Presentation on TataPower ration Analysis.pptx

Tata Power

1. Analysis of Financial Ratios and Corporate Governance of The Tata Power Company Ltd. Roll no. Name 23PGDM07A028 Thabir Kumar Meher 23PGDM28A037 Rajan Chalotra 23PGDM29A038 Lingamurthy Belede 23PGDM01A039 Lakshmu Naidu Karri 23PGDM11A048 Archisman Roy Date : 19 th June 2024. Course : Merger , Acquisitions and Corporate Restructuring (MACR)

2. PRESENTATION OUTLINE COMPANY OVERVIEW CORPORATE GOVERNANCE STRUCTURE FINANCIAL RATION ANALYSIS CONCLUSION

3. COMPANY OVERVIEW India’s largest Integrated Global Power Companies. It has presence across Generation, Transmission, Distribution and New Age Energy Solution. They undertook many initiatives to reduce Carbon footprint and promote Green energy. In FY24, It completed acquisition of NRSS XXXVI Transmission Limited (NRSS) and South East UP Power Transmission Company Limited (SEUPPTCL)

4. CORPORATE GOVERNANCE

5. COMPANY’S PHILOSOPHY ON “CORPORATE GOVERNANCE” The Company has adopted Governance Guidelines to cover aspects related to Composition and role of the Board Chairman and Directors Board diversity Director's term, retirement age and committees of the Board It also covers aspects relating to nomination, appointment, induction of Directors, Director's remuneration, subsidiary oversight and Board effectiveness review. Value : Safety, Care, Agility, Learning and Ethics

6. Company Values - scale

7. BOARD COMPOSTION – CORPORATE GOVERANCE. Chairperson of Board is Mr. Natarajan Chandrashekran (Non Independent, Non Executive Director). As per Kumar Mangalam Birla Committee Report, Number of Independent Directors should be at least one third of the Board in case company has Non-Executive Director as Chairperson. As per Uday Kotak Committee, BoD to have minimum 6 Directors, and it should have atleast one women Independent Director - 9 Directors out of which 2 are Women Director and 5 Independent Director. As per Tata Power CG report, None of the directors held directorship in more than 7 listed companies. None of the Director is a member of more than 10 Committees or acted as chairperson of more than 5 committees

8. GOVERNANCE STRUCTURE – STATUTORY COMMITTEES BOARD OF DIRECTORS Nomination & Remuneration Committee Stakeholder Relationship Committee CSR & Sustainability Committee Risk Management Committee Audit Committee Tata Code of Conduct Tata Business Excellence Model Disclosure to Stakeholders Statutory Committees

9. NON- STATUTORY COMMITTEES Borrowings of the Company subject to outstanding facilities. Create security on the assets of the Company to secure the borrowings of the Company subject to these being within the limit approved by the shareholders of the Company under Section 180(1)(a) of the Act. Issue of corporate guarantees to secure the borrowings of wholly owned subsidiaries. Change in authorized signatories for the existing borrowings. Commitment to capex item exceeding ₹ 200 crore (within Board approved Annual Business Plan) in a financial year. Writeoff of receivables exceeding ₹10 crore in a financial year. Claim settlement and dispute exceeding ₹ 25 crore per instance and ₹ 50 crore in aggregate in a financial year

10. Expertise/Competence of the Board of Director

11. ESG

12. CRITICAL ASPECTS OF CG FOLLOWED IN TATA POWER

13. FINANCIAL RATIOS

14. CURRENT RATIO A company's ability to pay off short-term liabilities with current assets. The current ratio of TATA Power suggests- Improvement in liquidity Enhanced Short-term Solvency Potential Increase in Working Capital The ratio remains below 1, indicating potential challenges in covering all short-term obligations with current assets alone  

15. QUICK RATIO Also known as the acid-test ratio, it is a more stringent measure of liquidity, excluding inventories from current assets. The Quick Ratio of TATA Power suggests Strengthened Liquidity Position over the years Improved Financial Stability Efficient Inventory Management, following almost the same pattern as Current Ratio  

16. DEBT-EQUITY RATIO Measures the proportion of debt to shareholders' equity. The D/E ratio of TATA power suggests that- Tata Power has been reducing its reliance on debt financing relative to equity financing over these years. Improved Financial Risk Profile Positive Market Perception  

17. DEBT SERVICE COVERAGE RATIO Measure of a company's ability to meet its upcoming debt obligations using its current cash flow. DSCR of TATA power can be interpreted as- Improving Debt Coverage A DSCR greater than 1, as seen in the years following 2020, suggests that the company has sufficient income to service its debt, reflecting better financial health. Enhanced Creditworthiness  

