WACC of Power and Pharma Sector comapnies and stock seasonality.

2009A06

CMM Assignment

Submitted by

Tushar Alva

2009A06

WACC and Seasonality of Stock

27/01/2010


2009A06

Table of Content

Table of Content ...................................................................................................................................... 2

Executive Summary ................................................................................................................................. 5

Methodologies:- ...................................................................................................................................... 6

1) Dividend- Growth Model: ............................................................................................................ 6

2) CAPM Method: ........................................................................................................................... 6

Pharmaceutical Sector: ............................................................................................................................ 9

CIPLA: .................................................................................................................................................. 9

CAPM Model: Market value .......................................................................................................... 11

Dividend Growth Model:................................................................................................................ 12

Seasonality of Stock ........................................................................................................................... 13

MACD Model: Analysis ................................................................................................................... 13

DR.REDDY’S LAB: ............................................................................................................................... 14



Seasonality of Stock: .......................................................................................................................... 18

MACD Model: Analysis ................................................................................................................... 18

Power Sector: ........................................................................................................................................ 19

NTPC: ................................................................................................................................................ 19




MACD Model: ................................................................................................................................ 25

TATA Power: ...................................................................................................................................... 25




MACD Model: ................................................................................................................................ 30

Annexure: ............................................................................................................................................. 32

Cipla: Technical Analysis: ............................................................................................................... 32


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Dr Reddy’s Lab:Technical Analysis: ................................................................................................. 34

NTPC: Technical Analysis: ............................................................................................................... 35

Tata Power: Technical Analysis: ..................................................................................................... 36

Bibliography: ........................................................................................................................................ 37


2009A06


2009A06

Executive Summary

In this report the finding the weighted cost of capital and the seasonality of the stocks are discussed in

detail. The sectors and the companies selected for the same are as follows:

1.Pharmaceutical Sector- Bulk Drugs

Cipla

Dr.Reddy’s Lab

2. Power Generation Sector

NTPC

Tata Power

The cost of capital of a company is used for

Investment evaluation

Designing debt policy

Performance appraisal.

In this report 2 ways of finding the weighted cost of capital are discussed ie

CAPM -Capital Asset Pricing Model

Dividend Growth Model

The seasonality of the stocks is also found by using the Moving Average Convergence Divergence

(MACD) Model.


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Weighted Average Cost of Capital:-

It is defined as an average representing the expected return on all of a company's securities. Each source

of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these

required rates of return are weighted in proportion to the share each source of capital contributes to

the company's capital structure. The resulting rate is what the firm would use as a minimum for

evaluating a capital project or investment.

Methodologies:-

1) Dividend- Growth Model:

Weighted Average Cost of Capital at Market Value Weights.

2) CAPM Method:

Weighted Average Cost of Capital at Market Value Weights.

The Weighted Average Cost of Capital is generally composed of :-

a) Cost of Debt Capital

b) Cost of Preference Capital

c) Cost of Equity Capital

a) Cost of Debt Capital:-

Kd = INT + 1/N (F – B0) X (1 – T)

½ (F + B0)

Where,

Kd = Cost of Debt

INT = Amount of Interest

N = Maturity period of Bond (Debt)

F = Face Value of Bond (Debt)

B0 = Issue Price of Bond (Debt)

T = Tax Rate

b) Cost of Preference Capital:-

http://www.investorwords.com/347/average.html

http://www.investorwords.com/1840/expected_return.html

http://www.investorwords.com/992/company.html

http://www.investorwords.com/5954/securities.html

http://www.investorwords.com/4629/source.html

http://www.investorwords.com/694/capital.html

http://www.investorwords.com/4725/stock.html

http://www.investorwords.com/521/bond.html

http://www.investorwords.com/1313/debt.html

http://www.investorwords.com/4194/required_rate_of_return.html

http://www.investorwords.com/4244/return.html

http://www.investorwords.com/5853/weighted.html

http://www.investorwords.com/4525/share.html

http://www.investorwords.com/733/capital_structure.html

http://www.investorwords.com/5752/rate.html

http://www.investorwords.com/1967/firm.html

http://www.businessdictionary.com/definition/capital-project.html

http://www.investorwords.com/2599/investment.html


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Kp = PDIV

P0

Where,

Kp = Cost of Preference Capital

PDIV = Expected Preference Dividend

P0 = Issue Price of Preference Share

c) Cost of Equity Capital:-

There are two approaches for calculating the cost of \equity:-

i) Dividend- Growth Model.

ii) The Capital Asset Pricing Model.

i) Dividend-Growth Model:-

1) Normal Growth:

Ke = DIV1 + G

P0

Where,

Ke = Cost of Equity

DIV1 = Dividend on Equity

P0 = Price of Equity Share

G = Growth Rate (Note: There has been assumption that growth can be of two types one is constant growth and the

other is the change in the growth rate of every year)

2) Zero Growth:

Ke = DIV1

P0


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Where,

Ke = Cost Of Equity

DIV1 = Dividend on Equity

P0 = Price of Equity Share

ii) The Capital Asset Pricing Model:-

Ke = Rf + ( Rm - Rf) Be

Where,

Ke = Cost of Equity

Rf = Risk- Free Return

Rm = Market Return

Be = Beta of Share

The sectors selected for analyzing the WACC and seasonality are:

1. Pharmaceutical Sector- Bulk Drugs & Formln Lrg

2. Power Generation Sector


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Pharmaceutical Sector:

Indian Pharmaceuticals market is expected to triple by 2015. According to FICCI and E & Y

report on Indian Pharmaceutical industry, the Pharma market in India is expected to reach USD

20 billion by 2015 from USD 7.1 billion in 2007 with compounded annual growth rate of 12.3%

and also move into the world top 10 markets. It also stated that India would be a potential USD 8

billion market for multi-national companies with patented drugs accounting for nearly 8-10% of

the total market.

