Financial Statement Analysis & Business Valuation of NTPC Vidyut Vyapar Nigam LTD

TITLE
Financial Statement Analysis & Business Valuation of NTPC Vidyut

Vyapar Nigam Ltd
INTRODUCTION
This project work is a study of power trading sector of India to

understand its relevance in the optimum utilization of energy and its
contribution in growth and development of the economy.
According to Electricity Act 2003, trading means purchase of electricity

for resale thereof. Trading is an essential tool for optimization of
resources and plays an important role in current market scenario of deficit
power as it enables the state utilities to fully utilize the existing and
captive sources of generation. This is done to balance demand and supply
of electricity in India during different periods of time. Short term
transactions are conducted through various mechanisms such as bilateral
trading, banking / swap transactions, unscheduled interchange (UI) and
power exchanges, which will enable the traders to efficiently utilize their
resources and increase their profitability. The traders are issued license
under categories I, II or III depending on the volume of units proposed to
be traded and net worth.
The growth in terms of volume traded in the short-term power trading
market over the last three years has been analyzed, based on which
conclusions and recommendations have been made.
The short-term market monitoring report published by CERC every year

gives a ranking to the traders based on their market share. Based on these
rankings for the year 2011-12, top five traders i.e. PTC India Ltd., NVVN
Ltd., TATA Power Trading Company Limited, National Energy and
Trading Services Ltd. and Reliance Energy Trading Ltd. have been
compared using financial ratios and Compounded Annual Growth Rate
(CAGR). The study concludes with putting up certain suggestions to
NVVN Ltd. based on the findings which would help them to improve
their performance and market share.
COMPANY PROFILE
NTPC Vidyut Vyapar Nigam Ltd. (NVVN) was formed by NTPC Ltd, as
its wholly owned subsidiary to tap the potential of power trading in the
country, thereby promote optimum capacity utilization of generation and
transmission assets in the country and act as a catalyst in development of
a vibrant electricity market in India.
It was incorporated on 1st Nov 2002 and received the Certificate for
Commencement of Business Activities from the Registrar of Companies
on 26th Nov 2002. It has an authorized and fully paid up share capital of
Rs. 200 million.
It commenced its first trading operations in March 2003 with the supply
of surplus power from Eastern Region Stations of NTPC to Meghalaya
State Electricity Board and Assam State Electricity Board. The Company
was granted Category-E licence by the Central Electricity Regulatory
Commission (CERC) for inter-state trading of electricity on 23rd July
2004. The trading licence has been upgraded to Category-F Licence on
22nd March 2005 by CERC. As per latest CERC regulation, NVVN is
holding the highest category 'I' license.
The Company has also been designated as the nodal agency for cross
border trading of power with Bangladesh. The Power Purchase
Agreement (PPA) for supply of 250 MW power from NTPC stations for
25 years has been signed on February 28, 2012 between NVVN and
Bangladesh Power Development Board (BPDB). The Power supply to
Bangladesh is expected to commence from July 2013. It has also been
designated as nodal agency under Phase I of the Jawaharlal Nehru
National Solar Mission (JNNSM) for buying power from solar power
developers in India and selling to distribution utilities after bundling with
unallocated equivalent capacity from NTPC power stations.
Its major strength is that it is a fully owned subsidiary of NTPC Ltd a

Maharatna Company. NTPC is the largest power generator nationally
with stations across the country. NVVN has access to the resources &
facilities of NTPC. NVVN has selected and posted professionally
qualified, trained and experienced executives from NTPC having wide
knowledge & expertise of various key areas of power systems such as
business development, system operation, scheduling & dispatch, financial
and commercial matters associated with trading activities. NVVN has
acquired leading position in its business areas with a specified clientele
across the country.
Products and Services Provided By NVVN Ltd.
NVVN has been actively associated with the Power Trading activities
since inception and has been instrumental in offering best products &
services required by their Customers from time to time. Power has been
traded by NVVN as required in various products categorized on time of
day basis to meet evening peak, off peak, round the clock, night power,
morning peak demand and as & when available basis. It has also
effectively met power crisis and growing demand of Northern Region
States by supply of power from NTPC Kayamkulam Station in Southern
Region. They have also tied up for different power SWAP arrangements
amongst various States for deriving mutual benefit. NVVN is poised and
looking ahead for trading on long term basis from Cross Border, Captive
Power Plants (CPPs), Independent Power Producers (IPPs) and merchant
power from NTPC Stations.
Short Term / Medium Term / Long Term Power Trading

