For Course RRB

by
K. Sasi Kumar, 20120054

8.0

Altman Z Score for Non Manufacturing /Emerging Markets

6.0

Safe Zone

T3 = Earnings Before Interest and Taxes / Total Assets

3.0
2.0

T4 = Book Value of Equity / Total Liabilities

4.0

Grey Zone
4.15

Distress Zone

1.75

1.0
NTPC
0.0
2009

Abstract
Nature of Business

T1
6.56
T2
3.26
T3
6.72
T4
1.05
Constant
3.25
Altman Z Score
Equivalent Rating

Thermal

2010

Suzlon
2011

Wind

NHPC
2012

2013

Hydro

2012

NTPC
2011

2010

Suzlon Energy Limited

2012
2011
2010

2012

NHPC Limited
2011

2010

0.67
1.29
0.60
0.89
3.25
6.70
A

0.86
1.34
0.53
0.99
3.25
6.98
A+

1.09
1.38
0.58
1.07
3.25
7.37
AA

-0.35
-0.48
-0.51
0.01
3.25
1.91
CCC-

0.80
0.80
0.33
1.08
3.25
6.25
BBB

0.69
0.73
0.41
1.02
3.25
6.10
BBB

0.54
0.68
0.39
1.07
3.25
5.93
BBB

-0.13
0.01
0.18
0.19
3.25
3.51
CCC+

0.52
0.10
0.04
0.31
3.25
4.22
B

Equivalent Rating

5.0

CC

T2 = Retained Earnings / Total Assets

5.85

Altman Z Score

T1=(CurrentAssetsCurrentLiabilities)/TotalAssets

BBB

7.0

Z = 6.56T 1 + 3.26T 2 + 6.72T 3 + 1.05T 4 + 3.25

Factor

AA+

Z Score for 3 Indian Companies in Power Sector

Summary:
Three companies from different nature of business were pickedup for Altman's Z score analysis. NTPC Limited (Thermal), Suzlon Energy
Limited (Wind), NHPC Limited (Hydro)
Three years alanysis was done from FY 2010 to FY 2012, for above said three companies and reported below.
NTPC Limited
For the year FY 2010, NTPC had highest Z score of 7.37 with equivalent bond rating of AA
For the year FY 2011, NTPC had relatively lower score of 6.98 with equivalent bond rating of A+. The reason being increase in long term debt
which has increased by 14% from previous year. Though it Z score has reduced, it was still in the safe zone.
For the year FY 2012, NTPC had marginal reduction in Z score from 6.98 to 6.7 with equivalent rating of A. The reason being increase in long
term debt by 45% as against 2010 to cater the future growth prospects. Proportionately, NTPC had increased its assets to maintain good
business. Though the performance has decreased in years as per Z score model, but NTPC had maintained its performance in the safe zone in
AltmansZscoremodel.
Suzlon Energy Limited
For the year FY 2010, it was in the brim falling in to distress zone with the Z score of 4.22 equivalent to B rating. Then for the year 2011,
Suzlon fell in to Distress zone with Z score of 3.51 equivalent rating of CCC+. The main reason being increase in the short term loan by 46%
against previous year to meet the working capital for the firm.
But for the year 2012, the performance continued to deteriorate and at the verge of falling to default zone with Z score of 1.91 with
equivalent rating of CCC-. In 2012, Suzlon had increased its long term debt by 27% against year 2010 but the asset value was deteriorating
with no change in change in asset value against year 2010. The money got through debt was not utilized to increase its asset base. This forced
Suzlon to report huge loss in reserves and Surplus.
Further if same conditions to continue, Suzlon may be forced to default.
NHPC Limited
Throughout the year 2010 to 2012, NHPC has performed well. The Z score has improved from 5.93 to 6.25 from 2010 to 2012. Equivalent
bond rating remains same for NHPC limited at BBB. Overall, NHPC is in Safe zone with increase in its performance.
Reference:
Edward I. Altman, "An Amerging Market credit scoring system for corporate Bonds", Emerging Market Review 6 (2005) pp 311-323
Annual Statements of NTPC limited, Suzlon Energy Limited, NHPC Limited for the year 2010, 2011, & 2012

Calculation of Z score

Cutoff date
Income statement
Net sales
PBT
+ Interest
- Other Income
EBIT
Balance sheet
Share Capital
Reserves and Surplus
Book Value of Equity
Current assets
Total assets
Current liabilities
Non-current Liabilities
Total liabilities
Securities Premium
Retained earnings

Factor
T1
T2
T3
T4
Constant
Z Score
Chart Data

6.56
3.26
6.72
1.05
3.25

2009
NTPC
Suzlon
NHPC
Safe Zone
Grey Zone

5.85
4.15

NTPC
Suzlon Energy Limited
NHPC Limited
2012
2011
2010
2012
2011
2010
2012
2011
2010
31/Mar/13 ######### ######### 31/Mar/13 ######### ######### 31/Mar/13 31/Mar/12 31/Mar/11
69,376.82
16,610.95
2,480.54
3,163.97
15928

65,893.25 57,607.17
13,137.26 12,392.33
2,134.72 1,725.75
2,949.23 2,401.01
12323
11717
8245
60139
68385
38686
136612
16060
50769
66829
2228
57911

18743

21082.37

211.1
179

6402.08
3678.78
596.21
1215.15
3060

6920.33
4319.63
573.91
1231.92
3662

5143.65
2573.06
615.94
78.46
3111

-2036.96

1159.97

389.84

170.39
-2207

276.84
883

355.47
-35.06
320
14690.89
29006.9
16250.63
11770.14
28021
4270
-4305

355.47
4622.66
4978
18473.32
32427.28
19129.39
8231.04
27360
4478
145

355.47
6170.11
6526
15417.58
29219.83
13091
9294.02
22385
5306
864

12300.74
18074.25
30375
15232.02
62336.1
7663.87
21987.04
29651
2869
15206

12300.74
16343.04
28644
14459.51
60288.66
8073.56
21536.46
29610
2869
13474

12300.74
14226.31
26527
11337.03
54173.2
6904.84
19005.57
25910
2869
11358

2010

8245
72995
81241
44819
178711
26702
68643
95346
2228
70767

8245
66030
74276
41211
155255
20795
58031
78827
2228
63802

2012

NTPC
2011

2010

Suzlon Energy Limited

2012
2011
2010

2012

NHPC Limited
2011

0.7
1.3
0.6
0.9
3.25

0.9
1.3
0.5
1.0
3.25

1.1
1.4
0.6
1.1
3.25

-0.4
-0.5
-0.5
0.0
3.25

-0.1
0.0
0.2
0.2
3.25

0.5
0.1
0.0
0.3
3.25

0.8
0.8
0.3
1.1
3.25

0.7
0.7
0.4
1.0
3.25

0.5
0.7
0.4
1.1
3.25

6.7

7.0

7.4

1.9

3.5

4.2

6.2

6.1

5.9

2010
7.37
4.22
5.93
5.85
4.15

2011
6.98
3.51
6.10
5.85
4.15

2012
6.70
1.91
6.25
5.85
4.15

2013

5.85
4.15

8.5
7.6
7.3
7
6.85
6.65
6.4
6.25
5.85
5.65
5.25
4.95
4.75
4.5
4.15
3.75
3.2
2.5
1.75
<1.75

AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB+
B
BCCC+
CCC
CCCD