Capital Structure Analysis

CAPITAL STRUCTURE
ANALYSIS
OF
KPTL
A project report
IBMR Ahmedabad Page 1
In partial fulfillment of the requirement of two year full time Post
Graduate Programme in Management (PGPM) Program (2008-10)
INSTITUTE OF BUSINESS MANAGEMANT

AND RESEARCH
BY: Jaymin D. Bhavsar

PGPM Ist Year
Acknowledgement
Through this acknowledgement, we express our sincere gratitude towards all those
people who aided us in the preparation of this project report which has been a
learning experience.
We would like to thank our director, Mr. R.K. BALYAN for giving us the best
opportunity of this practical work experience.

We express our sincere thanks to Mr.Satvik Trivedi, Human Resource Manager,
who led us through out the project report and gave us valuable suggestions and
encouragement about the work.
Again we express our thanks to the account manager Mr. Shailesh Vyas who had
given us remarkable information regarding financial position of KPTL throughout
last 5 year.
We would like to thank our faculty member that they gave us a chance for working
in such a big organization.
Finally we would like to thank our Incredible parents, how they can be escaped,
who have cooperated me directly and indirectly in one or other way.
INDEX
S.No Topic Pg.No
1. Board of Directors

2. Executive summery
3. Objectives
4. Vision statement
5. Research Methodology
6. Introduction
✔ Power based industry
✔ About KPTL
✔ Division Of company
✔ Projects and joint cventures
✔ Balance sheet of the company
✔ Profit and loss A/C of the company
7. Capital structure theory
✔ Capital structure of KPTL
✔ Ratio analysis
✔ leverage
✔ cost of equity
8. Strengths of the company
9. Limitations

10. Recommendation and suggesstions
11. Bibliography
BOARD OF DIRECTORS EXECUTIVE

MANAGEMENT
TEAM
Mr. Mofatraj P. Munot Mr. Kamal K. Jain
Chairman President & CFO
Founder, Promoter and Chairman of Kalpataru
Group with over 44 years of experience in the Mr. Dinesh B. Patel
field of Real Estate and Property Development, President & CEO
Civil Contracting & various industries. (Distribution Projects)
Mr. Mahendra G. Punatar Mr. N. Sai Mohan

Vice Chairman (upto 30.01.2009) President & CEO
Independent Director (w.e.f. 01.06.2009) (Overseas Projects)
MS (Structural Engineering) from University of
Michigan, USA with over 49 years of experience Mr. Gyan Prakash
in transmission line towers. President & CEO
(Pipeline Project)
Mr. K. V. Mani
Managing Director (upto 31.05.2009)
Additional Director (w.e.f. 01.06.2009) Mr. M. A. Baraiya
Bachelor of Engineering and MBA. Has 44 years Head )-HR
of experience in Transmission industry, mainly

Construction, Project Management and Company Secretary
Overseas Marketing. Mr. Bajrang Ramdharani
Mr. Pankaj Sachdeva Auditors

Dy. Managing Director (upto 31.05.2009) M/s. Kishan M. Mehta & Co.,
Ahmedabad
Managing Director (w.e.f. 01.06.2009) M/s. Deloitte Haskins & Sells,
Ahmedabad
B.E (Hons) degree in Electrical Engineering
and has over 25 years of Product Marketing Legal Advisor
and Project Execution experience in Power M/s. Singhi & Co., Ahmedabad
Systems Sector.
Mr. Parag Munot

Promoter Director
MBA, Carnegie Mellon University, USA with 16
years of experience, is responsible for the group
Real Estate and Property Development business.
Mr. Ajay Munot Bankers

Executive Director (upto 31.03.2009) Indian Bank
Chartered Accountant and Bachelor in General Oriental Bank of Commerce
Law with over 14 years of experience. Union Bank of India
State Bank of India
Mr. Manish Mohnot EXIM Bank
Executive Director ICICI Bank Ltd.
Chartered Accountant and an ICWA having a Citi Bank N.A.
rich experience of 14 years in consulting in the BNP Paribas, Abu Dhabi
field of Oil, Gas, Power and other sectors Commercial Bank of Kuwait
related to Infrastructure.
Mr. Sajjanraj Mehta

Independent Director

Chartered Accountant with over 34 years of
experience. A consultant in the field of Foreign
Exchange, Taxation & Corporate Affairs and
Strategy.
Mr. Vimal Bhandari

Chartered Accountant with an experience of more
than 24 years in Financial Services sector. He was
Executive Director of IL&FS Ltd. Presently, he is
Country Manager - Aegon India.
Mr. Shitin Desai

Experience in excess of 28 years in Financial
Services sector. He is currently the Executive Vice
Chairman of DSP Merrill Lynch Ltd.
Mr. Narayan Seshadri

Chartered Accountant with an experience of
27 years in the field of finance, account, tax and
business consulting. Presently, he is the Chairman
and CEO of Halcyon Resources and
Management Pvt. Ltd.
Mr. Imtiaz Kanga

Promoter Director(upto 30.01.2009)
Chartered Accountant with 29 years of experience in various industries
EXECUTIVE SUMMARY
Kalpataru Power Transmission is one of World's leading companies in the
design, testing, fabrication, erection and construction of transmission lines and
substation structures on a turnkey basis across India and Overseas. As an EPC

contractor, our scope of work includes design, testing, fabrication, galvanizing of
towers and construction activities from survey, civil works/ foundation, erection to
stringing and commissioning of EHV lines, besides procurement of items such as
conductors, insulators, hardware accessories etc. We also participates in Substation
projects on a partnership basis.
Located at Gandhinagar Gujarat, in Western India, Kalpataru Power Transmission

is a public listed company with a turnover of USD 385 Million (Rs. 19.1 Billion)
and annual production of 80,000 MTs till 2007-08.The company has a net worth
of over USD 200 Million and an order booking of over Rs 50 Billion (USD
1Billion). The company has also attained distinction of crossing the USD 800
Million (Rs. 40 Billion) market capitalization. On a combined basis (with JMC
Projects), the consolidated turnover has crossed Rs 32.8 Billion (USD 655
Million).
The study aims at determining profitability and liquidity by analyzing the financial
statements of the company. The analysis of the financial statement is a process of
evaluating the relationship between component parts of financial statement to
obtain a better understanding of the firm’s position performance.

