IMPACT OF DISINVESTMENT ON FINANCIAL AND OPERATING

PERFORMANCE: A CASE STUDY OF NTPC

Sikha Madhulagna1
Bhagaban Das2

Abstract

The Indian public sector has played key role in the growth of the economy, both at national and state
levels. The New Economic Policy initiated in July 1991, has clearly indicated that the public sector
undertakings have a very negative rate of return on capital employed. On account of this phenomenon
many public sector undertakings have become a liability rather than an asset to the Government of India
(GOI). The public enterprises have not generated internal surpluses on account of heavy losses. In this
view the Government has changed its direction in favour of the private sector and the market economy.
In view of the above, there is no alternative for the state other than to carry out public sector
undertakings reforms involving restructuring and disinvestment. In present study an attempt has been
made to know the impact of disinvestment on the financial and operating performance of NTPC from the
period 2001-02 to 2017-18. Financial performance was measured by the parameter like; liquidity,
solvency, and efficiency where as operating performance is based on sales and investment. By taking the
mean average of both pre and post disinvestment era, it is found that liquidity position of NTPC
decreased in post disinvestment period in terms of profitability only EPS of company increased while
RONW,ROA,ROCE and net profit ratio is decreased. In terms of solvency debt equity is increased in
post disinvestment era and in terms of efficiency inventory turnover ratio is increased and there is no
impact of disinvestment in capital turnover ratio.

Key Words: Disinvestment, Financial Performance and Operating Performance

1 Research Scholar, P.G. Department of Business Management, Fakir Mohan University, Balasore, She can be reached at
sikhamadhulagna444@gmail.com
2 Professor, P.G. Department of Business Management, Fakir Mohan University, Balasore, He can be reached at

drbhagabandas@gmail.com
1. Introduction and Background

Soon after independence, when private capital was scare and government was keen on achieving rapid
economic growth, it was necessary to setup public sector undertakings with substantial government
direction and control to provide essential infrastructure like railways, transport systems, electric power,
roads, telecommunications and other essential services. Simultaneously, it was also felt that without the
state's active role in the development of heavy industries, all round development could not be achieved.
Thus, the public sector was involved directly in manufacturing of essential products and services. By the
mid 1960s the public sector was occupying the "commanding height" of the Indian economy. The
foreign debt repayment crisis compelled Government of India to raise loan from IMF against physical
deposit of RBI gold reserve, on conditions harmful to the interest of the country. Thus, this resulted in
genesis of the Industrial policy of 1991 which included the process of delicensing. For except 18
industries, Industrial licensing was withdrawn. The market was opened up to domestic private capital
and foreign capital was provided free entry up to 51% equity in high technology areas. The aim of
economic liberalization was to enlarge competition and allowing new firms to enter the market. Thus the
emphasis shifted from PSEs to liberalization of economy. Also, the gradual disinvestment of PSUs was
offshoot of unprecedented macro-economic crisis during 1990 – 91.

The New Economic Policy initiated in July 1991, has clearly indicated that the public sector
undertakings have a very negative rate of return on capital employed. On account of this phenomenon
many public sector undertakings have become a liability rather than an asset to the Government of India
(GOI). The public sector undertakings have not performed well and have therefore been either closed or
liquidated, their contribution to the state's development cannot be overestimated. A sector which
characterized as over-invested but gives poor returns, over employed but yield low productivity,
excessive capital equipment but under-utilized capacity, excessive controls but lower efficiency,
abundant assets but lack of resources . The public enterprises have not generated internal surpluses on
account of heavy losses. In this view the Government has changed its direction in favour of the private
sector and the market economy. In view of the above, there is no alternative for the state other than to
carry out public sector undertakings reforms involving restructuring and disinvestment. .

2. Statement of the Problem

Almost 28 years have passed since the first phase of privatization was launched. Over the period
significant preferences have been given in the allocation tax fund and other policy making by the Indian
government for their better performance prospective, but contrary to expectation, Public Sector
Enterprises tends to react adversely with characterizing as over invested capital with poor return, over
employed with low yields and productivity, excessive capital equipment with underutilized capacity,
bearable controls with lower efficiency and abandoned assets with low growth. This trend has attracted
the attention of policy-makers, politicians, bureaucrats, academicians, researchers and the public to find
out the reasons for such a short fall in performance not only against the stated objectives, but also their
stand on adopting sound commercial principles of viability. Therefore, it is the time to evaluate in the
financial and operating performance of those Public Sector Enterprises in which the disinvestments was
put into practice. In this context, the researcher is interested to examine the impact of disinvestment on
the financial performance of NTPC Ltd. This will throw light on whether the envisaged goal of
improvement in performance was in fact achieved or not.

