RESEARCH PROPOSAL

ON

“WORKING CAPITAL MANAGEMENT AND PROFITABILITY OF NTPC AND TATA

POWER COMPANY LTD- A COMPARATIVE ANALYSIS”

SUBMITTED TO

JIWAJI UNIVERSITY, GWALIOR (M.P.)

SUBMITTED BY

PRAGATI SINGH

DR. P. V. RAO DR. AMITABHA MAHESHWARI

SUPERVISOR CO- SUPERVISOR

DR.S.S. BHAKAR

RESEARCH CENTER HEAD

Introduction

National Thermal Power Ltd

NTPC is India’s largest energy conglomerate with roots planted way back in 1975 to accelerate
power development in India. NTPC is India’s largest power utility with an installed capacity
of 51,383 MW, plans to become a 130 GW company by 2032. It was established in 1975. Since
then it has established itself as the dominant power major with presence in the entire value chain
of the power generation business. From fossil fuels it has forayed into generating electricity via
hydro, nuclear and renewable energy sources. This foray will play a major role in lowering its
carbon footprint by reducing green house gas emissions. To strengthen its core business, the
corporation has diversified into the fields of consultancy, power trading, training of power
professionals, rural electrification, ash utilization and coal mining as well. NTPC became a
Maharatna company in May 2010.
The total installed capacity of the company is 51,383 MW (including JVs) with 20 coal based, 7
gas based stations, 1 Hydro based station and 1 Wind based station. 9 Joint Venture stations are
coal based and 11 Solar PV projects. The capacity will have a diversified fuel mix and by 2032,
non fossil fuel based generation capacity shall make up nearly 30% of NTPC’s portfolio.
NTPC has been operating its plants at high efficiency levels. Although the company has 17.73%
of the total national capacity, it contributes 24% of total power generation due to its focus on
high efficiency.
NTPC is not only the foremost power generator; it is also among the great places to work. The
company is guided by the “People before Plant Load Factor” mantra which is the template for all
its human resource related policies. NTPC has been ranked as “6th Best Company to work for in
India” among the Public Sector Undertakings and Large Enterprises for the year 2014.
(http://www.ntpc.co.in)

Objectives:
1. To be the world’s leading Power Company, energizing India’s growth.
2. Provide reliable power and related solutions in an economical, efficient and environment
friendly manner, driven by innovation and agility.

Tata Power Company Ltd

Tata Power established India's first large hydro-electric project in Khopoli, Maharashtra in 1915,
the year of its inception. The pioneering vision of its late founder Shri Jamshetji N. Tata
established the Company as India's largest integrated Power Company with a growing
international presence.
The Company together with its subsidiaries and jointly controlled entities has an installed gross
generation capacity of 10699 MW and a presence in all the segments of the power sector viz.
Fuel Security and Logistics, Generation (thermal, hydro, solar and wind), Transmission,
Distribution and Trading.
It has successful public-private partnerships in Generation, Transmission and Distribution in
India namely “Tata Power Delhi Distribution Limited” with Delhi Government for distribution in
North Delhi, ‘Powerlinks Transmission Ltd.’ with Power Grid Corporation of India Ltd. for
evacuation of Power from Tala hydro plant in Bhutan to Delhi and ‘Maithon Power Ltd.’with
Damodar Valley Corporation for a 1050 MW Mega Power Project at Jharkhand. It is one of the
largest renewable energy players in India and has developed the country’s first 4000 MW Ultra
Mega Power Project at Mundra (Gujarat) based on super-critical technology.
(www.tatapower.com)

Objective:
To be the most admired and responsible Integrated Power Company with international footprint,
delivering sustainable value to all stakeholders.

Literature Review

Bhayani (2004) conducted an empirical study on Gujarat Ambuja Cements Ltd. for assessing the
impact of working capital on its profitability. The study also highlighted a significant association
between the working capital and profitability.

Chakraborty (1976) examined the relationship between profitability and working capital turnover
in Indian Sugar, cement and fertilizer industries and reported a positive association.