Solar Bundled Power: Govt. of India has appointed NVVN as the
Nodal Agency for purchase and sale of 1000 MW of Grid
connected Solar Power generated during first phase (2009-13) of
this Mission
Cross Border Trading
Power Banking Arrangement
OBJECTIVE
1. To understand the power trading market of India.
2. To analyze the competition among the major power traders in the

market.
3. To identify NVVNs strengths and weaknesses among its

competitors and the areas that need improvement to increase their
market share and make them the market leader.
4. To observe the trends in volume and price of short term
transactions of electricity by the traders in the power trading
market in India.
METHDOLOGY
Research
Research refers to a search for knowledge. One can also define research
as a scientific and systematic search for pertinent information on a
specific topic. Research inculcates scientific and inductive thinking and it
promotes the development of logical habits of thinking and organization.
Research Methodology
Research methodology is a way to systematically solve the search

problems. It may be understood as a science of studying how research is
done scientifically. It is necessary for the researcher to know not only the
research methods or techniques but also methodology.
Research Design
Research design is the blue print for the collection, measurement and
analysis of the data. It is the framework of the project that stimulates what
information is to be collected from which source and by what procedure.
TYPES OF RESEARCH
There are 3 types of research:-
1. Descriptive It is concerned with describing the characteristics of

a particular individual or of a group.
2. Explanatory In this research, each and everything is well

explained. A style of research in which primary goal is to
understand the nature and mechanism of the relationship between
the independent and dependent variable.
3. Exploratory It is conducted into an issue or problem where there

are few or no earlier studies to refer to. The focus is on gaining
insights and familiarity for later investigation.
SOURCES OF DATA COLLECTION
Sources of data collection are classified into 2 parts:
1. Primary
2. secondary
1. Primary Data It is the data collection by face to face

communication with the target respondents. It can be collected by:
a. Survey Method
b. Observation
c. Experiment
2. Secondary Data Any data which have been gathered earlier for
some other purpose and now it is referred. That data is known as
secondary data. It can be collected by:
a. Accounting records
b. Sales reports
c. Publication of individual firm
d. Books internet
REVIEW OF LITERATURE
CERC Power Market Regulations, 2016
Transporting electricity is physically more complicated than transporting

most other goods. Transmission requires split-second timing of electricity
flows from producers or the system will go out of control with disastrous
consequences. In physical terms transport and production are inevitably
closely related. The demand and supply of electricity should be
instantaneously balanced so as to reduce transmission loss.
The Electricity Act, 2003 has identified power trading as a distinct

activity and has assigned Central Electricity Regulatory Commission
(CERC) as the regulator of the power market. As per the power conferred
upon it, CERC has come up with Power Market Regulations, 2010.
These regulations define various terms used in the power trading
market so as to remove any ambiguity such as:
Spot Market means a market where physical delivery of electricity

occurs either on the same day as the date of the transaction (T) or on
the next day (T+ 1)
Term Ahead market means a market where physical delivery of

electricity occurs on a date more than one day (T + 2 or more) ahead
from the date of transaction (T) and the contracts in such market can
be transacted weekly / monthly / yearly or more in advance and have a
defined delivery period on expiry of contract and is scheduled by
Regional Load Dispatch Centre or National Load Dispatch Centre
Over the Counter Market Over the Counter Market is the inter-State
market where buyers and sellers directly transact or transact through
an Electricity Trader, and where the price and terms of the contract are
determined through negotiations as agreed between the parties or
through competitive bidding process or through a Electricity Trader.
The risk in contracts executed in such markets is managed between the
parties themselves or by the Electricity Trader, as the case may be.
Power Exchange Market Power Exchange Market is a market where
buyers, sellers, Electricity Traders, Members of Power Exchange
transact on standardized contracts and where the Power Exchange or
Clearing Corporation is counterparty to such contracts and further,
scheduling is done by Regional Load Dispatch Centre or National
Load Dispatch Centre unless actual delivery is dispensed with.
It also states the principles of market and market design, price

