Finance Case

RULE SHEET
1. Participants must submit their solutions by 11:59 A.M on 13th July 2020 by
mailing it to the following email address: [email protected] . Subject
of the mail should be “SocialSuite_TeamName”. Mails received after the
deadline will not be entertained.
2. Kindly note that the solution should be in PDF format. The PDF file should be
saved as “SocialSuite_TeamName”.
3. The solution should not exceed 5 slides excluding the Cover Page and the
Thank You slide, if sending a PPT, and not more than 4 pages if sending a
word document. Feel free to use tables, pie charts, graphs, and other graphic
arts.
4. Any assumptions made should be clearly mentioned and justified and all
calculations should be shown clearly.
7. Multiple submissions will not be accepted. The presentation once sent will be
treated as the final presentation and the qualifying teams will be presenting the
same in front of the judges on 15th July 2020 via Google meets.
8. The shortlisted participants will be notified via email, so keep checking your
registered email address at regular intervals. Ensure to check the spam folder
as well.
8. The solutions will be judged on the basis of presentation, financial

sustainability, project sustainability & scalability, evaluation of metrics designed
and longevity of the social impact.
9. Any form of plagiarism will result in direct disqualification.
10. The decision of the organizers shall be binding on all the participants.
For regular updates regarding the competition, follow our social media accounts
https://www.instagram.com/nss_sscbs/?hl=en
https://www.instagram.com/kartavya_sscbs/?hl=en
https://www.facebook.com/Kartavya.SSCBS/
In case of any queries, contact:-
Madhav- +91 9315858946

Haseeb- +91 9871883878
CURRENT SCENARIO
India pledged in the Paris Agreement 2015 to contribute towards
combating global climate change. According to the latest report by
Reuters, India’s actions have been termed as ‘highly insufficient’ and India
needs to improve its contribution towards the cause. It further elaborated
that for achieving the targeted carbon sink by 2030, India would need to
more than double its current rate of forest cover expansion.
Under the Paris Agreement, India had committed to creating a cumulative

carbon sink of 2.5-3 billion tonnes of carbon dioxide equivalent by 2030.
India pledged to unconditionally reduce the carbon dioxide emissions by
30-35% from the 2005 level by 2030 and achieve 40% of its currently
installed power capacity from renewable energy sources.
INDUSTRY OVERVIEW
India’s power sector is one of the most diversified one in the world.
Sources of power generation range from conventional sources such as
coal, natural gas, oil, hydro and nuclear power to viable non-conventional
sources such as wind, solar, and agricultural and domestic waste.
Electricity demand in the country has increased rapidly and is expected to
rise further in the years to come. In order to meet the increasing demand
for electricity in the country, massive addition to the installed generating
capacity is required.
The renewable energy sector is a landscape of emerging ever-changing
norms and regulations at both the central and state level. Demand for
reliable clean power continues to grow in India and globally, with an
increased focus on sustainable development with the underlying aim to
tackle climate change. The renewables industry responded to the
government’s call for climate compatible growth by aggressively ramping
up capacity by 17.5% annually between 2014 and 2019 to increase the
share of renewables in India’s total energy mix from 6% to 10%. Total
installed capacity of power stations in India stood at 368.68 Gigawatt
(GW) as of January 2020. Electricity production reached 1,050.78 Billion
units (BU) in FY20 (up to January 2020). The total capacity of the
renewable sector is expected to grow at a CAGR of 10% p.a. uptil 2022.
The government has estimated the following target for renewable energy
distribution by 2022.
TARGET FOR RENEWABLE ENERGY BY 2022
9%
WIND ENERGY
34%
SOLAR ENERGY
HYDROPOWER &
BIOMASS
57%
COMPANY OVERVIEW: RAYS LTD

Rays Ltd. is one of the largest renewable energy companies with its entire
operations located in Gujarat, India with an operational capacity of 5,990
MW. Their portfolio is almost equally split capacity wise between central
and state government schemes. They develop, build, own, operate and
maintain utility-scale grid connected solar and biomass currently.
The company has always placed a great significance towards maximising
its shareholders value by performing all activities ethically. These values
are deeply engraved in the mission and vision statements, driving their
bottom line. The company is a strong believer of giving back to society. It
ensures that all CSR activities are actively launched and managed. In
2019, the company received the Corporate Award for Excellence in CSR.
The company’s consistent focus on launching and delivering pro-
environmental expansion plans is one of the main reasons why the
company is getting big orders.
RECENT DEVELOPMENT
Rays Ltd has received an order to provide 15,000 MW of power annually
at the end of 5 years which is way above the company's existing potential
of 5990 MW i.e. they need additional 9010 MW. The company has to come
up with a plan detailing how it would be able to execute the order as the
company would be required to increase its capacity significantly.
At the Board meeting to discuss the feasibility of taking up the project, the
independent directors of the company raised the point that the company
should make sure that it is also evaluating the social cost of the project in
terms of its impact on the environment when undertaking expansion and
increasing the capacity of power generation.
To make the evaluation process simpler, the corporate governance
committee of Rays Ltd. came up with a measure to estimate the ‘Impact’
of environmental factors on the ‘Social Cost’ of the project.
METHOD TO ESTIMATE SOCIAL COST

Factors that affect the social cost:
1. Displacement of people (ID)
a. Livelihood loss (IL)
b. Cultural loss (IC)
c. Separation loss (IS)
2. Damage to Flora & Fauna (IF)
3. Pollution (IP)
a. Soil Pollution (ISP)
b. Water Pollution (IWP)
c. Air Pollution (IAP)
The ‘Impact’ of each factor is denoted by their individual ‘I’
for eg. To calculate, Total Impact of Displacement (ID) = IL + IC + IS
The value of ‘I’ for each project is given in the option details and will be
different for different options.
The ‘Social cost’ calculated through ‘Impact’ is denoted by ‘S’
The following equations will be used to calculate the total social cost of
the project from impact (I) which have been reached by government after
tracing the data for over 20 years:
● Displacement of People
S = (ID3.5 – 10)
● Damage to Flora & Fauna