The financial analysis includes horizontal (trend) as well as the vertical analysis.
Trend analysis involves a comparison of the percentage of a firm over a time, that
is present percentage is compared with past percentage for the same firm.
This study will help the stakeholders of the company to know about the finance of
the company.Above were the reasons why we have chosen to understand a project
with detailed analysis of KPTL.For that after collecting the appropriate
information we have analyzed the financial statement having the analysis of the
profit and loss account, Balance Sheet and ratios.

Objectives :
✔ Strategic assessment of the power industries as well as overall KPTL.
✔ To understand the financial soundness of the company.
✔ To know how company increases the productivity as well as profitability

with the help of employees as an asset.
Mission
The Kalpataru Group's credo of "No Compromise" embodies strong commitment
to highest standards of excellence and ethics. It encourages innovation and people
development, which in turn lead to superior quality products and services and
result in maximum customer satisfaction.

RESEARCH METHODOLOGY
✔ Study objectives :-
a) To study the nature of working capital, concepts and definition of working
capital.
b) To examine the effectiveness of working capital management practices of the
firm.
c) To find out how adequacy or otherwise of working capital affects commercial
operations of the company.
d) To prescribe remedial measures to encounter the problems faced by the firm.
e) To study the working capital financing or means of financing of the company.

✔ Scope of the study :-
a) Planning of working capital management
b) Working capital finance
✔ Methods of Data collection :-

a) Primary data:
Basic information collected from the local sources as well as from the company
staff like managers, accountants and officers. Moreover information gathered
through practically preparing the data for working capital.
b) Secondary data:
1. From the B/S of the company
2. From CMA proposal report
3. From internet
4. From books
Introduction
✔ Overview of power industry

.Kalpataru Power has two large Fabrication Plants with an annual installed
capacity of 108,000 MTs (with a capacity addition of 24,000 MTs in Oct, 2008)
one of the largest in the world and is equipped with modern machineries (including
16 CNC machines) and automated temperature controlled Galvanising Baths,
besides its own state-of-the-art Testing Station and R & D Centre. It was the first
company in 1994 in the Indian transmission industry to be ISO 9001 certified.
About 650,000+ MTs of towers and substation structures have already been
designed, manufactured and supplied over the last few years of which over
175,000 MTs has been exported. Over 250 Tower Tests of 132-500KV have been
carried out successfully, including 125 nos. at our own Testing Station, which is
one of the largest facilities of its kind in the world.
Their Construction division has completed over 8,000+ kms of turnkey projects in
India for various clients such as the Power Grid Corporation of India and various

State Electricity Boards (SEBs) of Gujarat, Karnataka, Maharashtra, Rajasthan,
Andhra Pradesh, Rajasthan, Orissa, Tamil Nadu and Madhya Pradesh.
INFRASTRUCTURE
Kalpataru Power Transmission has 2 fabrication units and the production capacity
of these plants is around 108,000 MT per year. KPTL has one Plant for a Domestic
requirement which is situated in Sector 28 Gandhinagar, which has a capacity of
78,000 MTs per annum. And second plant is situated in Sector 25, Gandhinagar
which is 100% EOU plant for Export purpose and has capacity of 30000 MTs per
annum. The average capacity utilisation Rate is around 96 % of total Capacity
Installed.
The facilities available in these plants are
✔ CNC punching / drilling machines (16 No from Ficep, Italy), Capable of

handling Angle sections upto 250*250*35 mm and Plates
✔ Automatic temperature controlled galvanizing bath Capable of coating

requirement of 610 and 910 gms per sq.mts (80 to 130 micron)
✔ Tower Testing Station and R&D Centre for testing upto 800KV D/C towers
with Tower Base width - 27M x 27M (square and rectangle), Height - 85mts
and uplift capacity per leg of 500 MT is one of the largest facility of its kind
in the world.

✔ Over 12 nos. of Tension Stringing equipments upto 8/16 Tones (capable of
pulling quadruple conductors)
DIVISION OF COMPANY
Tower Design, Testing and Manufacturing
The key strength of any Transmission Line player lies in its core capability of
design, testing, manufacturing and construction.

The company employs latest 3D Design Software and their Engineering
Team has perfected the art to deliver cost effective design solutions. Their state of
art Tower Testing Station and R & D center can handle up to 800 KV D/C towers
with base width of 27 Mtrs * 27 Mtrs and height of 80 Mtrs. They have
successfully completed their 100th Tower Tests.
Their Fabrication plant with an annual installed capacity of 54000 MTs has
been running at 90 % of its capacity to deliver up to 4000 MT’s per month for over
36 months. Besides delivering towers to their own projects, they have been reliable
supplier of choice to reputed EPC Contractors like ABB, Areva, Sumitomo,
Downer, Gridcom etc with exports to 15 countries. They are the first Indian
manufacturing unit to achieve the ISO 9001 Certification since 1994.
They are further expanding capacity by another 18000 MT’s to exclusively
cater to their export requirements and to retain their position as one of the largest
tower fabricators across the world.
Civil Construction (JMC Projects)

JMC projects (India) Ltd. is one of the leading civil contracting company and is a
preferred name when it comes to industrial Structures, factories, Commercial
Buildings, InfoTech / Software parks. Besides this, it has done civil works for
various Power Plants, Sub-stations, Sugar, Pharma and Automobile Factories.

Some of its valued customers include Bajaj Auto, Coca Cola, Asian Paints, Power
Grid, Infosys, Wipro, IIM Ahmadabad and many more.
The company has revenues of approx Rs.2.4 Billion (USD 55 Million) and a
manpower strength of over 875 people, besides a fleet of plant & equipment.
JMC’s edge has been its quality and commitment to timely execution. It has also
entered into construction of Express Ways, Roads & Bridges.