Working capital management has concluded that companies can increase their profitability by
shortening the CCC (Shin and Soenen, 1998; Deloof, 2003; Lazaridis and Tryfonidis, 2006;
Grosse-Ruyken et al., 2011), but there are also arguments against a short CCC.

Akinwande (2010) averred that the management of working capital impacts on liquidity,
investment portfolio and profitability. All these three factors are decisive in the growth or failure
of a business. Hence, good performances in working capital management affects these decisive
factors favorably and thus, contribute to growth and success of the business.

Dănuleţiu [6] Study the relation between the efficiency of the working capital management and
profitability using Pearson correlation analyses and take a sample size of 20 annual financial
records of companies covering period 2004-2008. The conclusion of the study is that there is a
negative linear correlation between working capital management indicators and profitability
rates.

Patel and Parjapati [9] analyzed five steel companies to know the comparative position and uses
of working capital. Various analyses such as ratio analysis and operating cycle analysis have
been used. The study reveals that Tata steel ltd has the highest growth of net working capital
maintenance during GRA - Global Research Analysis holding period followed by Jindal steel ltd.
and it is negative with JSW steel.

Narasimhan and Murty (2001) stressed on the need for many industries to improve their return
on capital employed (ROCE) by focusing on some important areas such as cost control,
Optimizing investment in working capital and improving working capital efficiency.

Oladipupo and Okafor (2013) examined the implications of a firm’s working capital
management practice on its profitability and dividend payout ratio. The study focused on the
extent of the effects of working capital management on the Profitability and Dividend Payout
Ratio.

Singh (2012) made an investigation for the relationship between capital and profitability in the
information technology and telecom industry in India. He used the correlation and regression
analysis. He investigated that the working capital turnover is positively related with ROCE
(return on capital employed), it means that we accept that more working capital returns will
result in higher return on capital employed, which is a measure of profitability.

Abbasali Pouraghajan and Milad Emamgholipourarchi (2012) analysis on impact of working

capital management on profitability and market evaluation: Evidence from Tehran stock
exchange. The results shows that there is significant relationship between working capital
management and profitability of the company and it also indicate there is no significant
relationship between market value of company.

Kruti A. Patel (2015) studied on impact of working capital management on profitability of Indian
Oil Corporation. The study was based on secondary data and study period was 2009-10 to 2013-
14. Pearson correlation, descriptive statistic and INM SPSS were applied as research
methodology. The results show that there is significant negative correlation between working
capital management and net profit and it also indicates that there is negative relationship between
liquidity and profitability.

Bamal et al (2013) made a comparative analysis of chemical and pharmaceutical industries in

India from 2002 to 2011 to understand the relationship between working capital management
and profitability. The findings depicted that the working capital management variables had a
strong positive association with the profitability variables of the chemical industry than that of
the pharmaceutical industry. The working capital variables had positive but insignificant
influence on the profitability position of the pharmaceutical companies.

Working Capital and Profitability

Working capital is an effective tool for the measurement of both a company's effectiveness and
its short-term financial position. Working capital is the difference between the current assets and
current liabilities. In the field of financial affairs of companies, management of working capital
is a very significant factor, which has a direct positive effect on profits of the firm as well as
liquidity position of the company. Liquid position and the profits of the firm are two different
sides of same coin. Optimum level of liquidity confirms a firm to meet their short term funds
requirement and the optimum management of fund flow can be ensured by a profitable business.
Liquid position shows the ability of company in meeting its short-term obligations. A firm has to
aim at optimizing its liquid position and profits while conducting its daily business operations.
Management of Working Capital contains greater balance of working capital factors like debtors,
inventory and payables and the use of cash efficiently for day to day business activities.
Working capital Ratio= Current assets/current Liabilities
Working Capital Turnover ratio= Sales /working capital