S = e8 *15*IF
● Pollution
S = (5*IP +20)2.5
CONVERSION OF SOCIAL COST INTO RUPEES

1 S = Rs. 3
E.g. if Social Cost comes to be 1,00,000 S. In monetary terms its value is
Rs. 3,00,000.
The total social cost calculated via the formulas is borne by the company
over the 5 years in the following manner:
FACTOR YEAR1 YEAR2 YEAR3 YEAR4 YEAR5
DISPLACEMENT OF 50% 12.5% 12.5% 12.5% 12.5%
PEOPLE
FLORA & FAUNA 30% 30% 20% 10% 10%
POLLUTION 20% 20% 20% 20% 20%
The risk-free rate in the economy (adjusted for inflation over the years)
will be taken as 7%. This may be used as the discounting factor. Assume
a standard tax rate for all alternatives.
ALTERNATIVES AVAILABLE
In order to increase capacity, the company has come up with three
possible alternatives.
Note: The ‘Annual Capacity’ mentioned in each alternative refers to the
individual additional capacity of that particular alternative. Rays Limited
is in only Solar and Biomass and they plan on diversifying via this new
project. They do not wish to get a new management board soon due to
the additional costs associated with it, especially with key personnel
management of hydropower or wind energy companies. Hence it is
expected that the management of the target company will continue for at
least 3 years beyond the beginning of the project.
1. Acquire Neer Ltd (Hydro Energy plant)
Neer Ltd. is a hydro power energy company located in Punjab. It has
registered a growth rate immensely below the industry average. This trend
has been observed for the past 5 yrs. Infact, during the FY 2018-19, Neer
Ltd suffered a net loss of Rs. 9 Cr. while it had a Rs 14 Cr. profit in FY
2013-14. The reason behind this is majorly the lack of operational
efficiency as they witness frequent disruptions from several NGOs and
nearby villagers oftenly.
There are reports suggesting that there are ongoing tensions between the
management and the trade union of labourers regarding decline in wage
rate of workers due to ongoing COVID- 19 pandemic which may lead to
the workers going on a strike at the plant which might further add on the
cost as the company would need to hire new workers or mechanise the
process which may make it more expensive than the current the forecasts.
As Neer Ltd is going through a tough time, Rays Ltd can potentially get
the plant at a cheap rate.
DETAILS
NPV of Revenue Generated from Project 10cr
NPV of Expenditure Incurred (excluding Social Cost) 6.75cr
Annual Capacity after Completion 12,000 MW
IMPACT
Livelihood Loss (IL) 30
Cultural Loss (IC) 30
Separation Loss (IS) 20
Damage to Flora & Fauna (IF) 50
Soil Pollution (ISP) 10
Water Pollution (IWP) 30
Air Pollution (IAP) 10
2. Acquire Vaayu Ltd (Wind Energy plant)

Vaayu Limited is a renewable energy company headquartered in
Gurgaon, Haryana, India. It is an Independent Power Producer (IPP) and
commissioned its first wind farm project in Mahidad-Rajkot district in
Gujarat in 2012.
Over the last few years, the management of Vaayu Ltd has been unable
to grow the company effectively. It has not seen any increase in its power
generation capacity while its competitors have almost tripled their
generation capacity in the same time frame.
Last year, there were allegations of them cutting down costs on safety
features of their turbines overall. Due to this, they have an ongoing legal
battle which is causing them a continuous loss of cash and also as
collateral for the potential losses, they have their assets tied up. Making
matters worse, there have been rumours of them window dressing their
books as well.
DETAILS
NPV Of Revenue Generated from Project 10cr
NPV Of Expenditure Incurred (excluding Social Cost) 7.5cr
IMPACT
3. Construct a Solar Energy plant
Rays Ltd can also construct its own solar power plant. However, not being
a cash surplus company, it only has resources to set up a basic solar
power plant, which is not expected to be as technologically advanced as
its peers, hence significantly reducing the plant’s efficiency and useful life.
It is also estimated that 40% of the solar power plant area would be
obtained by clearing up a forest area. Additionally, tense relations with
China can pose a major challenge for the company in the future as around
80% raw materials used to harness solar energy are imported from China.
DETAILS
NPV of Revenue Generated from Project 10cr
NPV of Expenditure Incurred (excluding Social Cost) 8cr
IMPACT
PROBLEM STATEMENT
As a consultant to the company, choose one of the three alternatives
which would be the most rewarding for the company considering all the
factors as well as maintaining its reputation for excellence in CSR.
Conduct a detailed financial analysis and also present a plan to overcome
all the shortcomings of any specific project.

Finance Case

Uploaded by

Copyright:

Available Formats

Finance Case

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Finance Case

Uploaded by

Copyright:

Available Formats

RULE SHEET

8. The solutions will be judged on the basis of presentation, financial

9. Any form of plagiarism will result in direct disqualification.

In case of any queries, contact:-

Madhav- +91 9315858946

Under the Paris Agreement, India had committed to creating a cumulative

TARGET FOR RENEWABLE ENERGY BY 2022

COMPANY OVERVIEW: RAYS LTD

METHOD TO ESTIMATE SOCIAL COST

● Damage to Flora & Fauna

CONVERSION OF SOCIAL COST INTO RUPEES

POLLUTION 20% 20% 20% 20% 20%

2. Acquire Vaayu Ltd (Wind Energy plant)

You might also like