Research Questions

Keeping the justification of the study in mind, the following research question embodied in the study:

 Whether the PSEs Divestment decisions yield higher level of effectiveness in the context of India?
 Whether PSEs have attained the financial efficacy in terms of profitability, liquidity, and solvency?
 Whether there is any significant difference between pre- and post-disinvestment performance of
PSEs?
3. Conceptualization of Disinvestment

‘Disinvestment’ as per SEBI guidelines, means the sale by the central government/state government, of
its shares or voting rights and/or control, in PSUs.
Asian Development Bank, ADB, (2001) describes that privatization is a process for change of ownership
and control. It indicates that for successful privatization, it is essential to define the roles and powers of
participants and ensure that legal, regulatory and enforcement mechanisms precede divestment. A
cautious approach is dominant and tends to undermine the effectiveness of privatization.
Nagaraj (2005) explain that disinvestment is not likely to affect economic performance, since the state
continues to be governing the shareholder, whose behavior is unlikely to be influenced by share price
movements (or return on equity). Privatization can be influenced economic outcome in a competitive
environment; if not, it would be difficult to attribute changes in performance or mainly to the changes in
ownership
Das Kumar (2009) in his studies associated with sustainable privatization of infrastructure projects offer
a way for government to make infrastructure delivery more effective and efficient than public provision.
According to him there is score for money to government from entering in to Public-Private partnerships
in infrastructure. Disinvestment leads to significant improvement in profitability, efficiency and real
output of firms, besides providing some fiscal boost to government.
Koner S et.al (2014) in his paper he gives the brief definition of disinvestment, states the difference
between disinvestment and privatization, gives a brief account of public sector in India and changes in
government policy towards the public sector and also consider some issues related to disinvestment such
as why disinvestment, how much disinvestment, how to make disinvestment and opined that firstly some
restructuring of PSUs may be needed before disinvestment to enhance the value of shares and increase
sale proceeds such as restructuring would be corporate governance, financial restructuring and business
and technological restricting. Secondly, the process of disinvestment has to take into account the
conditions in the capital market. Disinvestment should not result in “crowding out” resources available
for the private sector
Richa.P (2018) analyzed the concept of disinvestment and its role in improving the profitability and
accountability of PSU’s in India. It also aims to understand the steps and policies undertaken by
government in making disinvestment a successful phenomenon for Central Public Sector Enterprise the
data required for analysis of past and recent disinvestment is collated from Ministry of finance and other
sources. She defined Disinvestment as an act of liquidating or sale of an investment or asset by an
organization /government which primary aim is to relocate the resources effectively and to maximize
returns. It is also referred to as divestiture or divest.

In the ongoing discourse, ‘Disinvestment’ is conceived as a holistic term having different contextual
connotations. It stands as an antonym of ‘Investment’. By Disinvestment we mean the sale of shares of
public sector undertakings by the Government. The shares of government companies held by the
government are earning assets at the disposal of the government. If these shares are sold to get cash, then
earning assets are converted into cash. So it is referred to as disinvestment.

4. REVIEW OF LITERATURE

Singh and Paliwal (2010) examine the impact of disinvestment on the financial and operating
performance of competitive and monopoly units of public sector enterprises that operating performance
of competitive firms based on sales has shown decline in profitability, but monopoly firms shows an
improvement in their profitability during the post disinvestment and they suggested that disinvestment
programme should be so executed so as to encourage autonomy in management with accountability,
broad based ownership and improved the competition.

Singh Gagan (2010), in his study made an attempt to examine the impact of disinvestment which took
place during 1985-86 to 2004-05 on the performance of selected units of competitive and monopoly
units of Indian PSEs. The grouping of enterprises has been done on the basis of their contribution to total
industrial production/service. Operating performance of competitive firms based on sales has shown
decline in the profitability during the post-disinvestment period. On the other hand, monopoly firms have
been efficient in generating profit and controlling their expenditures.