CIPLA:

Dr. Khwaja Abdul Hamied founded The Chemical, Industrial & Pharmaceutical Laboratories at

Mumbai, which came to be popularly known as Cipla. He gave the company all his patent and

proprietary formulas for several drugs and medicines, without charging any royalty. On August

17, 1935, Cipla was registered as a public limited company. Cipla was officially opened on

September 22, 1937 when the first products were ready for the market and now over 170

countries buy Cipla's products. Cipla's products & services are categorized into Prescription,

Animal Products, OTC, Bulk Drugs, Flavours & Fragrances, Agrochemicals and Technology.

As the Second World War cuts off drug supplies, the company starts producing fine chemicals,

dedicating all its facilities for the war effort in 1941. The government accepted Dr. Hamied's

blueprint for a technical industrial research institute in 1942, and led to the birth of the Council

of Scientific and Industrial Research (CSIR), which is today the zenith research body in the

country. In 1944, the company bought the premises at Bombay Central and decided to put up a

"first class modern pharmaceutical works and laboratory." It was also decided to acquire land

and buildings at Vikhroli. With severe import restrictions hampering production, the company

decided to commence manufacturing the basic chemicals required for pharmaceuticals. Cipla's

product for hypertension, Serpinoid, was exported to the American Roland Corporation, to the

tune of Rs 8 Lakhs during the year 1946. The company had lay down the first research division

for attaining self-sufficiency in technological development during the period of 1952 and the

company entered into an agreement with a Swiss firm for manufacturing foromycene. In 1960

the company started its operations at second plant at Vikhroli, Mumbai, producing fine

chemicals with special emphasis on natural products and the Vikhroli factory was started its

manufacturing of diosgenin in 1961. This heralded the manufacture of several steroids and

hormones derived from diosgenin. Cipla manufactures ampicillin in 1968; it was the first time of

its kind in the country.

The Agricultural Research Division at Bangalore was commenced to vigorous in 1972, for the

purpose of scientific cultivation of medicinal plants. Cipla launched the medicinal aerosols for


2009A06

asthma, wins Chemexcil Award for Excellence for exports and the fourth factory begins

operations at Patalganga, Maharashtra during the periods of 1976, 1980 and 1982 respectively.

The name of the Company was changed from The Chemical Industrial & Pharmaceutical

Laboratories Ltd., to the present one Cipla Ltd in July 1984 and Cipla Developed anti-cancer

drugs, vinblastine and vincristine in collaboration with the National Chemical Laboratory, Pune.

Wins Sir P C Ray Award for developing in-house technology for indigenous manufacture of a

number of basic drugs. In 1988, Cipla wins the National Award for Successful

Commercialisation of Publicly Funded R&D. Cipla launched etoposide; a breakthrough in cancer

chemotherapy by association with Indian Institute of Chemical Technology in 1991 and the

company pioneers the manufacture of the antiretroviral drug, zidovudine, in technological

collaboration with Indian Institute of Chemical Technology, Hyderabad. The fifth factory of the

company was started its commercial production at Kurkumbh, Maharashtra in the year 1994. As

a social responsibility, the company sets up the palliative cancer care centre through its

Foundation, begins offering free services in the year 1997 at Warje, near Pune. In 1998 the

company launched the product lamivudine, becomes one of the few companies in the world to

offer all three-component drugs of retroviral combination therapy (zidovudine and stavudine

already launched).

Launched Nevirapine, antiretroviral drug by the company in 1999, it used to prevent the

transmission of AIDS from mother to child. Cipla and Ranbaxy have entered into a strategic

partnership in the same year 1999 to jointly market a select basket of drugs. The alliance helped

their strengths in the strongly emerging cardiovascular and perennial anti-infectives market.

During the period 2000, Cipla became the first company, outside the USA and Europe to launch

CFC-free inhalers - ten years before the deadline to phase out use of CFC in medicinal products.

Four state-of-the-art manufacturing facilities sets up in Goa in a record time of less than twelve

months in the year 2002 and the second phase of manufacturing operations at Goa was

commissioned in 2003. The company launched TIOVA (Tiotropium bromide), a novel inhaled,

long-acting anticholinergic bronchodilator that is employed as a once-daily maintenance

treatment for patients with chronic obstructive pulmonary disease (COPD). In 2004, the

company signed a long-term agreement with Morton Grove Pharmaceuticals Inc (MGP) of

Illinois, US, for launch the product in US market and made alliance with Avesthagen forges.

Cipla has joined a global initiative taken up by the Vatican in collaboration with global generic

pharmaceutical manufacturers and the International Federation of Catholic Pharmacies and

Academics to float CUMVIVIUM. The company launched a new treatment for arthritis in

technical collaboration with California-based Cymbiotics Inc. During the period 2005, Cipla sets

up state-of-the-art facility for manufacture of formulations at Baddi, Himachal Pradesh.

As of February 2007, the company has entered into a development and supply agreement with

Drugs for Neglected Diseases Initiative (DNDi), a global non-profit organisation, for a new anti-

malarial combination drug as a global initiative. Cipla overtook Ranbaxy and GlaxoSmithKline


2009A06

India (GSK) to become the largest pharmaceutical company in the domestic market for the first

time in May 2007 and Cipla scores a generic win over Swiss drug major Roche for

manufacturing and selling generic versions of its patented anti-cancer drug Tarceva (Erlotinib) in

India in 2008.