Profitability is the ability of a business to earn a profit. A profit is what is left of the revenue a
business generates after it pays all expenses directly related to the generation of the revenue,
such as producing a product, and other expenses related to the conduct of the business' activities.
Profitability is an indication of the efficiency with which the operations of the business are
carried on. Poor operational performance may indicate poor sales and hence, poor profits. A
lower profitability may arise due to a lack of control over expenses. Bankers, financial
institutions, and other creditors look at the profitability ratios as an indicator of whether or not a
firm earns substantially more than it pays interest for the use of borrowed funds and whether the
ultimate repayment of their debt appears reasonably certain. Owners are interested to know the
profitability as it indicates the return which they can get on their investment. The profitability
ratio measures the profitability or the operational efficiency of a firm. There are two groups of
persons who may be especially interested in the analysis of the profitability of a firm. There are:
I) The management which is interested in the overall profitability and operational efficiency of
the firm; and II) The equity shareholders who are interested in the ultimate returns available to
them.

The performance of the firm can be evaluated in terms of its earnings with reference to a given
level of assts or sales or owner interest, etc. broadly, the profitability ratios are calculated by
relating the returns with the sales of the firm; assets of the firm; and the owners‟ contribution.

Ratios:
1. Return on Capital Employed or Investment= Profit before Interest and Tax/ Capital
Employed × 100
2. Return on Net Worth or Shareholder’s funds= Profit after Tax / Shareholder’s funds*100
3. Earnings per share= Profit available for equity shareholders/Number of Equity Shares
4. Book Value per Share= Equity shareholders’ funds/Number of Equity Shares
Research Methodology:
Types of Data
The study is mainly based on secondary data which will be collected from the annual reports and
accounts of NTPC and TPCL.
Objectives:
1. To study the impact of the working capital management on profitability of NTPC and
TPCL.
2. To analyze the working capital management and profitability position of NTPC and
TPCL.
Hypothesis:
1. There is no significant relation between working capital and profitability of the NTPC
and TPCL.
2. There is no significant relation of working capital and profitability position of the NTPC
and TPCL.
Population/Universe:
One of the leading large size public sector companies i.e. NTPC and TPCL considered for
analysis.

Research Techniques:
Random and Convenience sampling used for this study.
Research Tools:
Descriptive statistics will be used in my study.

References:
1. Bhayani S. J. (2004). Practical Financial Statements Analysis. Jaipur, Rajasthan: Raj
Book Enterprise.
2. Charkraborty,S. K. (1976). Funds flow and liquidity management topics in accounting
andfinance. In Charkaborty, S.K., Bhattacharya, K. K., Ghosh, S. K. & Rao, N. K. (ed.)
(pp. 81-91). Kolkata: Oxford University Press.
3. Deloof, M. (2003): Does Working Capital Affect Profitability of Belgian firms? Journal
of Business, Finance and Accounting 30(3&4):573-587
4. Lazaridis, I. AND Tryfonidis (2006). Relationship between working capital management
and profitability of listed companies in Athens Stock Exchange. Journal of Financial
management and analysis
5. Shin. , Soenen, l. (1998). Efficiency of working capital and corporate profitability.
Journal Finance Practice and Education. Vol 8, pp. 37-45.
6. Akinwande G. S. (2010). Working capital management in telecommunication sector.
School of Management, Blekinge Institute of Technology
7. Narasimhan, M. S. and Murty, L. S. (2001). Emerging Manufacturing Industry: A
Financial Perspective. Management Review, June, 105-112.
8. Singh, D.P., (2012). “Working Capital Management and Profitability in the IT and
Telecom Industry in India, “Indian Journal of Finance, 6(3), pp.54-60
9. Patel, K. A., 2015. Impact of working capital management on profitability in Indian
petroleum industry with special reference to Indian Oil Corporation. Research Hub
International Multidisciplinary Research Journal, 2(5), pp. 1-4.
10. Bamal, S. et al (2013), Relationship Between Working Capital Management And
Profitability: A Comparison of Chemical and Pharmaceutical Industries, Journal of
Accounting and Finance, Vol. 27(1) (October-March 2013), pp. 59-69.
11. http://www.ntpc.co.in
12. www.tatapower.com
13. https://economictimes.indiatimes.com