Gupta & Seema (2011) assessed the financial performance of disinvested central public sector
enterprises in India on the basis of several dimensions on pre and post disinvestment bases over the life
span of more than two decades (i.e. 1986-87 to 2009-10). Financial performance has been measured on
the basis of select profitability, efficiency, liquidity, leverage and productivity ratios. The findings
suggest that partial or small amount of disinvestment has not yielded desired results in majority of
dimensions.

Narang. M (2014) in her study disinvestment of the government shareholding has been taken as an event
and pre disinvestment mean value of financial parameters for financial years (1997-98 to 2002-03) is
compared with post disinvestment mean value of financial years (2004-05 to 2010-11).the result shows
that disinvestment improves the profitability and liquidity position of ONGC while it has affected the
efficiency position negatively.

Dhanya Alex et.al (2015), in his article he examines the financial and operating performance of
companies belonging to Petroleum and Metals & Minerals sector, before and after disinvestment. The
operating performance of the companies is measured using three items - operating performance based on
sales, operating performance based on investment and asset usage. The financial performance is
measured using two items, corporate liquidity and corporate solvency. The study covers all the ten
companies in Petroleum sector and four in the Minerals and metals sector which have undergone
disinvestment from 1992-93 to 2007-08. Data for five years before and after the disinvestment is
collected. The analysis is done using Paired T test and find out that there is significant improvement in
the liquidity of both sectors after disinvestment.

Mani. A (2017) through an extensive analysis established the relationship between disinvestment
programme in India and its impact on efficiency and performance of disinvested government controlled
enterprise .she measured the changes in the EPS of some disinvested companies in the post reform
period and analyzed the impact of disinvestment on labor productivity and measures the financial
efficiency of a company using efficiency ratios .she also measured how disinvestment have an impact on
share price volatility of companies.

Achina.A (2018) in her study named impact of disinvestment on financial performance: a comparative
study of Maharatna and Navaratna companies having the following objectives to analyze the
performance of selected financial ratios in selected companies, to study the impact of disinvestment on
selected
Financial ratios in selected companies and to compare the impact of disinvestment on Maharatna and
Navaratna companies and finds out that in Maharatna companies there is significant impact of
disinvestment on Maharatna companies whereas in Navaratna companies there is no significant impact
of disinvestment on Navaratna companies.

From the above literature review, it is found that many studies have been conducted on the disinvestment
of public sector enterprises in India whereas very little work has been found which shows the impact of
disinvestment on financial performance taking parameters like Profitability, Liquidity, Solvency and
Operating Efficiency. Moreover there is no such research which has been carried down on impact of
disinvestment on NTPC ltd by taking profitability, liquidity, solvency and efficiency parameter for the
period 2001-02 to 2017-18.

5. OBJECTIVES OF THE STUDY

The following objectives have been visualized for the present study:

a) To compare the financial and operating performance of NTPC Ltd between pre and post
disinvestment period.
b) To study the impact of disinvestment of NTPC Ltd in terms of operating performance based on
sales, and investment; as well as financial performance based on profitability, liquidity and
solvency.
6. HYPOTHESES

In the light of the overall objectives of the study, the following hypotheses have been developed for the
purpose of testing:

a) Disinvestment has improved the financial performance of NTPC

b) Disinvestment has improved the operating performance of NTPC
7. RESEARCH DESIGN AND METHODOLOGY

Nature of the study: The study is descriptive in nature.

Sources of Data: The data used for the present study are secondary in nature and were obtained from
various issues of Public Enterprise Surveys published by “The Bureau of Public Enterprises”, Ministry
of Finance, Government of India, New Delhi, and the audited Balance Sheets and Income and
Expenditure Statements of the reported enterprises, as compiled by Bureau of Public Enterprises and
periodicals.

Period of Study: The present study covers a period of 17 years from 2001-02 to 2017-18, splitting
2001-02 to 2008-09 as pre disinvestment period and 2010-11 to 2017-18 as post disinvested period
taking 2009-10 as the base. The significance of choosing 2009-10 as the base year lies with fact that in
this year Government achieved highest disinvestment receipt as compared to the target. The target
amount was 25,000 crore where it was able to achieve 23,553 crore in that year. The achievement is
94.21%. )

Tools to be used: Keeping in view the nature of study and data collected, (a)Mathematical Methods
like; simple average and percentage; (b) Statistical Methods like; Mean, Standard Deviation, Co-efficient
of Variation, t-test, and finally (c) Accounting Tools like; ratio analysis were used. Softwares such as
SPSS, MS Excel are also used for data analysis purpose.

