STRATEGIC DIVERSIFICATION IN PUBLIC SECTOR- NTPC LTD

By

VINOD JAIN
(REGISTRATION No.:2015EPGDM07A016)

Under the guidance of

Dr. AJIT PRASAD

DIRECTOR (IIM-LKO)

Submitted in partial fulfilment of degree of

POST GRADUATE DIPLOMA IN MANAGEMENT (EXEUTIVE)

To the

NTPC School of Business

Nov 2016

1
 CERTIFICATE

This is to certify that the Project report titled “Strategic Diversification in Public Sector, NTPC
Ltd” is a bonafide record of work done by VINOD JAIN (REGISTRATION No:
2015EPGDM07A016) in partial fulfilment of the requirement for the degree of POST GRADUATE
DIPLOMA IN MANAGEMENT (EXECUTIVE), NTPC SCHOOL OF BUSINESS, Noida, India.

The work is carried out under my supervision and guidance and has not been submitted elsewhere for the
award of any other degree.

Prof. Dr.Ajit Prasad

Noida
10 Nov 2016 NTPC School of Business, Noida

2
Table of Contents

Section 1- Literature Review

DIVERSIFICATION- A GROWTH STRATEGY 5

DIVERSIFICATION IN STATE OWNED ENTERPRISES 6

INDIAN POWER SECTOR 8

POWER SUPPLY POSITION 9

ORGANIZATION STRUCTURE OF ELECTRICITY SUPPLY INDUSTRY 10

BACKGROUND OF THE ELECTRICITY REFORMS 11

THE CASE OF INDIA AND MAJOR LEGISLATIVES 11

ENVIRONMENTAL EFFECTS OF THE REFORMS 14

ALL INDIA INSTALLED CAPACITY (IN MW) OF POWER STATIONS 16

NTPC LTD 16

Section 2- Research Gap and Objectives

AREA OF RESEARCHES IN THE PAST 17

Section 3- Research Methodology

ANALYSIS OF VALUE CHAIN OF INDIA’S POWER SECTOR 19

EXPANSION OF POWER VALUE CHAIN 23

EVOLUTION OF NTPC LTD 25

VISION MISSION AND CORE VALUES 27

EVALUATION OF COMPANY’S STANDING ON CORE VALUES AND ETHICS 27

PRESENCE OF NTPC LTD 30

STRATEGY ADOPTED BY NTPC LTD 31

3
 45

PESTEL ANALYSIS

COMPETETIVE LANDSCAPE- PORTER FIVE FORCES ANALYSIS 47

Section 4- Result and Analysis

STRATEGY VERSIONS OF NTPC LTD 62

KEY SUCCESS FACTORS 70

BUSINESS MODEL OF NTPC LTD 75

FINANCIAL RATIOS 82

Section 5- Conclusion 83

Section 6- References 86

Section 7- How well the Current strategy working 88

4
Literature Review:

Diversification- A Growth Strategy

The sole objective of the corporate level is to ensure that the value of Corporation’s
constituent businesses is greater under the control of one management than the separate
managements. With this aim A Corporate largely works with the aim for growth by
disseminating authority in the hands of few. But even most successful companies
eventually face a predictable crisis – a sudden large drop in revenue and profit growth or
a collapse of once high shareholder returns to well below the cost of capital. Stall-out
occurs when the growth engine that powered a company to success stops working (Chris
Zook & James allen,2016). And this stall out has more to do with the strategic intent,
formulation and implementation than the movement of the industry, the corporate is
playing in. A corporate may behave completely different from the industry.
Every major industry has seen the growth, stagnant and the declining phase. Some that
seems riding a wave of growth enthusiasm are very much in the shadow of decline. Few
others which are thought of as seasoned growth industries have stopped growing. In every
case of a declining corporate the reason growth is threatened, slowed, or stopped, is
neither because the market is saturated nor it is because the industry is wobbling, it is
mostly because there has been a failure of the management in taking strategic decisions.
What is lacking is the will of companies to survive and to satisfy the public by
inventiveness and skill. (Theodore Lewit,2004).

Though in the case of State owned enterprises, which are by definition, run by managers
who do not own the firm. It is inherently difficult to verify (although managers know)
whether poor enterprise performance is due to shirking by the managers or circumstances
beyond their control, monitoring by principals will always remain imperfect, resulting in
inefficient management. ( Ha-Joon Chang,2007).

Hence it becomes imperative for management of such State owned enterprises to

strategize to minimize the effect of inefficient monitoring on the long term value of its
shareholders. This requires growth strategies that are adequate, implementable and timely
implemented.

This paper is about one of such growth strategies, Diversification, (a part of the four main
growth strategies defined by Igor Ansoff's Product/Market matrix,1957) in the public
sector utilities focused on NTPC ltd. The choice of NTPC ltd has been deliberate as
Electric utilities have long been considered a “No substitute” product industry, which has
been destined to growth. Moreover Indian Power Sector has largely been led by NTPC ltd
since its inception and the giant owes a part to its diversification strategies.

5
Diversification is a means by which a firm expands from its core business into other product markets (Aaker 1980, Andrews 1980, Berry
1975, Chandler 1962, Gluck 1985). Diversification is a strategic option that many managers use to improve their firms’ performance
(Pandya1998). As in any economic activity there are costs and benefits associated with diversification, and ultimately, a firm's performance
must depend on how managers achieve a balance between costs and benefits in each concrete case. Moreover, these benefits and costs may
not fall equally on managers and investors. Management researchers argue that diversification prolongs the life of a firm. Researchers in
finance argue diversification benefits managers because it buys them insurance, and shareholders usually bear all the costs of such insurance.
In another view by “John G. Matsusaka” Corporate diversification is widely believed to be inefficient. It runs against one of the oldest ideas in
economics, that specialization is productive. A popular explanation for its prevalence is that firms are plagued with agency problems that
allow managers to enter new businesses (from which they privately benefit) at the expense of shareholders. However, the empirical evidence
suggests that diversification is not entirely an agency phenomenon; although diversified Diversification is a means by which a firm expands
from its core business into other product markets (Aaker 1980, Andrews 1980, Berry 1975, Chandler 1962, Gluck 1985). Diversification is a
strategic option that many managers use to improve their firms’ performance (Pandya1998). As in any economic activity there are costs and
benefits associated with diversification, and ultimately, a firm's performance must depend on how managers achieve a balance between costs
and benefits in each concrete case. Moreover, these benefits and costs may not fall equally on managers and investors. Management
researchers argue that diversification prolongs the life of a firm. Researchers in finance argue diversification benefits managers because it
buys them insurance, and shareholders usually bear all the costs of such insurance. diversification becomes more efficient when external
capital markets are relatively inefficient and the various segments of a diversified firm would be financially constrained as single-segment
firms (e.g., Dimitrov and Tice 2006; Yan et al. 2010; Hovakimian 2011). Under these circumstances, external capital supply will be highly
restricted, enabling diversified firms to benefit from their internal capital markets, especially during recessions and exogenous (industry)
shocks. During the financial crisis of 2007–2009, Kuppuswamy and Villalonga (2010) find that the relative value of diversified firms
increased significantly. The findings indicate that financial constraints and the state of the capital market apparently continue to play a key
role in determining the value of diversification, and that there should be a dynamic change in the diversification discount or premium over
time.

In another view by “John G. Matsusaka” Corporate diversification is widely believed to be inefficient. It runs against one of the oldest ideas in
economics, that specialization is productive. A popular explanation for its prevalence is that firms are plagued with agency problems that
allow managers to enter new businesses (from which they privately benefit) at the expense of shareholders. firms trade at a discount relative to
single-business firms, investors often bid up stock prices when firms announce diversification programs. (John G. Matsusaka,2001). .
Empirical studies on firm diversification often show that diversified firms trade at a discount compared to a portfolio of comparable single-
segment firms (e.g., Lang and Stulz 1994; Berger and Ofek 1995).These findings have led researchers to assume that diversification destroys
value and that conglomerates are inefficient. The recent literature concludes that the effect on firm value can differ from firm to firm and
depends on industry settings and economic environments. Santalo and Becerra (2008) argue that the effects of diversification are
heterogeneous across industries. That is, diversified firms might be valued at a discount in some industries, but trade at a premium in others.
Several recent studies examine the value impact of diversifi- cation across the business cycle and conclude that corporate.

The picture of diversification here is that firms enter businesses on an experimental basis. Those that do not work are divested; those that
succeed are improved and become core activities. A case in point is General Electric, whose 1989 annual report described its policy as
follows: “Each business was to be number one or number two in its particular market. For those that were not, we had a very specific
prescription—they were to be fixed, sold, or closed” (Chandler 1991).

Diversification in State Owned Enterprises

It is widely believed that the diversification in the State Owned enterprises is mostly
Policy driven rather than on the basis of Competitiveness. Board level executive team is
largely chosen by the Government on the grounds of their experiences and is generally
short termed, may be 3-5 years. This management team has to follow a policy driven
agenda which is again set by the Policy Makers keeping in view the next Electoral
process. While in the private sector Agency theory can be validated, it is less likely to
establish it in PSUs. Every five years major structure of Principal and Agency keep on
changing leaving behind newly derived agendas. This whole cycle refrain the State
Owned Enterprises from long term Strategies targeted towards shareholder’s growth.
Literature also provides a whole new argument. A significant stream of research on state-
owned organizations has demonstrated that the government is inefficient in monitoring
performance outcomes associated with its investments (Aggarwal and Agmon, 1990;
Mehta and Trivedi, 1996; Newbery, 1992). Given the abstract, arm's-length nature of
government ownership, state-owned institutions seldom provide the incentives for closely
tracking the performance of their investments (Andrews and Dowling, 1998). The
principals, actually the electorate in the case of Public Sector enterprises, are dispersed
and hence least likely to act in a concerted manner to maximize the profitability of their
investments. Further, since any performance improvements following diligent monitoring
by a few principals is likely to be shared by the entire public, there is very little

6
motivation for the government's monitors to do an effective job. Since governments,
especially in emerging economies, espouse significant social welfare objectives, they are
less profit driven and hence less vigilant in their monitoring role. Studies by Aharoni,
(1986), Stano (1975), Vickers and Yarrow (1988), among others, have validated these
conclusions. Andrews and Dowling (1998) provided empirical evidence in support of this
position as well. In an examination of privatized firms across 15 countries they found that
in firms where the government held significant stock even after the privatization process,
post privatization performance gains did not materialize. This bolsters the argument that
the government as an investor is an unproductive monitor at best.

Four theories dominate the literature and together facilitate broader appreciation of diversification issues.

First, the traditional structure-conduct-performance paradigm of industrial organization (IO) economics helps explain the influential impact of
industry structure on a firm's decision to diversify (Bergh, 2001). Essentially, this paradigm asserts that a firm's profit potential depends on
structural conditions in the industry; firms situated in industries with unattractive structural attributes (such as low growth prospects, regulatory
restrictions, strong competition, and/or threatening uncertainties, for example) will seek to conduct business in other industries where conditions
are more favorable for high performance.

Second, agency theory predicts that managers in unattractive industries will prefer to retain capital for diversification purposes rather than
allowing outward movement of capital enabling investors to directly reinvest in more attractive industries (Anand & Singh, 1997; Jensen, 1986).
Larger, more complex firms are associated with higher executive compensation (Cordeiro & Veliyath, 2003) and lower employment risk (Lane,
Cannella, & Lubatkin, 1998), providing self-interested managers personal motives for pursuing diversification (Finkelstein & Hambrick, 1996).

Third, the resource-based view of the firm (RBV) emphasizes the importance of well-developed competencies and resources for competitive
success (Barney, 1991; Penrose, 1959; Wernerfelt, 1984). The RBV contends that skills and resources tend to lose value when transferred across
dissimilar markets (Montgomery & Wernerfelt, 1988; Wernerfelt & Montgomery, 1988), leading to the prediction that related diversification will
be more successful than unrelated diversification.

Finally, transaction cost economics helps explain the limits of diversification; management costs involved with collections of disparate
businesses can become inefficient, suggesting need for organizational restructuring (Bergh, 2001 ; Teece, 1982; Williamson, 1975; 1985).

Drawing on these arguments, there doesn’t seem any worthy relationship between the
natures of diversification strategy (unrelated or related) pursued by the firm and the
degree of government ownership in the firm. It can thus be summarized that the
proportion of organizational shareholding controlled by government agencies is less
likely to be related to its diversification strategy. Hence it can further be concluded that
PSUs like NTPC ltd with more than 70 % shareholding with the government relies
heavily on its Management for the diversification strategies.
Diversification strategy involves both the scope of the organization defined by industries
and markets in which it competes, as well as the vehicles - acquisition, start-up, or joint
venture/strategic alliance - used to enter these industries and markets (Bergh, 2001).
Established definitions of diversification strategies center on organizational scope as
defined by Rumelt (1974). An organization is said to have limited diversification if most
or all of its revenues stem from a single business. More specifically, a single business
strategy is defined as 95% or more of firm revenues from a single business; a dominant
business strategy is defined as 70-95% of firm revenues from a single business.
Diversification strategy is technically defined as when less than 70% of firm revenue
comes from a single line of business; with related diversification strategy the firm's
businesses share some common attributes or relationships; with unrelated diversification

7
strategy the firm's business units lack common attributes and interrelationships.( Froelich,
Karen A , John Ramsey, II.)

Indian Power Sector

The power sector is one of the most critical growth drivers for any country. The power
sector in India is highly regulated by the government and is dependent on the policies
framed regarding bidding for power projects, regulations regarding transmission of power
between states and pricing of power supply to consumer is also decided by the
government. Over the past 65 years or so, India has taken rapid strides in the
development of the Power Sector both in terms of enhancing power generation as well as
in making power available to widely distributed geographical boundaries. In spite of the
massive addition in generation, transmission and distribution capacity over the last over
sixty five years, growth in demand for power has always exceeded the generation
capacity augmentation. Although the country has achieved capacity addition of about
3,00,000 MW over the last Six decades, peak and energy shortages of varying magnitude
are being experienced.

India had an installed capacity of 302.087 GW as on end March 2016 and generated
around 1107.8 BU for the period April’15 – March’16. India became the world's third
largest producer of electricity in the year 2013 with 4.8% global share in electricity
generation surpassing Japan and Russia (Global Share 5.7% in 2015-16).
Indians use far less electricity per capita than their counterparts in more developed
countries—only about 1010 kilowatt hours (kWh) per capita (2015), compared with
7,000 kWh per capita in Europe and 14,000 kWh in the US. Strategic Consulting Firms
like Bain & Co. project that electricity generation capacity will grow from about 225
gigawatts (GW) in 2013—to 700 GW by 2032—to meet rising demand. That will require
more than $500 billion of investment in power generation over the next 20 years, plus up
to another $300 billion to $500 billion to upgrade the transmission and distribution grid.
Thermal generation is profitable in India, delivering 15% to 17% margins with fixed
power purchase agreements. That compares favorably with countries like Germany,
where margins are under pressure (due to the transition away from nuclear) and
significantly below the 15% to 20% level seen three years ago. For 2014-15 fiscal year,
base load energy deficit and peaking shortage figures were 3.6% and 4.7% respectively.

8
 Source: CEA (2014), Power Scenario at a Glance, March 2014
All India Power Supply Position Energy-wise and Peak-wise (Utilities)
(1984-85 to 2012 –13)

From the above Table and Figure, it is clear that Historically, India has experienced
shortages in energy and peak power requirements. The maximum energy deficit of
11.51% was recorded in 1996 – 97 and the average energy deficit was 8.38 percent and
the average peak power deficit was 13.74 percent between 1984 – 85 and 2012 – 13.
However, the gap between demand and supply of power has reduced significantly in

9
FY14, due to enormous addition of thermal (i.e., coal, gas, and diesel), hydro and
renewable energy (i.e., solar, wind, biomass and small hydro) power plants.

Below Table gives the sneak peak about the progress report of village electrification,
according to which approximately 20,000 villages are still un-electrified as on 28-02-
2015 as per 2011 census (CEA, 2013) means nearly 400 million people in India still lacks
the access of reliable supply of power (Times of India, 2014)

Progress report of village electrification as on 28-02-2015 as per 2011

census
Source http://www.cea.nic.in/reports/monthly/dpd_div_rep/village_electrification.pdf

Despite an ambitious rural electrification program, some 400 million Indians lose
electricity access during blackouts. While 96.7% of Indian villages have at least an
electricity line, just around 55% of rural households have access to electricity. Of those
who did have access to electricity in rural India, the supply was intermittent and
unreliable. In urban areas, the access to electricity was 93.1% in 2008. The overall
electrification rate in India is 88.7% while 21.3% of the population still lives without
access to electricity. Power cuts are common throughout India and the consequent failure
to satisfy the demand for electricity has adversely effected India's economic growth.

Organization Structure of Electricity Industry in India

The Power Sector in India has been regulated and owned for many years by various
government agencies and organization. The subject of electricity is covered under the
concurrent list in the Constitution of India, implying that both the Central and State
government have the power to legislate on matters concerning the sector. The Indian
Power Sector is divided into five regions: Northern, Western, Southern, eastern, and the
North-Eastern Region: and almost every state in India has its own state owned electric
utility (SOEU). There exist a multitude of institutions that govern and constitute the
Indian electricity sector. The Central Electricity Authority (CEA) is responsible for power
planning at the national level. CEA advise the Ministry of Power (MoP) on matter
concerning the national power policy, and national power planning. The Thermal Power
Corporation (NTPC) is the largest thermal power generating company in India, which
was incorporated in 1975. The National Hydro Power Corporation (NHPC) was also
incorporated in 1975 to harness the vast hydro, tidal and wind potentials of the country.
The power finance corporation (PFC) was incorporated in 1986 to function as the prime
financial institution dedicated to the growth and the overall development of the Indian
Power Sector. PFC provides funds to SOEUs and private power utilities. The power Grid

10
Corporation of India Limited (PGCIL) was established in 1989 to operate regional and
national power grids and facilities the power transmission reliability, security and
economy. The Power Trading Corporation of India Limited (PTC) was constituted in
1999 to purchase and sell electric power, to plan and promote an efficient and reliable
power trading and distribution system, with majority equity participation by the PGCIL,
NTPC, PFC, and other financial institutions. Regulatory matters in the Center are taken
care by Central Electricity Regulatory Commission (CERC) and the respective
State Electricity Regulatory Commissions (SERC) takes care of corresponding regulatory
issues at the state level.

