are
publicly traded, or using a combination of book value for debt and market value for equity
financially.

The Debt Equity ratio if less than 1 would indicate that the company is into the protection of
their money. They are trying to portion of the assets provided by the stockholders is greater than
the portion of assets provided by creditors greater than the portion of assets provided by the
stockholders.

The ratio increased highly in the year 2011 with a jump of almost 25%. This shows that the
company increased its long term debt in order to cope with the shareholder‟s fund needed.








Return on investments


















FIGURE : 1.3



Year 2009 2010 2011 2012 2013
PBIT 0.00 0.00 0.00 -69.80 -278.18
Fixed Assets 14.28 331.27 339.29 6824.35 5813.47
Depreciation 0.00 0.00 26.04 26.04 980.14
Current Assets 108.72 328.5 2602.5 804.65 1635.38
Current Liabilities 41.65 57.37 18373.74 44244.79 99337.14
Net Working Capital 67.07 271.13 -15771.24 -43440.14 -97701.76
Net Capital Employed 81.35 602.40 -15457.99 -36641.83 -92868.43
Return on Investments 0.00 0.00 0.00 0.19 0.30
Interpretation:
Return on investment (ROI) measures the gain or loss generated on an investment relative to the
amount of money invested. ROI is usually expressed as a percentage and is typically used for
personal financial decisions, to compare a company's profitability or to compare the efficiency of
different investments.
As we can see, the return on investments ratio has increased significantly in the year 2012. The
increase in this ratio shows that the company invested smartly in this years. As we saw the
company had high level of cash n the year 2010. It invested this cash in the year ending on
March 31, 2011. Moreover the company started getting the return on the investments it did. And
as the investment was high the returns gained have also been high.
The company can now invest this returns to increase their current assets in order to manage the
current ratio.












Proprietary Ratio






















Years 08-09 09-10 10-11 11-12 12-13
Equity 3689 3689 3689 3689 3689
Assets 31480 71609 129592 218617 252327
Ratio 0.1172 0.05152 0.0285 0.1687 0.0146

*The share application money has not been included in share holders’ fund as the same has
been returned in later years and never converted into capital.
FIGURE : 1.4







Interpretation:

The proprietary ratio is the inverse of debt ratio. It is a part to whole comparison. The proprietary
ratio measures the amount of funds that investors have contributed towards the capital of a firm
in relation to the total capital that is required by the firm to conduct operations.

The proprietary ratio of the company depends on the risk appetite of the company. If the
company is a risk taking one then the company would have a low proprietary ratio. As we see the
proprietary ratio saw a very high jump in the year 2010. The reason behind this has been noted to
be the $1.6 Million project that it was awarded in the year 2009. This made the company turn
low on the risk taking zone of other projects and it fully focused on the project on hand. The
project however in the later stages needed less attention and hence the company had to involve
into other projects.

As the company had no projects on hand, it started taking higher risks to get projects. Since then
on the company has been a risk taking company and the proprietary ratio as a result has been
running low.








N.I Approach













Net Income Approach was presented by Durand. The theory suggests increasing value of the
firm by decreasing overall cost of capital which is measured in terms of Weighted Average Cost
of Capital. This can be done by having higher proportion of debt, which is a cheaper source of
finance compared to equity finance.

Weighted Average Cost of Capital (WACC) is the weighted average costs of equity and debts
where the weights are the amount of capital raised from each source.

According to Net Income Approach, change in the financial leverage of a firm will lead to
corresponding change in the Weighted Average Cost of Capital (WACC) and also the value of
the company. The Net Income Approach suggests that with the increase in leverage (proportion
of debt), the WACC decreases and the value of a firm increases. On the other hand, if there is a
decrease in the leverage, the WACC increases and thereby the value of the firm decreases.

According to this approach, the capital structure decision is relevant to the valuation of the firm.
This means that a change in the financial leverage will automatically lead to a corresponding
change in the overall cost of capital as well as the total value of the firm. According to NI
approach, if the financial leverage increases, the weighted average cost of capital decreases and
the value of the firm and the market price of the equity shares increases. Similarly, if the
financial leverage decreases, the weighted average cost of capital increases and the value of the
firm and the market price of the equity shares decreases. Assumptions of NI approach: There are
no taxes.The cost of debt is less than the cost of equity. The use of debt does not change the risk
perception of the investors













FIGURE : 1.5








Year 2009 2010 2011 2012 2013
rD 0.46 0.15 0.07 0.11 0.11
rE 0.11 0.07 0.33 0.55 0.64
rA 0.17 0.09 0.08 0.12 0.11
Interpretation:

The capital funding is made up of two components: debt and equity. The weighted average cost
of capital if lower than the cost of debt is considered well for the company. The investors in this
case would be ready to invest in the company.

As far as GPPC is concerned the company would find investors as it is a government project. But
seeing to the ratio we cnan see that the company‟s rate of debt and average rate of capital are
running at almost a similar pace. The company‟s debt has to in a manner that the average cost of
capital stays lower than the cost of debt.

