| Adani Power Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable’ rating on the bank loan facilities of Adani Power Limited (APL) upon completion of the merge in line with National Company Law Tribunal order dated February 08, 2023 of six subsidiaries of APL (Adani Power Maharashtra Ltd, Adani Power [Mundra] Ltd, Adani Power Rajasthan Ltd, Udupi Power Corporation Ltd, Raigarh Energy Generation Ltd, and Raipur Energen Ltd) with itself. The outstanding facilities at these individual entities are being transferred to APL.
Rating reaffirmation factors in the existing analytical approach of consolidating the APL along with its subsidiaries. Further, completion of the said merger is in line with our earlier expectations. Also, the rating factors in the satisfactory operating performance of the assets for the fiscal, along with maintenance of adequate liquidity and positive developments in some of the pending regulatory issues in line with our expectations.
The rating continues to factor in the strong market position of APL, presence of long-term/medium-term power purchase agreements (PPAs) for around 80% of operational capacities with corresponding FSAs for nearly 82% of operational domestic coal-based capacities, the diversified portfolio of coal-based power-plants, and the diversified set of counter parties. The ratings also factor strength from APL being a part of the Adani Group. These strengths are partially offset by moderate albeit improving debt protection metrics and capital structure, exposure to risk related to lower merchant power demand and tariffs due to untied capacity (nearly 20% of total operational capacity), exposure to counterparty risk on account of weak to moderate credit profiles of some of its discoms. The business and financial risk profile also remains vulnerable to uncertainty related to full and timely receipt of outstanding and future regulatory dues.
The rating reaffirmation also factors the favorable Supreme Court (SC) order in case of Tiroda, Maharashtra plant, which will allow recovery of past unresolved claims related to New Coal Distribution Policy (NCDP) for the period from the year 2007 to 2017. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of APL (merged entity) and its subsidiaries, given the strong operational, financial and managerial linkages between entities. Ratings also factor in group support due to need-based financial flexibilities, and managerial/operational support available being part of the Adani group.
CRISIL Ratings has treated unsecured perpetual securities (UPS) of Rs 13,250 crore as 100% equity as these UPS are perpetual in nature with no maturity or redemption and call option for redemption of these securities is available with the issuer (APL) and interest on these securities is cumulative. Further, CRISIL Ratings has treated unsecured loans (USLs) from promoters amounting to Rs 6,500 crore as neither debt nor equity as the loans are subordinated to bank debt.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
APL is one of India’s largest independent power producers with existing operational thermal power capacity of 13.6 GW, equivalent to about 16% of overall capacity of private producers and about 6% of the total domestic capacity. With under-construction projects, APL is looking to further increase its scale of operation and strengthen its market position. Plants are located across various territories and terrains in India, ranging from near-pitheads to coastal areas. APL has extensive experience in working with a range of power plant technologies from subcritical /supercritical technologies to ultra-supercritical technologies. Out of the total operational portfolio, 43% is based on imported coal and 48% is near pitheads having lowest cost of generation.
APL has tied-up around 80% of its gross power generation capacity with multiple counterparties under long-term/medium-term PPAs, having two-part tariff structure, providing good revenue visibility. Further, APL has fully tied-up its under-construction capacity of 1600 MW under Adani Power Jharkhand Ltd (APJL) and has tied-up nearly 83% (1320 MW out of 1600 MW) of under construction capacity under Mahan Energen Ltd (MEL). The untied capacities are near-pithead locations, which supports raw material sourcing and reduced cost of generation. Further, the diversified counterparty mix mitigates any concentration risk.
Also, APL has healthy level of FSAs which covers around 82% of its domestic coal-based thermal power generation capacity. CRISIL Ratings expects higher materialization under these FSAs to continue going forward, resulting in relatively lower reliance on alternative sources of coal. However, coal shortfall claims recovery will be a key monitorable. Further, for the imported coal-based plants, APL benefits from presence of the group in overseas coal mining and its sourcing ability, which mitigated raw material availability risk for these capacities.