The National Power Training Institute (NPTI) acts as the national apex body for the
human resources development of the Power Sector in India, while the Energy
Management Center (EMC) was set up in 1989 to strengthen energy management
capabilities in the country through workshops.

Trainings, seminars, multimedia, awareness campaign, etc. pending the Power Sector
revamping as envisaged in the Electricity Act 2003, the major players in Indian sector
continue to be the SOEUs.

Background of Electricity reforms

The reasons for reforms differ between countries- especially between industrial and
developing countries. In mature industrial countries pressure for change has grown with
the emergence of excess capacity and from disillusionment with capital-intensive
generation projects triggered by the oil crises of the 1970s (Kessides, 2004). In
developing and transition countries reforms have been driven by the poor operating and
financial performance of state-owned electricity systems (with low labour productivity,
poor service quality, and high system losses), lack of public funds for badly needed
investments, unavailability of service for large portions of the population, and
government desires to rise revenue through privatization (IEA, 1999; Bacon and Besant-
Jones, 2001).

It is for these reasons that the recent years have witnessed wide and rapid acceptance of
power Industry restructuring in several developing countries. This has also been
necessitated by the pressing need for improvements in the existing power services in most
of these countries, many of which are plagued by sub-optimal sector performance.

Huge demand-supply gap is often a universal problem in developing countries and the
distribution sectors are frequently financially crippled. Serious cash flow constraints
result in palpable curtailment of much needed investment in expansion and maintenance
of services and reflect in poor sector performance. High distribution losses, poor
management, low market densities, poor metering and billing practices and weak

11
institutions are some of the common problems besieging the developing nations (Alberto,
2004), and India has been no exception.

The Case of India

The Indian Electricity sector remained the State monopoly with overriding social
objectives till the year 1991. Reforms introduced since 1991, did not result in significant
improvement in the financial credit worthiness of the SEB's and could not induce
capacity addition in the sector. For example, there were significant capacity slippages
form the 5 year Plan targets both in VIII and IX Plans (to the extent of 46% and 53%
respectively)

This was despite the fact that reforms have been very comprehensive and have achieved
significant progress with respect to the following aspects.

* Separation of policy, regulatory and operational aspects including set up of independent

Regulatory Commission at the Central and the State level

* Increase commercial autonomy to distribution companies

* Unbundling for focused benchmarking across entities and transparent administration of

unbundled entities.

* Institutional reforms and capacity building initiatives including development of

organizational capabilities

* Transparent governance of the sector including better subsidy administration and well
defined enabling legal, policy, regulatory and commercial frameworks.

The issue before the government was not the achievements per se, but concern with
respect to the pace of reforms and whether they fulfilled stakeholder's expectations. The
government was therefore, inclined to take steps regarding framing of appropriate
legislation and policy framework that would expedite the reforms and would revamp and
restructure the power industry.

Major Legislative Initiatives in India

The Power Sector in India has witnessed four important Legislations:

1. The Indian Electricity Act, 1910,

2. The Electricity (Supply) Act, 1948,

3. The ERC Act, 1998, and

4. The Electricity Act, 2003.

12
The key feature of these acts has been summarized as follows:

1. The Indian Electricity Act, 1910

- Provided basic framework for electric supply industry in India;

- Growth through private licensees with license provided by state government;

- Provision for license for supply of electricity in a specified area;

- Legal framework for laying down of wires and other works; and

- Provision for laying down relationship between licensee and consumer.

2. The Electricity (Supply) Act, 1948

- Mandated creation of SEBs; and

- Need for the state to step in (through SEBs) to extend electrification (so far
limited to urban centers) all across the country.

3. The ERC Act, 1998

- Provision for setting up of CERC/SERC with powers to determine tariffs ;

- Constitution of SERC optional for states; and

- Distancing of government from tariff setting process;

- Rational for change in legislative framework.

4. The Electricity Act 2003

The main features of the act are as follows:
- Generation is being de-licensed and captive generation freely permitted, i.e. any
generating company may establish, operate and maintain a generating station
without obtaining a license under this Act with the only exception that it should
comply with the technical standards relating to connectivity with the grid
referred to in clause (b) of section 73.
Note: Hydro-projects, however, need concurrence from the Central Electricity
Authority.
- No person shall
(a)transmit electricity; or
(b)distribute electricity; or
(c)undertake trading in electricity,
unless he is authorized to do so by a license issued, exceptions are informed
by authorized commissions through notifications.

13
 - Central Government may, make region-wise demarcation of the country, and,
from time to time, make such modifications therein as it may consider necessary
for the efficient, economical and integrated transmission and supply of
electricity, and in particular to facilitate voluntary inter-connections and co-
ordination of facilities for the inter-State, regional and inter-regional generation
and transmission of electricity.

- Transmission utility at the central and state level to be a government company

with responsibility of planned and coordinated development of transmission
network.

- Open access in transmission with provision for surcharge for taking care of
current level of cross-subsidy, with the surcharge being gradually phased out.

- The state governments are required to unbundle State Electricity Boards.

However they may continue with them as distribution licensees and state
transmission utilities.

- Setting up State Electricity Regulatory Commission (SERC) has been made

mandatory

- An appellate tribunal to hear appeals against the decision of (CERC's) and

SERC's.
- Metering of electricity supplied made mandatory.
- Provisions related to thefts of electricity made more stringent.
- Trading as a distinct activity recognized with the safeguard of Regulatory
commissions being authorized to fix ceiling on trading margins.
- For rural and remote areas, stand-alone system for generation and distribution is
permitted.
- Thrust to complete rural electrification and provide for management of rural
distribution by panchayat, cooperative societies, NGOs, franchisees etc.
- Central government to prepare National Electricity Policy and Tariff Policy.
- Central Electricity Authority (CEA) to prepare National Electricity Plan.

This new legislative called the electricity Act, 2003 formulates a comprehensive
legislation imparting renewed thrust to coordinated development of Power Sector in
India. The Electricity act, 2003 provides a comprehensive yet flexible legislative
framework for power development and envisions a sector characterized by a competitive
market in power where the regulators and the power utilities play increasingly significant
roles. The act aims to provide the paradigm shift by progressive introduction to
competition and choice. The intent of the Act is to provide complete commercial

14
autonomy to buy and sell power. The Act is move towards creating a market-based
regime in the Indian Power Sector and consolidates the laws relating to generation,
transmission, distribution, trading and use of electricity. (Tripta thakur, S.G.Deshmukh ,
S.C.Kaushik and Mukul Kulshrestha,2005)

Environmental impact of the reforms

This is an area that is of vital concern; however linkages between reforms and mental
concerns have not been established largely till the current Government came into power.

Khanna and Zilberman (1997) demonstrated the potential of institutional and economic
policy reforms that provide incentives for adoption of efficiency-enhancing production
practices to reduce carbon emissions while increasing net electricity generation. Similarly
Kulshreshtha (2000) argues that coal using technologies might improve (fluidized bed
combustion etc.) resulting in better utilization of poor quality coal, and alternatively,
utilities can opt for coal beneficiation or might simply import good quality coal, thereby
decreasing emissions. Fuel substitution is another way out for reducing emissions;
countries like china are, in fact, actively promoting the policy of replacing coal by other
environment benign fuels such as oil, renewable energy and Gas. Other studies subscribe
to a conflicting viewpoint. For example, field data from Australia suggest that the reforms
have actually led to increasing emissions (ABARE, 2000). Sharma (2003). Also
demonstrates that the trends indicate increasing carbon dioxide contributions from the
Power Sector ever since the introduction of the competitive markets. This might possibly
be an outcome of benchmarking criteria that often employ short-run marginal costs
environment friendly fuels and technologies with the relatively cheaper but not so benign
fuel and technologies might tax the environment, but do not form part of the traditional
benchmarking process, and hence the potential power producers may not have much
incentive (unless forced by regulatory measures) to reduce carbon emissions.

Environmental impacts assume significance for India particularly because India, the
second most populated country, contributes nearly 5% of global CO2 emissions and there
are possibilities of increasing this share in future. This increasing trend, combined with
developed countries success in stabilizing their CO2 emissions, may make its global
share even larger. The Power Sector is amongst the greatest contributors to the emissions.
India is the world's fourth largest producer of coal and this coal has high ash content and
low calorific value. With coal contributing over 60% of the fuel type in the total installed
capacity as on Mar 2015 (CEA Annual report, 2015) and the fact that increased coal
consumption over the past 3 decades has led to a nine fold increase in energy related
carbon emissions , the implications for the environment might actually be far reaching.
The current Government has set an ambitious target of adding 175 GW power generation
capacity from renewable sources by 2022, of which 100 GW will be solar and 60 GW
will be wind energy. As on 31st Mar 2016, the installed capacities of Wind and Solar

15
Power are 26867 MW and 6763 MW respectively and particularly for solar most of it has
come up in the past 2 years. All countries that signed the UNFCCC were asked to publish
their Intended Nationally Determined Contributions (INDCs) in the lead up to the 2015
United Nations Climate Change Conference held in Paris, France in December 2015
India’s Intended Nationally Determined Contribution includes reduction in the emissions
intensity of its GDP by 33 to 35 per cent by 2030 from 2005 level and to create an
additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional
forest and tree cover by 2030. India has also decided to anchor a global solar alliance,
INSPA (International Agency for Solar Policy & Application), of all countries located in
between Tropic of Cancer and Tropic of Capricorn.

ALL INDIA INSTALLED CAPACITY (IN MW) OF POWER STATIONS

(As on 31.03.2015)
(UTILITIES)

Ownership Mode wise breakup Grand

/Sector Total
Thermal Nucle Hydro RES
ar (Rene (MNRE)
Coal Gas Diesel Total wable)
State 58100.5 6974.4 602.6 65677.5 0.00 27482 1919.3 95079

Private 58405.4 8568.0 597.1 67570.5 0.00 2694 33858 104122

Central 48130.0 7519.7 0.00 55649.7 5780 11091 0.00 72521

Total 164636 23062 1199 188898 5780 41267 35777 271722

NTPC ltd

NTPC Limited (NTPC) is a power utility company. It has presence in the entire value
chain of the power generation business. The company specializes in the development,
engineering, construction and operation of power generating plants. It provides
consultancy services for power plant construction and power generation to companies

16
nationally and internationally. NTPC also carries out power trading, coal mining and ash
utilization. The company conducts its operations through two segments, namely,
Generation and Others. NTPC is headquartered in New Delhi, India. The company
focuses on the construction and development of the power generation plants.

It was set up on 7th November 1975, with an objective to accelerate the electricity
generation by planning, promoting and organizing integrated development of thermal
power in India. It has, so far, been successful in achieving its objective and turned into a
global giant. As on 13.10.16, the installed capacity of NTPC is 47228 MW through its 18
coal based (35,085 MW), 7 gas based (4,017 MW), 1 Hydro (800 MW), 9 renewable
(360MW) and 9 Joint Venture Projects-both Coal and Gas based (6,966 MW). NTPC,
with a rich experience of engineering, construction and operation of over 47,000 MW of
Power generating capacity, is the largest and one of the most efficient power companies
in India, having practices that match the global standards. NTPC targets a diversified fuel
mix capacity and by 2032, non-fossil fuel based generation capacity shall make up nearly
28% 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.
Research Gap and Objective:
Area of Researches in the past

There has been lot of research works on the Indian Energy sector giant NTPC ltd. Most of
them focused on technical parameters, operational effectiveness, and corporate
governance or even on HR practices. In fact, NTPC has been well known for excelling
the operational and governance areas. The company has grabbed many awards in the
history like PSU excellence awards, Excellence in Corporate Governance, Excellence and
Outstanding Contribution award etc. It has also been awarded as “The best place to work
for”, on many countdowns.
Certification as a Preferred Employer is a major accomplishment. Such companies
understand, value, and enthusiastically embrace the employee's voice as a driver of
employee satisfaction and recognize the relationship between employee satisfaction and
quality service to customers (Anonymous, 2008). In an article related to Human Resource
“A School For Employees; NTPC invests massive resources on training and benefits. Its
staff is fiercely loyal and most don't want to leave”, Ashish Gupta reiterates that, if
attrition rates and average service tenures were the only indicators of employee
satisfaction, then people at India's premier power generation company, National Thermal
Power Corporation (NTPC), would easily top any happiness index for employees. With
an attrition rate of just 0.4 per cent and average career tenure of 20 years, it may well
cause both tech start-ups and legacy majors to turn green with envy. (Gupta,
Ashish. Business Today (Nov 20, 2005): 106).

The Company has been leading from the front in the energy sector and has enjoyed the
status of somewhat monopolistic PSU under the regulated regime. The Agenda for the

17
enterprise had largely been a mixed bag; a part derived from Policy formulation and the
other part targeting Corporate Growth.

With time, The Company has grown into large corporate putting forces all along its value
chain.

It has engaged itself in many joint ventures and set up few subsidiaries to pursue its
growth objectives. The diversification strategy has been aggressive as compared to other
PSUs in India and is largely a mixture of adopting or abandoning on the grounds whether
the company finds it worth continuing or annulling. The literature provides not much
information about the strategy; the company has applied over time and how well they
have worked. The present work intends to analyze the complete value chain; the
company is working in and the diversification strategy adopted by the company over the
past few years and their effects.

The objectives of the research work are to find answers for the following questions:

What should be the diversification strategy for NTPC Ltd?

How to determine whether and what type of diversification method/direction should be

adopted?

18
Research Methodology:
Various data from the Company’s website, Power Ministry Website, Interviews,
Financial results, Competitors websites, CEA, MNRE etc were collected and studied in
chronological order to find how the industry has moved.
Complete Power industry analysis was done using Porter’s five forces and calculating the
concentration, Market Power and HHI. The whole Power Industry value chain was
examined after expanding it.
Five forces theory was also applied for one step forward and backward to find the right
direction of move for NTPC Ltd.
All the JVs and subsidiaries were studied including the ones which NTPC Ltd has
annulled in the recent past to find the Strategy adopted by the Company from time to
time.
Analysis of the value chain of India's Power Sector
Prior to 2003 the market was characterized by vertical integration with the state electricity
boards (SEBs) forming a monopoly and excessive price regulation. Each state's electricity
board was responsible for generation, transmission and distribution (T&D) within its own
jurisdiction. But the SEBs turned loss making and inefficient. In the wake of the growing
power needs and the continuous surplus shortage situations faced in various parts of the
country, the government introduced Electricity Act 2003 for restructuring of the Power
sector and to introduce competition and increase efficiency. It de-licensed generation,
recognized trading as a separate licensed activity and introduced open access in T&D.
Traditional value chain components of the electric power infrastructure include
power generation, transmission, distribution and trading. The efficiency of the electricity
value chain is a function of energy efficiency and the timing of energy consumption away
from peak loads.
1 The components of the value chain of the electric Power Sector
In order to understand the nature of the issue and the opportunity, it is important to
establish a perspective on the way in which the electricity value chain typically operates
today. The flow along the electricity value chain starts with energy producers who mine
and refine the fuels used in electricity productions including coal, gas, oil or nuclear
based fuels. The fuels are then delivered to the generation facilities where they are
converted to electricity through the generation process. The electricity generator uses the
fuel to drive a generator to produce electricity and dispatch it to a transmission and
distributions (T&D) system, which distributes the electricity to the consumer locations
through a transmission and distribution grid. From producers it is transported via energy
exchanges or other electronic trading platforms, over an extensive transmission network
to regional suppliers and from there to private, public and industrial consumers.

19
1.1. Power generation
In India, coal accounts for more than 70 per cent of the country's electricity generation.
Of the 123,000 megawatts of power capacity added between 2009 and 2015 in India, over
70 per cent was coal-based. The entire value chain of power sector is dominated by the
central and state sector utilities, out of the total generation capacity of 2,71,722 MW
(source: CEA as on 31 Mar'15), the share of central, state and private sector stands at
72,521 MW, 95078 MW and 104122 MW respectively.
India has the fifth largest power generation capacity in the world. Of the total capacity of
272GW, Thermal power, the largest component, was 189.3 GW, followed by hydro 41.6
GW, renewable energy 35.8 GW and nuclear 5.8 GW. India’s total power generation
capacity has increased at a Compound Annual Growth Rate (CAGR) of 9. 4 per cent over
FY09–15.

Renewable Power plants constituted 13.17% of total installed capacity and Non-
Renewable Power Plants constituted the remaining 86.83%. India generated around
1043.67 TWh (1,043,666 GWh) of electricity (excluding electricity generated from
renewable and captive power plants) during the 2014-15 fiscal. The total annual
generation of electricity from all types of sources was 1271.872 TeraWatt-hours (TWh) in
2015. India is the third largest producer of electricity in the world. Over FY10–15,
electricity production expanded at a CAGR of 6.3 per cent. As per the 12th Five Year
Plan, India is targeting a total of 88.5 GW of power capacity addition by 2017, of which,
72.3 GW constitutes thermal power, 10.8 GW hydro and 5.3 GW nuclear.

Renewable energy is fast emerging as a major source of power in India. Wind energy is
the largest source of renewable energy in India. It accounts for an estimated 60 per cent of
total installed capacity (42.8GW). There are plans to add 60GW of wind power
generation capacity by 2022. India has also raised the solar power generation capacity
addition target by five times to 100GW by 2022.
The Government of India has been supportive to growth in the Power Sector. It has de-
licensed the electrical machinery industry and also allowed 100 per cent Foreign Direct
Investment (FDI) in the sector. Total FDI inflows in the Power Sector touched US$ 9.7
billion during the period April 2000 to May 2015.

With many bilateral nuclear agreements in place, India is expected to become a major hub
for manufacturing nuclear reactors and associated components. Foreign participation in
the development and financing of generation and transmission assets, engineering
services, equipment supply and technology collaboration in nuclear and clean coal
technologies is also expected to increase.