Kalpataru Power has become a dominant shareholder in JMC since February 2005
and is committed to take JMC to greater height of success.
Transmission & Distribution Division
Following measures taken by the Company from time to time. Has helped us
maintaining energy consumption at optimum level:
1. Use of Voltage Stabilizer to regulate fluctuations in voltage of the Ahmadabad

Electricity Company supply, which helps to reduce energy consumption and
eliminates wastage.
2. Installed enough number of Capacitors at Electrical Control Panel Boards to

improve the overall power factor.
3. Took PNG Connection, an environment friendly fuel, for galvanizing plant and
hot bending machine to conserve the energy.

Total energy cost is less than 1% total turnover, which reflects success of the
company's efforts in this direction.
Bio-mass Energy Division
1. The company has diversified into Power Generation using renewable/non

conventional energy sources such as agricultural waste and crop residues
(biomass) in the State of Rajasthan.
2. The plants uses biomass (mustard crop residue / cotton sticks) and has
established infrastructure / logistics enabling it to collect over 75,000 MTs last
year. Based on first hand experience and holding of buffer stocks, the company

foresees no biomass collection risks in Ganganagar.
3 Distribution companies of Jaipur, Jodhpur & Ajmer based on the Rajasthan State
Policy of Non-Conventional energy. Third party sale to Large Industrial Customer
is also permitted as per existing Policy & Regulatory guidelines. The Plant sale
will be approx. 90 million units/kwh in 2007-08 to the Rajasthan Grid with timely
payments.
Besides being environment friendly, the Project is expected to contribute to the
prosperity and sustainable development of the region, besides generating local
employment opportunities.
Oil and Gas Pipeline Sector
After the Oil & Gas sector has been opened up in India, and the demand of energy
per capita has been rising steadily with the growth in economy, the demand of
Pipelines for natural gas and petroleum products in India has been witnessing a

spurt. The phenomenon has been replicated in many parts of world and as a result,
more and more pipelines are being set up in various parts of the world to facilitate
transport connectivity between farthest point to the source.
Natural gas has emerged as the dominant source of additional energy in world.
There exists a huge deficit of natural gas based on current production and demand
data in India.
According to GAIL (India) Limited, the nodal agency for transportation of natural
gas, the demand for natural gas is increasing @12% per annum. Pipeline transports
only 25% of petroleum product consumed by Indian industry in spite of being
cheaper than Railways and Road transportation. It is estimated that total pipeline
network would increase from the present 16,000 km to 40,000 km in the next 3-4
years, total Capital Expenditure required for Oil & Gas Network is estimated
around USD 10 billion.
Logistics & Warehousing Business

According to industry estimates, storage capacity in the country vis-a-vis
production of vegetables and fruits stands at a meager 12% compared with the
international average of 50%. The result: nearly 38% of the perishable goods, such
as vegetables and fruits, are lost owing to lack of cold storage systems and
processing facilities. The cumulative loss could be to the tune of Rs. 55,000 crore.
Shree Shubham Logistics Limited (SSLL),a subsidiary of Kalpataru Power

Transmission Limited is focused in developing Commodity Warehousing Logistics
parks in strategic locations in the country.
The key objective is to develop multi-function facilities catering to ambient

temperature warehousing, cold storage, processing units, auction yard, weigh

bridges and other support amenities. By July, 2009, SSLL will have storage
capacity of over 1,80,000 MTs as most of its planned warehouses will be
operational by that time.
REAL ESTATE DIVISION
Company is looking for certain real estate initiatives directly or indirectly through
SPV or Subsidiaries to build up developers capabilities to bid for BOOT/BOOM
infrastructure projects in future. The Company has identified two developmental
projects for execution under its subsidiaries.
One of its wholly owned subsidiary Energy Link (India) Ltd., development of
multi product SEZ is proposed over an area of approximately 1,000 hectors (2,600

Acres) in the region called 'Ahmedabad-Dholera Special Investment Region' (SIR),
which is about 85 kms away from Ahmedabad.
The other project is through wholly owned subsidiary namely Amber Real Estate
Ltd. to develop IT Park which is proposed to be developed at Mumbai.
KPTL is associated with And Different Projects of KPTL

Established over 3 decades ago in 1969 by Mr. Mofatraj P. Munot, a first generation entrepreneur.
The Group employs over 4,000 people. Kalpataru borrows its name from the ancient Indian
mythological tree - the Kalpa-Vruksha -beneath which all wishes are fulfilled.
Property Solutions (I) Pvt Ltd.
Kalpataru Ltd.
(PSIPL)
JMC Projects (India) Ltd. Caprihans India Limited
Shree Shubham Logistics Ltd.
1. Kalpataru Ltd.
The group's flagship company, Kalpataru Ltd. is a leading real estate developer with premium
residential and commercial complexes in Mumbai and Pune.
Pioneering the concept of creating lifestyle living, it has built more than 75 landmark edifices in
the last 39 years. With a team of 1,000 dedicated, Kalpataru has created an uncomparable brand
and reputation for itself in the Property Development and Real Estate industry.
We pride at being one of the largest Property Groups in India, with development of over 1.5
Million sq.ft at any point of time.
Every Kalpataru project reflects a "no compromise" attitude; one that manifests in the architecture,
engineering and construction of every project; from towering structures to expansive complexes,
Kalpataru has proven its commitment and expertise in every segment of property development.
The residential complexes are replete with landscaped gardens, swimming pools, gymnasium,
ennis and squash courts, clubhouses and several innovative amenities.
In an age where architecture is mainly utilitarian, Kalpataru endeavours to combine the functional
with the aesthetic and maintains the highest standards of quality right down to the last detail.
Sr. No. of % to the
Category
No. Shares held Shareholding
A Promoter & Promoter Group Share Holding :
Indian 16,876,266 63.68
Foreign - -
B Public Share Holding :
1. Institutional :
Mutual Funds & UTI 3,457,372 13.05
Banks, Financial Inst. 53,577 0.20
Venture Capital Fund 1,514,000 5.71
Insurance Companies 642,473 2.42
FIIs 1,760,304 6.64
2. Non-Institutional :
Private Corporate Bodies 679,955 2.57
NRIs / OCBs 155,071 0.59
Indian Public 1,260,984 4.76
Clearing Members 99,998 0.38
TOTAL 26,500,000 100.00
Shareholders Share in Amount
No. of Shares of Rs.10 each
Number % of Total In Rs. % of Total
Upto - 500 14,525 96.33 8,762,830 3.31
501 - 1,000 268 1.78 1,993,220 0.75
1,001 - 2,000 106 0.70 1,530,080 0.58
2,001 - 3,000 39 0.26 977,990 0.37
3,001 - 4,000 17 0.11 611,660 0.23
4,001 - 5,000 9 0.06 423,160 0.16
5,001 - 10,000 23 0.15 1,716,140 0.64
10,001 and above 91 0.61 248,984,920 93.96
265,000,00
Total 12,700 100.00 100.00
0