8. NTPC Ltd : A Brief Profile

NTPC Ltdis an Indian Public Sector Undertaking, engaged in the business of generation of electricity
and allied activities. It is a company incorporated under the Companies Act 1956 and a "Government
Company" within the meaning of the act. The headquarters of the company is situated at New Delhi.
NTPC's core business is generation and sale of electricity to state-owned power distribution companies
and State Electricity Boards in India. The company also undertakes consultancy and turnkey project
contracts that involve engineering, project management, construction management and operation and
management of power plants. The company has also ventured into oil and gas exploration and coal
mining activities. It is the largest power company in India with an electric power generating capacity of
51,410 MW. Although the company has approx. 16% of the total national capacity it contributes to over
25% of total power generation due to its focus on operating its power plants at higher efficiency levels
(approx. 80.2% against the national PLF rate of 64.5%). NTPC currently produces 25 billion units of
electricity per month.

9. DATA ANALYSIS

Financial results of NTPC (National thermal power corporations) are presented in four parameters, such
as; profitability, liquidity, solvency and asset usage ratio. In pre disinvestment era data from 2001-02 to
2008-09 has been taken and in post disinvestment era data from 2010-11 to 2017-18 has been taken for
analyzing the impact of disinvestment on financial and operating performance of NTPC ltd

Table 1
Financial and operating Ratios of NTPC ( from 2001-18)
Base
Pre Disinvestment period Post Disinvestment period
Year
200 200 200 200 200 200 200 200 201 201 201 201 201 201 201 17
200
YEAR 1- 2- 3- 4- 5- 6- 7- 8- 0- 1- 2- 3- 4- 5- 6- -
9-10
02 03 04 05 06 07 08 09 11 12 13 14 15 16 17 18
Liquidity Ratio
Current 3.4 4.2 1.6 1.7 2.1 2.4 2.3 2.8 2.5 2.2 1.8 1.5 1.2 0.8 0.7 0.
Ratio 9 3 6 8 1 2 6 9 2.86 7 6 2 8 2 8 5 84
Liquid 0.6 1.1 1.4 1.5 1.8 2.1 2.1 2.5 2.3 2.0 1.6 1.3 0.9 0.6 0.5 0.
Ratio 7 3 5 5 4 8 6 9 2.55 1 4 4 6 8 7 8 70
Absolute 0.2 0.1 0.0 0.7 0.9 1.2 1.1 1.5 1.1 0.9 0.7 0.6 0.4 0.1 0.0 0.
Ratio 5 2 7 7 8 4 6 2 1.34 5 4 5 1 2 3 8 09
Profitability Ratio
12
Net Profit
19. 18. 22. 23. 19. 20. 20. 16. 17.4 13. 14. 19. 15. 13. 14. 11. .3
Ratio
87 93 51 19 84 63 30 43 9 56 36 17 26 59 25 99 9
8.0 8.0 8.7 8.7 9.9 10. 7.9 6.9 7.5 9.5 7.3 6.1 5.6 4.8 4.
ROI
8.8 6 9 4 9 3 02 1 8.47 7 3 2 9 5 6 1 79
Return 10
On Net 13. 11. 11. 10. 11. 13. 13. 11. 12.7 10. 12. 15. 12. 12. 11. 9.7 .1
Worth 15 96 25 14 54 85 87 69 3 99 16 66 80 19 32 5 6
8.7 8.0 6.9 7.7 6.9 7.9 7.9 6.6 5.9 6.3 7.8 6.1 5.0 4.6 3.9 3.
ROA
9 6 9 2 9 7 8 1 7.21 4 3 1 2 5 8 7 97
11
EPS 4.5 4.6 6.7 7.0 7.0 8.3 8.9 9.9 10.5 11. 11. 15. 13. 12. 12. 11. .8
3 2 3 4 6 3 9 5 9 00 00 00 00 00 42 38 7