discovery mechanism, categories for licensees to mention a few.
CERC has fixed a ceiling trading margin for short term trade at 7 paisa
per kWh in case the sale price is exceeding Rs. 3 per kWh and 4 paisa
per kWh where sale price is less than or equal to Rs. 3 per kWh.
However, transactions through power swapping/ banking are out of
purview of the CERC Regulations for Short Term Trading. The
traders are issued license under categories I, II or III depending on the
volume of units proposed to be traded and net worth.
Short-term Market Monitoring Report (2015-16)
The power sector has grown significantly since the enactment of the
Electricity Act in 2003. However, it still faces the daunting challenge
of providing adequate power to meet the growing needs of the
economy. The mandate of the Central Electricity Regulatory
Commission (CERC) is to promote competition, efficiency and
economy in the power markets and improve the quality of supply,
which necessitates the development of a healthy short-term power
market. A short- term power market can help electricity providers
procure unplanned and fluctuating power requirements, and on the
sellers' side, enable power producers as well as procurers to sell their
surplus power. In India, the short-term power market, which covers
contracts of less than a year through bilateral agreements and power
exchanges is well developed, constituting approximately 11 percent
(close to 95 billion units) of the total electricity market in 2011-12,
though this includes power transactions through unscheduled
interchange (UI) as well.
This report gives a gist of short-term transactions through different
mechanisms such as bilateral contracts, power exchanges, UI
transactions and long-term transactions by various market participants.
Electricity Trading in Competitive Power Market: An overview

and key issues
A robust trading system is very important for free and fair competitive
electricity market operation. Trading system should be capable of risk
hedging associated with price volatility and other unexpected changes.
Operating behavior of a competitive power market is significantly
affected by the trading arrangements, strategic bidding, market model
and power traders. Trading arrangement is properly designed in every
country to take care of other abuse of market. These arrangements are
kept on changing from time to time depending on the requirement for
transparent and non-discriminatory electricity market. In India the
power trading market is regulated by CERC regulations.
As the Indian Power Trading Market is developing, the competition

among the traders is also increasing and the margins for them from
trading power are squeezing. Thus, for traders to survive in this
market they have to make efforts to increase the number of units
traded in the market and to monitor the performance of their
competitors.
RECOMMENDATIONS
On the basis of my analysis, I would like to give following

recommendations to the company, which are likely to help it in increasing
its market share and enhance their liquidity:
Performance in SWAP, the brain child of NVVN is going down,
the company should try to increase its swap transactions as they are
not regulated by CERC and the company can earn a higher margin
on these transactions.
It should also start trading on the Power Exchanges who are the
future of the short- term trading market, in order to be the market
leader in terms of market share.
The company should come with more innovative products to

sustain in this highly competitive market.
CONCLUSION
This project work is a study of power trading sector of India, with the
objective to
understand the Power Trading Market of India, analyze the competition
among the
major power traders in the market, to identify NVVNs strengths,
weaknesses, USPs of different functional departments and lastly,
business valuation of NVVN. A comprehensive study of power trading
sector of India is conducted to understand its relevance in the optimum
utilization of energy. Also, various mechanisms through which power
trading transactions is carried out are identified.
NTPC Vidyut Vyapar Nigam LTD. (NVVN) was formed by NTPC