20
Indian companies have shown a huge interest in power generation and the change in
power procurement landscape towards competitive bidding is expected to drive
investments and efficiency in the sector.
Major Central Utilities who are in to power generation in India are:
* Thermal: NTPC - National Thermal Power Corporation;
* Hydro: NHPC - National Hydro Power Corporation;
* Nuclear: NPCL – Nuclear Power Corporation of India Limited;
* NEEPCO - North Eastern Electric Power Corporation.
In addition, there are some generation companies who are running on private investment
(referred as Independent Power Producers or IPP's) which sell their power through PPA's
with State/Central Utilities or in open market through bilateral and spot trading. Power
sector was let open to Private investment through economic reforms of 1991 but it was
Post Electricity Act 2003 that private sector investment got impetus through removal of
the clause that sought obtaining license for setting up generation unit. Some of the major
independent power producers are-Reliance power limited, Tata power, Lanco, GMR,
Adani, Jindal Power.
In addition, captive power plants (plant set up by any person to generate electricity
primarily for his own use and includes a power plant set up by any cooperative society or
association of persons for generating electricity primarily for use of members of such co-
operative society or association) have been growing at a fairly aggressive pace in India.
The growing captive capacity has been mostly catering to the captive demand of the
parent industries and played very little role in catering to the overall system demand.
With the introduction of open access and sale of excess power by Electricity Act from
2003, government aims to bridge the demand-supply gap and it provides a revenue
generation stream to captive producers through the sale of their excess power where they
can use the distribution network which was earlier subjected to clearances.
1.2. Power transmission
Power transmission in India was restricted to central and state utilities until the year 2006.
Though, the Electricity Act, 2003 opened doors for private sector participation in the Power
sector, private investment in transmission started only in 2006. Private sector investment
was allowed in the form of 100 per cent private equity or as a 74 per cent JV with the
Central Transmission Utility (CTU). The huge capital required for building efficient
transmission infrastructure has attracted numerous domestic and international players.
Total outlay for transmission sector in the XII Plan is estimated at Rs.2.4 trillion.
Transmission of electricity is bulk transfer of power over a long distance at a high voltage,
generally of 132 KV and above. Transmission network supplies electricity from
generating stations to substations located near the population and industrial centers.

21
Central and state utilities own 40% and 60% of the total transmission capacity
respectively.
As of 2013, India has a single wide area synchronous grid that covers the country
Power transmission is no longer a central or state monopoly. The sector remains one of the
greatest concerns and the central government should extend a helping hand to states to
help sourcing finances. Once states and the developers find a level playing field, the sector
is set to witness phenomenal growth. The government has done a commendable job on
the tariff-based competitive bidding route to bid for projects for private players. The step
has brought enthusiastic support from private parties.
The all-time maximum peak load is not exceeding 153,515 MW in the unified grid
whereas the all-time peak load met is 148,005 MW on 11 September 2015. The
maximum achieved demand factor of substations is not exceeding 60% at 200 kV level.
The operational performance of the huge capacity substations and the vast network of
high voltage transmission lines with low demand factor is not satisfactory in meeting the
peak electricity load. Detailed forensic engineering studies are to be undertaken and
system inadequacies rectified to evolve into smart grid for maximizing utility of the
existing transmission infrastructure with optimum future capital investments.
The July 2012 blackout, affecting the north of the country, was the largest power grid
failure in history by number of people affected. The introduction of Availability Based
Tariff (ABT) has brought about stability to a great extent in the Indian transmission grids.
However, presently it is becoming outdated in a power surplus grid.
India's Aggregate Transmission and Commercial (ATC) losses are 27% in 2011-12.
Whereas the total ATC loss was only 9.43% out of the 4,113 billion kWh electricity
supplied in USA during the year 2013. The Government has pegged the national ATC
losses at around 24% for the year 2011 & has set a target of reducing them to 17.1% by
2017 & to 14.1% by 2022. A high proportion of non-technical losses are caused by illegal
tapping of lines, and faulty electric meters that underestimate actual consumption also
contribute to reduced payment collection. A case study in Kerala estimated that replacing
faulty meters could reduce distribution losses from 34% to 29%. Proper transmission
planning and execution are the areas that seek attention.
1.3. Power distribution
Unbundling of State Electricity Boards post Electricity Act 2003 has created separate
entities for generation, transmission and distribution at state level. Distribution is
different from transmission as distribution involves transmission of electricity from
Substation to end consumer. After unbundling each state has DISCOMS i.e. distribution
company who are responsible for metering, billing and collection. This sector also
witnesses heavy government intervention with 95% of distribution network under State
Distribution companies. Presently, there are 61 distribution utilities in India and
government aims to promote private public partnership in power distribution sector so as
to minimize aggregated technical and commercial losses (AT&C) and other problems
plaguing the sector. Distribution is one of the weakest links in Electricity value chain as

22
far as India is concerned. The Sector is plagued by high AT&C losses, power thefts,
inadequate metering, subsidized/free power, dilapidated networks & poor recovery of
dues.
Power generators sell power to SEBs or DISCOMs. SEBs are facing financial crisis and
are minting losses to the extent of Rs 700 billion annually. The SEBs do not have enough
resources to purchase power from the generators. Hence a situation has risen wherein
there is excess of power but no takers for the same.
The government recently introduced 'Ujwal Discom Assurance Yojana' (UDAY) scheme
to rescue SEBs. Beneath the scheme, 75% of the loans on the SEBs books will be
transferred in the books of their respective state governments. Transferring such huge
quantum of loans will provide some relief to the SEBs in terms of finance costs. Other
initiatives of the scheme are improving operational efficiencies of discoms, reduction of
cost of power, reduction in interest cost of discoms and enforcing financial discipline on
discoms through alignment with state finances.
So to achieve its development objectives government is trying to bring efficiency to
sector. The country is progressing in terms of the distribution reforms taking place. There
has been a thrust on increasing private sector participation. Distribution franchisee, smart
grid formation, etc. have also been initiated in the country.
However, the state electricity boards (SEBs) are still grappling with huge financial
losses; there is an immediate need to realign these boards and distribution companies so
as to fulfill the target of providing to the whole country. This further provides huge
opportunity in the sector.
1.4. Power trading
Broadly power can either be a commodity to be sold in open market or it can be a utility
which is an input for power intensive products. Power as a commodity offers insight into
the dramatic changes that have been undertaken in the Indian Power Sector since its
reform in 2003.Power exchanges were set up in India in 2008. The two Power exchanges
in India are the Indian Energy Exchange (IEX) and the Power Exchange of India Ltd.
(PXIL). Currently, sellers on the Power exchanges are mainly independent Power
producers and merchant Power producers, besides captive power plants. In addition,
bilateral contracts are signed between licensed power traders and generation and
distribution companies. Currently as per CERC there are 50 licensed traders but not all
are undertaking trading activity. The Power Trading Corporation (PTC) is the largest
trader in the country in terms of volumes of electricity traded by traders. Besides these,
direct trading between distribution companies takes place in case of surplus power being
sold outside state to deficit region subject to clauses agreed between distribution
companies.
Power-starved India is yet to realize the full potential of Power trading. Only 10% of the
power generated in the country is traded (Infocus report, 2011). In India, the generators of
electricity like Central Generating Stations (CGSs), Independent Power Producers (IPPs)

23
and State Electricity Boards (SEBs) have all their capacities tied up. Each SEB has an
allocated share in central sector/ jointly owned projects and is expected to draw its share
without much say about the price. Lack of long term power contracts is a key factor that
has impeded growth of the power trading market. Trading of power from surplus state
utilities to deficit ones, through marginal investment in removing grid constraints, would
help in deferring or reducing investment for additional generation capacity, in increasing
PLF and reducing average cost of energy. Power trading aims to create a liberalized
market structure. With the provision of non-discriminatory open access to transmission,
the competition for bulk supply to distribution companies would become a reality in the
near future.
2. Expansion of power value chain
To the above described power value chain two more components can be added as
additional integral characteristics of modern electrical grids and networks. These
components are electricity storage and ICT empowered smart grid for operating and
managing the value chain more efficiently.

2.1. Power storage

Although electricity cannot be directly stored (cheaply), it can be easily stored in other
forms and converted back to electricity when necessary with the peak value of the
electricity easily covering the cost of storing the power. An important role will be to
provide relief for consumers in the power market during periods of extreme volatility.
Once sufficient large scale storage assets are in place, one of the most visible impacts
energy storage will have on the market will be to reduce both volatility and prices during
the peak demand periods. According to Frost & Sullian report (2011), India is currently
facing power deficit and peak power deficit to the tune of 8.1-9 percent (as at end of June
2012). In order to overcome this crisis, electric energy storage systems are slated play an
important role in future of Indian Power generation systems. Renewable energy has been
regarded highly in this context of storage and usage of energy. Solar and wind energy can
be stored and used during crisis, and/or when power demand is at its highest in the
country, in order to maintain grid stabilization.
Energy storage technologies absorb energy during periods of excess capacity so that it
can be released later. When released, the power can either be delivered as real power for
consumer use, or it can be delivered as reactive power to support and stabilize the grid.
Pumped-hydroelectric (hydro) storage (PHS) is the oldest and largest of all of the
commercially available large scale energy storage technologies. Prospects for this
technology are limited in most developed counties due to high development costs, long
lead times, and the necessity to locate these facilities in very rural areas due to their size.
The current focus for development of this technology is now up-rating existing facilities
through use of advanced pumps, impellers, and variable speed drives to increase the unit's
capacity and operating efficiency by 10% to 15% (Baxter, 2002). India is looking at every
possible option that is available for energy storage, from Li-ion storage device for short-

24
term energy, to pumped hydro for long-duration storage. Keeping in mind the critical
value of efficient energy storage, India is keen on cost-effective technologies for storing
energy.
2.2 ICT empowered smart grid
Stable and reliable operation of power system is dependent upon control, communication
and computation. The concept of smart grid has become hype and received substantial
attention in modern times. Smart grid has emerged as a solution that empowers utilities
and consumers to share the responsibilities of operating and managing the power grid
more efficiently (Omar et al., 2012). Smart grid integrates the appropriate information
and communication technologies (ICT) infrastructure, automated control, sensing and
metering technologies, and energy management techniques. To ensure uninterrupted
power services to end user, the key is to ensure complete visibility and monitoring of the
grid accurately. Innovative technologies are emerging that enable cost effective solutions,
which help in realization of the Smart grid. These are based on the optimization of energy
demand and supply into traditional power grid in order to make it more efficient in many
ways. The smart grid ICT industries, such as IBM, Intel, Cisco, Oracle and Google, are
all contributing substantially in the makeover process from traditional grid to smart grid
utilities (Garner, 2010, CISCO). Smart grid offers better communications among all
stakeholders in the system. The drivers to move towards smart grid are stronger in India
due to high aggregate technical and commercial losses and poor efficiency across Power
value chain. India is trying to move in the area of smart grid due to high potential of
renewable energy sources (RE) and large pool of information & communication
technology.

NTPC Ltd Evolution-

1975 - NTPC was setup to bridge huge supply demand gap as State Electricity Boards
were not able to cope up with the situation

1997 – Government of India granted NTPC the status of “ Navratna”, being nine jewels
of India for continuous good performance

2004 - NTPC became listed company with majority Govt. Ownership of 89.11%.

2005 - NTPC rechristened itself as a limited company in line with changing business
portfolio and transforms itself from thermal power utility to an integrated power Utility

2008- NTPC Ltd. becomes largest power generation company Of India. Forbes Global
2000 ranks NTPC at 411th Position in the world

2010 - NTPC Ltd. was awarded “Maharatna” status by Govt. of India for strong and
sustained financial performance

25
2016 - PM dedicates NTPC Koldam, 1st Hydro Power Plant of NTPC ltd, to the nation.

26
Vision, Mission and Core Values

Vision –
To be the World's Leading Power Generating Company, Energizing India's Growth

Mission –
'Provide Reliable Power and Related Solutions in an Economical, Efficient and
Environment friendly manner, driven by Innovation and Agility'

Core Values - ICOMIT

• Integrity
• Customer Focus
• Organizational Pride
• Mutual Respect & Trust
• Innovation & Learning
• Total Quality & Safety

27
Evaluation of company’s standing on Core values and Ethics
Integrity
NTPC is a company where business practices scores high on ethics and Integrity. It is one
of the best places to work in India and the HR policies are among the best in sector.
NTPC as a company has a weightage for values in Performance Management Systems;
Conducts training programs on values, including sessions on values in key programs; it
rewards value based behavior and it has a Value Actualization Task force. It has vigilance
department at all the plant locations and at the central level to curb wrong practices, if
any. Also, the corporate has been winning the best corporate governance award, which
shows the practices adopted at the top level.
The Company is fully compliant with Clause 49 of the Listing Agreement requirements
relating to Corporate Governance prescribed by SEBI. Company had set up an Audit
Committee before it became mandatory. It has the Committee on Management Controls
and it has also a Fraud Prevention Policy, which, again are not mandatory. Various
Committees of the Board oversee the important aspects of the Company's functioning,
including award of large value contracts, investors' grievances, financial reporting,
management control systems, approval of Feasibility Reports and investment decisions.
The Company's disclosure practices are transparent and practical. NTPC has tie up with
Transparency International, India to implement the Integrity Pact program.
Customer focus
NTPC is a company which not only works for it customer but society as a whole. It tries
to produce power at low cost by working efficiently. It has been working hard to improve
efficiency in every new plant and through R&M activities because every 1% of increase
in efficiency decreases the CO2 emission by 2.5 %. There have been disputes like the one
between RIL and NTPC on purchase of gas. NTPC discarded RIL offering on view of
long term benefits of its customer which it feel otherwise will have to pay 17000 CR INR
extra.

Organizational Pride
NTPC is the most respected power sector company in India enjoying the Maharatna
Status. It is continuously positioned on the Forbes 500 list and has been ranked 400th best
company in 2016. NTPC has begged the best performing PSU awards several times. With
around 15% electricity installed capacity and generation around 24% of required units,
there is much recognition from various institutions for its organizational capabilities and
performance excellence.

28
 NTPC has still some problems in project management and performance appraisal system;
though it has been working in both the areas, there are no concrete results worth
mentioning.

Mutual Respect & Trust

NTPC is fully committed to achieving high standards of corporate governance and
developing mutual trust among both internal and external stakeholders. There is equal
opportunity for all within the company. And through its CSR initiatives, NTPC strives to
develop mutual trust with the communities that surround its Power Stations. NTPC has
also partnered with state and central govt. to establish quality ITI centre across India.
Expanding its outreach in the area of social concern, NTPC has started scholarships
scheme to promote the educational interests of the Scheduled Caste/Scheduled
Tribe/Physically Challenged students and thus helping them in shaping their careers as
well.
At NTPC Tanda, NTPC has adopted an Andh Vidyalaya and spreading a beautiful
message across the nation developing immense trust among external stakeholders.

Innovation & Learning

NTPC uses latest technology for its plant. But it still has low investment in R&D,
although it has a set up a Project Monitoring Centre for monitoring new projects. It has
also formed NETRA in 2009 for conducting research in Climate change, waste
management, new & renewable energy, efficiency improvement and cost reduction
besides providing scientific support to NTPC and external utilities for improving
availability, reliability and efficiency.
It organizes various conferences like GETS at the central level and others at the plant
level to increase awareness and exchange of innovative practices thereby creating a
healthy learning environment.
NTPC and Indian Oil Corporation Limited (IOCL) have signed a MoU for collaborative
research for import substitution of Lubricants, Bio–Fuels, Corrosion, NDT, and R&D
Infrastructure in 2010. Although project completion in time is still a major concern for
the company which depends upon different civil works company, instruments suppliers
and various government clearances.
It has signed MOUs with IIT Delhi and Chennai for research collaboration in the areas of
efficient Renewable Energy production in addition to setting up renewable power plants
at various locations.
Total Quality and Safety
For total quality e.g. from employees, technology, HR management, operation system,
pollution control system everything need to be in right place. NTPC has truly been able to
enforce quality in many fields and been recognized by various institution for its efforts.
International best practices are being followed at NTPC Plant.

29
Safety has been at the top priority even before introducing it in the core values for the
first time. Every effort at the project level is made to create a safe environment for the
Man and material. A full time safety officer is placed at every project and is well
equipped with man power and equipment to train the workers and stop the work if safety
is compromised.

Though there have been cases of casualties due to failures during construction and
operation period in NTPC Rihand, Korba etc.

30
NTPC ltd Presence

31
32
Strategy adopted by NTPC Ltd

Steps to buttress competitive capabilities and rectify competitive weaknesses

Competitive Capabilities: NTPC ltd is known for its plant efficiency and huge
capabilities of generating power. Currently its power generating capacity is around
47200MW. It has 18 coal based, 7 gas based, 9 renewables, 1 Hydro and 9
JVs/subsidiaries (Coal& Gas) power plants, and huge network of power supply gives it a
huge advantage in market as market leader. 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. Huge
expertise in power plant operation activities and power plant construction gives NTPC a
leading edge. Its employee base is large and well experienced and its employee friendly
scheme and safety records make it one of the sought places to work and attract best talent
form all across India. NTPC is the only company in India to have 20 year agreement with
coal India Limited for supply of coal. NTPC has huge amount of liquid cash to meet any
unforeseen crisis.

Competitive weakness: NTPC has seen unforeseen delays in project completion and
uncertainty of fuel supply. It has also new threats from power generating plants owned by
Private sector and providing power at competitive rates. It has countered delays in
procurement of machines and testing of electrical equipment. It has faced financial losses
on account of inefficient energy usage, especially in older power plants. In employee
section, there is still no performance based promotion system in hand, lesser engagement
issues among the initial grades of employees and that has led to increase in employee
turnover rates.

Correcting competitive weakness: For avoiding delays in procurement of equipment

NTPC has tied up with BHEL to set up a manufacturing plant. NTPC has formed JVs
with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC has
also acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for
manufacturing and repair of transformers. NTPC has changed the process of awarding
civil packages and this has resulted in reduction in agreement delays. To reduce land
Requirement Company’s engineering department has planned compact plant design and
township layout. The NTPC power plants involves many agencies and issues and for
operation purpose there may arise many contractual issue which cause a lot of delays for
that company is working towards an efficient contract model.