CAPM Model: Market value

Cost of capital for a private firm

CIPLA

DATA Market value of equity 4,351

Market (or book) value of

debt 940

Tax rate 34%

Equity beta 0.41

RESULT 1+ (1-T)D/E 1.14

Unlevered equity beta 0.36

Private Company

DATA % Debt 18%

% Equity 82% Estimate value of equity from P/E of comparables

Tax rate 34%

RESULT 1+ (1-T)D/E 1.14

Multiply unlevered project

beta 0.36

= average of unlevered equity betas of comparable

firms

Company equity beta 0.41

DATA Risk-free rate 8.50% = yield on long-term Treasury bonds

Market risk premium 6.50%

RESULT Company equity beta 0.41

Multiply by market risk premium 6.50%

Equity risk premium 2.66%

Plus risk-free rate 8.50%

Cost of equity 11.16%

DATA Cost of debt 5.6%


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RESULT

Weighted

Weights Cost

After-tax cost of debt 3.7% 17.8% 0.7%

Cost of equity 11.2% 82.2% 9.2%

Weighted average cost of capital

9.8%

Dividend Growth Model:

Years

Dividend

Yield% EPS % Growth in

EPS(GEPS)

2009 0.91 9.65

2008 0.91 8.68 0.111751152

2007 0.85 8.25 0.052121212

2006 0.76 19.54 -0.57778915

2005 3.43 13.16 0.484802432

2004 16.03 49.22 -0.732629013

2003 17.49 40.03 0.229577817

2002 8.6 39.2 0.021173469

2001 5.63 29.4 0.333333333

2000 6.13 21.86 0.344922232

Average 6.074 Arithmetic Mean of GEPS 0.029695943


Average Dividend Yield 6.07%

Arithmetic mean growth of EPS 2.97%

Re = (Dividend Yield + EPS growth rate) 9.04%

Using Dividend-Growth Model WACC = [E/(D+E)*Re] + [D/(D+E)*Rd]

We=Weight of Equity [E/(D+E)] 0.822306

Wd=Weight of Debt [D/(D+E)] 0.177694

Re 9.04%

Rd 3.7%

Weighted average cost of capital 8.09%


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Seasonality of Stock

MACD Model: Analysis

From the MACD models shown in the Annexure for Cipla it is clear that the share price of this is

constantly below the Sensex and the graph for the MACD is also plotted.

Now as can be seen from the second figure that the various important dates in the stocks existence are

as follows

22nd

Aug 2003-Dividend Final-100%

11th May 2004-Split FV-10 to FV-2

19th Aug 2004-Dividend Final- 150%

19th Aug 2005-Dividend final -175%

24th April 2006-Bonus Ratio-2:3

18th Aug 2006-Dividend Final-100%

8th August 2007- Dividend Final-100%

12th Aug 2008- Dividend Final-100%

10th Aug 2009- Dividend Final-100%

Thus it can be seen that always prior to the dividend being given ie when the dividend is

announced for the stocks, there is a spike in the volume till the date the dividend are given. Here

the shares are purchased till the date announced in the circular for the dividend to be given. But

once after the dividend is given the volumes traded of the stock decreases and this is a common

trend observed and the trend usually is observed for Cipla from Mid July to second week of June.

This trend has been observed year on year and the graph also iterates the same.

Also the share prices soar high when the volumes traded rises and hence usually can be seen

from the graph as well.


2009A06

DR.REDDY’S LAB:

Dr. Reddy's Laboratories was came to on track in the year 1984 in Hyderabad, it was established

by Dr Anji Reddy with an initial capital outlay of Rs.25 lakhs. It is a global pharmaceutical

company with a presence in more than 100 countries and its doing well with wholly-owned

subsidiaries in the US, UK, Russia, Germany and Brazil; joint ventures in China, South Africa

and Australia; representative offices in 16 countries; and third-party distribution set ups in 21

countries. The company proven research capabilities and vertically integrated with a presence

across the pharmaceutical value chain and it conducts research in the areas of diabetes, obesity,

cardiovascular diseases, anti-infectives and inflammation. The Indian based company produces

finished dosage forms, active pharmaceutical ingredients and biotechnology products which are

marketed globally, with focus on India, US, Europe and Russia.

The company made its beginning with the manufacture of Active Pharmaceutical Ingredients

and Intermediates (API) in 1984 and commenced operations with a single drug in a 60-tonne

facility near Hyderabad, India. In 1986, the first consignment of that drug, Methyldopa, was

shipped to West Germany. In 1988 the company acquired Benzex Laboratories Pvt. Limited to

expand its Bulk Actives business and in the next year it acquired American Remedies Limited, a

pharmaceutical company based in India. In the year 1993 the company established Dr. Reddy's

Research Foundation and started its Drug Discovery program. The company has membership in

WTO since April 1994 and in the same year 1994 the company Makes a GDR issue of USD 48

million.

The Company's Custom Pharmaceutical Services (CPS) business was formed in the year 2001,

and in 2002 conducts its first overseas acquisition - BMS Laboratories Limited and Meridian

Healthcare in UK, the company received ASIASTAR Award for Packaging Excellence 2002 for

Mintop Forte - Customer Convenience Pack by Asian Packaging Federation in the year.