Rajiv Gandhi Grameen Vidyutikaran Yojana
Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) was launched in April-05
by merging all ongoing schemes. Under the programmed 90% grant is provided by
Govt. of India and 10% as loan by REC to the State Governments. REC is the
nodal agency for the programme. The RGGVY aims at:
✔ Electrifying all villages and habitations as per new definition
✔ Providing access to electricity to all rural households
✔ Providing electricity Connection to Below Poverty Line (BPL) families free

of charge
Infrastructure under RGGVY :

✔ Rural Electricity Distribution Backbone (REDB) with 33/11 KV (or 66/11
KV) sub-station of adequate capacity in blocks where these do not exist.
✔ Village Electrification Infrastructure (VEI) with provision of distribution

transformer of appropriate capacity in villages/habitations.
✔ Decentralized Distributed Generation (DDG) Systems based on

conventional & non conventional energy sources where grid supply is not
feasible or cost-effective.
SIZE
✔ India has the fifth largest electricity generation capacity in the world
✔ Low per capita consumption at 631 units; less than half of China
✔ Transmission & Distribution network of 6.6 million circuit km - the third

largest in the world
STRUCTURE
✔ Majority of Generation, Transmission and Distribution capacities are with
either public sector companies or with State Electricity Boards (SEBs)
✔ Private sector participation is increasing especially in Generation and

Distribution.
✔ Distribution licences for several cities are already with the private sector
✔ Three large ultra-mega power projects of 4000MW each have been recently
awarded to the private sector on the basis of global tenders.
POLICY
✔ 100% FDI permitted in Generation, Transmission & Distribution - the

Government is keen to draw private investment into the sector
✔ Policy framework: Electricity Act 2003 and National Electricity Policy 2005
✔ Incentives: Income tax holiday for a block of 10 years in the first 15 years of
operation; waiver of capital goods' import duties on mega power projects
(above 1,000 MW generation capacity)

✔ Independent Regulators: Central Electricity Regulatory Commission for
central PSUs and inter-state issues. Each state has its own Electricity
Regulatory Commission
OUTLOOK
✔ Over 78,000 MW of new generation capacity is planned in the next five

years
✔ A corresponding investment is required in Transmission and Distribution

networks
✔ Power costs need to be reduced from the current high of 8-10 cents/unit by a
combination of lower AT & C losses, increased generation efficiencies and
added low-cost generating capacity
POTENTIAL
✔ Large demand-supply gap: All India average energy shortfall of 9% and

peak demand shortfall of 14%

✔ The implementation of key reforms is likely to foster growth in all segments
➢ Unbundling of vertically integrated SEBs
➢ “Open Access” to Transmission and Distribution networks
➢ Select distribution circles to be franchised/privatised
➢ Tariff reforms by regulatory authorities
✔ Opportunities in Generation for:
➢ Ultra Mega Power Plants (UMPP) – 9 projects of 4000 MW each
➢ Coal based plants at pithead or coastal locations (imported coal)
➢ Natural Gas/CNG-based turbines at load centres or near gas terminals
➢ Hydel power potential of 150,000 MW is untapped as assessed by the

Government of India.
GLOBAL LEVEL OF THE COMPANY
With a strong thrust on Overseas markets, the Company is/has already

exported Towers or is executing/has completed Turnkey projects in :

Asia Middle East Africa America Australia
Philippines Kuwait Algeria USA Tasmania
Malaysia UAE Ethopia Canada
Vietnam Qatar Zambia Mexico
Indonesia Syria Nigeria Peru
Thailand Turkey Kenya
Bangladesh Iraq Tanzania
Nepal Mozambique
Djibouti
Uganda
South Africa
Transmission Line Experience

Total supplies Over 6,00,000 MTs
Total physical exports Over 2,00,000 MTs
Tested Over 250 Towers (including over 125 at own Testing Station)
Construction of lines
Total lines from 130kv to 765KV HVDC over 8,000 kms
BALANCE SHEET OF KPTL

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Sources of funds
Owner's fund
Equity share capital 26.5 26.5 26.5 10.86 10.86
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 810.45 740.72 615.34 156.43 102.25
Loan funds
Secured loans 485.44 295.85 336.71 232.78 100.48
Unsecured loans 169.27 30 - - 10
Total 1,491.66 1,093.07 978.55 400.07 223.59
Uses of funds
Fixed assets
Gross block 359.09 295.97 256.75 159.38 97.66
Less : revaluation reserve - 0.55 0.6 0.64 0.69
Less : accumulated
depreciation 100.69 73.29 51.71 35.36 27.09
Net block 258.4 222.13 204.45 123.38 69.88
Capital work-in-progress 10 1.93 4.12 28.36 0.21

Investments 126.83 147.51 218.92 29.45 10.13
Net current assets
Current assets, loans &
advances 1,925.71 1,332.47 1,084.76 600.87 343.41
Less : current liabilities &
provisions 829.27 610.98 533.75 382.08 200.19
Total net current assets 1,096.44 721.49 551.01 218.79 143.22
Miscellaneous expenses
not written - - 0.05 0.1 0.15
Total 1,491.66 1,093.07 978.55 400.07 223.59
Notes:
Book value of unquoted
investments 53.26 74.79 146.45 - -
Market value of quoted
investments 58.48 276.3 179.15 147.3 20.28
Contingent liabilities 107.63 55.59 29.44 48.34 36.44
Number of equity shares
outstanding (Lacs) 265 265 265 108.62 108.62