For fuel security company has tied up with Coal India Limited and for further supply
NTPC has also ventured into exploring coal acquisition opportunities in Mozambique,
Australia and South Africa. Company has also been allocated 10 fresh coal blocks within
the country and is planning to feed 20% of its total requirement through captive
generation by the year 2017. It has also ventured into development of coal mine blocks
for stations like Farakka and Kahalgaon. A JV was incorporated along with NHPC,

33
PGCIL and DVC on 22.05.2009, to set up an Online High Power Test Laboratory for
short circuit testing facility of electrical equipment so that delay and cost can be
controlled. A JV was incorporated on 10.12.2009 amongst NTPC, PFC, POWERGRID
and REC with equal equity participation to carry out and promote the business of Energy
Efficiency, Energy Conservation and Climate Change including manufacture and supply
of energy efficiency services and products. In employee section, the company is adopting
measures to engage and retain the new comers. Even under the political control the
company is trying hard to be as innovative as the private sector and offering everything to
the new employees (best talent pool of the market) in the form of perks and allowances to
maintain the equity. The engagement level has been high and the company is vying to
adopt innovative practices of retention.

Steps towards R&D, Sales, Marketing and Finance and other key activities

R&D Production

NTPC research wing NTPC Energy Technology and Research Alliance is working on
climate change, waste management and reliability supports for its station. NTPC is also
working with eminent scientists and academic institutions like IITs. NTPC Energy
Technology Research Alliance ( NETRA) R& D Wing of NTPC Limited is collaborating
with two prestigious German Institutions DLR Cologne and Institute of Solar Energy
(ISE), Fraunhofer, Freiburg on Solar Energy Research. NETRA has signed contract
agreements with DLR Cologne for Research in Solar Thermal and ISE Fraunhofer for
Research in Solar PV. NETRA plans to setup state of art evaluation facilities for CSP,
CPV, and Solar PV and conduct various programs for knowledge sharing, capacity
building with German Institution in the area of Solar Energy. The program is funded by
German Government under the aegis of Indo-German Research Cooperation.

Finance

Company’s strategy is to give its shareholder higher amount of returns for that company
always strive to reduce plant setup cost and maintenance expenses. NTPC has around 550
institutional investor and 8 lakh retail investor. Company provides the capital market with
shareholder relevant information. The company’s borrowing rate has been around 8% in
2013 and debt to equity ratio has increased from 0.63 in FY 2012 to 0.97 in FY 2016 and
the Company always tries to manage a prudent debt to equity ratio. The company always
tries to get best borrowing offerings and has recently raised INR 2000 Crores through
green masala bond (Unlike dollar bonds where the borrower takes the currency risk,
masala bond investors will bear the risk. With the green issuance, NTPC will use the
proceeds only in clean energy projects).
NTPC has plans to borrow Rs 20,000 crore in this financial year to fund its expansion, Its
Director-Finance KM Biswal said. The company will borrow Rs 6,000-7,000 crore

34
through bond issues in international markets and the balance through rupee loans
and bonds in India.

Market

NTPC ltd has started its own business school with an objective of serving the power
sector through relevant teaching, research, consultancy and ethical Management. This
will lead to a more mature market in the coming years and has given a strong message to
the players in the sector about NTPC’s commitment.
NTPC’s customer relationship management is concerned with customer requirement and
asses the customer satisfaction index. The company has started to offer services to
customers in selected areas such as Operation & Maintenance, R&D, Finance, IT etc with
the explicit objective of overall power sector growth.

Diversification approach and earnings by entering new business

NTPC’s quest for diversification started with its foray into Hydro Power. It has, since
then, been moving towards becoming a highly diversified company through backward,
forward and lateral integration. It has ventured into related and nonrelated diversification.
The company is well on its way to becoming, an Integrated Power Major having entered
Hydro Power, Solar Power, Wind Power, Coal Mining, Power Trading, Equipment
Manufacturing and Power Distribution. NTPC has made long strides in developing its
Ash Utilization business. In its pursuit of diversification, NTPC has also developed
strategic alliances and joint ventures with leading national and international companies.

Renewable Power

NTPC aims to transfer itself into the country's largest green power producer in the
coming years.it strongly believes that green power is national power. NTPC envisages a
broad base generation mix by evaluating conventional and alternate sources of energy to
ensure long run competitiveness and mitigate fuel risks. NTPC ltd aims to provide green
power through locally available resources at affordable price, promoting clean energy.
NTPC has drafted its business plan of capacity addition of about 1,000 MW through
renewable resources by 2017. In this endeavor, NTPC has already commissioned 360
MW Solar PV Projects. 260 MW Solar PV at Bhadla in Rajasthan and 250 MW Solar PV
at Mandsar in Madhya Pradesh and 8 MW Small Hydro Projects are under
implementation.
In the field of Geothermal Energy: NTPC ltd has signed a MoU with Govt. of
Chhattisgarh.
Feasibility studies in association with the Geological Survey of India are in progress.

35
Hydro Power
In order to give impetus to hydro power growth in the country and to have balanced
portfolio of power generation for long term sustainability, NTPC entered hydro power
business with the 800 MW Koldam hydro projects in Himachal Pradesh, which was
recently dedicated to nation by the PM. Four more projects (Adding upto 719 MW) have
also been taken up including 8MW of small hydro through CW discharge at Singrauli.
Further there have been constant efforts to enhance Hydro Electric capacity by setting up
large power plants in the states of Himachal Pradesh, Arunachal Pradesh etc.
Though Company has moved away from NHL, a joint venture for setting up medium and
small Hydel Power plants and has taken the business in its own hands.

Coal Mining
In a major backward integration move to create fuel security, NTPC has ventured into
coal mining business with an aim to meet about 20% of its coal requirement from its
captive mines by 2017. The Government of India has so far allotted 10 coal blocks to
NTPC, including 2 blocks to be developed through joint venture route. NTPC ltd has
commenced Mining at Pakri Barwadih coal mining block from western pit on
17.05.2016. This mine alone is expected to produce 1MT of coal in the current fiscal.

Power Trading
NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was created for
trading power leading to optimal utilization of NTPC’s assets. It is the second largest
power trading company in the country. In order to facilitate power trading in the country,
CERC has permitted trading of Electricity through Power Exchange with effect from June
2008. Currently, two exchanges viz. Indian Energy Exchange (IEX) and Power Exchange
of India Limited (PXIL) are in operation in India which facilitate an automated on-line
platform for physical day-ahead contracts. National Power Exchange Ltd., a JV between
NTPC, NHPC, PFC and TCS had been formed for operating a Power Exchange but was
withdrawn since the promoters could not take it forward despite being the early entrant.
Also, they could not work in tandem and PFC ended up acquiring stake in PXIL while
other partners were indecisive.

Ash Business
NTPC has focused on the utilization of ash generated by its power stations to convert the
challenge of ash disposal in to an opportunity. Ash is being used as a raw material input
for cement companies and brick manufacturers. NVVN a wholly owned subsidiary was
engaged in the business of Fly Ash export and sale to domestic customers till
31.12.2014.It has transferred its whole business to the parent company NTPC ltd. Ash
utilization division (AUD) proactively formulates policies, plans and programs for ash
utilization. It further monitors the progress in these activities and works for developing
new segments of ash usage. Ash Utilization Cell at each station handles ash utilization
activities. Over the years, ash consumption level has reached from meager 0.3 million ton

36
in 1991 - 1992 to 30 million tons in 2012-13. The important areas for this utilization are
cement industry, bricks industry, road embankment, mine filling, land development and
ash dyke raising. It is also a source of micro and macro-nutrients in agriculture Joint
ventures with cement companies are being planned to setup cement grinding units in the
vicinity of NTPC stations.

Power Distribution
NTPC Electric Supply Company Ltd.‟ (NESCL), a wholly owned subsidiary of NTPC,
was set up for distribution of power. NESCL was actively engaged in
Rajiv Gandhi Gramin Vidyutikaran Yojana ‟programme for rural electrification and also
working as 'Advisor cum Consultant for Ministry of Power for implementation of
Accelerated Power Development and Reforms Program (APDRP) launched by
Government of India. But the company has transferred and vested existing operations,
with effect from April 1, 2015, namely (i) Deposit works under Rajiv Gandhi Gramin
Vidyutikaran Yojana; and (ii) other deposit / consultancy works, together with all assets
and liabilities existing operations of the Company to NTPC Limited, the holding
company. The transfer and vesting of existing operations would enable a focused
business approach by the Company in the area of distribution, the objective for which the
Company was incorporated. During the financial year 15-16 Company has withdrawn
from the Joint Venture Company, KINESCO Power and Utilities Private Limited.
Although currently the Company does not have any business operations in retail
distribution but, the company is looking forward for an appropriate opportunity.
Company is contemplating for acquisition of distribution circles either through franchisee
bidding mode/ PPP or through acquisition on nomination basis

MANUFACTURING & SUPPLY OF EQUIPMENT

Escalated rate of growth in power sector necessitates augmentation of Power equipment
manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge Ltd. for
power plant and other infrastructural projects equipment manufacturing. NTPC has also
acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for manufacturing and
repair of transformers.

Actions to strengthen competitiveness via strategic alliances and collaborative

partnerships

NTPC has a strategic alliance with coal India limited for a period of 25 years where CIL
will provide coal linkages to NTPC, which in turn secures the smooth run of power
generation in the company. It had also established a strategic alliance with a coal
company in Australia from where it imported coal. These steps are taken with a view to
make it fuel sufficient .NTPC Limited and Commonwealth Scientific and Industrial
Research Organization (CSIRO) which is Australia’s National Science Organization and
largest scientific enterprise have signed a “Letter of Intent” (LOI) for scientific
collaboration and encourage joint research activities in the area of low emission energy
technologies including advance combustion and gasification technologies and

37
renewables. These steps are taken to improve efficiency and make it more environments
friendly. NTPC has also tie up with many companies for power generation.

Collaborative partnerships

1. Bharatiaya Rail Bijli Company a joint venture between Indian Railway and NTPC for
power generation
2. Kanti Bijlee Utpadan Nigam Limited, a joint venture between Bihar State Electricity
Board and NTPC for power generation through upgrading the existing units of 2*110MW
at Mazaffarpur and establishing new plant.
3. Utility power tech with Reliance power for construction and erection of power plants
4. NTPC-Alstom joint venture for modernizations of power plants in India and abroad
5. An MOU for setting up a Joint Venture Company ( JVC) towards undertaking the First
Demonstration Offshore Wind Power Project in the country along the Gujarat coast has
been signed by Ministry of New and Renewable Energy (MNRE), National Institute of
Wind Energy (NIWE), and Consortium of partners consisting of National Thermal Power
Corporation (NTPC), Power Grid Corporation of India Ltd (PGCIL), Indian Renewable
Energy Development Agency (IREDA), Power Finance Corporation (PFC), Power
Trading Corporation (PTC), and Gujarat Power Corporation Ltd (GPCL).

6. A JV was incorporated on 14.10.2011 with the Asian Development Bank and Kyuden
International Corporation (Kyushu) to develop renewable energy projects and establish
over a period of three years, a portfolio of about 500 MW of renewable power generation
in India.

Strategic alliance

1. NTPC-Alstom joint venture for modernizations of power plants in India and abroad
2. NTPC-SSCL global venture for development, operations and maintenance of coal
blocks
3. NTPC-BHEL project limited for manufacturing equipment
4. BF-NTPC energy system limited for facilitation of casting and forging

38
39
The company is diversifying through many means and moving with applying- adopting-
achieving or abandoning, if not growing. Even being such a huge ventures its flexibility
and openness helps in applying efforts for looking business in all directions.

Actions to respond changing market conditions and other external factors

In last fifteen years the business environment of power sector has changed considerably
bringing in various opportunities and threats for NTPC Ltd. like introduction of
Electricity act 2003, entrance of private players in power sector especially in power
generation and manufacturing of equipment, high volatility in quantity and price of fuel

40
supplies, emergence of new technologies, stringent environmental laws, and more
recently growing concerns and stress on renewable energy particularly in solar power etc.

To respond to these changes NTPC Ltd. has taken following initiatives: NTPC has
expanded generation capacities by investing considerably in thermal and hydro capacities
to maintain its leadership position in Indian power sector .Choosing abroad base fuel mix
of imported coal, gas, domestic coal, nuclear power with a view to mitigate fuel risks to
maintain long run competitiveness. Due to increased environment awareness govt. is
under pressure to reduce pollution. NTPC has drafted its business plan of capacity
addition of about 1,000 MW through renewable resources by 2017. In this endeavor,
NTPC has already commissioned 360 MW Solar PV Projects. 260 MW Solar PV at
Bhadla in Rajasthan and 250 MW Solar PV at Mandsar in Madhya Pradesh and 8 MW
Small Hydro Projects are under implementation .NTPC is moving towards non–fossil
power source and by year 2032 it will largely change its fuel mixture .
NTPC is investing in non-conventional energy sources like solar and nuclear energy to
tackle future environmental concerns. It has adopted backward integration strategy in fuel
supply to exercise greater control on fuel supplies. Bidding aggressively for Ultra Mega
Power Projects as they help in reducing cost of developing the projects and power
generated. Adopting forward integrate into the power distribution business in India. R&D
in the field of Solar and Wind power shows its commitment in moving ahead with
advanced technology.

Steps to grab emerging market opportunities and defend against company’s

business prospects

With spiraling demand for power, the quantity demanded has almost doubled in the last
decade and is continuing to grow at a rate even faster. To satiate the un quenching thirst
for power of an emerging economy like India it is very important for a public sector
company like NTPC to look for, expansion of its generating capacities by putting up
thermal and hydro capacities, thus maintaining the position of a dominant generating
utility in the Indian Power sector. More importantly this has to be done fulfilling the
policy driven agenda of the government, the prime shareholder. This is being done by
Broad base fuel mix by considering imported coal, gas, domestic coal, nuclear power etc.
with a view to mitigate fuel risks and maintain long run competitiveness. The company is
gearing up its competitiveness in the field of solar power and wind power by forming
alliances and joint ventures with expert companies. NTPC is also expanding its services
for EPC, R&M and O&M activities in the domestic as well as international markets.
The company is also using backward integration into fuel management to exercise greater
control and understanding of supply economics and forward integration into the power
distribution of India.
It is a leader in the development and commercial deployment of non-conventional energy
sources especially in the distributed generation mode. Currently 16 decentralized
distributed generation power projects with a combined capacity of 340 KW have been
commissioned for benefitting 2280 households with a population of 12500 in four states.
It is further improving its collections active role in allocation in new plants. It is also

41
executing increased number of power plants that classify for Mega Power Projects status,
thereby reducing the cost of the projects and power and power generated. Undoubtedly
NTPC ltd is a market leader with world class operational efficiency and effectiveness and
its further foray into different emerging markets makes it even more aggressive to further
enhance its competitiveness on a global scale.

Steps to enter new geographic product markets or existing ones

NTPC is striving to get globalized and entering new markets especially in Asia. Company
had tied up with Ceylon Electricity Board with 50:50 partnerships for a power project.
Unfortunately, the same has been delayed due to various circumstances and annulment of
the same is pending in the court on grounds of Fundamental Rights application, filed in
May 2016 by an environmental organization.

It has also formed a joint venture with Bangladesh Power Development Board for the
execution of 2×660 MW Supercritical coal based power project at Rampal, called the
2×660 MW Maitree Super Thermal Power Project . It’s a ‘FAST TRACK’ Project of
Bangladesh Government with 100% Power to Bangladesh.

Steps to gain sales and market share via competitive prices enhanced performance
features, more appealing design or customer service

In any sector where the demand is more than the supply the market share is gained by
building capacities and same is the case with the Power industry. So to capture greater
share of market, NTPC Ltd. is investing heavily in newer projects and expanding
capacities in existing projects. It has leveraged its position (D:E ratio) largely in the past
few years . For greater customer satisfaction it is also improving operational practices to
provide quality power. To expand the relationship with existing customers it is also
offering other services in addition to power supplies like energy consulting, distribution
consulting, etc. It has been organizing various seminars/conferences for increasing
awareness and sharing of knowledge among the sector. Starting its own Business school
and taking participants exclusively from the power sector players shows its vision
towards improvement and maturity of the sector. NTPC Ltd. is also investing in newer
technology to cut operational as well as project development cost so as to provide
competitive cost electricity to customers.

Steps to strengthen market standing and competitiveness by acquiring or merging

with other companies

42
For consolidating its market position the company is adding capacities by all means.
Company is leveraging on its Renovation and Modernization capabilities by acquiring
loss making state electricity boards (SEB) and transforming them into profit making
entities by excellent operational practices. Few examples in the past have been Tanda
thermal plant, Unchahar thermal power plant, Badarpur power plant and Talcher thermal
power plant. This strategy seems quite effective now in the light that to grow its market
share and maintain its leadership position NTPC needs to add capacities at a greater rate.
Also lately due to increased competition from private players NTPC has not been
winning competitive bids for new power plant projects. Hence by acquiring and
transforming these SEBs the company can again use its established approach to maintain
its leadership.

Environment Analysis

Indian economy is an emerging and fast moving economy. Changes come at a rate faster
than envisaged by many sectors. Power sector has also been drifting on several moving
blocks and uncertainties that can shape the future of the industry. Reforms on the fuel
side, emergence of renewables, regulatory pressures on efficiency, empowerment of the
wholesale and retail customers are just a few trends that can completely change the face
of the power sector.
For a company like NTPC ltd in such a fast changing business landscape, there are both
opportunities and challenges. The strategy has to be evolved keeping all the new
emerging issues in mind such as regulatory changes, mergers and acquisition
opportunities, and a focus on renewable sources of energy.
NTPC's core business is generation and sale of power to state electricity boards (SEBs).
Weak financials of the state government-owned distribution companies because of low
tariff increases, slow progress in reducing losses, higher power purchase costs and
crippling debt have assumed alarming proportions. SEBs with debt of Rs.3.04 trillion and
losses of Rs.2.52 trillion are on the brink of financial collapse. Lower demand for power
translates to a lower PLF, a measure of average capacity utilization.