Solvency Ratio
Debt
Equity 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.7 0.7 1.0 1.0 1.0 1.
Ratio 1 2 3 1 5 0 0 9 0.59 3 7 0 8 1 2 4 13
Equity 0.1 0.5 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.
Ratio 0.2 7 9 2 1 8 8 7 0.57 4 2 0 8 1 1 1 39
Fixed
Asset 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.9 0.
Ratio 0.6 9 5 4 6 8 0 3 0.66 7 0 2 6 1 7 1 92
Activity Ratio
13
Itr 8.8 10. 14. 14. 12. 14. 15. 13. 14.7 15. 17. 16. 13. 10. 9.9 12. .7
3 75 38 08 41 15 03 88 2 78 51 95 90 11 8 20 8
0.7 0.7 0.8 0.7 0.7 0.8 0.8 0.7 0.7 0.7 0.6 0.6 0.5 0.4 0.4 0.
Ftr
3 2 7 8 9 4 3 6 0.74 7 4 9 4 6 5 4 42
0.6 0.6 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.
CTR
2 0 8 2 4 8 9 8 0.48 1 2 0 8 5 0 0 39
Source: Compiled by the researcher from Annual reports of NTPC

Table 2
Comparative Analysis of Financial performance in pre and post- disinvestment period
Ratio Pre disinvestment Post disinvestment t tabulated t value P value
Mean SD CV Mean SD CV
Liquidity Ratio
2.6 0.9 33.6 1.5 0.7 46.1 2.4 3.9 0.0
Current Ratio
1.7 0.6 36.8 1.3 0.7 51.6 2.4 0.9 0.4
Liquid Ratio
0.8 0.6 72.7 0.5 0.4 78.9 2.4 0.7 0.5
Absolute Liquid Ratio

Profitability Ratio (operating performance based on sales and investment)

20.2 2.1 10.3 14.3 2.2 15.5 2.4 9.4 0.0
Net Profit Ratio
 8.8 0.8 9.3 6.6 1.6 24.1 2.4 2.9 0.0
ROI
12.2 1.3 10.9 11.9 1.8 15.6 2.4 0.3 0.8
RONW
7.6 0.7 9.4 5.5 1.3 24.0 2.4 4.2 0.0
ROA
7.2 1.9 27.0 12.2 1.3 10.8 2.4 -6.6 0.0
EPS

Solvency Ratio
0.5 0.1 13.4 0.9 0.2 22.7 2.4 -7.8 0.0
Debt Equity Ratio
0.5 0.2 38.6 0.5 0.1 12.9 2.4 0.4 0.7
Equity Ratio
0.6 0.0 5.2 0.8 0.1 12.2 2.4 -6.8 0.0
Fixed Asset Ratio

Asset Usage/Turnover Ratio

12.9 2.1 16.5 13.8 2.9 21.0 2.4 -0.6 0.6
ITR
0.8 0.1 6.7 0.6 0.1 23.9 2.4 3.3 0.0
FTR
0.5 0.1 14.2 0.5 0.1 12.1 2.4 1.9 0.1
CTR

Source: compiled by researcher

9.1 Financial Performance based on Corporate Liquidity

To measure the corporate liquidity position of the NTPC Ltd, current ratio, liquid ratio, absolute liquid
ratio were calculated and tabulated in Table -2 From the table, it is observed that in pre-divestment era
the corporate liquidity position is better in comparison to that of the post disinvestment era. The standard
norm of current ratio is 2:1. In NTPC Ltd, the mean score of current ratio is found to be more than the
standard in pre disinvestment era indicating thereby the firm has utilized its current asset in an efficient
way and was able to pay its current obligations in due time. But in post disinvestment era, the mean
score of current ratio found to be 1.5, which falls below the standard norm indicative of poor
management of working capital.

For better analysis of liquidity position of NTPC ltd, liquid ratio is calculated, which is found to be 1.7
and 1.3 respectively in pre and post disinvestment era. Thus it is obvious that the company’s liquid
position was sound both in pre and post- disinvestment period and it can meet its short-term obligation
through its liquid asset whenever due.