PR
OFIT AND LOSS A/COF KPTL
Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income:
1,524.3
Operating income 1,882.50 1,737.58 6 839.72 541.32
Expenses
Material consumed 1,026.03 988.94 864.21 522.71 347.3
Manufacturing expenses 414.15 260.45 201.53 87.49 72.34
Personnel expenses 108.62 90.58 71.61 38.9 23.63
Selling expenses - 21.24 22.07 9.49 4.4
Adminstrative expenses 110.97 86.3 65.67 38 22.62
Expenses capitalized - - - - -
1,225.0
Cost of sales 1,659.76 1,447.52 9 696.59 470.29

Operating profit 222.73 290.06 299.27 143.13 71.04
Other recurring income 30.76 16.05 10.66 1.64 1.04
Adjusted PBDIT 253.49 306.11 309.93 144.77 72.08
Financial expenses 105.59 56 64.83 40.5 22.43
Depreciation 27.32 21.8 16.76 8.79 5.5
Other write offs - 0.05 0.05 0.07 0.11
Adjusted PBT 120.58 228.26 228.28 95.41 44.04
Tax charges 26.17 82.36 70.84 32.52 16.26
Adjusted PAT 94.41 145.90 157.44 62.89 27.78
Non recurring items - 1.88 1.83 1.77 -0.8
Other non cash
adjustments -0.15 2.1 -1.18 1.78 1.65
Reported net profit 94.26 149.88 158.09 66.45 28.63
Earnigs before
appropriation 414.18 363.17 256.54 117.89 60.58
Equity dividend 19.88 19.88 19.88 10.86 5.43
Preference dividend - - - - -
Dividend tax 3.38 3.38 3.38 1.58 0.71
Retained earnings 390.93 339.92 233.29 105.45 54.44

TREND ANALYSIS OF BALANCE SHEET
✔ Chart (A) Sources of Funds

✔ Chart (B) Fixed Assets & Investment
700
600
G r o ss B l o c k
500
D e p r i c i a ti o n
400
% Trend
N e t B lo c k
300
200 C a p i ta l W o r k I n P r o g r e ss
100 I n v e stm e n t
0
2 0 0 9 -0 8 2 0 0 8 -0 7 2 0 0 7 -0 6
Ye a r
CAPITAL STRUCTURE
In finance, capital structure refers to the way a corporation finances its assets
through some combination of equity, debt, or hybrid securities. A firm's capital
structure is then the composition or 'structure' of its liabilities. For example, a firm
that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-
financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in
this example, is referred to as the firm's leverage. In reality, capital structure may
be highly complex and include tens of sources. Gearing Ratio is the proportion of
the capital employed of the firm which come from outside of the business finance,
e.g. by taking a long term loan etc.
A mix of a company's long-term debt, specific short-term debt, common equity

and preferred equity. The capital structure is how a firm finances its overall
operations and growth by using different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is
classified as common stock, preferred stock or retained earnings. Short-term debt
such as working capital requirements is also considered to be part of the capital
structure.
A company's proportion of short and long-term debt is considered when analyzing

capital structure.

DEFINITION
The permanent long-term financing of a company, including long-term debt,
common stock and preferred stock, and retained earnings. It differs from financial
structure, which includes short-term debt and accounts payable.
The capital structure of a company is the particular combination of debt, equity and
other sources of finance that it uses to fund its long term financing.
The key division in capital structure is between debt and equity. The proportion of
debt funding is measured by gearing.
This simple division is somewhat complicated by the existence of other types of

capital that blur the lines between debt and equity, as they are hybrids of the two.
Preference shares are legally shares, but have a fixed return that makes them closer
to debt than equity in their economic effect. Convertible debt may be likely to
become equity in the future.
Considering the division between debt and equity is sufficient to understand the

issues involved.
Simple financial theory models show that capital structure does not affect the total
value (debt + equity) of a company. It is, nonetheless, an important result, know as
capital structure irrelevance.
Contents
✔ 1 Capital structure in a perfect market

✔ 2 Capital structure in the real world
➢ 2.1 Trade-off theory
➢ 2.2 Pecking order theory
➢ 2.3 Agency Costs
➢ 2.4 Other
✔ 3 Arbitrage

1.Capital structure in a perfect market
Assume a perfect capital market (no transaction or bankruptcy costs; perfect

information); firms and individuals can borrow at the same interest rate; no taxes;

and investment decisions aren't affected by financing decisions. Modigliani and
Miller made two findings under these conditions. Their first 'proposition' was that
the value of a company is independent of its capital structure. Their second
'proposition' stated that the cost of equity for a leveraged firm is equal to the cost
of equity for an unleveraged firm, plus an added premium for financial risk. That
is, as leverage increases, while the burden of individual risks is shifted between
different investor classes, total risk is conserved and hence no extra value created.
Their analysis was extended to include the effect of taxes and risky debt. Under a
classical tax system, the tax deductibility of interest makes debt financing valuable;
that is, the cost of capital decreases as the proportion of debt in the capital structure
increases. The optimal structure, then would be to have virtually no equity at all.
2. Capital structure in the real world

If capital structure is irrelevant in a perfect market, then imperfections which exist
in the real world must be the cause of its relevance. The theories below try to
address some of these imperfections, by relaxing assumptions made in the M&M
model.