On March 03, 2023, APL received a favourable order from the Supreme Court (SC) in respect of domestic coal shortfall claims pertaining to New Coal Distribution Policy (NCDP) period in Tiroda, Maharashtra plant. Further, CRISIL Ratings understands from the management that final order is reserved by SC in case of similar claims of Mundra, Gujarat plant and balance regulatory claims of Tiroda, Maharashtra plant pertaining to post NCDP period and deallocation of Lohara Coal block and final outcome in these matters is expected soon. These claims comprise a healthy portion of annual operating accruals for APL.
That said, any delay or curtailment of the future regulatory claims could materially impact consolidated cash flows for APL. CRISIL Ratings will continue to monitor the developments on the unresolved regulatory claims and timelines around the receipt of these claims. This will be a key rating sensitivity factor.
These claims had arisen because in the past few years, earnings for APL were impacted by under recoveries of higher coal cost, amidst unavailability and lower materialisation of linkage coal for assets (namely Tiroda, Maharashtra, Kawai, Rajasthan, and Mundra, Gujarat). This led to increased disputed claims (cumulatively amounting to Rs 19,000 crore as of March 2022). While favourable order from SC in the matter of Kawai, Rajasthan led to full recovery of disputed claims during February 2022, other matters for Tiroda, Maharashtra and Mundra, Gujarat were pending for resolution in the SC.
The business profile of APL has strengthened with execution of supplementary power purchase agreement (SPPA) with Haryana distribution companies (Discoms) effectively revising the capacity to 1200 megawatt (MW) on net basis (Gross: 1320 MW) from earlier 1424 MW on net basis (Gross: 1566 MW), this revision in capacity through SPPA will result in APL supplying the power only from two units of Phase IV (1980 MW) of Mundra plant as against earlier use of three units of Phase IV. This will allow APL to tap any opportunities available in the long-term / short-term markets via the third unit (660 MW) of Phase IV of Mundra plant. However, fuel supply agreement (FSA) allocation for Haryana PPA will continue to remain around 80% of materialized annual contracted quantity (1566 MW / 1980 MW).
Due to under-recoveries of fuel cost and delay in receipt of regulatory claims, APL had incurred significant losses in the past, leading to substantial erosion of net-worth. The promoters have demonstrated a proven track record of extending significant financial support over the past few years via UPS and unsecured loans. With expected resolution of majority of pending regulatory issues, APL is not expected to require any support from the group. However, Adani group has committed their support to APL in case of any contingency.
For its assessment of the group, CRISIL Ratings has taken note of sharp fall in share prices of APL and other Adani group’s listed companies and recent part recovery. Further CRISIL Ratings has also taken note of recent raise of capital by group’s holding companies to tune of ~US$ 1.9 billion (~Rs 15,500 crores) from GQG Partners LLC through equity stake sale. In addition, over last one-month, various Adani group companies have also received debt disbursements/ roll-overs amounting to over Rs. 5000 crore as per their earlier agreed loan sanctions.
CRISIL Ratings continues to monitor the developments with respect to the group. Any adverse regulatory/ government action, emerging issues around corporate governance, or a sustained decline in group’s resource raising capabilities from banks or capital markets will be key monitorable.
Weaknesses
Around 20% of the capacity does not have any PPA tie ups, resulting in exposure to offtake and price risks. The company has been able to utilise the untied capacity for merchant power sales which led to improved PLF and realisations over last couple of years, backed by higher power demand across India. Further, the said capacities benefit from their locations near pitheads, which lowers fuel supply risk. However, ability to sustain higher merchant sales, with healthy margins, supporting robust cash accrual over the long term will be a key monitorable, which depends on various factors including power demand-supply dynamics and fuel availability in the country.
While company has witnessed timely recovery of undisputed dues over the past years, some of these discoms have moderate to weak credit profile. At times, this may result in a delay in collection of bills leading to cashflows mismatches which is partially mitigated by availability of debt service reserve account (DSRA) at respective subsidiaries level; Counterparties ability to timely service the dues in case of increased bills post resolution of regulatory claims would be a key monitorable.
Currently, APL is implementing a greenfield project under phase-II of subsidiary, Mahan Energen Ltd (MEL). This project is at a nascent stage and has a scheduled completion operation date (SCOD) in fiscal 2028. However, execution risk is partially mitigated by availability of land, expectation of financial closure being underway, around 83% tied-up capacity with Madhya Pradesh discom and raw-material availability. CRISIL Ratings understands that said project is to be funded via debt: equity ratio of 70:30, with equity to be supported by internal accrual or promoter support (if needed).