Limited, as its
wholly owned subsidiary with the vision to be a catalyst in development
of wholesale power market in India enabling trading of surplus power.
NVVNs services include Short Term / Medium Term / Long Term
Power Trading, Solar Bundled Power, Cross Border Trading, Power
Banking Arrangement, Trading of Power. NVVN has 53 employees
working at various levels of the organization. NVVNs total revenue
amounted to Rs. 3532.32 CR in the year 2013-14 and is at 7th position in
terms of total market share.
NVVNs strength comprises of strong networking, government

enterprise, professional manpower pool etc and weaknesses includes
unsecured payment facility, government intervention, less freedom etc.
Potential segments like Solar Power, Availability of Surplus power,
product diversification etc are various opportunities available to NVVN.
Environmental factors, Seasonal Market Demand, Private players etc are
elements of threat surrounding NVVN.
Private players in Power Trading Industry have changed the operational

environment resulting in stiff competition in business. Private players
enjoy more freedom in terms of multiple operations and due to this highly
competitive environment, it has become essential for NVVN to focus on
people strategies, up-gradation of skills of employees, introduction of
welfare schemes etc. NVVN being a government organization has an
adequate internal control system in place and proper books of account as
required by law have been kept by the company.
Trading margin capped by CERC for electricity trading is limiting

revenues of trading companies. Private players are a big threat for
government companies like NVVN who are bounded by regulations of
Ministry of Power. NVVN should adopt a Customer Rating Approach in
the organization in-order to categorize different
customers and also, they can introduce new services in their business
module to
increase revenue.
BIBLIOGRAPHY
BOOKS:
Glautier, M.W.E. And Underdown B. (2010). Accounting Theory
and Practice, Financial Times / Pearson
Maheshwari, S.N.(2009)., Financial Management Principles &
Practice, 13th Edition, Sultan Chand & Sons.
Khan, M. Y. and Jain P. K. (2007). Financial Management, Text,
Problems & Cases, 5th Edition, Tata McGraw Hill Company, New
Delhi.
WEBSITES:
http://nvvn.co.in/
http://www.ptcindia.com/
http:/www.jsw.in/
http://www.cercind.gov.in/electricty-act.html
http://www.cercind.gov.in/report_MM.html

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TITLE

Financial Statement Analysis & Business Valuation of NTPC Vidyut

This project work is a study of power trading sector of India to

According to Electricity Act 2003, trading means purchase of electricity

The short-term market monitoring report published by CERC every year

Its major strength is that it is a fully owned subsidiary of NTPC Ltd a

Products and Services Provided By NVVN Ltd.

Short Term / Medium Term / Long Term Power Trading

1. To understand the power trading market of India.

2. To analyze the competition among the major power traders in the

3. To identify NVVNs strengths and weaknesses among its

Research methodology is a way to systematically solve the search

There are 3 types of research:-

1. Descriptive It is concerned with describing the characteristics of

2. Explanatory In this research, each and everything is well

3. Exploratory It is conducted into an issue or problem where there

SOURCES OF DATA COLLECTION

Sources of data collection are classified into 2 parts:

1. Primary Data It is the data collection by face to face

CERC Power Market Regulations, 2016

Transporting electricity is physically more complicated than transporting

The Electricity Act, 2003 has identified power trading as a distinct

Spot Market means a market where physical delivery of electricity

Term Ahead market means a market where physical delivery of

It also states the principles of market and market design, price

Short-term Market Monitoring Report (2015-16)

Electricity Trading in Competitive Power Market: An overview

As the Indian Power Trading Market is developing, the competition

On the basis of my analysis, I would like to give following

The company should come with more innovative products to

NTPC Vidyut Vyapar Nigam LTD. (NVVN) was formed by NTPC

NVVNs strength comprises of strong networking, government

Private players in Power Trading Industry have changed the operational

Trading margin capped by CERC for electricity trading is limiting

Glautier, M.W.E. And Underdown B. (2010). Accounting Theory

and Practice, Financial Times / Pearson

Maheshwari, S.N.(2009)., Financial Management Principles &

Practice, 13th Edition, Sultan Chand & Sons.

Khan, M. Y. and Jain P. K. (2007). Financial Management, Text,

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