With these rapid macroeconomic changes many companies have to monitor their macro
environment and adapt accordingly. There are new legal laws for industry, new safety
standards, and new laws for carbon emission, introduction of better technology & new
competitors. Surely this period which is highly competitive and it’s imperative for
companies to evolve and adapt for survival. These economic changes also affected power
sector and NTPC as a major player in power sector has to face the existing as well as
emerging scenario.

India currently suffers from a major shortage of electricity generation capacity, even
though it is the world's fourth largest energy consumer after United States, China and
Russia. The International Energy Agency estimates India needs an investment of at least
$135 billion to provide universal access of electricity to its population.

43
Electricity distribution network in India is inefficient compared to other networks in the
world. India's network losses exceeded 32% in 2010, compared to world average of less
than 15%. Loss reduction technologies, if adopted in India, can add a virtual capacity of
about 30 GW of electrical power.

PESTEL ANALYSIS - Macro-Economic Environment of NTPC Ltd

Political environment
NTPC being a State owned company its policies are governed by the government of
India. Indian government policies like rural electrification, power for all by 2022 require
NTPC to add installed capacity at a faster rate. The generation of electricity has been at
an even higher rate. The share of generation of electricity has always been much higher
than the share of installed capacity. Indian government is now emphasizing on renewable
energy resource and foreign direct investment is being allowed, so competition is
expected to intensify. NTPC ltd has been an early entrant in solar power business largely
owing to the Political Agenda of current Government. The Agreement with US govt. on
supply of uranium for nuclear supply will enable NTPC to procure raw material for its
upcoming nuclear power plant. After liberalization of the economy many private sector
players have entered the power generation business offering both risks and rewards.
Increase of pay for public sector employees by government irrespective of the
performance of the individual has strained the financial position of NTPC and has curbed
the power of Management in motivating employees.

Economical
GDP growth at a rate of 7-8% and rapid globalization has offered both opportunities and
threats for NTPC ltd. Due to economic growth demand for power has increased and
Indian government has planned to add 88.5 GW in the 12th five year plan. To sustain this
demand NTPC has to add more power plants.
Also the Government has targeted 175 GW of renewable power (Solar 100GW and Wind
75GW) by 2022 and hence NTPC ltd has set ambitious target to fulfill its commitment.
Due to globalization NTPC has chance to enter new markets. NTPC has been trying to
enter neighboring countries like Bhutan, Bangladesh and Sri Lanka. NTPC has tried
sourcing coals from Australia, Mozambique, and Indonesia. For equipment NTPC has
eyed upon cheaper international markets to deliver equipment in better prices and on
time. India’s credit rating influence NTPC in a large way, lower credit rating cause
financial problem like borrowing money at large interest. High exchange rate increases
the cost of coal imports.

44
The acquisition of Dabhol Power plant forming joint venture with GAIL and setting up of
Non pit head power plants are few decisions which did not seem financially viable but
were taken up by NTPC ltd under the influence of the Government on the grounds of
economic viability.

Social
With the growth in GDP and Purchasing Parity the mindset and lifestyle of Indian
Consumers has changed drastically in past 10-15 years. There is high demand for electric
power largely by Indian middle class. The awareness level about renewable energy and
sustainable resources have increased in the society and the inclination of people towards
renewable energy is likely to increase in future which may affect electricity demand from
non-renewable sources. Social awareness has also affected activities like deforestation
and land acquisition for setting up of new plants .There have been cases where NTPC has
to stop its project after taking a start in the states of Himachal Pradesh and Arunachal
Pradesh. Society is getting responsive towards environment and social effects can be seen
affecting coal mining also. There have been concerns against Nuclear radiation and
agitations have been seen against Nuclear Power Plant in Tamil Nadu.

Technical
With so much focus on renewable energy, globally and locally, high efficient Renewable
technology will be a major thrust in future. There is huge scope still left in the area of
efficiency of solar panels and technology for wind mills. Technology is getting older at a
rate higher than being envisaged. Areas like equipment manufacturing, renewable
technology, improvements in operational efficiency, efficient usage of transmission and
distribution infrastructure are major technical factors that have affected NTPC. High
efficient super critical technology are getting introduced which gives more power per unit
of fuel and reduces CO2 emission (1% increase in efficiency reduces CO2 emission by
2.5%).Newer technology and large infrastructure are required to sustain in the era of
UMPPs. Equipment manufacturing has been a major problem. State Owned BHEL used
to be the only provider of equipment but slowly NTPC has also started importing from
equipment manufacturers such as Shandong Electric Power Construction Corp., Shanghai
Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co.
Ltd etc.. With the use of high and efficient boilers NTPC has been able to increase
operational efficiency as well as able to reduce fuel consumption. Few R&D exercises to
improve performance and efficiency, done so far by NETRA:

45
- Recovery of water and utilization of waste heat from flue gases for improving heat rate
of the plants or additional power

- Development of Multi-composition Ammonia Liquor Absorption Engine (MALAE

Cycle) for power generation from flue gases

- Flue Gas Heat Recovery System for Air-conditioning (FGHR-AC)

- Thermosyphon Heat Pipe based Air Pre Heater (THPAPH)

- Existing motor modification to retrofit VFD with suitable rewinding and other measures

- Computational Fluid Dynamics (CFD) studies on plant boiler systems

Environmental
Recent Paris convention and signing the commitment thereof has increased the role on
Environment on the industry more than ever. Thermal power plant produces carbon
dioxide which is main contributor of the greenhouse gases. Now when India is fully
committed towards curbing the ill effects of GHG, NTPC has to use better pollution
control method and use renewable resource for power generation. After stringent laws
against deforestation, new plant setup has now become a problem for NTPC specially the
hydro power project feasibility has reduced to higher extent. Even monsoon season coal
mining gets hampered which affects the operation and even heavy monsoon causes
project delays and increase cost.

Legal
Law like environment protection act, work safety laws, tariff laws affects NTPC Ltd in a
big way. Newer tariff regulations may hamper NTPC profitability. India's tariff policy
aims to make electricity available to all consumers at reasonable and competitive prices.
The policy lays down the framework for performance-based cost of service regulation in
respect to aspects common to its generation, transmission and distribution. Among these
aspects are return on investment; equity norms; depreciation; cost of debt; operating
norms; and renovation and modernization. CERC issued the new tariff regulations for the
period 2009-2014 with the objective to encourage higher performance for which adequate
incentives have been provided. While the operating norms have been made more
stringent, the return on equity has been increased. Also new projects are now awarded to
the most competitive company which produces unit power at lowest cost unlike before
when it was through power purchase agreement between companies and state govt. After
the revision of bidding process on the basis of levellized cost of generation few private
players like TATA Power and Reliance have grabbed projects better than NTPC ltd. Even

46
raising capital from foreign market was constrained by Indian Laws which hampered its
development plans.

Even change in laws in foreign country may affect Power sector in India like the one in
which the coal export prices were increased in Indonesia and affected the Tata Power
which was relying on imported coal to run its Power Plant.

Interaction Influence Industry

The entire macroeconomic environment interacts with each other and affects the industry.

 Political decision to switch towards renewable resources has developed enormous

pressure on technology development in this field

 Political responsiveness towards environment conservation has created problem in

land acquisition and setting up Thermal plants and hydro project.

 After liberalization, the sector has turned more competitive and for sustaining the
economic growth the need for power provides a great opportunity for the whole
value chain.

 Social awareness on ecological factor comply Company to focus on renewable

resource based energy production and use more efficient production technology
and use efficient use of resource

 New developments in technology like pollution control measures, fuel efficiency,

power generation from renewable source helps the industry to reduce
environmental pollution
 Political decision like “power to all” has led to development of super critical
technology that leads to high efficient power generation and fuel utilization
 Many govt. policies like hydro policy 2008 regulate the legal environment has
implication on operational efficiency of NTPC
 Legal environment forces industry to use better technology for pollution control
increasing R&D costs
 Tariff based bidding policy from govt. force industry to use super critical
technology and increase the initial investment
 Govt. had strict policy on foreign investment and have formed laws that didn’t
allow foreign capital inflow until recently when 100% FDI has been allowed

Opportunities & Threats- PESTEL

Political

47
Opportunity
 Strong support of the government and ties ups with many PSU like Coal India
limited, SBI. Moreover, the coming up of Power and Coal under one ministry is
expected to resolve many long pending issues.
 Comparatively easy to get access of natural resources than private sector.
 Liberalization increases demand of power, there for provided opportunity for
growth
 Nuclear resource technology transfer for future power generation (123
agreements).
 Thrust on renewable power has helped in receiving clearances for Solar and Wind
power in the recent past

Threat

 Ambitious targets for solar power by the Government has moved NTPC ltd into a
business area where the technology and economics are still dynamic
 Govt. policies like tariff based bidding for project allows its competitors to capture
its market

 Increase of wages by govt. policies decrease profitability

 Changes of tariff policy affects profitability

 Environmental policy can affect future projects feasibility

Economic
Opportunity
 100% FDI inflow in manufacturing sector has helped in bringing more competition
and increase bargaining power of NTPC ltd as a Consumers
 Globalization helps to enter new market i.e. South Asian countries
 Supply of equipment from different vendors decrease supplier power
 High growth rate implies more demand of power and an opportunity for the
company
Threat
 Lower credit rating can lead to higher rate of borrowing
 Higher exchange rate increase the cost of imported fuel

Social
Opportunity
 Continuous increase in Purchasing Power parity has resulted in higher demand of
power from consumer so there is huge growth opportunity

48
  Stress on renewable energy so development of these power plant expected

Threat
 Due to increased awareness and wrong information, Land acquisition and
deforestation has become a problem
 Unions in plant can offset operation
 High cost involvement in using better pollution control method

Technical
Opportunity
 Super critical technology increase operational efficiency and lower consumption
 Renewable energy resources for sustainable developments
 Faster installation of power plant with better technology and can reduce cost of
installation
 Better pollution control device for environment
Threat

 The technology for Solar power is yet to mature and the costs are coming down
gradually.
 High cost involvement in technology

 Nuclear technology involved high risk

Environmental

Opportunity
 Move towards cleaner form of energy
 Faster setup of Solar Power Plants involving lesser agencies and manpower

 Solar Power Plants can be setup on Ash Dykes, canal top and barren land away
from rail head and hence land acquisition process may be relaxed at many
locations.

Threat
 Emission law forces better pollution control and increase operational control

 New project developments become a tedious process due to clearance from

different environmental laws. E.g. Lohari Nag pala hydro project abandoned after 5
years due to its impact on ecology

49
Legal
Opportunity
 To meet the legal obligation need to improve operational efficiency as well as find
ways for more efficient technology to confirm to legal norms
E.g. developments of super critical technology
Better wastage management by using ash as an asset as it is legally required
 Tariff policy force plants to be more efficient and work on lesser fuel usage (so as
to provide power at competitive cost)
Threat
 Environment law, work safety law increase plant cost(although necessary)
 Tariff policy affects operational profitability

Competitive landscape

The Indian Power Sector consists of large number of players. Besides the organized
public and private sector, many companies in India have their own captive power plants.

Threat of new entrants

The entry barriers in the industry are quite high due to its resource based and capital
intensive nature. Power Sector is a highly capital intensive sector and is characterized by
a very high level of initial investment and low to medium returns. The investment on
technology, human resources, capital structures etc. is also very high. The increasing fuel
and raw material prices also act as a deterrent to the potential players who want to enter
this industry. Considered the very high initial investments and regulated margin, the
breakeven period on the investment is very long. Hence the advantage for new companies
into the industry is low to moderate. In India, legal requirements also make entry into
power industry tough.
Due to the above reasons the threat of new entrants to power generation in India is low to
very low. Also guided by the very nature of the industry (Very high investment, low
returns), the industry requires high level of consolidation. Hence incentives for new
entrants into power industry as NTPC’s competitors are very low

However, despite the challenges the sector saw a steady flow of foreign direct investment
in the last few years. Cumulative FDI inflow in the Power Sector was around USD 9.6bn
during 2000- 15. This was equal to around 4% of the country’s total FDI during the
period. Cumulative FDI inflows in the Power Sector (in USD mn) “Source: Department
of Industrial Policy and Promotion”

50
Threat of substitutes

Electricity has become the primary requirement of a modern lifestyle just like food,
clothing and water. Hence, threat of substitutes is minimal for the Power Sector. Electric
power as such has very less substitute products; however the generation of electricity has
few substitute methods other than the traditional methods of thermal power generation
largely used by NTPC.

However, coal fired power plants are responsible for large scale emissions of greenhouse
gases. Thus, in recent years the government has been promoting cleaner sources of energy
like hydroelectric, solar and wind energy. Many players have entered the business of
Solar, Wind and Hydro Power in the recent years owing to pro-environmental policies.
Since few of these companies are providing low operating cost clean energy alternatives,
many individuals and firms have gradually tried to use these services.

“Modi and his trusted lieutenant Piyush Goyal have targeted setting up an ambitious
100,000 MW (or 100 GW) of Solar Power capacity by 2022. That's equivalent to 300
Charanka-like parks or 30 times of India’s existing Solar Power capacity. It requires an
investment of Rs 6.5 lakh crore (nearly three times India's defence budget) at a time when
the Indian banking system is already laden with bad and doubtful debts of more than Rs
10 lakh crore. It requires 1,095 sq km of land (equivalent to 3,60,000 football grounds)
when the country is embroiled in a raging debate over land acquisition rights. It requires
400 million units of solar modules when the country's solar module makers can
manufacture only 70 million units in seven years. Though it's clean energy, it will still
pose questions of viability as solar energy costs Rs 6 to Rs 7 per unit against the average
cost of power of Rs 4 per unit today. And, importantly, the new capacity will face the
distribution and evacuation challenges that are the bane of India's power sector. "The
evacuation and grid management is a big challenge, and if we look at expanding
renewable resources the challenge becomes more steep," says Amit Kumar, Partner,
Energy and Utilities, PwC India.Indeed, at the end of the day, even if the target is
achieved, it will only produce roughly 22,000 MW of power (solar panels work at 22 per
cent efficiency) - that too in day time. Mahajan, Anilesh S. Business Today (May 10,
2015)”.
These critical comments were common when the targets were announced but one and half
years later the scenario has changed a lot. There are lot and lot of new players and
investment coming in the new business. India's renewable energy sector is amongst the
world's most active players in renewable energy utilization, especially solar and wind
electricity generation. As of June 2016, India had grid connected installed capacity of
about 42.85 GW non-conventional renewable technologies-based electricity capacity,
about 14.15% of its total; exceeding the capacity of hydroelectric power for the first time
in history

51
However given the increasing demand and thrust for green power in India the threat from
solar power is going to increase exponentially against NTPC ltd and hence NTPC has
also moved into solar with an ambitious target and to maintain its leadership.

Bargaining power of buyers

A large demand-supply gap exists in the Indian Power Sector. The entire capacity of
private and public players is not sufficient to fulfil the country’s energy demand. Industry
experts forecast that peak demand would grow at a CAGR of 8% proportional to expected
growth in supply of 6%-7%, resulting in a continued upward trend of power deficit. Thus,
bargaining power of buyers is low in the Indian Power Sector.
However with the competitive landscape, limited buying capacity (cash crunch) of many
players and policies related to green power, relatively healthy Discoms have huge
bargaining power to play.
Indian Power sector demand supply game has much more to do than simply finding the
intersection of the curves.
According to an article in ETEnergy World dated August 17, 2016,
“More than a third of India's thermal power capacity (303 GW) is lying unused, while the
rest is running at a shade over 55% utilization owing to inadequate demand. Analysts said
utilization is expected to fall further if more capacity is added as planned by the
government, portending losses for power firms”
Falling capacity utilization translates into losses and inability of new power plants to
service interest costs, leading to non-performing assets at banks. Thus the power of buyer
is huge and plays a vital role because the commodity can’t be prepared by the generator
and stored for future sale at the right time forcing it to bear the huge idling costs.

The bargaining power was calculated using the Herfindahl index (also known
as Herfindahl–Hirschman Index, or HHI), which is a measure of the size of firms in
relation to the industry and an indicator of the amount of competition among them.

It is defined as the sum of the squares of the market shares of the firms within the
industry (sometimes limited to the 50 largest firms), where the market shares are
expressed as fractions. The result is proportional to the average market share, weighted by
market share. As such, it can range from 0 to 1.0, moving from a huge number of very
small firms to a single monopolistic producer. Increases in the Herfindahl index generally
indicate a decrease in competition and an increase of market power, whereas decreases
indicate the opposite. Alternatively, if whole percentages are used, the index ranges from
0 to 10,000 "points". For example, an index of .25 is the same as 2,500 points.
The major benefit of the Herfindahl index in relationship to such measures as
the concentration ratio is that it gives more weight to larger firms.
Market share is said to be a key indicator of market competitiveness—that is, how well a
firm is doing against its competitors. "This metric, supplemented by changes in sales

52
revenue, helps managers evaluate both primary and selective demand in their market.
That is, it enables them to judge not only total market growth or decline but also trends in
customers’ selections among competitors. Generally, sales growth resulting from primary
demand (total market growth) is less costly and more profitable than that achieved by
capturing share from competitors. Conversely, losses in market share can signal serious
long-term problems that require strategic adjustments. Firms with market shares below a
certain level may not be viable. Similarly, within a firm’s product line, market share
trends for individual products are considered early indicators of future opportunities or
problems

The closer a market is to being a monopoly, the higher the market's concentration (and
the lower its competition). If, for example, there were only one firm in an industry, that
firm would have 100% market share, and the HHI would equal 10,000, indicating
a monopoly. If, there were thousands of firms competing, each would have nearly 0%
market share, and the HHI would be close to zero, indicating nearly perfect competition.

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a
competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated
marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace.

