PCTE Group of Institutes,

Ludhiana

MBA-3rd SEMESTER

INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT

SYNOPSIS

Topic:Company Analysis

Submitted To: Dr. Pallavi Dawara

Submitted By: Mehak Gupta

Univ.Roll no.: 1911001

Email-id: mehakpctemba19c@gmail.com

Global & Indian Economy:

About the Industry- Power

India’s power sector is one of the most diversified in the world. Sources of power generation
range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power
to viable non-conventional sources such as wind, solar, and agricultural and domestic waste.
Electricity demand in the country has increased rapidly and is expected to rise further in the
years to come. In order to meet the increasing demand for electricity in the country, massive
addition to the installed generating capacity is required.
In May 2018, India ranked fourth in the Asia Pacific region out of 25 nations on an index that
measured their overall power. India was ranked fourth in wind power, fifth in solar power and
fifth in renewable power installed capacity as of 2018. India ranked sixth in the list of countries
to make significant investments in clean energy at US$ 90 billion.

Market Size

Indian power sector is undergoing a significant change that has redefined the industry outlook.
Sustained economic growth continues to drive electricity demand in India. The Government of
India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. At the
same time, the competitive intensity is increasing at both the market and supply sides (fuel,
logistics, finances, and manpower).  
By 2022, wind energy is estimated to contribute 60 Gigawatt (GW), followed by solar power at
100 GW, and biomass and hydropower at 15 GW. The target for renewable energy has been
increased to 175 GW by 2022.
Total installed capacity of power stations in India stood at 370.34 GW as of April 2020.
Electricity production reached 1,252.61 billion units (BU) in FY20.

Investment Scenario

Between April 2000 and March 2020, the industry attracted US$ 14.98 billion in Foreign Direct
Investment (FDI), accounting for three per cent of total FDI inflow in India.
Some major investments and developments in the Indian power sector are as follows:

 In March 2020, the Central Government signed virtual agreement to conclude strategic
sales in Kamarajar Port Ltd, THDC India Ltd and North Eastern Electric Power
Corporation Limited (NEEPCO), and it will receive Rs 13,500 crore (US$ 1.93 billion)
from these deals.
 In December 2019, NTPC announced investment of Rs 50,000 crore (US$ 7.26 billion) to
add 10GW solar energy capacity by 2022.
 In August 2019, Sembcorp Industries, the Singapore-based energy firm, made an equity
infusion of Rs 521 crore (US$ 101.6 million) into Sembcorp Energy India Ltd.
 Brookfield will invest US$ 800 million in ReNew Power.
  In September 2019, Adani Transmission planned to acquire the entire stake in Bikaner
Khetri Transmission.
 ReNew Power and Shapoorji Pallonji will invest nearly Rs 750 crore (US$ 0.11 billion)
in a 150 megawatt (mw) floating solar power project in Uttar Pradesh.
 The Government of India expected to offer nearly 20 power transmission projects worth
Rs 16,000 crore (US$ 2.22 billion) for bidding in 2019.

Road Ahead

The Government of India has released its roadmap to achieve 175 GW capacity in renewable
energy by 2022, which include 100 GW of solar power and 60 GW of wind power. The
Union Government of India is preparing a 'rent a roof' policy for supporting its target of
generating 40 gigawatts (GW) of power through solar rooftop projects by 2022.
Coal-based power generation capacity in India, which currently stands at 229.40 GW, is
expected to reach 330-441 GW by 2040.

About the Company – NTPC Ltd

NTPC Limited is an Indian Public Sector Undertaking which is engaged in the business of
generation of electricity and allied activities. It is a company incorporated under the Companies
Act 1956 and is promoted by the Government of India. The headquarters of the company is
situated at New Delhi. NTPC's core business is the generation and sale of electricity to state-
owned power distribution companies and State Electricity Boards in India. The company also
undertakes consultancy and turnkey project contracts that involve engineering, project
management, construction management, and operation and management of power plants. It is the
largest power company in India with an electric power generating capacity of 62,086 MW .
NTPC currently operates 55 power stations (24 Coal, 7 combined cycle gas/liquid fuel, 2 Hydro,
1 Wind, and 11 solar projects). Further, it has 9 coal and 1 gas station, owned by joint ventures
or subsidiaries. In May 2010, NTPC was conferred Maharatna status by the Union Government
of India.

NTPC LTD. ANALYSIS

EARNING PER SHARE

2020 10.22
2019 11.88
2018 12.54
2017 11.38
2016 13.06
Company having good track record with respect to earning per share from the last 5 years
which means that company is earning good profits.