Announced a 15-year exclusive product development and marketing agreement for OTC drugs

with Leiner Health Products in the US by the company in the year 2003 and launched Ibuprofen,

first generic product to be marketed under the "Dr. Reddy's" label in the US and it conferred

WORLDSTAR Award for Packaging Excellence 2003 For Omez capsules pack with Anti-

Counterfeiting Features. The acquisition of Trigenesis gives the company to access drug delivery

technology platforms in the year 2004. Dr. Reddy's Lab increased focus point in CPS business

after the acquisition of Roche's API manufacturing unit, Mexico in the year 2005 and in the same

year the company acquired Roche's API Business at the state-of-the-art manufacturing site in

Mexico with a total investment of USD 59 million. Announced the formation of Perlecan

Pharma: India's First Integrated Drug Development Company and again announced India's first

major co-development and commercialization deal for it's molecule Balaglitazone (DRF 2593),

with Rheoscience. It made unique partnership for the commercialization of ANDAs with ICICI

Venture, the Best Management Award 2005 by Labour Department, Govt. of Andhra Pradesh,


2009A06

India came to the company. In the year 2006 the company acquired Betapharm- the fourth-

largest generics company in Germany for a total enterprise value of ? 480 million and received

Finance Asia Achievement Awards 2006 for Best India Deal - acquisition of Betapharm. Dr.

Reddy's Lab becomes No.1 pharmaceutical company in India in turnover and profitability as on

2007.

The appreciation and recognition is a role to boost, as part the company has received plenty of

awards and applications already, continued that, the company got Pharma Excellence Awards

2006-07 under the category of Sustained Growth by The Indian Express, Dun & Bradstreet

American Express in Corporate Awards 2007, Best Corporate Social Responsibility Initiative

2007 by BSE - India and Amity Leadership Award for Best Practices in HR in Pharmaceutical

Sector. 4th HR Summit '08.

Dr Reddy's Laboratories has entered into a settlement agreement with Novartis Pharma AG on

January 2008, which involves a stipulation of dismissal of the lawsuits in the United States

relating to the Abbreviated New Drug Applications filed by the company for a generic version of

rivastigmine tartrate capsules sold under the trade-name Exelon and in same month and year the

company has launched Supanac (Diclofenac potassium immediate release 50 mg tablets) in

India, increasing its offering in the Rs 2700 crores in NSAID market. Supanac is in-licensed

from Applied Pharma Research (APR), Switzerland and is used for Acute Pain management. On

February, 2008 the company has entered into an agreement with SkyePharma PLC to undertake

a feasibility study of a product utilizing two of SkyePharma's proprietary drug delivery systems.

Dr. Reddy's Laboratories announced that it has entered into a definitive agreement with The Dow

Chemical Company to acquire a portion of Dowpharma Small Molecules business associated

with its United Kingdom sites in Mirfield and Cambridge on 1st April 2008. In the same month

of same year Dr.Reddy's Lab and 7TM Pharma has announced the signing of drug discovery

collaboration on selected drug targets in the area of metabolic disorders. Under the terms of the

agreement, Dr. Reddy's and 7TM Pharma will collaborate to identify clinical candidates for pre-

selected targets. Both the parties will jointly develop these candidates from the pre-clinical stage

up to Phase IIa (proof-of-concept). As on April 2008, the company has acquired Jet Generici Srl,

a company engaged in the sale of generic finished dosages in Italy. The deal has been completed

via Dr Reddy's Italian subsidiary.

To help people lead healthier lives by delivering affordable and accessible medication to all

parts of the world and discovering, developing and commercializing innovative medicines that

satisfy unmet medical needs are the two parallel objectives of Dr. Reddy's Laboratories Limited,

and it is sustain path of the company to survive.


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Dr Reddy’s

Lab

DATA Market value of equity 5,259


debt 640

Tax rate 34%

Equity beta 0.45

RESULT 1+ (1-T)D/E 1.08


Private Company

DATA % Debt 11%

% Equity 89%

Estimate value of equity from P/E of

comparables

Tax rate 34%

RESULT 1+ (1-T)D/E 1.08


beta 0.42

= average of unlevered equity betas of

comparable firms




RESULT Company equity beta 0.45

Multiply by market risk

premium 6.50%






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RESULT

Weighted

Weights Cost


Cost of equity 11.4% 89.1% 10.2%

Weighted average cost of

capital

10.5%


Years

Dividend

Yield% EPS % Growth in

EPS(GEPS)

2009 1.28 35.25

2008 0.63 27.62 0.276249095

2007 0.52 69.45 -0.602303816

2006 0.7 26.82 1.589485459

2005 1.35 7.85 2.41656051

2004 1.03 36.37 -0.784162772

2003 1.09 50.6 -0.281225296

2002 1.37 59.56 -0.150436535

2001 1.28 45.32 0.314210062

2000 0.74 22.36 1.026833631

Average 0.999 Arithmetic Mean of GEPS 0.422801149








Re 43.28%

Rd 2.8%

Weighted average cost of capital 38.89%


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Seasonality of Stock:

MACD Model: Analysis

From the MACD models shown in the Annexure for Dr Reddy’s Lab it is clear that the share price of this

is constantly below the Sensex and the graph for the MACD is also plotted.


as follows

10th Oct 2001-Old FV-10 to New FV-5



13th Jul 2004-Dividend Final-100%



28th Aug 2006-Bonus Ratio-1:1



3rd Jul 2009-Dividend Final-125%





trend observed and the trend usually is observed for Dr Reddy’s Lab from Mid June to first week

of June.This trend has been observed year on year and the graph also iterates the same.




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Power Sector:

Power sector continue to thrive on the sustained power deficit in the country. New capacity

generation additions targets within in the five year plan period as well as outside of it under

merchant basis though has increased in the 11th

five year plan period the industry players who

has got feedstock/fuel for its plants as well as with better execution capability are better

positioned to capitalize on current market conditions.