Calculation of HHI on the basis of Concentration in the Demand Side

M.S in
S. September_2015- Market Share of Whole Square
No. State /System /Region Requirement-( MU ) demand Number of M.S
1 Chandigarh 158 0.161653366 0 0
2 Delhi 3047 3.117454471 3 9
3 Haryana 4921 5.034786167 5 25
4 Himachal Pradesh 735 0.751995089 1 1
5 Jammu & Kashmir 1279 1.308573767 1 1
6 Punjab 5478 5.604665439 6 36
7 Rajasthan 6197 6.340290567 6 36
8 Uttar Pradesh 10234 10.47063638 10 100
9 Uttarakhand 1130 1.156128504 1 1
10 Northern Region 33179 33.94618375 34 0
11 Chattisgarh 2211 2.262124002 2 4
12 Gujarat 8824 9.028033558 9 81
13 Madhya Pradesh 5136 5.25475752 5 25
14 Maharashtra 11245 11.5050133 12 144
15 Daman & Diu 202 0.206670759 0 0
16 Dadar Nagar Haveli 498 0.50951504 1 1
17 Goa 421 0.430734602 0 0

53
 18 Western Region 28537 29.19684878 29 0
19 Andhra Pradesh 3949 4.040311029 4 16
20 Telangana 4286 4.385103335 4 16
21 Karnataka 4979 5.094127276 5 25
22 Kerala 1889 1.932678535 2 4
23 Tamil Nadu 8341 8.533865357 9 81
24 Puducherry 212 0.216901985 0 0
25 Lakshadweep 4 0.00409249 0 0
26 Southern Region 23656 24.20298752 24 0
27 Bihar 2104 2.152649887 2 4
28 DVC 1596 1.632903622 2 4
29 Jharkhand 680 0.695723348 1 1
30 Odisha 2247 2.298956415 2 4
31 West Bengal 4436 4.538571721 5 25
32 Sikkim 26 0.026601187 0 0
33 Andaman- Nicobar 20 0.020462451 0 0
34 Eastern Region 11089 11.34540618 11 0
35 Arunachal Pradesh 53 0.054225496 0 0
36 Assam 806 0.824636791 1 1
37 Manipur 65 0.066502967 0 0
38 Meghalaya 153 0.156537753 0 0
39 Mizoram 35 0.03580929 0 0
40 Nagaland 61 0.062410477 0 0
41 Tripura 106 0.108450992 0 0
42 North-Eastern Region 1279 1.308573767 1 1
All India 97740 HHI 646

Hence on the demand side the market is very competitive and thus the bargaining power
is very less.

Bargaining power of suppliers

There are mainly two kinds of suppliers in the power industry: one for the fuel and other
for the equipment. For Thermal based power plants Gas and Coal are the major fuel and
highly concentrated industry in the hands of few like Coal India Ltd, Gail and Reliance.

Since, coal fueled power plants generate around 60% of electricity; the prices of coal
have a direct bearing on the cost of power generation in the country. Any changes in coal
prices directly affect the income statements of power generation companies. The
consumers are finally affected, and end up bearing the costs.

The bargaining power of the suppliers is huge and thus Government intervention is
required to balance the Market Power. The CERC regulations help the Generators in
exercising their power and help the sector sustain.

54
Since the Mining industry is highly concentrated, it is very attractive and can be exploited
by Giants like NTPC ltd where the consumption requirement is huge. Apart from
Monetary benefits, the company can also derive reliability and quality supply from its
own mines and hence the move into the Mining sector is a welcome move.

The growing consumption on Coal by the country can be seen from the below graph and
it is projected that the demands for Coal is going to increase for the next 10-15 years
before the renewable take a bigger chunk to meet the energy requirements. There is also
growth in the production side but the gap is increasing year by year. This gap is being met
by Imports.

Though, there has been a good comeback by the Asian countries in terms of Coal import
in the previous year. But to sustain and control the imports Indigenous coal mining has to
be taken up more rapidly by bigger players like NTPC ltd in addition to CIL and NLC.

55
Coal Suppliers enjoy a good bargaining power and the industry is quite attractive for
NTPC ltd.

The other kind of supplies includes the Equipment supplies. Before 2003, it was a highly
concentrated industry with the State Owned BHEL enjoying the monopoly. With the
opening to private players and FDI, there have been many new entries. State Owned
BHEL, L&T, Seimens, Alstom, General Electric, Bharat Forge, Toshiba, Ansaldo
Caldaie India, BGR Energy, Cethar Vessels, Thermax India and many Indian joint
ventures with Forign MNCs are having the major equipment production capacity in the
country. The imports again play a major role in meeting the requirements since past few
years especially from China. Domestic power equipment companies, including BHEL
and L&T, have already expressed concern over Chinese imports flooding the Indian
market.
In the 11th five-year plan, thermal generation capacity of 48,540 MW was commissioned.
Of this, equipment for 18,187 MW was imported from Chinese manufacturers. In 2013,
the power ministry's watchdog, the Central Electricity Authority (CEA), asked all state
and Central government-owned power generation companies to incorporate a condition
that companies getting orders for boilers and turbine generators will set up indigenous
manufacturing facilities. Thereon, the order books of Chinese players dried up.

However, their exit has not helped the indigenous manufacturers. "Most of the companies
are running at 25 to 30 per cent capacity," says the CEO of a top power equipment
manufacturing company.

From Powerful to Powerless

Today's situation is a big comedown from the heydays of power, in the period starting
2006/07, when India started adding more than 10 GW generating capacity per year, and
then took this to 20 GW. It was a time when GDP growth was going great guns, and all
other growth metrics were booming. Private power companies like JSPL, Adani Power,
Reliance Power and Tata Power jumped in with gusto, and made big plans to set up

56
power plants. That promised a great future for indigenous power equipment companies
like BHEL, Thermax, L&T, BGR and Bharat Forge. These companies formed joint
ventures with international biggies and ramped up capacity like nobody's business,
investing an estimated Rs 5,000-7,000 crore in aggregate. As a result, these companies
today have a cumulative capacity for manufacturing 16,000 MW of power-generating
equipment.

But by the time these capacities had come up, the power sector had nosedived due to
issues like fuel shortage, dip in domestic gas production, coal scam, bad contracts, poor
financial structuring and the subsequent era of policy paralysis. Finally, in July 2013
came a Presidential Directive asking Coal India to sign fuel supply agreements (FSAs)
for 78,000 MW of capacity to be commissioned by March 31, 2015. There was no
commitment for fuel for any plant beyond this. All these factors combined to deflate the
enthusiasm of private investors. As a result, today, power equipment manufacturers are
stranded with huge unused capacities.
At this point, orders are only coming from either NTPC or generators from states such as
Telangana, Uttar Pradesh and Kerala.

Hence, there is huge competition in the industry and the fact that State Owned BHEL is
looking desperately for new orders reveal the fact. Most of the Equipment manufacturers
are bearing the idle costs.

In addition to this, government pressure keeps a check on the prices of electricity

companies who in turn exercise this pressure on their suppliers. Thus, the bargaining
power of suppliers is low in this sector.

Capacities of Solar Equipment manufacturing which is a relatively smaller setup are also
coming in and taking an increasing chunk.

Industry analysis on the basis of Power Plant Equipment production capacity could not be
performed as most of the companies are engaged in other verticals and horizontals and
separate data for the Power sector is not available in Public domain.

Over all the Coal miners have a huge bargaining power but being controlled in the
regulated regime. On the other hand the equipment manufacturing capacity exceeds the
demand and generators exercise their powers

57
Intensity of competitive rivalry

The intensity of rivalry in the power industry is low. Presently, the Power Sector is
dominated by public sector companies. The three majors, namely National Thermal
Power Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and
Nuclear Power Corporation of India Ltd (NPCIL) accounted for 22% of the total installed
capacity in India as of FY15.

Major players in power sector

The major players in Indian power sector apart from NTPC Ltd are TATA power,
Reliance power , Jindal power, Adani Power, Lanco etc.Among the rival TATA
power, reliance and JSW are major threat to the company as a conglomerate of a
TATA they have better assess to coal field better technology and huge and talented
work force and financial
TATA Power
1. Tata Power has a presence in all aspects of Power- Thermal, Hydro, Solar, Wind,
and Transmission & Distribution.

2. From its niche Power generation and distribution business in Mumbai, Tata Power
is making a confident move towards a national presence in the power sector as well
as communication and energy businesses.

3. Tata Power is extending its transmission and distribution operations nationally.

4. Tata Power is implementing continuous modernization and cost reduction

strategies to emerge as a low cost power producer.
Reliance power

1. Reduction of Cost of Power Generation

2. Ensuring Fuel Supply

3. Focusing on Power Deficit Regions

4. Establishing an Optimal Mix of Off-take Arrangements

5. Targeting Additional Revenue Sources

6. Actively pursuing opportunities to target additional revenue sources, including by

selling carbon credits, fly ash and entering in distribution business.

58
Jindal power
1. Focus on leveraging experience of commissioning the1000 MW plant to build over
15000 MW of generation capacity. Diversify presence across the value chain by
entering into transmission and distribution
2. Acquire, develop and operate power plants outside India

3. Establish presence in other forms of power generation such as gas, hydro, wind,
nuclear and
Focus on initiatives to achieve high PLF such as daily plant
performance monitoring, scheduled Maintenance practices, condition
monitoring

4. Leverage backward linkages of coal and water to reduce power generation cost

5. Continue to emphasize on sustaining, growing, nurturing and retaining qualified

human resource .Take effective steps to minimize impact of operations and set up
hydro power projects that lead to minimal resource depletion.

6. Focus on environment management practices that include regular monitoring of

impact across all parameters and minimizing incidence

59
5-Forces Analysis for NTPC Ltd

60
Environmental scanning

India’s power industry has shown resilience, despite a stagflation situation in the
country. The demand-supply gap that exists in the sector has allowed power companies to
stay strong even amidst the grim economic scenario. However, persistent industrial
slowdown and the debt pile accumulated by private sector companies are affecting their
income statements.

Political environment

The country held its 16th general elections during April and May 2014 with the results
out on May 16th. National Democratic Alliance (NDA) saw a decisive win bagging 62%
of the total seats, much above the 50% required for forming a government. Bhartiya Janta
Party (BJP), which is a part of NDA, emerged as the single largest party winning 52%
seats on its own, a feat achieved after 30 years.
PM Modi, just after coming to power reflected his agenda for clean development and
pushed the economy in newer directions. Renewable sources like Solar, Wind and Hydro
were taken up on the priority list and control the Thermal based capacity to a level with
which the Grid can be balanced.

5-Forces Analysis for One Level Backwards (Buyers of NTPC)

61
 The Buyers of NTPC is majorly Power Grid and the Distribution Companies
supplying electricity to individual customers and medium to large firms and
industries purchasing electricity for own consumption. The Five forces analysis of
these organizations is given below:

Threat of new competition

Since most Grid companies are either owned or controlled by the govt. their
operation is highly regulated. It used to be very difficult for private firms to enter
this business due to these govt. regulations. Still there are a few Private players
hardly supplying 5% of the Electricity.
Hence for Discoms the threat from new competition is very low.

Threat of substitute products or services

For the Discoms, the threat of substitutes is very low as most customers depend on
electricity for their most power needs and these grids have monopoly in their
respective areas.

Bargaining power of customers (buyers)

For the buyers from Discoms, the bargaining power is medium. But with the open
Access coming I the picture the B.P of buyers will increase largely. These grids
operate in a monopolistic market and the price of electricity is regulated by the govt.

Bargaining power of suppliers

The bargaining power of Generators is Low to medium owing to the regulations and
specific areas.

Intensity of competitive rivalry

The competition faced by the Discoms is very low as they act in a monopolistic
market.

5-Forces Analysis for One Level Forward (Suppliers of NTPC)

The suppliers of NTPC are majorly constituted by coal producers and heavy
equipment manufacturers. The analysis of 5 competitive forces of these firms is
given below.

Threat of new competition

The threat from new competition for coal producers is very low as almost all coal
mines are govt operated and coal is sold at govt. determined prices. Entry to mining

62
is relaxed and was auctioned recently . It remains govt. regulated and initial cost and
time of set up are very high.
However the threat for new completion for heavy equipment manufacturers is
medium as the demand for equipments is high and new foreign companies have
started entering Indian market after deregulation.

Threat of substitute products or services

Currently NTPC depends heavily on coal for thermal electricity generation. There is
no change in coal usage by NTPC in near future. But with coming up of renewables
the rise in coal requirement will slow down. Hence the threat of substitutes for coal
producers is low to medium. Similarly Equipment manufacturers the threat for
substitute products is medium.

Bargaining power of customers (buyers)

For coal producers the bargaining power of customers is low as the buyers have
customized needs and suppliers are very less in the market. Though for the
equipment manufacturers the competition has become intense and the buyer has a
high buying power as the suppliers are huge.

Bargaining power of suppliers

The Bargaining power of Suppliers is Low for Coal and Medium for Equipment

Intensity of competitive rivalry

Intensity of competitive rivalry for coal producers is very less as the market is govt.
regulated and for the equipment manufacturers the competition threat is high. As
similar equipment is produced by large number of firms competition is very high.

63
Analysis of riskiness of NTPC’s current relationships with its Suppliers and Buyers and ability
of
NTPC to withstand shocks:
NTPC in recent years has developed the strategy to backward integrate with its
suppliers to even out the effect of any fluctuations in supplies. It has tied up with
coal mines or directly purchased them. Also it has formed a joint venture with
BHEL to streamline the supplies of its equipment needs and even out any
fluctuations in timely delivery.
Also since NTPC operates in a near monopolistic market with demand exceeding
supply in a very high margin, NTPC has very low risk from the buyers. This
situation is expected to remain similar in near future until there are no major changes
in Govt. regulations.

Porter’s Five Forces

64
The limitations of applying five forces for NTPC

In the case of NTPC some of the external forces were not applicable, which is discussed
below:

Bargaining Power of Customers- The sector which was particularly dominated by

government owned NTPC, NHPC, NPCIL, SEBs has started to face competition with the
entry of new players like Reliance, Tata, Jindal . The customers which were largely at the
sole discretion of few companies now have choices. But because of the wide spread
presence of NTPC in India and the amount of initial investment required to be in the
sector and government support the company manages its number 1 position in the sector
with market share of more than 24 percent. Therefore the customers are not that free to
have bargaining power and avail the services of the company. Moreover the ever
increasing demand Vis a vis supply has been relinquishing the power of a buyer.
Also the tariff is cost plus for major capacity and hence a ROE of around 15% is
guaranteed for the already signed PPAs.

Bargaining power of suppliers-NTPC has ventured into Coal Mining and started
production very recently. The production level is very less in comparison to its
requirement but the potential is high. Otherwise it gets its Coal from the biggest supplier
Coal India Ltd.
( Holding more than 90% of coal production in the country). In order to limit the
bargaining power of CIL it has already entered into a long term agreement of 20 years ,
wherein CIL will provide the coal linkages ,more than this NTPC is also entering in
agreement with many foreign countries for purchase of coal .This overall limits the
suppliers bargaining power.
Other than this NTPC buys its equipment from BHEL, Bharat Forge etc., where it has
already entered in strategic alliance with both the companies and is producing the
equipment together. Overall we can say that NTPC is not considerably affected by the
bargaining power of suppliers.

Threat of new entrants-Power sector is highly capital intensive and particularly requires
huge investment with not so quick return on investment. Power projects take years to
complete, therefore the dearth of key players in the sector is filled up at a very slow rate.
So, we can conclude that the threat of new entrants in the power generation sector is
comparatively less.

65
Competitive rivalry within the industry-Competitive bidding offered a great rivalry for
NTPC ltd and it could not grab a single order but with the old PPA regime and some good
moves the company is able to compete completely. Also with the demand increase the
supply is still lacking. Though with the cost competiveness NTPC ltd is losing some
market share yet therefore, there is ample opportunity for all the players to grow together
and we can say that rivalry among the players is low

Threat of Substitutes-Wind energy, solar energy, Hydro energy and power generated
from nuclear power plants are the main substitutes for power generated from coal which
is NTPC predominantly into. But NTPC has also started its venture into hydel power,
Renewable projects and nuclear power plants therefore as of now there is no threat of
substitute for NTPC in this sector. The share of such power is very less in comparison to
conventional power. As of now there is no major threat of substitute on this sector, but
the threat is very large in the future and NTPC ltd has diversified keeping that threat in
Minds.

Results and analysis

Strategy versions of NTPC ltd

Company strategy-previous version

In an international Power Plant Conference conducted by NTPC , Sh. D.V. Kapoor

(Founder Chairman of NTPC ltd), said that the company was created to escalate power
generation at the time when India was suffering from acute power shortage. It was
established largely to fulfill the continuously increasing demand of power in India and
acquire leadership position. To achieve this goal NTPC chose the strategy of achieving
faster growth by building thermal power generation capacity and running it with excellent
operational efficiency.

NTPC’s strategy is a blend of proactive initiatives and

reactive/responsive adjustments

Annulled Strategy elements

Pro Active Strategy

Elements
Company Continuing strategy elements from previous periods and
Latest version of
taking new initiatives
Strategy- Company
Strategy
Previous Adaptive responses to dynamic circumstances
version

Reactive Strategy Elements

66
Continuing strategy elements from previous periods and taking new initiatives

To match the targets for capacity addition as per MOU/ five year plans, the company has
leveraged on its Project Management & R&M capabilities that have grown up as its core
competences. It has been achieving growth targets by choosing Brown Field &
Greenfield projects as well as by acquiring loss making SEBs and forming joint ventures.
Running Power plants of SAIL by forming Joint Ventures is a perfect example. To
leverage it experience in power plant it is going for international projects as well. .

Abandoned strategy

- NTPC ltd may partly change its strategy of securing critical fuel supplies from
CIL etc., by seeking long-term coal supply agreements with buying and
operating indigenous mines outright.
- NTPC ltd has moved away from the power exchange joint venture with PFC,
TCS and NHPC in the year 2013.
- NTPC ltd also dropped the plan of creation of exchange with National
Commodity and Derivatives Exchange of India.

Adaptive responses to dynamic circumstances

With time the company has become more mature, the company has realized that to
achieve its goal of providing power and maintaining its leadership position it needs to
focus on other sources energy also namely Solar Energy, Wind Energy, Geothermal,
Hydro power, Nuclear power etc. Company chose the path of backward as well as
forward integration to become integrated power utility to strengthen its position in
dynamic business environment. After power sector reforms and entry of private players
in power sector to remain competitive in the market company expanded it business
portfolio and entered in power sector consulting, power trading, distribution, coal mining,
research alliances etc.

New version of strategy

To be the World's Leading Power Generating Company, Energizing India's Growth

through optimum diversification.