Again for a deep analysis of company’s liquidity position, absolute liquid ratio, an indicator of utilisation
of highly liquid asset to meet its current liability, was calculated. Its standard norm is 0.5. From the table
it is found that in pre disinvestment era the mean score of absolute liquid ratio is 0.8, which is above the
standard norm revealing thereby the company have a high absolute liquid asset i.e. cash and bank
balance to meet its short-term obligation. Though it is good from the point of view of creditor but from
business point of view it’s not good as it shows that company was unable to utilize its cash in efficient
way but in post disinvestment era the mean score of absolute liquid ratio is 0.5:1 which is satisfactory
that indicates the company liquidity position is good and it properly utilize its cash and cash equivalents
.By comparing SD of three ratio it is found that the deviation from mean is high in current ratio and
absolute ratio and its low in case of liquid ratio in pre disinvest period than the post disinvestment
period. There is more fluctuation in data in post disinvest era than the pre disinvestment era.

9.2 Operating performance based on sales and investment

The profitability position of NTPC Ltd has been computed taking the profitability parameters; such as
net profit ratio, return on investment, return on net worth, return on asset, and earnings per share. From
the above table it has been observed that profitability position of NTPC has decreased in post
disinvestment era in comparison to that of pre disinvestment era and fluctuation is high in post
disinvestment period than the pre disinvestment era .The percentage decrease in post disinvestment era is
29.20% in net profit ratio, 25% in ROI, 2.4% in RONW, 27.63% in ROA. Only EPS of firm is increased
by 69.44% in post disinvestment era than post disinvestment era which shows that shareholder get high
return of dividend in post disinvestment period in comparison to pre disinvestment period. It shows the
inefficiency of the management of this sector in the utilization of their resources. The profitability of the
sector has declined due to its increased expenditure. In order to improve its profitability there should be
proper control on their various expenditures in the long-run.

9.3 Financial performance based on solvency

To measure the solvency position of NTPC Ltd, researcher calculated debt equity ratio, proprietary ratio,
and fixed asset ratio. Studying the financial strength of this sector reveals that the dependence on the
outsiders’ funds has increased during the post-disinvestment period proved by the increase in debt equity
ratio. From the table it is shown that debt equity ratio is increased in post disinvestment period which is
moved from 0.5:1 to 0 .9:1 in post disinvestment period. In case of proprietary ratio or equity ratio it
there is no change in the mean score of equity ratio in pre disinvestment era and post disinvestment era
(0.5 in both periods). This ratio shows the extent of owners fund utilized in financing the asset of
business. The examination of the fixed assets to net worth ratio reveals that the shareholders‟ funds of
these units have been sufficient in financing their fixed assets during the post-disinvestment period. The
fixed asset ratio is increased 33%in post disinvestment era. By comparing the SD and CV of both
periods it is found that there is more deviation or fluctuation in debt equity ratio and fixed asset ratio
where as in proprietary ratio the fluctuation is less in post disinvestment period than the pre
disinvestment period.
9.4 Financial performance based Asset Usage

Studying the assets usage of NTPC reveals that the management of this sector is efficient in the
management of their inventory during the post-disinvestment period. It has been recorded ITR ratio is
13.8 times in post disinvestment era in comparison to 12.8 times in pre disinvestment era of NTPC ltd .A
high inventory ratio indicates efficient management of inventory because more frequently stocks are
sold. As far as their fixed assets turnover ratio is concerned, it has been found that there is decrease in
the mean scores of this ratio during the post-disinvestment period that is 0.8 in pre and 0.6 in post
disinvestment period which shows that the ability of firm to generate sales per rupee of fixed asset is
decreased in post disinvestment era by 25%. By analyzing the capital turnover ratio it is to be found that
there is no change of mean score in pre and post disinvestment era but the variation or fluctuation is
more in pre disinvestment era than the post disinvestment era which is shown in CV of both period.