On the demand side the country has an ambitious plan to ensure Electricity to all by 2012, under

Rajiv Gandhi Grameen Vidyutikaran Yojana. Currently, there are about 1 lakh Un-electrified

villages in the country. Even where they are available, the quantity and quality needs significant

improvements. The rising domestic demand, increasing industrialization and unmet demand

together is expected to drive power demand.

Integrated Energy Policy has projected the peak demand to be at about 158 GW (at a GDP

growth of 8%) by 2012. Considering the low capacity utilization of older plants (leading to low

Plant Load Factor (PLF)), higher AT&C (average transmission & commercial) losses, to meet

the above peak demand, ideally an installed generation capacity of 220 GW (1 GW = 1000 MW)

is wanted for the country by 2012.

Currently, India's generation capacity (excluding renewable energy) is only 139 GW, which

means, we need to add 81 GW by March 2012. This calculation factors in rise in PLF and fall in

AT & C losses too, on which front India is making progress, but at a slower pace. As against

this, we have added only 14.337 GW between April 2007 and August 2009.

As against 81 GW required, the country may at best add 62 GWH in 2007-12 against the 11th

plan target of 78.7 GW. This continues to leave the country as power deficit in the medium term.

NTPC:

NTPC Limited is the largest power generating and Navratna status company of India; it was

incorporated in the year 1975 as National Thermal Power Corporation Private Limited to

accelerate power development in the country. As a wholly owned company of the Government

of India, NTPC has emerged as a truly national power company, with power generating facilities

in all the major regions of the country. NTPC's core business is engineering, construction and

operation of power generating plants. NTPC as an integrated Power Major with presence in

Hydro Power, Coal mining, Oil & Gas exploration, Power Distribution & Trading and also enter

into Nuclear Power Development. It provides consultancy also in the area of power plant

constructions and power generation to companies in India and abroad. It is providing power at


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the cheapest average tariff in the country. With its experience and expertise in the power sector,

also NTPC is extending consultancy services to various organisations in the power business. The

consulting Wing of NTPC is an ISO 9001:2000 accreditation. In the year of 1982, the company

commissioned the first Singrauli unit.

The Company's status was converted into a public limited in the year 1985 and the name was

changed to National Thermal Power Corporation Limited. In the year 1989, the company

commissioned first gas based combined cycle plant (88MW) at Anta, Rajasthan and its

consultancy services division was commissioned during the same year. The Company had taken

over the 2x210 Mw Feroze Gandhi Unchahar Thermal Power Station in the year 1991, which

was owned by UP RajyaVidyut Utpadan Nigam of Uttar Pradesh. The first gas turbine was

synchronised in 1991-92 and the Unit-I of the company was synchronised in March of the year

1992. Pursuant to legislation by Parliament of India, the transmission systems owned by the

company was transferred to Power Grid Corporation of India Ltd during the year of 1992. The

Company's three gas turbines and two steam turbines were commissioned in the 1992-93. A

tripartite agreement was signed between NTPC, UPSEB and GAIL for direct power supply to

GAIL during the year of 1994. NTPC had undertook the 4x60 MW + 2x110 MW Talcher

Thermal Power Station during the year of 1995 from the Orissa State Electricity Board. MOUs

had signed with M/s. Nagarjuna Litecrete Ltd. and M/s. Ria-Shelcon for setting up ash based

products manufacturing units with ash from Ramagundam and Farakka Power Stations.

In 1998, the company commissioned the first Naptha based plant at Kayamkulam with a

capacity of 350MW. Maharashtra State Electricity Board has signed separate power purchase

agreement with the company for the total power supply of 1,345 mw from Kawas-II, Gandhar-II,

Vindhyachal-II and Siptat power stations in the year of 2000. NTPC has signed a memorandum

of understanding with the Ministry of Power for generating 9,4000 million units of electricity

during the year. The Company forayed into wind power segment, started the preliminary work

on two projects in Karnataka and Tamil Nadu each with a capacity of 20 MW. The Company has

established a 2000MW gas-based power plant near Mangalore. The 4x110 MW of Tanda

Thermal Power Station, which was taken by the company in the year 2000, the UP State

Electricity Board formerly owned it. NTPC has launched a drive to recover arrears from the

electricity boards of Maharashtra, Madhya Pradesh, Gujarat, Goa, Daman and Diu and Dadra

Nagarhaveli. The Company has signed a memorandum of understanding with the government to

generate 1,21,000 million units of electricity during 2001-2002.

During the year 2002, the company incorporated three wholly owned subsidiary of the company

viz. NTPC Electric Supply Company Limited, NTPC Hydro Limited and NTPC Vidyut Nigam

Limited. Golden Peacock Award conferred to the company for Corporate Social Responsibility

in14th November of the year 2003. Unit IV (500 MW) of Talcher Super Thermal Power Project -

Stage II (TSTPP-II) of THE COMPANY has been successfully synchronized on 6th February


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2005. The 500 MW Unit at Ramagundam Super Thermal Power Station has commenced

commercial operation on 25th March 2005. In May of the year 2005, NTPC and Defence

Metallurgical Research Laboratory (DMRL) have signed an MOU. NTPC has bagged IPMA

International Project Management Award 2005 for its Simhadri Thermal Power project on 15th

November 2005.

