SUBMITTED TO: Ms.Ashu Kakkar

SUBMITTED BY: Abu Bashar

INTRODUCTIONCapital structureThe 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

Financial structureThe right side of a firm's balance sheet, detailing how its assets are financed, including debt and equity issues.

Market CapitalizationMarket Capitalization is the total dollar/rupee market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a

company's size, as opposed to sales or total asset figures. Frequently it is referred to as "market cap". If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share). Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus longterm debt. The stocks of large, medium and small companies are referred to as largecap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are: Large Cap: $10 billion plus Mid Cap: $2 billion to $10 billion Small Cap: Less than $2 billion

RELIANCE POWER:Reliance Power Limited is part of the Reliance Anil Dhirubhai Ambani Group and is established to develop, construct and operate power projects domestically and internationally. The Company on its own and through subsidiaries is currently developing 13 medium and large sized power projects with a combined planned installed capacity of 28,200 MW, one of the largest portfolios of power generation assets under development in India. Our 13 power projects are planned to be diverse in geographic location, fuel type, fuel source and off-take, and each project is planned to be strategically located near an available fuel supply or load center. The identified project sites are located in western India (12,220 MW), northern India (9,080 MW) and northeastern India (2,900 MW) and southern India (4,000 MW). They include six coal-fired projects (14,620 MW) to be fueled by reserves from captive mines and supplies from India

and abroad, two gas-fired projects (10,280 MW) to be fueled primarily by reserves from the Krishna Godavari Basin (the "KG Basin") off the east coast of India, and four hydroelectric projects (3,300 MW), three of them in Arunachal Pradesh and one in Uttarakhand. Reliance Power has acquired the two ultra mega power projects of 4,000 MW each at Sasan in Madhya Pradesh and Krishnapatnam in Andhra Pradesh. The 7,480 MW project to be located at Dadri in Uttar Pradesh is expected to be the largest gas-fired power project at a single location in the world. We intend to sell the power generated by these projects under a combination of long-term and short-term PPAs to state-owned and private distribution companies and industrial consumers.

Balance sheet(Rs crore)

Mar ' 07 Mar ' 04

Mar ' 06 Mar ' 030.05 0.01 102.36 -0.15 -

Mar ' 05

Sources of fundsOwner's fundEquity share capital Share application money Preference share capital Reserves & surplus 200.04 0.05 16.00 0.02 -0.01 0.05 88.36 -0.02

Loan fundsSecured loans -

Unsecured loans Total

0.02 200.06 16.06

0.02 102.26 0.03

88.39

Uses of fundsFixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments 67.27 1.00 66.27 53.57 16.14 41.28 0.02 43.71 0.04 4.77 0.14 38.94 -0.10 200.06 16.06 66.77 0.76 66.01 35.86 0.01 0.02 0.93 0.54 0.39 0.01 102.26 0.03 0.01 0.70 0.50 0.10 0.30 0.19 0.11 88.09 0.02

Net current assetsCurrent assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total 0.78 0.60 0.18 88.39

Notes:Book value of unquoted investments 41.28 Market value of quoted investments Contingent liabilities 9.03 Number of equity sharesoutstanding (Lacs) 2000.40 0.50 0.02 27.50 0.50

Analysis: a). Capitalization:Reliance Power has a market capitalization of 86,682.30 crores for 25000MW(as on 16 apr 2008).

b). Capital Structure/ Financial Structure:Financial structure and Capital structure of Reliance Power are same as Reliance Power is not using short term financing. Reliance PowerBalance Sheet in Rs. Cr. Mar '07 12 mths Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 200.04 200.04 0.00 0.00 0.02 0.00 200.06 0.00 0.00 0.00 200.06

Conclusion:Reliance Power is using only Equity Capital in its Capital Structure. Although due to Equity usage, its credit worthiness is very good. But it is failing to take the advantage of low cost debt. At the same time, it is also eliminating the risk factor associated with debt. To be concluded, capital structure of Reliance Power is fully dependent on Equity Capital which is costlier capital structure.

Suggestions:Although usage of equity makes the company safer. But using proper debt-equity proportion in capital structure, a company can decrease its cost of capital. So it helps in wealth maximization of company. So according to my point of view, Reliance Power should use some proportion of Debt as well as Preference Capital in its capital structure to increase the wealth of company.

References:5. 6. 7. 8. 9. www.investorwords.com www.reliancepower.co.in www.moneycontrol.com www.investopedia.com Chandra prasana, Financial Management Theory and practices