RETURN ON EQUITY (%)

2020 8.90
2019 10.93
2018 10.16
2017 9.75
2016 11.79

Ideal ROE for utility sector is 10% or less and from the last 5 years ROE of NTPC Ltd. is
10% or less which means that company is effectively using company’s assets to earn
profits.

DU PONT ANALYSIS
Decomposition of ROE into five components –

 MARGIN

2020 21.74
2019 19.25
2018 19.56
2017 20.99
2016 19.59

 ASSET TURNOVER RATIO

2020 29.81
2019 31.04
2018 32.07
2017 33.08
2016 32.92

 INTEREST BURDEN RATIO

2020 2.97
2019 3.61
2018 3.72
2017 4.51
2016 4.16
  TAX BURDEN RATIO

2020 0.52
2019 0.93
2018 0.84
2017 0.78
2016 1.02

 LEVERAGE

2020 2.89
2019 2.71
2018 2.56
2017 2.46
2016 2.34

ROE = Net profit/Equity = Net Profit/Pretax profits * pretax profits/EBIT * EBIT/Sales *

Sales/Assets * Assets/Equity

ROE = 10,112.81/ 19,294.76 * 19,294.76 / 21,247.89 * 21,247.89 / 97,700.39 * 97,700.39 / 327,667.45 *

327,667.45 / 113,569.44

Dividend Summary
For the year ending March 2020 NTPC has declared an equity dividend of 31.50% amounting to Rs
3.15 per share. At the current share price of Rs 84.75 this results in a dividend yield of 3.71%. The
company has a good dividend track report and has consistently declared dividends for the last 5
years.

DEBT/EQUITY RATIO
2020 1.41
2019 1.26
2018 1.13
2017 1.04
2016 0.95
Debt to equity ratio of company is increasing which means that every year company is
increasing debt.

BOOK VALUE PER SHARE

Book value per share 114.78
Market price 84.75

 Book value per share (BVPS) takes the ratio of a firm's common equity
divided by its number of shares outstanding.
 Since the market price of share of the company is less than book value
per share, thus company’s shares are undervalued.

PRICE TO BOOK VALUE

 Investors use the price-to-book value to gauge whether a company's stock price is
valued properly.
 A price-to-book ratio of one means that the stock price is trading in line with the
book value of the company.
 As the price to book value of NTPC Ltd is less than 1 which means that shares are
undervalued.
 Most companies in the industry follow the similar trend thus we can say that
company stock is aligned with current scenario.

NTPC 0.73
Adani Power 0.79
Tata Power 0.65
Power Grid 1.29

P/E RATIO
NTPC 6.45
Adani Power -6.65
Tata Power -678.13
Power Grid 7.95
  The price-earnings ratio (P/E ratio) relates a company's share price to its earnings
per share.
 A high P/E ratio could mean that a company's stock is over-valued, or else that
investors are expecting high growth rates in the future.
 Companies that have no earnings or that are losing money do not have a P/E ratio
since there is nothing to put in the denominator.
 Since ideal P/E ratio should be between 5 to 10, whereas NTPC Ltd and Power grid
is between 5-10 which means that these companies are good to invest and on the
other side Adani power and Tata power are not good companies to invest.

PEG RATIO

 The PEG ratio enhances the P/E ratio by adding in expected earnings growth into the
calculation.
 The PEG ratio is considered to be an indicator of a stock's true value, and similar to the
P/E ratio, a lower PEG may indicate that a stock is undervalued.

PEG Ratio = 53.31

CAGR = 12.1%

DIVIDEND PAYOUT RATIO

NTPC 4.89
Adani Power 0.00
Tata Power 237.63
Power Grid 28.84

Intrinsic Value vs Market Price

 Intrinsic is fair price of the share to determine whether the share is overvalued or
undervalued
 If price is below than intrinsic value then share is undervalued and so on.

158.42 (in Rs.) 84.75(in Rs.)

CONCLUSION
 The COVID -19 lockdown will have a severe impact on cement consumption due to stop in
construction and infrastructure projects . The retail cement consumption will also show a sharp decline
in FY 2021. The company will, however , suffer from serious overcapacity due to its recent
acquistions . Any significant recovery is not expected before FY2022 .

 The cement plants for the company operated at the utilization of 79% in Dec 19 and dropped to 55%
in the last quarter of FY2020 . This further expected to go down to 20-25% in the next few months
and indicates the severe impact on the company’s financial health.

 The management has also taken steps towards brand transition which is currently completed for 55%
of output . Further 84% of the output is expected to be transitioned into ultratech brand by year end
FY2021

 The company is in the process of deleveraging but it would get delayed as the management will look
forward to conserving cash in these uncertain times.