NTPC established the medium Term Note ('MTN') Programme in February of the year 2006 to

facilitate the raising of funds on a regular basis from the international debt capital markets and

also signed an MOU with Delhi Transco Ltd., (DTL) on 10th February 2006 for expansion of

one of its stations namely National Capital Power Station Stage-II at Dadri (U. P.). During the

March of the year 2006, NTPC Ltd has entered into a Memorandum of Understanding with

Petronet LNG Limited for arranging one MMTPA of LNG, which used to overcome shortage of

gas at the existing gas power stations of NTPC. The Company had taken over the Badarpur

Thermal Power Station with the capacity of 705MW in the year 2006 from Central Electricity

Authority. The Company had signed a Memorandum of Understanding in 11th March of the year

2006 with the Energy and Resources Institute (TERI) for implementation of distributed

generation projects in villages in India.

A 500 MW unit of Vindhyachal Super Thermal Power Project - Stage III of NTPC Limited

located in the state of Madhya Pradesh has been successfully synchronized on 27th July 2006.

NTPC Limited and Singareni Collieries Company Limited have signed a Memorandum of

Understanding during August of the year 2006, for creation of a Joint Venture Company to

undertake various activities in coal and power sectors including acquisition of coalmines,

development and operation of integrated coal based plants and providing consultancy services.

The Company has signed a Memorandum of Agreement (MOA) in September 21st of the year

2006 with the Government of Arunachal Pradesh for implementation of the following two

hydroelectric power projects in the States of Arunachal Pradesh. NTPC had formed a joint

venture Company under the name and style of 'Aravali Power Company Pvt Ltd' on December

21, 2006 with Haryana Power Generation Corporation Ltd (A Government of Haryana

Undertaking). The Company has signed a MoU in February 14th of the year 2007 with Bharat

Earth Movers Limited (BEML) for collaborating and associating with NTPC for a long-term

mutually beneficial business.

A 500 MW unit of Vindhyachal Super Thermal Power Project, Stage III of NTPC Limited

located in the state of Madhya Pradesh has been successfully (test) synchronized in the night of

8th March 2007. Signed a Memorandum of Understanding with Coal India Limited on

15.03.2007 for undertaking development, operation & maintenance of coal blocks and integrated

coal based power plants. NTPC signed an agreement for a term loan of USD 100 million with

KFW of Germany on March 23, 2007 at Frankfurt am Main.


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During the year 2007-08, the MOU was signed with ADB for establishment of power generation

capacity of about 500 MW through Renewable Energy Sources. The JVA was signed between

NTPC and BSEB for setting up 3x660 MW at Nabinagar, Bihar and also another one JVA was

signed with UPRVUNL to set-up 2x660 MW power project at Meja Tehsil in Allahabad, UP.

The Joint Venture Company (Subsidiary of NTPC) under the name of 'Bhartiya Rail Bijlee

Company Limited' incorporated with Railways for setting up 1000 MW coal based power plant

at Nabinagar, Bihar. Business Collaboration and Share Holder's Agreement signed with Govt. of

Kerala and TELK to acquire around 44.6% stake of TELK. The MOU was signed with Bharat

Forge Limited for setting up a new facility to take up manufacture of Balance of Plant

equipments, castings, forgings, fittings etc. JVA signed with BHEL for taking up activities

related to carrying out EPC and manufacturing of equipments in the period of 2007-08. The 500

MW Unit-I at Sipat Super Thermal Power Project, Stage-II has commenced commercial

operation in June of the year 2008. NTPC has signed a Memorandum of Understanding (MOU)

with Secretary (Power), Government of India for generating 2.09 billion units of Electricity

during the financial year 2008-09.

Developing and operating world-class power stations is NTPC's core competence. Its scale of

operation, financial strength and large experience serve to provide an advantage over

competitors. To meet the objective of making available reliable and quality power at competitive

prices, NTPC would continue to speedily implement projects and introduce state-of-art

technologies.



NTPC

DATA Market value of equity

59,914

.

Market (or book) value of debt 34,568

Tax rate 34%

Equity beta 0.56

RESULT 1+ (1-T)D/E 1.38


Private Company

DATA % Debt 37%



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Tax rate 34%

RESULT 1+ (1-T)D/E 1.38

Multiply unlevered project beta 0.41 = average of unlevered equity betas of comparable firms




RESULT

Company equity beta

0.56

Multiply by market risk premium 6.50%





RESULT

Weighted

Weights Cost


Cost of equity 12.2% 63.4% 7.7%


9.1%


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Years Dividend Yield(%) EPS % Growth in

EPS(GEPS)

2009 0.02 9.34

2008 0.0178 8.4 0.111904762

2007 0.0214 7.85 0.070063694

2006 0.0209 6.67 0.176911544

2005 0.028 6.72 -0.007440476

2004

2003

2002

2001

2000

Average 0.02162 Arithmetic Mean of

GEPS 0.087859881

Dividend-Growth Model







Re 10.95%

Rd 3.90%

WACC 8.37%


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MACD Model:

From the MACD models shown in the Annexure for NTPC Ltd it is clear that the share price of this is

constantly below the Sensex and the graph for the MACD is also plotted.


the dates when the dividends are given out and the volumes traded when the dividend is announced is

high.





trend observed and the trend usually is observed for NTPC say a month before the dividend is

given. This trend has been observed year on year and the graph also iterates the same. Also the

share prices soar high when the volumes traded rises and hence usually can be seen from the

graph as well.



TATA Power:

Tata Power Company Limited (TPC), India's largest integrated Electric Power Utility in private

sector with a reputation for reliability, incorporated in the year 1919 at Mumbai. TPC pioneered

the generation of electricity in India nine decades ago. The core business of Tata Power

Company is to generate, transmit and distribute electricity. The Company operates in two

business segments: Power and Other. The Power segment is engaged in generation, transmission

and distribution of electricity. The other segment deals with electronic equipment, project

consultancy.