2.1 Trade-off theory
Trade-off theory allows the bankruptcy cost to exist. It states that there is an
advantage to financing with debt (namely, the tax benefit of debts) and that there is
a cost of financing with debt (the bankruptcy costs of debt). The marginal benefit
of further increases in debt declines as debt increases, while the marginal cost
increases, so that a firm that is optimizing its overall value will focus on this trade-
off when choosing how much debt and equity to use for financing. Empirically,
this theory may explain differences in D/E ratios between industries, but it doesn't
explain differences within the same industry.
2.2 Agency Costs

There are three types of agency costs which can help explain the relevance of
capital structure.
✔ Asset substitution effect: As D/E increases, management has an increased

incentive to undertake risky (even negative NPV) projects. This is because if
the project is successful, share holders get all the upside, whereas if it is
unsuccessful, debt holders get all the downside. If the projects are

undertaken, there is a chance of firm value decreasing and a wealth transfer
from debt holders to share holders.
✔ Underinvestment problem: If debt is risky (eg in a growth company), the

gain from the project will accrue to debt holders rather than shareholders.
Thus, management has an incentive to reject positive NPV projects, even
though they have the potential to increase firm value.
✔ Free cash flow: unless free cash flow is given back to investors,
management has an incentive to destroy firm value through empire building
and perks etc. Increasing leverage imposes financial discipline on
management.
3. Arbitrage
Similar questions are also the concern of a variety of speculator known as a
capital-structure arbitrageur, see arbitrage.
A capital-structure arbitrageur seeks opportunities created by differential pricing of

various instruments issued by one corporation. Consider, for example, traditional

bonds and convertible bonds. The latter are bonds that are, under contracted-for
conditions, convertible into shares of equity.
The stock-option component of a convertible bond has a calculable value in itself.

The value of the whole instrument should be the value of the traditional bonds plus
the extra value of the option feature. If the spread, the difference between the
convertible and the non-convertible bonds grows excessively, then the capital-
structure arbitrageur will bet that it will converge.

Capital structure (in crore)
Paid Up Paid Up Paid
From Class Of Authorized Issued Shares Face Up
Year To Year Share Capital Capital (Nos) Value Capital
2650000
2007 2008 Equity Share 30 26.5 0 10 26.5
2650000
2006 2007 Equity Share 30 26.5 0 10 26.5
1086150
2005 2006 Equity Share 30 10.86 0 10 10.86
1086150
2004 2005 Equity Share 20 10.86 0 10 10.86
1086150
2003 2004 Equity Share 20 10.86 0 10 10.86
5.2 CAPITAL STRUCTURE OF KPTL

5.3 DIVIDEND

Year Month Dividend (%)
2009 Jun 75
2008 May 75
2007 May 75
2006 May 50
2005 May 50
2004 May 30
2003 May 15
2002 Jul 15
2001 Aug 15
2000 Jun 5
2000 Mar 25
1999 May 30
1998 May 30
1997 May 30

OBJECTIVE
✔ To calculate Weighted Average Cost of Capital (WACC)

✔ To calculate Return on Investment(ROI)
✔ Compare WACC and ROI.
If ROI is greater than WACC, then the company is getting returns more than the
capital employed. Vice Versa.

RATIO REQUIRED FOR CAPITAL STRUCTURE
Ratios:
Finance structure ratio indicates the relative mix or blending of owner’s fund
and outsider’s debt funds in the total capital employed in the business. It should
be noted that equity funds are the prime fund, which increases progressively
through reinvestment of profits, while outside debt funds are supplementary
funds and are added at the discretion of the management. We also use some
liquidity ratio,and profitability ratio for calculation. Some popular ratios are as
under...
1 .Equity Ratios
2 .Debt Ratios

3 .Debt-Equity Ratios
4 .Debt service coverage ratio
5. Interest coverage ratio
6. Current ratio
7. Net working capital ratio
8. Return on equity
1. Equity Ratios
Equity Ratio = Net Worth
Total Capital Employed
1) 2008-09 = 836.95
971.08

= 0.86
2) 2007-08 = 767.77
838.16
= 0.91
Where,
Net Worth = Equity Capital + Reserves – Misc. Expenses.
Total Capital Employed = Net Worth + Long Term Debts.
Chart : Equity Ratios
Analysis:

✔ This ratio suggests the proportion of the Net Worth to total capital
employed. Net Worth to Total Capital Employed. Net Worth is share plus
reserves and surplus. The higher the ratio the higher the net worth in total
capital employed and vice versa.
✔ The ratio decreased from the last year because the long term debt is
increase.
✔ It was the highest value is 0.91 in the year 2007-08.
3. Debt Equity Ratio:
When debt funds are used to generate ROI greater than interest cost on debt, the
equity earning is enhanced, but if the interest cost is higher than the ROI, adversely
affect the earning owners. This ratio is popularly described as Debt-Equity Ratio.
Higher debt – equity ratio is (1) good if ROI is greater than interest on debt. Thus,
use of debt (or leverage) is considered as a “Double Aged” weapon.
Debt Equity Ratio = Total Long term Debt

Net Worth
2008-09 = 134.13
836.95

= 0.16
2007-08 = 70.38
767.77
= 0.09
Chart : Debt Equity Ratios
Analysis:
✔ Debt Equity Ratio is debt to Equity. Debt means long term fund having
maturity of five years or more including interest thereon.

✔ Equity is paid up share capital plus free reserves. The higher the debt fund
used in capital structure, the greater is the financial risk. This is also known
as leverage ratio.
✔ Here as per the graph, we can see that the value is decreasing regularly.

4 .Debt service coverage ratios:
Financial institutions which provide the bulk of long-term debt finance judge the
debt capacity of a firm in terms of its DSCR.
DSCR= PBTi+DEPi+INTi+li
INTi+LRIi
Where,
PAT= PROFIT AFTER TAX
DEP=DEPRECIATION FOR THE YEAR
INT=INTEREST ON THE LONG TERM LOAN
LRI=LOAN REPAYMENT INSTALLEMENT
Li=LEASE RENTAL YEAR
N=period of the loan
2008-09 (IN CRORE) = 155

24
= 6.46

2007-08(IN CRORE) = 231
24.26
= 9.52
Chart : Debt service coverage ratios
Analysis:
✔ The DSCR is good for the company as because it decrease from the last year.
And company has no problem if it would go for debt financing

5. INTEREST COVERAGE RATIO
This ratio is widely used by lenders to assess a firms debt capacity. It’s a major
determent of bond rating. A high average Int coverage means that the firm can
easily meet its Int burden, even if earning before Int and taxes suffer a considerable
decline. This ratio is not a very appropriate measure of int coverage because the
sources of int payments are cash flow before int and taxes, not before int and taxes.
ICR = PBIT
INTEREST
2008-09 = 189
68
= 2.78
2007-08 = 242
40

= 6.05
CHART: INTEREST COVERAGE RATIO
Analysis:
✔ A high ratio implies adequate safety for payment of interest.
✔ It is clearly indicates by the above calculation that interest expenses increase

and also PBIT decrease and so it implies that the debt of the company
increase.
✔ Thus in general we can conclude that the growth of the company is very
good, because it has enough position to meet the interest.