This when achieved would draw in more investors to the company. In the initial phase that is in
year 2009 and 2010 the rate of debt had been higher but in the later stages it started staying lower
than the company‟s average cost of capital. This is a negative sign for the compan7y and it
should work on the increasing of the same.









N.O.I Approach












Net Operating Income Approach to capital structure believes that the value of a firm is not
affected by the change of debt component in the capital structure. It assumes that the benefit that
a firm derives by infusion of debt is negated by the simultaneous increase in the required rate of
return by the equity shareholders. With increase in debt, the risk associated with the firm, mainly
bankruptcy risk, also increases and such a risk perception increases the expectations of the equity
shareholders.

Capital structure of a company is a mix / ratio of debt and equity in the company's mode of
financing. This ratio of debt in the capital structure is also known as financial leverage. Some
companies prefer more of debt while others prefer more of equity, while financing their assets.
The ultimate goal of a company is to maximize its market value and its profits. At the end, the
question stands in front is the relation between the capital structure and value of a firm.

This approach was put forth by Durand and totally differs from the Net Income Approach. Also
famous as traditional approach, Net Operating Income Approach suggests that change in debt of
the firm/company or the change in leverage fails to affect the total value of the firm/company. As
per this approach, the WACC and total value of a company are independent of the capital
structure decision or financial leverage of a company.

As per this approach, the market value is dependent on the operating income and the associated
business risk of the firm. Both these factors cannot be impacted by the financial leverage.
Financial leverage can only impact the share of income earned by debt holders and equity
holders but cannot impact the operating incomes of the firm. Therefore, change in debt to equity
ratio cannot make any change in the value of the firm.

It further says that with the increase in the debt component of a company, the company is faced
with higher risk. To compensate that, the equity shareholders expect more returns. Thus, with
increase in financial leverage, the cost of equity increases.








Assumptions / Features of Net Operating Income Approach:

The overall capitalization rate remains constant irrespective of the degree of leverage. At a given
level of EBIT, value of the firm would be “EBIT/Overall capitalization rate”
Value of equity is the difference between total firm value less value of debt i.e. Value of Equity
= Total Value of the Firm - Value of Debt
WACC (Weightage Average Cost of Capital) remains constant; and with the increase in debt, the
cost of equity increases. Increase in debt in the capital structure results in increased risk for
shareholders. As a compensation of investing in highly leveraged company, the shareholders
expect higher return resulting in higher cost of equity capital.














FIGURE : 1.6









rD 0.46 0.15 0.07 0.11 0.11
rA 0.17 0.09 0.08 0.12 0.11
rE 0.11 0.07 0.33 0.55 0.64
Interpretation:

The rate of equity if the company shows how much fund the company has. This rate should be in
an increasing trend if the company wishes to financially progress as we see the rate of equity has
seen a dip only in the year 2010.

ROE is a measure of efficiency. A falling ROE however is an issue for the company. It means
that the company is not able to manage within the funds availed. Hence the company should tend
to keep a lower shareholder‟s equity to increase the ROE and keep it boosted.

Writedowns and share buy backs can boost rate of equity. Even a high level of debt can boost the
ROE. In case of 2010, the equity was comparitvely higher and hence the rate of equity faced a
deip.
But after that the company has shown aan increasing ROE trend which means that the company
is financially strong to manage within the avaled funds.








M.M Approach
















This approach was devised by Modigliani and Miller during 1950s. The fundamentals of
Modigliani and Miller Approach resemble to that of Net Operating Income Approach.
Modigliani and Miller advocates capital structure irrelevancy theory. This suggests that the
valuation of a firm is irrelevant to the capital structure of a company. Whether a firm is highly
leveraged or has lower debt component in the financing mix, it has no bearing on the value of a
firm.

Modigliani and Miller Approach further states that the market value of a firm is affected by its
future growth prospect apart from the risk involved in the investment. The theory stated that
value of the firm is not dependent on the choice of capital structure or financing decision of the
firm. If a company has high growth prospect, its market value is higher and hence its stock prices
would be high. If investors do not see attractive growth prospects in a firm, the market value of
that firm would not be that great.

Assumptions of Modigliani and Miller Approach :
 There are no taxes.
 Transaction cost for buying and selling securities as well as bankruptcy cost is nil.
 There is symmetry of information. This means that an investor will have access to same
information that a corporate would and investors would behave rationally.
 The cost of borrowing is the same for investors as well as companies.
 Debt financing does not affect companies EBIT.


The Modigliani and Miller Approach assumes that there are no taxes. But in real world, this is
far from truth. Most countries, if not all, tax a company. This theory recognizes the tax benefits
accrued by interest payments. The interest paid on borrowed funds is tax deductible. However,
the same is not the case with dividends paid on equity. To put it in other words, the actual cost of
debt is less than the nominal cost of debt because of tax benefits. The trade-off theory advocates
that a company can capitalize its requirements with debts as long as the cost of distress i.e. the
cost of bankruptcy exceeds the value of tax benefits. Thus, the increased debts, until a given
threshold value will add value to a company.