The Tata-Ebasco Consulting Engineering Services' was established based on partnership with

Ebasco India, Ltd for consulting engineering together with its two associated companies in the

year 1961. In the year 1969, a new company under the name Chemical Terminal Trombay Ltd

was formed in participation with other Tata Companies and Elephanta India Private Ltd to

installation of storage tanks on a part of the Company's ash disposal area at Trombay and the


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laying of a pipeline connecting the storage tanks with the Mumbai Port Trust's pier at Pir Pau.

TPC sets up its new manufacturing facility at Bangalore during the year 1980, for commercial

production of electronic items designed by its R&D laboratory. The company constructed a new

double circuit 22/110 KV transmission line in the year 1987 at North Mumbai from Borivli to

Malad to meet the requirements of Municipal Corporation of Greater Mumbai besides meeting

loads in Kandivili, Malad, etc.

TPC has undertaken a 180 MW combined cycle plant at Trombay using gas turbines. In 1989,

six new outlets for BEST at 33 KV from Carnac receiving stations were commissioned during

the year. In the same year the company also associated with Siemens in the erection and

commissioned the mechanical and electrical equipment for the 4 x 130 MW gas turbines and 2 x

150 MW steam turbines at NTPC's combined cycle power plant at Dadri in Uttar Pradesh. The

second 500 MW units 6 at Trombay was trial synchronized with the grid on 23rd March 1990.

The Company took up two major generation projects, viz., 150MW Pumped Storage Unit at

Bhira and a gas-based 180 MW Combined Cycle Plant at Trombay Thermal Power Station in

case of a major system disturbance and supply power to essential consumers, viz., Railways,

BMC, BARC, etc. TPC started one new 110 KV substation at Versova during 1991, which

comprised 2 x 90 MVA, 110/33 KV power transformers along with 33 KV indoor

SF6switchgear and supervisory control and data acquisition system and also another one

switching station was established in the same year, which comprised 3 x 250 MVA, 220/110/33

KV autotransformers, space saving 245 KV gas insulated switchgear and supervisory control and

data acquisition system.

The modern 22 KV indoor SF6switchgear was installed at Salsette and also the 60 MVAR new

capacitor banks were installed during the year 1992 at Versova and Malad. Apart from these,

replacement of 110 KV oil circuit breakers by modern SF6 breakers at Kalyan, Ambernath,

Vikhroli and Salsette receiving stations and extension of fibre optic communication network

were also carried out during the same year. In 1994, the Trombay Unit-7 steam turbine generator

of the company was harmonized, which generated 650 MUS with PLF of 61.9%. During the

year, the Company undertook the work of strengthening dams as per designs codes in respect of

earthquakes.

The Government of Maharashtra had accorded its permission for rebuilding a dam at Somwadi.

A MoU was signed between TEC and the Tennesse Valley Authority of USA for renovation and

modernisation of power plants. In the same year 1994, the Company issued 91,549 Global

Depository Shares. The 150 MW Pumped storage unit was commissioned in the year 1995,

based on the synchronous condenser mode and also the Company undertook the work of

modernisation and renovation of old 12 MW hydro units at Bhivpuri and Khopoli Generating

Stations. In the year 1996, the generating station five 25 MW units were refurbished by

installation of new modern turbine runners of higher efficiency at Bhira. During same the year,


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the Company bagged the Multi-fuel based 80 MW power project from the Government of

Karnataka. The thermal Units at Trombay operated by the company in the year 1997 based on-

line availability of about 74% and utilization of about 64.3%. TPC entered into a Joint Venture

Agreement with Total Gas and Power India in the year 1998 for establishment of LNG Terminal

at Trombay.

During 1999, the company acquired a generating station consisting of 37.5 MW Unit at Wadi,

Karnataka and also in the year the Power Purchase Agreement for 81.3 MW Diesel-based Power

Plant at Belgaum, Karnataka was signed with Karnataka Electricity Board. Tata Power Company

has obtained A' licence as Internet service provider that enables it to operate throughout the

country in the year 2000. The Andhra Valley Power Supply Company Ltd and Tata Hydro

Electric Supply Company Ltd were merged with the company in the same year 2000. Tata Power

Company Ltd on September of the year 2001, decided to sell its stake consisting of 45 lakh

shares in Tata Liebert Ltd (TLL) considering of Rs 170 per share to Emerson Electric

(Mauritius) Ltd. The Company signed an agreement with Power Grid Corporation of India Ltd

for 'Tala Transmission Line' in the year 2002. The 120 MW Unit 3 at the Jojobera Power Plant of

the Company situated in Jamshedpur was commenced its commercial production. TPC has

signed the share acquisition agreement with Gvt of National Capital Territory of Delhi to acquire

the North North-West Delhi Distribution Co. Ltd. (Discom-III), a distribution company

belonging to the Delhi Vidyut Board (DVB), which supplies power to north and northwestern

Delhi. The company ties up with the UK-based energy major British Petroleum to jointly work

on 2,184 mw Dabhol power project during the year 2003. During the same year 2003, TPC

awarded the contract for supply and construction of 180 KM long 400 KV Double Circuit

Transmission Line from Palandur to Chandrapur (Maharashtra) By Power Grid Corporation of

India Ltd. Tata Power infuses Rs 352 crore in the group's telecom businesses.

Tata Power acquired 100% equity stake in Tata Power Trading Co. Pvt Ltd in the year 2004.