Table3
Hypothesis testing through Paired t test of NTPC LTD.
Sr no Hypotheses P Value Result
There is no significance difference in current ratio
H01 0.01** Null rejected
of NTPC before and after disinvestment

There is no significance difference in liquid ratio

H02 0.39 Fail to reject Null
of NTPC before and after disinvestment

There is no significance difference in absolute

H03 0.49 Fail to reject Null
ratio of NTPC before and after disinvestment
There is no significance difference in net profit Null rejected
H04 0.00**
ratio of NTPC before and after disinvestment
H05 There is no significance difference in ROI ratio of Null rejected
0.02*
NTPC before and after disinvestment

H06 There is no significance difference in RONW ratio

0.77 Fail to reject Null
of NTPC before and after disinvestment
H07 There is no significance difference in ROA ratio of Null rejected
0.00**
NTPC before and after disinvestment
H08 There is no significance difference in EPS ratio of Null rejected
0.00**
NTPC before and after disinvestment
H09 There is no significance difference in D/E ratio of Null rejected
0.00**
NTPC before and after disinvestment
H10 There is no significance difference in equity ratio
0.71 Fail to reject Null
of NTPC before and after disinvestment
H11
There is no significance difference in fixed asset Null rejected
0.00**
ratio of NTPC before and after disinvestment
H12 There is no significance difference in ITR ratio of
059 Fail to reject Null
NTPC before and after disinvestment
H13
There is no significance difference in FTR ratio of Null rejected
0.01**
NTPC before and after disinvestment
H14
There is no significance difference in CTR ratio of
0.10 Fail to reject Null
NTPC before and after disinvestment
*Significant at 5% significance level,** significant at 1% significance level

From the table 3, it is found that there is a significance difference in current ratio at both 1% and 5%
level of significance in pre and post disinvestment period but there is no significance difference in liquid
ratio and absolute liquid ratio.
In terms of profitability by applying paired t test it is found that there is no significance difference in
RONW( return on net worth) and there is a significant decrease in net profit ratio, ROI(return on
investment),ROA( return on asset) and significant increase in EPS (earning per share ) in both 1% and
5% level of significance. From this we can say that firm is not utilising its resources in proper way
In terms of solvency, it is found that there is significant increase in debt equity ratio and fixed asset ratio
.It is significant in both 1% and 5% level of significance .From this it is found out that company depends
much upon outsider fund than owner equity.
In terms of efficiency or asset usage there is no significant difference in inventory turnover and capital
turnover ratio but disinvestment has a significant increase in fixed asset turnover ratio in both 1% and
5% level of significance. It shows that company failed in the efficient management of fixed assets and
current assets between the pre and post disinvestment period. But in order to overall improvement in the
efficiency of assets, company may have to manage their fixed assets as well as the current assets.

10. Conclusion and Suggestion

The present article compares the pre and post disinvestment operating and financial performance of
NTPC along with the impact of disinvestment on the financial and operating performance. From the
analysis it is found that though there is a rising trend of liquidity position after disinvestment but in our
research there is no strong evidence found that disinvestment has led to increase in liquidity position.
Coming to the aspect of insignificant improvements in the profitability, it is found that one of the major
reasons for it can be attributed to partial privatization transactions in India where substantial controlling
and ownership rights to the extent of 51 per cent or more remains with the government even after
disinvestment so the firm don’t get the advantage of privatization as control and management is in the
hand of same Government. In case of solvency position of NTPC, it is found that firm uses more debt
fund than the owner fund .Coming to the efficiency of firm it shows a positive impact on inventory
turnover where as negative impact on fixed asset turnover. From the above analysis we can conclude that
neither profitability nor liquidity nor operating efficiency increased very much after disinvestment of
NTPC. It seems that the decision to disinvest was taken as a part of the general reform measures of the
government and not on the basis of sound economic considerations from the standpoint of the enterprises
concerned. As already explained one of the major explanations behind enhanced profitability may be the
transfer of both control and cash flow rights from the government to private sector. But in Indian
context, government is more interested in partial privatization rather than complete privatization in
which complete transfer of rights from government to private sector takes place. Most of the Indian
PSUs have been disinvested by selling small percentage of ownership and that too in parts. Hence the
present study implies that, improvements coupled with major changes are necessary in the present Indian
policy on disinvestment. So that, as the efficiency levels have improved significantly as implied from the
results of the study, profitability of these PSUs also gets enhanced considerably. In order to improve
profits of divested PSUs, the present study supports the suggestions given by advisory panel of NITI
Aayog. In order to get the desired effect disinvestment should be increased beyond 50% so that these
enterprises become privatized. Then they will be run by private management and private management
will be trying to improve performance.
It has suggested bringing down the governments holding to less than 50 per cent in one stroke instead of
selling them in batches. Proactive government efforts are required to achieve optimum targets in terms of
leverage and employment in Indian PSUs.

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