18. INTEREST COVERAGE RATIO Measure of a company's ability to meet its interest expenses on outstanding debt obligations. ICR of TATA power can be interpreted as- Strengthened Interest Payment Ability Improved Earnings Quality Increased Financial Flexibility  

19. ASSET TURNOVER RATIO It measures a company's efficiency in generating revenue from its assets. ATR of TATA Power can be interpreted as- Tata Power has become more efficient at using its assets to generate sales. Potential for Revenue Growth  

20. INVENTORY TURNOVER RATIO It expresses how many times a company turned over its inventory relative to its cost of goods sold (COGS) in a given period. ITR of TATA power indicates- The Inventory Turnover Ratio for Tata Power shows fluctuation The peak in 2021 suggests that Tata Power was particularly efficient at selling and replacing inventory during that year The subsequent decrease could indicate potential overstocking or decreased sales efficiency.  

21. GROSS PROFIT MARGIN   Gross Profit Margin measures a company's gross profit compared to its revenues as a percentage. In 2020, the gross profit margin was 28.64%, indicating high production efficiency, but it declined significantly to 22.47% in 2021, 19.35% in 2022, and further to 16.17% in 2023, reflecting ongoing challenges

22. NET PROFIT MARGIN   Net Profit Margin is a financial ratio that measures the percentage of profit earned by a company in relation to its revenue. Expressed as a percentage, it indicates how much profit the company makes for every Rupees of revenue generated. The Net Profit Margin was 4.64% in 2020, showing decent profit retention, but it dropped sharply to 1.86% in 2021, improved to 3.40% in 2022, and then fell again to 2.36% in 2023, indicating renewed challenges

23. RETURN ON ASSEST   The term “Return on Assets” (ROA) refers to a financial ratio that indicates how profitable a company is in relation to its total assets. Corporate management, analysts, and investors can use ROA to determine how efficiently a company uses its assets to generate a profit. The Return on Assets was 1.47% in 2020, showing modest efficiency, declined slightly to 1.45% in 2021, improved to 1.91% in 2022, and rose substantially to 2.97% in 2023, reflecting better asset utilization

24. RETURN ON EQUITY   The Return on Equity is a measure of the profitability of a business in relation to its equity The Return on Equity was 6.73% in 2020, indicating moderate returns, declined to 6.44% in 2021, increased to 9.60% in 2022, and improved significantly to 13.23% in 2023, showing strong return generation

25. RETURN ON CAPITAL INVESTMENT (ROCE)   The term Return on Capital Employed (ROCE) refers to a financial ratio that can be used to assess a company's profitability and capital efficiency The Return on Capital Employed was 7.32% in 2020, showing decent returns, improved slightly to 7.58% in 2021, increased further to 7.85% in 2022, and rose significantly to 9.57% in 2023, indicating strong capital utilization.

26. RETURN ON INVESTMENT(ROI)   ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. The Return on Investment was 2.52% in 2020, reflecting modest returns, increased slightly to 2.75% in 2021, improved significantly to 3.91% in 2022, and rose majorly to 6.40% in 2023, indicating strong improvement in investment returns.

27. COMPARISON OF RATIOS WITH DECLARED IN ANNUAL REPORT Calculated Declared in AR 2022 2023 2022 2023 Current Ratio 0.56 0.63 0.66 0.74 Debt Equity Ratio 1.26 0.90 2 1.57 Debt Service Coverage Ratio 1.37 1.66 1.03 1.08 Net Profit Ratio 3.40% 2.36% 5.00% 7.00% Return On Equity 9.60% 13.23% 8.00% 13.00% Return On Capital Employed 7.85% 9.57% 9.00% 12.00% Return On Investment 3.91% 6.40% 3.00% 4.00%

28. Z- SCORE The Z Score is a formula that combines various financial ratios to assess the financial health and risk of bankruptcy of a company. A score below 1.86 is generally considered as a distress zone. The Z Score for Tata Power has improved over the years, moving from Dogs to Wild Cats category This might be due to the high COGS, resulting in Lower EBIT and Retained Earnings.

29. CONCLUSION From the perspective of Corporate Governance policies, TATA power scores well. The company values and policies look promising. From Financial point of view also, the company proves to be a stable one, slowly trying to reduce Debt in their financial structure. Z-score of TATA power is also in an increasing trend. The Capital Work In Progress has also increased each year, which exhibits growth potential. Hence, TATA Power might prove to be a good company for M&A activities, after thorough due diligence.