6. CUREENT RATIO
Current ratio is the indication of the firm commitment to meet its short-term
liabilities. It is widely used indicator of a company’s ability to pay its debts in
short-term. The Current Ratio is the ratio of total current assets to total current
liabilities. It can be calculated, by dividing current assets by current liabilities.
Current Ratio = Total Current Assets

Total Current Liabilities
Where,
Current Assets = Inventories + Debtors + Bill Receivables +
Marketable Securities + Bank & Cash Balance +
Prepaid Expenses.
Current liability = Creditors + Bill payables + Unpaid expenses +
Provision for tax + dividend Payable + Bank over

Draft.
2008-09 = 1925.71
829.27
= 2.32
2007-08 = 1332.47
610.98
= 2.18

CHART: CUREENT RATIO
Analysis:
✔ Company’s Current ratio will good as its increase in the current ratio.
✔ From this Current Ratio the Company has better liquidity \short term
Solvency.
7. Net Working Capital:
Net Working Capital (NWC) represents the excess of current assets over current
liabilities.
Net Working Capital = Total Current Assets – Total Current Liability
2008-09 = 1096.44
2007-08 = 721.49
CHART: Net Working Capital

Analysis:
✔ The ratio represents that part of the long term funds represented by the net
worth and long term debt which is presently blocked asset.
✔ Here, as per the graph, ratio is being increased regularly.
8. Rate of Return on Equity:

Return on Equity = earnings Available to Equity Shareholder
Net Worth
Where,
✔ Profit for the Equity = Net Profit – Preference Dividend

✔ Net Worth = Equity Capital + Reserves – Misc. Expenses
2008-09 = 94.26
836.95
= 0.11

2007-08 = 149.88
767.22
= 0.20
CHART: Rate of Return on Equity
Analysis:
✔ Through the above calculation we can say that the rate of return on equity
ratio is Declining year to year it means shareholders earnings will decline
But
✔ The main cause to decrease the value of the ratio is the increase in the value
of the Net Worth.
LEVERAGE ANALYSIS
FINANCIAL LEVERAGE is the use of debt to increase the expected return on
equity. Financial leverage is measured by the ratio of debt to debt plus equity.
leverage to be positive, the rate of return on the investment must be higher than the
cost of the money borrowed. In general, in finance, leverage is the use of debt
financing. Leverage, within a corporation, is the use of borrowed money to
increase the return on investment.
Impact of leverage on profitability:

Cost of interest and interest coverage:
TABLE (1)
SALE EBI INTERES INTEREST AS A INTEREST

YEAR S T T % OF SALES COVERAGE

2004-05 567 54 11 1.94 4.91
2005-06 871 110 16 1.84 6.88
2006-07 1567 245 28 1.79 8.75
2007-08 1768 242 40 2.26 6.05
2008-09 1914 189 68 3.55 2.78
Analysis:
✔ Interest as a percentage of sales and interest coverage ratios are presented in
table and in figure.
✔ Interest coverage is expressed in number of times, dividing EBIT by interest.

The interest coverage was 4.91 times in 2004-05, sharply increased Up to
2007-08 which shows that it is good for the company.
TABLE (2):
YEAR SALES EBIT EBT EPS % % %

(in CHANGE CHANGE CHANGE
crore) IN EBIT IN SALES IN EPS
2004-05 567 54 43 26 - - -
2005-06 871 110 94 61 103.70 53.62 134.62
2006-07 1567 245 217 65 122.73 79.91 6.56
2007-08 1768 242 202 57 -1.22 12.83 -12.31
2008-09 1914 189 121 36 -21.90 8.26 -36.84
TABLE (3)
YEAR DOL DFL TL

2005-06 1.9342 0.796 1.54
2006-07 1.5359 0.855 1.312
2007-08 -0.095 0.886 -0.08
2008-09 -2.652 0.835 -2.21

ANALYSIS:
✔ The different ratios relating to leverages and EPS are presented in table 2,
table 3 and graph. The highest DFL was noticed in 2007-08(0.88) with a
lowest one in 2005-06(0.79)
✔ In case of operating leverages, there was substantial decrease from 2005-06.
TABLE (4)
YEAR % CHANGE IN EBIT % CHANGE IN SALES

2005-06 103.70 53.62
2006-07 122.73 79.91
2007-08 -1.22 12.83
2008-09 -21.90 8.26
Change in sales vs. Change in EBIT

The above figure show the effect of sales in EBIT. If firm is working with high
operating leverage a proportionate change in sales will bring a more proportionate
change in EBIT.
CONCLUSION
From the above analysis we can see that the leverages do affect the profitability of
the company. The greater is the degree of financial leverage, the greater fluctuation
(positive or negative) in EPS. The shareholders get higher returns when the firm’s
management chooses to use more financial leverage rather than less.
COST OF EQUITY
Equity finance may be obtained in the two ways:
✔ Retention of earnings
✔ Issues of additional equities

The cost of equity or the return required by the equity shareholders is the same in
the both the cases. When a firm decided to return earning an opportunity cost is
involved. Shareholders could received the earnings as a dividend and invest the
same in alternative investment of the comparable risk to earn a return.
Whether a firm raises equity finance by retain earnings or issuing additional equity
shares, the cost of equity will be the same. The only difference is in flotation cost.
There is no flotation cost for retained earning where as there is flotation cost of 2
to 8 % or even more for additional equity. Thus cost of equity refers to the cost of
the retained earnings as well as the cost of external equity.
While the cost of debt and preference can be determined fairly easily, the cost of
equity is rather difficult to estimate. This difficulty stems from the fact that there is
no definite commitment on the part of the firm to pay dividend.
COST OF DEBT
Conceptually, the cost of debt instrument is the yield to maturity of that instrument
.following are the Debt instrument such as debenture, bank loans, and
commercial paper.
Strengths of the Company:

➢ Design and Engineering
➢ Testing station and R &D center
➢ Fabrication
➢ Galvanization
➢ Supply chain (by air, sea, etc.)
➢ Construction (of towers)
Customers:
➢ Across India :-
✔ Power Grid Corporation of India (PGCI)
✔ State Electricity Boards (SEBs) of Gujarat, Maharashtra,
Rajasthan, Andhra
Pradesh, Tamil Nadu, Madhya Pradesh, West Bengal, UP.
➢ Pre- qualified for all domestic and international tenders.