This approach with corporate taxes does acknowledge tax savings and thus infers that a change
in debt equity ratio has an effect on WACC (Weighted Average Cost of Capital). This means
higher the debt, lower is the WACC. This Modigilani and Miller approach is one of the modern
approaches of Capital Structure Theory.



















FIGURE : 1.7

FIGURE : 1.8


Year 2009 2010 2011 2012 2013
Long Term Debt553.57 2850.00 97795.52 139479.37 149106.66
rA 0.17 0.09 0.08 0.12 0.11
Interpretation:

The MM Approach Trade off thepry says that the higher the debt the lower the WACC. Bu it is
not always correct. As we see, in the year 2009 the debt is low and hence the WACC Is quite
high. The next year the debt sees an increase and hence there is a dip in the WACC. In the year
2011, the debt has increased considerably and the WACC has dropped too.

In the year 2012 the debt has increased and also the WACC has increased. The reason behind
this can be taken that the company‟s equity in the time duration must also have been high, and
hence the ratio which should ideally fall, increased.

In the last year again it saw the normal tendency of an increase in the debt and a fall in the
WACC.










CONCLUSION










From the above Analysis we can conclude the project by saying few points about the companies
current situation.
 The company should restructure its debt funds and convert its short term debt into long
term debt which will help in maintaining the industry standard current ratio.
 The share capital of the company is subscribed by its holding company – GSPC. The
company can bring in the funds from the holding company in in form of
equity/preference share capital and pay off the partial debt of the company which will
help in bringing the debt-equity ratio near to the industry standard.
 The company is still in its initial phase.
 Once the assets of the company are in condition to start operating in its segment, the
company will start making profits and positive cash flows and the shareholders will start
getting returns of investments.
 Although the company is making loss right now, the company is able to generate positive
cash flows during the year which is a good sign for future prospect.
 Hence as suggested above, the company can go for public listing or its holding company
should invest the funds in form of share capital.

So we can conclude the project by saying that GPPC was incorporated in 2006 though it started
operating from last 2 Years upto that it was enjoying its Moratorium Period Hence we hope that
company perform well in Future as it started earning profit slowly and gradually.
RECOMMENDATIONS





Current ratio:
 The company‟s current ratio is substantially lower than the industry standards. The
reason for the same is the inappropriate usage of short term funds borrowed by the
company. The company has invested this fund into its capital work-in-progress. Because
of this the company‟s current ratio has gone down. The company should restructure its
debt funds and convert its short term debt into long term debt which will help in
maintaining the industry standard current ratio. The other major portion of the other
current liability is payable towards creditors for fixed assets.

Debt – equity ratio:
 The company has majorly financed through debt funds. The company has incurred losses
in the current years which has resulted in lower shareholders’ funds for the company. The
company has repaid the share application money during the year 2011-12 which could
have been converted into the share capital. The share capital of the company is
subscribed by its holding company – GSPC. The company can bring in the funds from
the holding company in in form of equity/preference share capital and pay off the partial
debt of the company which will help in bringing the debt-equity ratio near to the industry
standard. This way the risk factor of the company will decline substantially. In alternative
to that, the company can go for listing of its shares and bring the capital from the public
instead of its holding company by providing an achievable budgets and creating trust in
the market. The company is still in initial stage of business and will grow in future and
put the positive results on table.

Return on Investments:
 The company is still in its initial phase and has only started operating its one of the
plants having a capacity of 351 MW during the year. The other ventures of it includes a
solar energy park having a capacity of 5MW which has been set up and a major unit
having a capacity of 702 MW which is in advance stage but is not operational yet. Once
the assets of the company are in condition to start operating in its segment, the company
will start making profits and positive cash flows and the shareholders will start getting
returns of investments. For the period, the company‟s finance cost and depreciation is on
higher note due to the initial stage of operation. The interest cost pertaining to the capital
work-in-progress are being capitalized under project expenditure which will turn into
higher cost of fixed assets and in turn higher depreciation. Although the company is
making loss right now, the company is able to generate positive cash flows during the
year which is a good sign for future prospect.

Proprietary Ratio:
 The company‟s assets are majorly financed through the debt fund. As suggested above,
the company can go for public listing or its holding company should invest the funds in
form of share capital. This way the company‟s proprietary ratio along with its debt-equity
ratio will fall in line with the industry standards.
N.I Approach, N.O.I Approach and M.M approach
 N.I Approach Change in financial leverage of firm will lead to correspondence change in
weighted Average cost of Capital and Value of the firm.
 N.O.I Approach believes that value of firm is not affected by the change of debt
component in capital Structure.
 M.M Approach suggest that valuation of firm is irrelevant to the capital structure of the
company.
 Hence from above tables we can say that N.I approach is not applicable in the case of
GPPC as its values are decreasing rather than Increasing.
 N.O.I approach and M.M approach is applicable in GPPC













BIBLIOGRAPHY







ANNEXURES