The company also needs to incur capex of around Rs 8,000 crore towards flue gas desulphurisation (FGD) till December 2026 as against earlier expectation of December 2024, across all its plants, except Mundra (Phase IV). Timely completion of the required FGD capex without any cost overrun, along with cost pass through under PPAs will be a key monitorable.
Further, the planned acquisition of DB power Ltd (1200 MW) has been cancelled during February 2023. While management has articulated that APL does not have any other acquisition plans as of now, any developments around acquisition plans will remain a key monitorable.
The coal-based power plant of 1,600 MW (2x800 MW) under Adani Power Jharkhand Ltd (APJL), a subsidiary, is nearing completion. APJL has tied up PPA with the Bangladesh Power Development Board (BPDB), under a two-part tariff structure with fuel cost pass through. While APJL has recently received a communication from BPDB requesting for a discussion to consider a discount, no change in the terms of original PPA is considered, as per the management. CRISIL Ratings notes that Unit-I of Godda plant (1600 MW, under Adani Power Jharkhand Ltd, APL’s wholly owned subsidiary) has begun trial runs and is expected to commence commercial operations during early part of Q1 of fiscal 2024. Second unit of the plant is expected to commission by end of Q1 of fiscal 2024. Developments on the commissioning of Godda plant within expected timelines and subsequent offtake in line with existing PPA terms will be a key monitorable.
While APL’s overall external debt has witnessed reduction during the current fiscal 2023 due to prepayment and scheduled repayments, external net Debt/EBITDA is expected to remain below 4 times for fiscal 2023 (around 4 times as of March 2022).
Post fiscal 2019, infusion of funds via UPS, along with partial recovery of past regulatory claims, supported the operations as well as financial risk profile with improved networth and cash flow. Ratio of external net debt/EBITDA, gearing and interest coverage ratios have improved over the past few years, but remained moderately high around 4 times, 1.9 times and 3.4 times, respectively as on March 31, 2022, vis-a-vis over 8 times, 5 times and 1.3 times respectively as on March 31, 2020 (8.6 times, 8 times and 1 time, respectively, as on March 31, 2018). While the financial profile is expected to improve going ahead, timely resolution of the pending regulatory claims matters, and timely receipt of the claim amounts will be the key for the same.
Overall, going forward, CRISIL Ratings expects consolidated net external long-term debt to EBITDA ratio to remain sustainably below the levels of March 2022, and the same will remain a key monitorable. |
Liquidity: Adequate CRISIL Ratings expects net cash accruals between Rs 5,500 – 6,500 crores over fiscal 2024 and 2025 which should be sufficient to service the debt obligations of Rs 3,000 – 4,000 crores over the next 2 fiscals. Further, as on February 28, 2023, cash and liquid investments including unutilized working capital limits stood at around Rs 2,217 crore including bank deposits of around Rs 840 crore under DSRA. Fund-based working capital limit to the tune of Rs 1,184 crore (out of total fund-based limit of Rs 4,722 crore) remained unutilised as on March 26, 2023. Excluding the annual capex requirement (of Rs 4,500 – 6,500 crores), the company has sufficient liquid surplus to meet scheduled debt obligation for next 4-5 months. Equity portion of capex is likely to be met through internal accruals. |
Outlook: Stable The business risk profile will be supported by sustenance of healthy operational performance over the medium term, led by strong operating efficiencies, supporting robust cash accruals for debt servicing as well as meeting the equity requirements for the growth capex. Strong group support, if needed, is expected to continue for the company. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company APL is the largest private sector power producer in India, with a portfolio of 16.85 GW assets. Out of this, 13.65 GW is operational and the balance 3.20 GW is under construction. Further, all the assets that are being transferred to APL under the scheme of arrangement (~12.4 GW) are already operational. |
Key Financial Indicators (CRISIL Ratings’ adjusted numbers):
Based on nine-month fiscal 2023 financials, APL reported (consolidated) operating income of Rs 28,531 crore and net profit of Rs 5,484 crore. | ||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Weighted average rate of interest |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 03-Apr-23 in line with the lender-wise facility details as on 16-Sep-22 received from the rated entity.
Criteria Details
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