67
Key success factor
Industry level

Project Management

Setting up any resource based Power plant (Coal or Gas based Thermal Power Plant,
Solar Power Plant, Hydro Power Plant) requires Project Management expertise of the top
level. NTPC ltd has set many records at national level in achieving internal benchmarks.
The company, over the time, has developed a core competence in the field of Monitoring,
Reporting and Verifying, the three pillars of Project Management. Monitoring at various
levels has helped the Company to have holistic planning and execution.
This core competence of the Company has helped the company in moving from Solar to
Hydro and Renewable forms of energy

Operational efficiency

Thermal Power Plant technology is much mature in comparison to Renewable power and
a slight increase in the efficiency is a herculean task. Efficiency plays a big role in debt
coverage and meeting environmental regulations. Looking at the recent trends prevalent
in Indian power sector, ability of timely project execution and operational efficiency of
running the plants is one of the critical factors for success necessary for companies
operating in this sector. Historically speaking, profitability of various companies has
taken a hit due to their inability to execute power projects timely hence adding to the
overall cost of project which consequently becomes detrimental to their growth. Other
major factor is running the plants efficiently because there is huge cost involved in fixed
assets which can be recovered only by efficient operational activity and if a company
doesn’t run its plant efficiently the timely recovery of investment becomes risky. Few
power companies have capitalized upon this factor and have been successful and others
who have not done are struggling or have closed.

Fuel security
Balanced supply of fuel plays a critical role in the success and expansion of an electric
utility. As the business is highly capital intensive and requires huge amount of fuel,it
becomes very important to judiciously plan the fuel consumption pattern. Neither the
company can go for huge inventory ( huge land and O&M cost) nor can it plant Just in
Time ( long distant mines and fluctuating services from railways and Coal
companies).And since with increase in the demand of power the need for fuel is ever
increasing. Therefore, the issue of fuel Security plays an important role for a power sector
company. The company can achieve it either by entering into an agreement or by

68
acquiring coal mines, the companies are also going for foreign acquisitions entering into
agreements with coal companies or acquiring it, so as to maintain continuously balanced
supply of fuel. The company having a long term coal linkage or fuel supply agreement
can go on with its production and can also execute its expansion plans. On the other hand
it also gives advantage in terms of maintaining cost efficiency (major component of tariff
comes from the cost of fuel), as the company without fuel will not be able to run the
production process, this leads to buying coals from alternate resources which increases
the cost efficiency .Improper supply of fuel leads to running of the plant at a lower
production capacity, this leads to loss in the form of opportunity cost. Therefore Fuel
security is considered to be one of the key success factors for the companies in this
sector.

Tackling issues related to land acquisition and environmental clearances

With the growing awareness about the economic benefits of a power plant and ill effects
of industrialization on environment, obtaining clearances has become more difficult.
Land acquisition and getting environmental clearances is posing great challenges for
companies in power sector. Power companies are facing major constraints and delays
regarding the availability of land and required environment clearances on time. There are
instances where even after government’s instruction to sell their land to landowners, the
project gets delayed for several years hence affecting the financial viability of projects.
Landowners and Project affected persons (PAP) have collectively objected to project
execution as there is clear mismatch between the interests of companies and expectation
of other stakeholders. In this case it is imperative for the success that companies adopt
proactive approach and manage expectations of these stakeholders.

Firm level

Talent Management
After power sector reforms and entry of private players, the power sector has faced a
huge shortage of quality man-power which is pushing up the cost and risk associated with
power plants. In this situation NTPC Ltd. finds itself in enviable position in industry
having highly skilled and experienced human capital conversant in project execution and
power generation. Today new entrants in the industry need to build a talent pool which is
a time consuming process. Though many big private players like Tata Power, Adani
Group, Reliance, Lanco etc. have offered greater perks to quality manpower specially of
NTPC ltd but creating a balanced and cohesive team has been a big problem for all the
new players .As NTPC Ltd. has operated for almost 30 years without much competition,

69
it has acquired best of talents in industry and at the same time nurtured its own human
capital which has become a competitive advantage for NTPC Ltd. today. Due to the job
rotation policy in the company an employee gets exposed to various aspects of project
execution as well as power generation enriching their experience. In next 10-15 years
when other companies will be investing and creating talent pool, NTPC Ltd. will be
leveraging its strength of human capital and maintaining its competitive advantage in
industry.

Equipment Manufacturing Strategic Alliances

Power Sector involves lot of interfaces, one of them being with equipment
manufacturers. Equipment shortage has been considered a significant reason for
companies in power sector missing the planned capacity increase hence affecting
profitability of companies .The shortages has been primarily in the core components of
power generation like boilers, turbines and generators .Companies wait for even years to
get the required equipment to start the production process, this delay leads to an increase
in the overall cost of the project causing losses for the company. NTPC Ltd. was also
facing the same problem but in order to counter the same it entered into a joint venture
with BHEL for manufacturing of the equipment, it also entered into a joint venture with
Bharat Forge for facilitation of casting and forging and with Alstom for modernization of
power plants in India and abroad. This strategic alliance of NTPC with other companies
gives it a competitive advantage above others in terms of its equipment, modernization
and maintenance of the power plants. Other companies have not taken such initiatives so
far. This is therefore a key discriminating factor which sets aside NTPC from others.

Linkages in the KSFs, value-chain activities and core competences

Building competitive advantage and sustaining it over a period of time is a challenging
task for any enterprise in the ever-changing business environment. It also very important
to examine the core competencies that affect the value chain activities. These help a
company to acquire key success factors for excelling in business.
After analyzing value chain two core competencies of the company has been found
which are firstly engineering and management expertise in project management from
planning to execution and secondly expertise in power plant operation/maintenance.
NTPC has presence in major part of the industry value chain except transmission and
distribution but has excelled so far in power generation which has resulted from their core
competency.
In the present scenario key success factors have been analyzed at industry level as well
as at firm level and it was found that at the firm level, Talent Management ( Die Hard
attitude of Human Capital) and strategic alliances of the company are the key for success.

70
At the power industry level are operational efficiency, financial strength, efficient
handling of issues related to land acquisition and environmental clearances and ensuring
fuel security through adequately intensified monitoring .The core competency has been
developed by nurturing the human capital which has now become a key success for the
company in today’s scenario.
Similarly by forging strategic joint ventures with BHEL for equipment manufacturing the
company has acquired a key success factor which has been a major challenge for new
entrants. BHEL used to be the only major player in Indian context. Although new entrants
have tried to source equipment from Chinese manufacturers but the quality of the
equipment are questionable. Though there is large number of private players coming in
but there has always been an assurance with the State Owned BHEL.
Similar joint venture with ALSTOM has ensured renovation and modernization of old
and inefficient power plants leading to higher efficiency and extension of their lifespan.
Also the strategic agreement on fuel security with Coal India has provided NTPC a
competitively advantageous position in order to fulfil its future fuel needs. In addition to
that venturing into coal mining gives NTPC ltd enough time and opportunity to develop
another core competency.
Also lot of MOUs and Research works in the field of new technology by NETRA in
collaboration with IITs provides ample opportunity of learning by doing. These help the
company in the field of Solar, Wind and Hydro Power where the Company is new and
help in improving efficiency in the existing plants.

Analyzing the industry level KSFs we observe that the operational efficiency and other
management efficiencies emanate from its superior human resources vastly experienced
in handling such situations. This is a big advantage NTPC enjoys over its competitors and
in the next 3-5 years NTPC is expected to retain this advantage. Also continued
exceptional financial performance has enabled NTPC to attain good financial ratings and
given it a significant financial leverage over its competitors.Another vital Key Success
Factor for NTPC Ltd is its Maharatna status awarded by the Govt. of India, which gives it
an edge over its rivals in financial independence and increased autonomous power.

It is observed that there is a strong linkage between value chain, core competency and
key success factors as the company has identified the important activities form the value
chain in which they have expertise and developed as core competency which has helped
them to acquire key success factors in the industry.

By this exercise it is known that by correctly identifying and controlling core can help a
company to gain sustained competitive advantage through attainment of key success
factors of the industry.

71
Business Model of NTPC Ltd.

Sources of revenue-

Sales from power generation - The Company’s portfolio comprises a mix of mainly
thermal followed by hydro, gas, solar and wind projects. The company’s total income
increased by 11% in the first quarter of 2016-17 at Rs 19,221 crore as against Rs 17,334
crore in the corresponding period of the previous fiscal. For the Q1 of FY 2016-17,
NTPC Ltd generated 64.555 Billion Units against 58.697 Billion Units generated in the
corresponding period of the previous year, an increase of about 10%. NTPC recorded a
4% increase in its net profit at Rs 2,370 crore as against Rs 2,277 crore for the same
period last fiscal. During the same period, NTPC Coal stations achieved PLF of 81.35%
as against National PLF of 63.56%.
The growth in company’s reserves and cash balances is affected by new capacity addition
and expansion of existing power projects i.e new investments.

Thermal Power: This consists of both Coal and Gas based power plants and has been the
biggest revenue generator (more than 99%) for the company. With the coming up of new
Hydro, Solar and Wind Power installed capacity, the proportions are definitely going to
decrease.

Hydro Power: NTPC Koldam is NTPC’s first mega hydel power project that began its
commercial operation in July’15, and is running at a very high PLF, is expected to add
considerably to the revenue.

72
Talking to Hill Post, Sanjeev Kishore, Group General Manager of the power station
disclosed, “during the very first financial year of its commencing commercial operations,
with effect from 18thJuly, 2015, the plant had surpassed the design energy target of 1706
million units by generating 1794 million. Cumulatively the power plant had already
generated 4419 million units of electricity in a matter of a little over 14 months of
commercial operations till today ( October 1, 2016)”.
This generation accounts for more than 1.5% of NTPC’s whole generation which means
with the coming up of around additional 800 MW in near future, Hydro alone is going to
contribute around 6% of total revenue.
The life of a Hydro Power plant is more than a Thermal Power Plant and the variable
costs are very low. This would result in better contribution of Hydro power in the net
profits of NTPC ltd in the future.

Renewable Power

NTPC's solar stations has achieved highest ever generation of 160.8 million units at a
capacity utilization of 16.64 %.The total installed Solar Power generation capacity has
reached 360 MW at 9 different locations including the largest of 250 MW at
Ananthapuram Solar PV. 50 MW Solar PV at Anantpur in Andhra Pradesh, 260 MW
Solar PV at Bhadla in Rajasthan and 250 MW Solar PV at Mandsar in Madhya Pradesh
and 8 MW Small Hydro Projects are under implementation.
The Revenue generation from Solar, though very less, has started growing.

Nuclear power: Production not started yet

Power sector in India comes under regulatory environment which is governed by Central
Electricity Regulatory Commission (CERC). CERC is responsible for regulating tariff
policy of power generating entities. This framework is different from other businesses
where companies are free to fix prices of their products without any regulatory guidelines
from government. Revenue of power utilities in India are generated based on Power
Purchase agreement (PPA) between State Electricity boards (SEBs) and public entities
like Indian Railways. NTPC has long term PPAs with several SEBs and it earns its
revenue by selling power to these SEBs.

Major revenue earner for the company is thermal power generation. NTPC has made
huge investments envisaging growth in Hydro and Nuclear power but due to long
gestation periods, Political issues, safety issues and Environmental clearances, sales out
of these businesses have not started as planned.
Until recently, the company had progressed only in the direction of improving
operational efficiency of thermal power stations but in the past few years NTPC ltd has
taken a leap in the direction of Hydro Power and Renewable Power, mainly Solar.
Though, at this point of time it is difficult to estimate their revenue and profitability, but
in such an environmental inclined regime, the figures are going to get better every
coming year.

73
 Consultancy (NTPC electric Supply Company Ltd): Company was incorporated for the
distribution business and later started deposit and consultancy work till March’16, after
which the company has refocused on its original agenda. The transfer and vesting of
existing operations of deposit works and consultancy works would enable a focused
business approach by the Company in the area of distribution, the objective for which the
Company was incorporated. During the financial year 15-16 Company has withdrawn
from the Joint Venture Company, KINESCO Power and Utilities Private Limited.

Although currently the Company does not have any business operations in retail
distribution but, according to the board, the same will be taken-up at an appropriate time
when the opportunity becomes visible.

Power Trading (NTPC Vidyut Vyapar Nigam Limited) :

The Government of India designated company as the Nodal Agency for Phase I of
Jawaharlal Nehru National Solar Mission (JNNSM) with a mandate for purchase of
power from the solar power projects connected to grid at 33 KV and above, at tariff
regulated by CERC and for sale of such power bundled with the power sourced from

74
NTPC coal power stations to Distribution Utilities under Phase I of JNNSM which
envisages setting up of 1000 MW solar capacity.
As on 31.03.2016 the total commissioned capacity under the Scheme of Batch I of Phase
I of JNNSM is 733 MW as against the 718 MW as on 31.03.2015. During the Financial
Year 2015-16, a total of 5789 MUs of bundled solar power (including 1027 MUs of Solar
Power) have been supplied to Discoms/ Utilities of the states of Rajasthan, Punjab,
Maharashtra, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Karnataka, Assam, West
Bengal, Odisha, Telengana, Chhattisgarh and Damodar Valley Corporation. The
Company has been designated as the nodal agency for cross border trading of power with
Bangladesh, Bhutan and Nepal. As per the Power Purchase Agreement (PPA) for supply
of 250 MW power for 25 years from NTPC stations, signed between the Company and
Bangladesh Power Development Board (BPDB), power is being supplied by the
Company to Bangladesh from Oct’2013. During the year PPA between BPDB and the
Company and back to back Power Sale Agreement (PSA) has also been signed with
Tripura State Electricity Corporation Limited (TSECL) for supply of up to 100 MW of
power for a period of 5 years. Under this agreement power is being supplied by the
Company to BPDB with effect from March 17, 2016.
Company is appointed as the nodal agency by the Ministry of Power, Government of
India on February 9, 2016 for cross border power trading with Nepal. PPA was signed
between the Company and Nepal Electricity Authority (NEA) for supply of up to 80MW
power through newly commissioned 400kV Muzaffarpur- Dhalkebar A/C line under
radial mode from Indian Market. The Power supply commenced from February 18, 2016.
Company has excelled in many fields including expanding customer base, selling captive
power, selling power of Independent Power Producers (IPPs), entering into power
banking arrangement, trading of Power and RECs on the platform of Power Exchange(s)
etc. The customer base of the Company has increased to more than 100 customers
including state government utilities, private power utilities, IPPs and captive power
generators, Industrial customers in all five power regions of India.

75
Coal Mining:
Revenues out of this business has just started coming as these projects have just become
operational. NTPC ltd has commenced Mining at Pakri Barwadih coal mining block from
western pit on 17.05.2016. This mine alone is expected to produce 1MT of coal in the
current fiscal.
Also, 10 coal mining blocks have been allotted, with total Geological Reserves of around
7.3 BT. These blocks have production potential of ~107 MTPA and are envisaged to cater
to the requirement of around 20000 MW of generation capacity.
Revenues from such projects would definitely mark their presence in the books from the
initial years and have huge potential to redefine the performance of the company.

76
Financial Analysis
Net sales for Q4FY’16 is Rs.17,990.09 crore as against corresponding quarter net sales of
Rs.19,229.94 crore previous year. For FY’15-16, net sales is Rs.70, 049.18 crore as
against FY’14-15 net sales of Rs.72,637.75 crore. The reduction in sales is however
primarily on account of reduction in fuel cost. Fluctuations in sales turnover signifies that
company’s strategy of adding capacity has some effects on the books. At the same time,
the technical parameters reveal that the company is capable of running the existing plants
with excellent operational efficiency.
Effect of company’s venture in new businesses like coal mining, hydro power and
renewable energy sources can’t be commented upon as revenue from these businesses
have just started coming and the businesses are at very nascent stage. With the potential
of these businesses and the capabilities of NTPC ltd, the revenues are going to increase in
a more balanced way. We need to wait till functioning of these businesses start and some
financial data becomes available.

77
Source: www.ntpc.co.in

Net Profit vs Gross Profit Margin:

The net profit of the company holds to be a fixed percentage of the Gross Profit value
after little fall in Mar’13 i.e the profit may be fluctuating but the profitability remains to
be same for the past few years. This shows that the decreasing cost of fuel and Man
Power is compensated against the increasing depreciation of newer plants. The company
is reducing Man/MW ratio and is able to keep up the profits aiming for leadership
position.

A part of sluggishness in the rate of increase of net profit can be attributed to various
factors like high prices of fuel mix as well as delay in completion of various projects
where huge amount of capital has been already invested but return has not yet started
coming, which raises few questions about company’s ability to handle such situations in
coming years. At the same time profit margin of the company has decreased over the
years which can be attributed to fuel cost as well as maintenance and operation costs.

Earning per share :

It has shown consistency over the years signifying that company’s strategy of finding
newer ways like power trading etc. to make money Vis a vis expenses, is working. Hence
new initiatives taken by company to expand its business are right on track.