➢ Qualified bids over 20 countries.
➢ Has ‘Trading House’ status and received various Awards for Meritorious
performance in Exports from Engineering Exports Promotion Council (EEPC)
and Ministry of Commerce, Government of India.
International Partners:
➢ ABB SAE (Italy)
➢ Downers (Australia)
➢ Grid Comm. (Australia)
➢ Areva/Alstom (France)
➢ Cegelec (France)
➢ Enel Power (Italy)
➢ Cobra (Spain)

➢ Sumitomo Electric (Japan)
➢ ETA (UAE)
➢ Hindalco (Egypt)
➢ GYM (Peru), etc.
Limitations
✔ As my training period clashed with the firms quarterly auditing period the
concerned person in Finance and Accounting Department were busy with
auditing work and thus were not able to provide more time to during the
training period.
✔ Moreover the data for the years before 2006-07 where not available and thus
taken in approximate figures.
✔ The management of the firm is very busy and was found reluctant to provide
off balance sheet information.
✔ Operating cycle is not found to be uniform and the same was found to be
varying from one period to another due to several inherent problems in
production and distribution system/delivery system/logistic system
prevailing in the organization
✔ Non availability of necessary and relevant data for assessing working capital
requirements due to Retirement of the key personnel and there was vacuum
and lack of proper interface between the firm and me.

✔ Financial analyses are based on historical data and information.
Recommendations and Suggestions
By analyzing the annual report of the company we can conclude that,
✔ From the Liquidity Ratio we can recommend that the Liquidity of the
company is Very Good.
✔ The Current ratio is increases every year. The Current Assets should be at
least twice the Current Liabilities for a comfortable liquid position.
✔ Here we can see that interest to be paid has been cut very well, which is
good for the company in the future.

Bibliography
I have referred following Books& websites for the information about the company
WEBSITES.
1. www.kalpatarupower.com
2. www.moneycontrol.com
3. Annual report of kptl
4. Financial management ,by Prasanna Chandra
Books:

✔ Pandey, I. M. Financial Management: New Delhi: Ninth Edition Vikas
Publication, 2006, page. 577-600, 658-667.
✔ Khan, M. Y. Financial Management: An Overview: New Delhi: Seventh

Edition Tata McGraw Hill, 2005, page. 26.1-28.9.
✔ Ram, Paras. Export: What-Where-How: New Delhi: 40th Edition Anupam

Publisher, 2006-07, page. 248-346.


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CAPITAL STRUCTURE

INSTITUTE OF BUSINESS MANAGEMANT

BY: Jaymin D. Bhavsar

IBMR Ahmedabad Page 2

IBMR Ahmedabad Page 3

IBMR Ahmedabad Page 4

BOARD OF DIRECTORS EXECUTIVE

Mr. Mahendra G. Punatar Mr. N. Sai Mohan

IBMR Ahmedabad Page 5

Mr. Pankaj Sachdeva Auditors

Mr. Parag Munot

Mr. Ajay Munot Bankers

Mr. Sajjanraj Mehta

IBMR Ahmedabad Page 6

Mr. Vimal Bhandari

Mr. Shitin Desai

Mr. Narayan Seshadri

Mr. Imtiaz Kanga

IBMR Ahmedabad Page 7

Located at Gandhinagar Gujarat, in Western India, Kalpataru Power Transmission

IBMR Ahmedabad Page 8

IBMR Ahmedabad Page 9

✔ Strategic assessment of the power industries as well as overall KPTL.

✔ To understand the financial soundness of the company.

✔ To know how company increases the productivity as well as profitability

IBMR Ahmedabad Page 10

IBMR Ahmedabad Page 11

✔ Methods of Data collection :-

IBMR Ahmedabad Page 12

IBMR Ahmedabad Page 13

The facilities available in these plants are

✔ CNC punching / drilling machines (16 No from Ficep, Italy), Capable of

✔ Automatic temperature controlled galvanizing bath Capable of coating

IBMR Ahmedabad Page 14

IBMR Ahmedabad Page 15

Civil Construction (JMC Projects)

IBMR Ahmedabad Page 16

IBMR Ahmedabad Page 17

Transmission & Distribution Division

1. Use of Voltage Stabilizer to regulate fluctuations in voltage of the Ahmadabad

2. Installed enough number of Capacitors at Electrical Control Panel Boards to

IBMR Ahmedabad Page 18

Bio-mass Energy Division

1. The company has diversified into Power Generation using renewable/non

IBMR Ahmedabad Page 19

Oil and Gas Pipeline Sector

IBMR Ahmedabad Page 20

Logistics & Warehousing Business

IBMR Ahmedabad Page 21

Shree Shubham Logistics Limited (SSLL),a subsidiary of Kalpataru Power

The key objective is to develop multi-function facilities catering to ambient

IBMR Ahmedabad Page 22

REAL ESTATE DIVISION

IBMR Ahmedabad Page 23

KPTL is associated with And Different Projects of KPTL

IBMR Ahmedabad Page 24

IBMR Ahmedabad Page 26

✔ Electrifying all villages and habitations as per new definition

✔ Providing access to electricity to all rural households

✔ Providing electricity Connection to Below Poverty Line (BPL) families free

Infrastructure under RGGVY :

✔ Village Electrification Infrastructure (VEI) with provision of distribution

✔ Decentralized Distributed Generation (DDG) Systems based on