Cost of Capital and Capital Structure Analysis of Power Sector in India: A Case Study

There is a significant shift in the financing of Company X over the 5 years as indicated in the comparison. Company X's debt weight is 33.80%, whereas other peers had an average debt weight of ~70% in FY20221-22. Its higher WACC of 11.67% is a result of the fact that it relies more on equity than do the other companies, Peer A with an equity WACC of 8.86% and Peer B with an equity WACC of 7.99%. Over the next few years, the financing mix shifted toward more debt for Company X. While, the peers, had a more limited leverage range. Their cost of debt stayed consistent between 7.56%-8.69% for Peer A and 7.76%-8.67% for Peer B, compared to the cost of debt for Company X, which was more volatile. Throughout the change of financing structure, Company X's WACC significantly decreased. It has fallen from 11.67% in FY2021-22 to 8.32% in FY2022-23 and stayed broadly in the range of the two peers since then. The situation changed a little in FY2025-26 however, where the WACC of the Company X rose to 8.96% while the WACC of Peer A and Peer B rose to 8.60% and 8.90% respectively.

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