78
Source: www.moneycontrol.com

79
Important Financial Ratios of NTPC:

Mar '16 Mar '15 Mar '14 Mar '13 Mar '12
Profitability Ratios
Operating Profit Margin(%) 24.45 21.22 24.59 25.89 21.95
Gross Profit Margin(%) 16.76 14.52 18.84 20.72 17.45
Cash Profit Margin(%) 21.54 19.67 20.23 20.77 18.01
Net Profit Margin(%) 14.52 14.04 15.23 19.21 14.86

Return On Capital Employed(%) 7.46 8.08 11.01 12.56 11.51

Return On Net Worth(%) 11.53 12.6 12.78 15.69 12.58

Return on Long Term Funds(%) 7.52 8.08 11.01 12.56 11.51

Liquidity And Solvency Ratios

Current Ratio 1.18 1.43 1.69 1.83 1.97

Quick Ratio 1.04 1.23 1.51 1.68 1.8
Debt Equity Ratio 0.97 0.96 0.73 0.66 0.63

Long Term Debt Equity Ratio 0.96 0.96 0.73 0.66 0.63

Debt Coverage Ratios

Interest Cover 4.05 4.72 6.78 8.72 8.02

Total Debt to Owners Fund 0.97 0.96 0.73 0.66 0.63

Financial Charges Coverage Ratio 5.73 6.51 8.5 10.49 9.65

Financial Charges Coverage Ratio Post Tax 5.85 6.54 7.28 9.32 8.02

Management Efficiency Ratios

Inventory Turnover Ratio 9.9 9.92 13.52 16.32 16.87

Debtors Turnover Ratio 9.13 11.42 13.61 11.73 17.08

Investments Turnover Ratio 9.9 9.92 13.52 16.32 16.87

Fixed Assets Turnover Ratio 0.48 0.57 0.62 0.64 0.76

Total Assets Turnover Ratio 0.4 0.46 0.49 0.49 0.52

Asset Turnover Ratio 0.42 0.47 0.51 0.52 0.55

Number of Days In Working Capital 1.9 49.6 58.36 61.72 68.33

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 26.96 20.03 43.2 37.57 35.75

Dividend Payout Ratio Cash Profit 17.62 13.55 31.36 29.6 27.44

Earning Retention Ratio 72.48 79.3 56.85 56.53 62.99

Cash Earning Retention Ratio 82.14 86.14 68.67 66.86 71.82

80
Conclusion

Company is using multi-branched strategy like attuning with Government Policy driven
agendas, setting ambitious growth targets, adapting diverse fuel, implementing right
technology choices and measures to deal with likely changes in emerging business
environment to remain competitive, retain its leadership position in Indian power sector. It
has swiftly restructured its ventures that were identified as non-profitable/workable and
intelligently refocused on its forte.

It has tried related and unrelated diversification and learned the hard way. Transmission and
Distribution, Solar Wind, Hydro are related to its core Thermal Business as per NIC code
and Mining is unrelated but the company scenario reflects a bright future in mining and has
little in distribution sector.

From strategic point of view Company is in very strong position, it has made all types of
diversification and integration strategies to leverage its position in power sector. It has
shown pro-activeness in all the direction of its business. But at the same time challenges for
the company has increased many folds since it has been attuned to its monopolistic position
which has changed significantly after power sector reforms leading to entrance of private
players in the market. One major example is, its failure to bag even a single Ultra Mega
Power Projects (UMPP) out of four awarded so far which eventually went to private
players. As entry of private players has increased competition in bidding for power plants it
has posed serious threat to NTPC ltd, because planning part of strategy with longer view is
on right path but the implementation part of the strategy is bigger question mark which the
company needs to ask if it aspires to maintain its leadership position.

Fuel supply security had been a mixed bag for NTPC ltd so far, the planning part of strategy
is good but it has not been able implement it. One recent example is severe shortage of coal
supplies for its thermal power plant even though it has long term strategic alliance with
Coal India Ltd. Its process of acquiring coal mines in foreign countries and developing own
allocations have been on slow track which has affected its production. The esteemed project
management capabilities of the company is also under question mark as it has failed to
finish various projects on time like Barh Power Project, Bongaigaon Power Project etc,
hence increasing the number of projects may sooner or later going to hurt it’s long term
profitability.
As the economy is encountering extreme dearth of manufacturing capacity of power plant
equipment in India, the strategy to form joint ventures with BHEL and Bharat Forge is a
pragmatic step which may help the Power major to leverage its position in longer run .This
creates a huge opportunity for NTPC to leverage its financial, technological and human

81
capital to consolidate its position in power industry of India. Also this would help India
energize its growth and emerge as powerful economy.

The strategy to diversify by entering in new businesses and in new geographic location is
also a well thought out plan, the positive effects of which will be evident in coming years,
Since the international arena is developing lot of concerns over environmental effects of
conventional power also sooner or later private companies, with the coming up of UMPPs,
may offer strong competition in thermal power generation business, NTPC will be able to
maintain its profitability by dominating other related businesses like renewable power,
hydro power, power trading, consulting, distribution and coal mining. Overall, NTPC has
chosen the right path while planning for strategies. It has been one of the most dynamic
Public sector undertakings of India showing pro activeness in formulation of strategies at
every front. But the real test lies in the implementation of these strategies which is going to
decide whether the company will be able to realize its vision and mission.

82
83
References:

Zook Chris & Allen James, Reigniting Growth, March 2016 HBR,

Lewit Theodore, Marketing Myopia, July 2004,HBR,9

Ha-Joon Chang , National development strategies policy notes , State-owned enterprise

reform, united nations,2007

Ansoff, I.: Strategies for Diversification, Harvard Business Review, Vol. 35 Issue 5,Sep-Oct
1957, pp. 113-124

John G. Matsusaka, Corporate Diversification, Value Maximization, and Organizational

Capabilities,The Journal of Business, Vol. 74, No. 3 (July 2001), pp. 409-431

Tripathy, S C; Thakur, Tripta., a critical review of organizational structure and reforms of

the indian electricity sector, International Journal of Energy, Environment and
Economics 20.2 (2012): 157-179.

Aggarwal and Agmon, 1990; Mehta and Trivedi, 1996; Newbery, 1992

Andrews and Dowling, 1998,

CEA (2014), Power Scenario at a Glance, March 2014

http://www.cea.nic.in/reports/monthly/dpd_div_rep/village_electrification.pdf
IEA, 1999; Bacon and Besant-Jones, 2001
Tripta thakur, S.G.Deshmukh , S.C.Kaushik and Mukul Kulshrestha,2005

CEA Annual report, 2015

Gupta, Ashish. Business Today (Nov 20, 2005): 106

Infocus Power Sector report, 2011

Garner, 2010, CISCO

NTPC Clean Technology deals by type, Globa Data report, June’2015

ETEnergy World Article on Power Sector, dated August 17, 2016

84
Froelich, Karen A , John Ramsey, II, Diversification Strategy and types

GailTverberg OurFiniteWorld.com

Platts China General administration of customs

Journal Hill Post, Dated 1-10-16, Article on Hydro Power Plants

Annual Report CERC,2015

Source: www.moneycontrol.com

Mishra, Sita, A comprehensive study and analysis of power sector value chain in
india. Management & Marketing 8.1 (2013): 25-40.

MOP 2007 Ministry of power, Government of India, available on line, http://

powermin.nic.in/jsp-sevlets.

CEA,2006: Progress report on pump set energisation as on 31 july,2006,

Central Electricity Authority-Distribution planning and Development Div, New Delhi.

THE ELECTRICITY ACT 2003: The Gazette of India, Extra ordinary, 2003, Part II,
Section 1, No-39, Ministry of Law and Justice, Government of India, New Delhi.

Tripta thakur, S.G.Deshmukh , S.C.Kaushik and Mukul Kulshrestha, "Impact assessment of

the Electricity Act, 2003 on the Indian Power Sector, Energy Policy,
Vol.33(9),2005,pp.1187-1198.

N.Kessides, N.Ioannis, 2004: Reforming Infrastructure Privatization, Regulation and

Competition" A world Bank Policy Research report".

R.W.Bacon, and J.E.Besant Jones, 2001. "Global Electric Power Reform, Privatization, and
liberalization of the Electric Power Industry in Developing Countries"; Annual Review of
Energy and Environment, Vol.26, PP.331-359.
http://www.nvvn.co.in
http://www.ntpc.co.in
http://www.pfc.gov.in/Content/UltraMegaPower.aspx
http://www.powermin.nic.in/
http://www.reliancepower.co.in/power_industry/indian_power_sector.htm

85
http://www.kpmg.de/17583.htm
CRISIL Independent Equity Research Report –
NTPC Ltd Source: www.crisil.com
www.moneycontrol.com
www.bloomberg.com
http://www.docstoc.com/docs/7720026/Corporate-Social-Responsibility-of-NTPC
http://nseguide.com/tag/ntpc-fraud/
http://daily.bhaskar.com/article/MP-RAI-cbi-grills-former-finance-manager-of-ntpc-
1899903.html
http://www.hindustantimes.com/News-Feed/Business/NTPC-s-contract-behind-the-
fraud/Article1-479854.aspx
http://online.wsj.com/article/SB10001424052970203550304577136283175793516.html
http://www.eeas.europa.eu/energy/events/asem_energy_2009/eu_asia_energy_trends_en.pdf
http://web.sebi.gov.in/dp/ntpcpros.pdf
http://www.iea.org/co2highlights/co2highlights.pdf
http://www.nri.org/projects/biomass/conference_papers/policy_material_section_3.pdf

http://www.livemint.com/2011/03/14003412/NTPC-likely-to-revise-coal-sou.html
http://www.frugal.in/electricitytariff.html
http://www.livemint.com/2011/10/25005338/NTPC-may-fall-short-by-18-bill.html
http://www.ntpc.com/customerservice/paymentbilling.html
http://www.rinfra.com/kar_energy_transmission.html
http://www.tatapower.com/services/power-projects.aspx
http://www.jindalpower.com/plant/overview.aspx
http://www.reliancepower.co.in/about_us/company_profile/strengths_and_strategies.htm
http://www.livemint.com/2011/03/14003412/NTPC-likely-to-revise-coal-sou.html
http://www.business-standard.com/india/news/gridco-to-appeal-sc-in-ntpc-tariff-
case/459297/
http://www.frugal.in/electricitytariff.html
http://www.livemint.com/2011/10/25005338/NTPC-may-fall-short-by-18-bill.html

http://www.indiapublicsector.com/2015/02/my-aim-is-to-make-ntpc-worlds- most.html
http://www.ntpc.co.in/transcripts/5841/q4-fy-16-trancript-final

86
https://en.wikipedia.org/wiki/Herfindahl_index
https://en.wikipedia.org/wiki/Market_share
http://www.businesstoday.in/magazine/corporate/power-equipment-manufacturing-
companies-like-toshiba-jsw-steel-bhel-thermax-alstom-are-drying-up-for-want-of-
orders/story/226014.html

87
How well the company’s current strategy working?

Effort to build competitive advantage

NTPC’s Power generation expertise is its competitive advantage. It has huge experience in
power generating field and its human resource capabilities is among the best in the industry.
NTPC generates electricity all across India and that gives an advantage that is not yet
achieved by any of its competitors. NTPC as a government company has the ability to get
land easily compared to its rival. Currently NTPC produces around 24 % of the electricity in
India. NTPC is the leader in power productions and its next rival produces even less than
one third of NTPCs generation.

NTPC has long term PPAs with the discoms to sell power which other companies don’t
lack.
Lower costs relative to its rivals
In recent year after the power project has been awarded on the basis of lower tariff NTPC
has lost many of the bidding to its competitors. NTPCs cost of power generation has been
higher compared to TATA and Reliance power and it need to cut cost to beat its rivals.
NTPC currently charges around 2.65 rupees per unit from a large mixed bag of its power
plants. Its pit head and old plants (recovered fixed costs) are performing better and help the
other plants to sustain.
Scope of geographic coverage
NTPC is trying to get globalized and has entered new markets especially in Asia. Company
has tied up with Ceylon

Electricity Board with 50:50 partnerships for a power project (under suspension due to
Environmental issues). It is also planning to venture into Bangladesh with an alliance with
Bangladesh Power Development Board. It has also a project lined up in Bhutan. NTPC is
planning to export power from both Bangladesh and Bhutan.

Collaborative partnership and strategic alliance with others

NTPC has a strategic alliance with coal India limited for a period of 25 years where CIL will
provide coal Linkages to NTPC, which in turn secures the smooth run of power plants of the
company. These steps are taken with a view to make it fuel sufficient. NTPC has also tied
up with many companies for power generation like SAIL, Bihar State Electricity Board etc.
Collaborative partnerships

Partnership with GPCL and GEB Gujarat for power generation at Pipavav

88
Bharatiaya Rail Bijli Company a joint venture between Indian Railway and NTPC for power
generation

PTC India Limited for power trading a joint venture between NTPC, Power Grid Corp. and
PFC

Utility power tech with Reliance power for construction and erection of power plants

NTPC-Alstom joint venture for modernizations of power plants in India and abroad
Strategic alliance

NTPC-Alstom joint venture for modernizations of power plants in India and abroad

NTPC-SSCL global venture for development, operations and maintenance of coal blocks

NTPC-BHEL project limited for manufacturing equipment

BF-NTPC energy system limited for facilitation of casting and forging

Responds to changing conditions

In last ten years the business environment of power sector has changed considerably
bringing in various opportunities and threats for NTPC Ltd. like introduction of Electricity
act 2003, entrance of private players in power sector, high volatility in fuel supplies,
emergence of new technologies, stringent environmental laws, growing stress on renewable
energy, etc. To respond to these changes NTPC Ltd. has taken following initiatives: NTPC
has expanded generation capacities by investing considerably in thermal and hydro
capacities to maintain its leadership position in Indian power sector.
Choosing a broad base fuel mix of imported coal, gas, domestic coal, nuclear power with a
view to mitigate fuel risks to maintain long run competitiveness. Due to increased
environment awareness govt. is under pressure to reduce pollution. NTPC is moving
towards non–fossil power source and by year 2032 it will consist of

NTPC is investing in non-conventional energy sources like solar, wind and nuclear energy
to tackle future environmental concerns and remain competitive.
Adopting backward integration into fuel management to exercise greater control on fuel
supplies is an intelligent proactive move. It is bidding aggressively for Ultra Mega Power to
show its competitiveness.
Reducing the Man/MW ratio and applying aggressive project management tools as they
help in reducing cost of developing the projects and power generated. Adopting forward
integrate into the power distribution business in India, though yet to find an opportunity.

89
Supply chain management strategy

NTPC has long term agreement with coal India limited for supply of coal. NTPC has also
joint venture with Coal India Limited to develop coal mines for future coal supply. NTPC
has acquired 10 blocks of coal mine from Govt. of India for its coal supply. Company has
increased its days of inventory thus creating better efficiency and inventory turnover has
also been reduced this indicate that company focused more on this area and been able
increase its operational efficiency.

Manufacturing strategy

NTPC has now started to generate power from different source like coal, nuclear, solar and
other renewable resource. NTPC has also adopted critical technology like high electricity
generating turbines and boilers to cut cost and increase efficiency. Company has 16% of
country’s installed capacity but it produces around 24% of power. Company produces
around 280 bn power units compared to country’s 1100 bn.

R & D technology engineering strategy

NTPC research wing NTPC Energy Technology and Research Alliance is working on
climate change, waste management and reliability supports for its station. NTPC is also
working with eminent scientists and academic institutions and now is planning to establish a
solar and PV research facility in collaboration with KFW Germany.
It has signed MOUs with IITs to research in the area of efficiency and PV cells

Human resource strategy

Human resource is one of the most important advantages of NTPC. It takes talents through
an all Indian level tests and provides training for around 52 weeks. It provides good
compensation and facilities. But still the company lacks a sound performance based
appraisal system.

Relative cost position

NTPC cost per unit is 2.65 Rs in which fixed cost is around 1 Rs per unit; which is among
the lowest in India.

Diversification

Need for diversification in NTPC

NTPC‘s major revenue comes from power generation. Though it’s the major player in the
industry other competitor like Reliance, Jindal and TATA power are also catching up and
will eat way its market share in considerable amount. NTPC is a thermal and gas based
power plants and many environmental constraints will dent its profit and hence it has

90
moved towards renewable source of energy. So it’s imperative for NTPC to diversify its
presence to distribute its market risk.
NTPC stand out to be a major and expert in power generation and this kind of capabilities
can be utilized in other related field to increase stake holder’s value.

Diversification in NTPC
Diversification based on technology and product compliment

Diversification based on leveraging capabilities

Diversification to reduce cost

Diversification based on technology and product compliment

NTPC is expert in power generation. It has experience in operating power plants.
Enormous growth in power sector necessitates augmentation of power equipment
manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge Ltd. for
power plant equipment manufacturing. NTPC has also acquired stake in Transformers and
Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers. Its
continuous strive towards achieving new revenue sources makes the company stand apart.

Diversification based on leveraging capabilities

Leveraging its capabilities NTPC has entered into consultancy. In growing Indian market
many companies are coming up which have no experience of industry. NTPC is using its
capabilities in consultancy business and is its consultancy wing is operating in India,
Bangladesh, and Sri Lanka.

Diversification to reduce cost

NTPC has forayed into coal business and acquired 10 coal blocks to secure supply for its
plants. It has been the smartest move by the company.

Other diversification

Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was
created for trading power leading to optimal utilization of NTPC’s assets. It is the second
largest power trading company in the country. In order to facilitate power trading in the
country, ‘National Power Exchange Ltd.’, a JV of NTPC, NHPC, PFC and TCS was
formed for operating a Power Exchange, but NTPC moved away showing its refocusing
strategy in the areas of profit and expertise.

Ash Business: NTPC has focused on the utilization of ash generated by its power stations to
convert the challenge of ash disposal into an opportunity. Ash is being used as a raw
material input by cement companies and brick manufacturers. NVVN is engaged in the

91
business of Fly Ash export and sale to domestic customers. Joint ventures with cement
companies are being planned to set up cement grinding units in the vicinity of NTPC
stations.

Power Distribution: ‘NTPC Electric Supply Company Ltd.’ (NESCL), a wholly owned
subsidiary of NTPC, was set up for distribution of power. NESCL was actively engaged in
‘Rajiv Gandhi Gramin Vidyutikaran Yojana’programme for rural electrificationbut has
now given the business back to its parent company.
Diversification method

NTPC diversification has been based on three methods.

Acquisition

Internal startups

Joint venture

Acquisition

NTPC acquired sick units of UP SEB at Tanda and Unchahar, Units at Badarpur Delhi and
at Talcher Orrisa and did turn around the whole capacity. The plants were taken from 18 %
PLF to even 92% PLF.

Internal startups
Businesses like ash business, NESCL, NVVN are company’s internal startups. NESCL is
looking for business in power distribution and NVVN is doing business in power trading
sector.

Joint venture
It has entered the equipment manufacturing business with JV with BHEL and Bharat
Forge. It has entered into many Joint Ventures for power plant set up and O&M like SAIL,
Bihar State Electricity Board etc.

Looking into the various actions taken by the company to diversify its business it is well
observed that major diversification has occurred through transformation of skill and
capabilities, using its brand name or to reduce cost so the diversification strategy it has
followed so far is related diversification, relatedness being the skills required and not the
sector.

92