The Christened Tata Power Trading Company was incorporated in the year as a subsidiary of the

company. TPC has signed a Development Agreement with GAIL India Ltd & BP to jointly

participate in evaluating the Dabhol gas and power opportunity. A MoU was signed with

National Power Company of Al-Zamil Group, Kingdom of Saudi Arabia. The company bagged

the 2nd Wartsila - Mantosh Sondhi Award for outstanding contribution to the Indian Power

Sector in 2004. Tata Power signed a generation pact with DVC on Maithon Project in the year

2005 and entered into an agreement for sale of shares in Tata Power Broadband. The company

received CII EXIM Bank Award 2005 for 'Certificate for Strong Commitment to Excel'. During

the period of 2006, the company joined hands with Siemens. The company signed a joint venture

agreement with Tata Steel to set up a Captive Power plants in Chattisgarh, Orissa and Jharkhand.

The company received seven licenses from the Gvt of India, Ministry of Commerce and

Industry, Dept of Industrial Policy & Promotion for its Strategic Electronics Division (Tata

Power SED).


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In the year 2007, TPC has signed a MoU with the Government of Chhattisgarh for the setting up

of a 1000 MW coal fired mega power plant in the State. The company has roped in Korea-based

Doosan Heavy Industries and Construction Ltd for supercritical boilers for its Mundra ultra mega

power project. The acquisition of Coastal Gujarat Power Ltd was med by the company and a

Special Purpose Vehicle (SPV) formed for Mundra Ultra Mega Power Project (UMPP). TPC has

signed an EPC contract for supply of five (5) 800 MW Steam Turbine Generators with Toshiba

Corporation for the first 4000 MW Ultra Mega Power Project (UMPP) in India to be located at

Mundra, Gujarat in August 2007.

As on February 2008, The Tata Power Company Limited (Tata Power) and Damodar Valley

Corporation (DVC) jointly completed its financing for the 1050 MW coal based thermal power

project, being set up in Dhanbad District of Jharkhand State. Recognising the steady and stable

performance in generating quality and reliable energy, the Central Electricity Authority has

awarded Tata Power's Bhira Hydro generation facility with the Silver Shield award for the

meritorious performance in March 2008. April of the year 2008, the Tata Power Completes the

Signing of Financial Agreements for 4000 MW Ultra Mega Power Project, coming up at

Mundra, Gujarat under the Special Purpose Vehicle (SPV) Coastal Gujarat Power Limited

(CGPL). The cost of the project is estimated at INR 17000 crores (USD 4.2 billion). Tata Power

announced in September of the year 2008, it would acquire a 11.4 per cent stake in Geodynamics

Ltd, an Australian company specialising in geothermal energy, for Rs 165 crore.

Tata Power is surging ahead, lighting up lives through its activities from its inception. The

challenge of fulfilling the ever growing needs of power have been met by Tata Power through

efficient generation, transmission, distribution and constant upgradation of its technology in

every aspects.



DATA Market value of equity

8,692


debt

5,198

Tax rate 34%

Equity beta

0.83


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RESULT

1+ (1-T)D/E

1.40

Unlevered equity beta

0.60

Private Company

DATA % Debt 37%


Tax rate 34%

RESULT 1+ (1-T)D/E

1.40


beta

0.60

= average of unlevered equity betas of comparable

firms

Company equity beta

0.83



RESULT Company equity beta

0.83

Multiply by market risk

premium 6.50%





RESULT

Weighted

Weights Cost


Cost of equity 13.9% 62.6% 8.7%


10.3%


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Years Dividend Yield(%) EPS % Growth in

EPS(GEPS)

2009 0.015 40.21

2008 0.009 38.19 0.052893428

2007 0.0186 33.59 0.136945519

2006 0.0147 29.66 0.132501686

2005 0.021 26.8 0.106716418

2004 0.0186 25.72 0.041990669

2003 0.0575 26.27 -0.020936429

2002 0.0441 25.68 0.022975078

2001 0.0504 19.69 0.304215338

2000 0.0625 20.08 -0.019422311

Average 0.03114 Arithmetic Mean of

GEPS 0.084208822

Dividend-Growth Model



Re = (Dividend Yield + EPS growth

rate) 11.53%

Using Dividend-Growth Model

WACC = [E/(D+E)*Re] + [D/(D+E)*Rd]



Re 11.53%

Rd 4.20%

WACC 8.79%


MACD Model:


2009A06

From the MACD models shown in the Annexure for Tata Power Ltd it is clear that the share price of this

is constantly above the Sensex and the graph for the MACD is also plotted.


the dates when the dividends are given out and the volumes traded when the dividend is announced is

high.





trend observed and the trend usually is observed for Tata Power say a month before the dividend

is given. This trend has been observed year on year and the graph also iterates the same. Also the

share prices soar high when the volumes traded rises and hence usually can be seen from the

graph as well.




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Annexure:

Cipla: Technical Analysis:


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Dr Reddy’s Lab:Technical Analysis:


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NTPC: Technical Analysis:


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Tata Power: Technical Analysis:


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Bibliography:

1) Financial Management (Ninth Edition) by I M Pandey.

2) Financial Management (Fifth Edition) by Prasanna Chandra.

3) www.moneycontrol.com

4) www.capitaline.com

5) Software of IAS & Prowess from computer laboratory of SCMHRD.

6) Yahoo Finance

7) www.myiris.com

8) http://money.livemint.com/LiveMarket

http://www.moneycontrol.com/

http://www.capitaline.com/

http://www.myiris.com/

WACC of Power and Pharma Sector comapnies and stock seasonality.

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Transcript of WACC of Power and Pharma Sector comapnies and stock seasonality.