Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of Adani Power Ltd (APL) to ‘Crisil AA/Stable’ from ‘Crisil AA-/Positive’. Crisil Ratings has also assigned its ‘Crisil AA/Stable’ rating to Rs 11,000 crore proposed non-convertible debentures (NCDs) of APL.

 

The upgrade in rating reflects Crisil Ratings expectation of strengthening in APL’s overall credit risk profile with strong improvement in the business parameters on account of increase in proportion of tied-up capacities as well as fuel linkages. The same will improve revenue and cash flow visibility over the long term. Similarly, full recovery of pending regulatory dues, robust liquidity and sustaining of receivable position has also resulted in stronger credit metrics and financial risk profile resulting in DSCR improving to more than 2x and net debt to Ebitda improving to <2.5 times in current fiscal.

 

APL has signed up new long term and medium term PPAs (total 1600 MW with 2 counter parties) over the past 12 months, resulting in tying up of 87% of its total 17.55 GW capacity compared with 80% earlier. Similarly, 60% of the total fuel requirement (91% of domestic coal requirement) is now backed by fuel supply arrangements (FSAs) versus 50% (84%) a year ago, thereby lending higher certainty to revenue and profitability of the company. As a result, APL’s consolidated operating Ebitda (recurring) is expected to be around Rs 20,000 crore per annum in near to medium term. However, any moderation in power demand leading to lower-than-expected volumes and profitability for APL will remain monitorable.

 

Further, resolution of all the major past regulatory matters is complete leading to healthy cash inflow (APL has recovered majority of pending regulatory dues, including carrying costs and late payment surcharge) and the same provides revenue visibility for future years given Change in Law tariff revision being implemented. The company follows a prudent philosophy of recording dues in its books (pertaining to past years or Late payment surcharge (LPS)) only when they are realized from the discoms or accepted by them. Accordingly, the company recorded ~Rs 2,400 crore of income in 9M FY2025, a large part of which has already been received. This led to receivables position remaining comfortable around 87 days as of December 2024 vs 85 days as of March 2024 and 111 days as of March 2023.

 

The operating performance of APL has been strong with robust plant load factor (PLF) and healthy operating margins. The company had better-than-expected operating earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 18,789 crore for fiscal 2024 and Rs 16,493 crore for the first nine months of fiscal 2025. The PLFs for fiscal 2024 stood at ~65% and around 69% for 9M FY2025.  This healthy performance has led to a reduction in consolidated net leverage (ratio of net external debt to operating Ebitda) to 1.4 times as of March 2024 from 3.3 times as of March 2023 (around 4 times as of March 2022). These levels are expected to sustain in the near to medium term, backed by healthy cash accrual.

 

Crisil Ratings notes that APL has significant capital expenditure (capex) in the pipeline. This includes organic and inorganic expansion to reach a total installed capacity of 30GW by 2030, expenditure for flue gas desulphurisation (FGD), and regular repair & maintenance. Crisil Ratings expects operating cash accrual to be sufficient to meet the equity requirement of capex as well as annual debt obligation while maintaining its liquidity reserve and capex reserve. Crisil Ratings has taken note of the management’s articulation to maintain the ratio of net external debt to operating Ebitda (on trailing 12 months basis) at or below 2.5 times hereon. Further, as per the corporate debt term sheet, the company has to maintain liquidity reserve of 1.25x of ensuing debt servicing for following 1 year (pertaining to SBI’s corporate debt), which provides additional comfort. Timely execution of the planned capex and tie-up of capacities with long term/ medium term PPAs, without impacting the capital structure or liquidity profile, will be a key monitorable.

 

The company has a power plant under a wholly owned subsidiary, Adani Power (Jharkhand) Ltd (APJL), in Godda, Jharkhand, with a capacity of 1,600 MW and supplying power to Bangladesh Power Development Board (BPDB) under long term PPA for its entire capacity. While the receivables pertaining to this plant increased during H1FY25, the collections improved significantly with collection efficiency at more than 120% during Q3FY25. Accordingly, as of December 2024, the receivables cycle stood ~9 months (considering current trend). Further, the PPA with BPDB provides protection to the company in form of letter of credit (equivalent to ~2 months of dues) and sovereign guarantee from Government of Bangladesh as additional security mechanisms. There is also a significant cushion in this plant’s cashflows to absorb lower PLFs (owing to fixed capacity charges) which would support overall credit profile of APL. Nonetheless, Crisil Ratings will continue to monitor any development linked to this power plant.

 

The rating continues to factor in the strong market position of APL given the geographically diversified portfolio of coal-based power-plants and counterparties and a healthy financial risk profile. These strengths are partially offset by exposure to risk related to lower merchant power demand and tariffs due to untied capacity (nearly 13% of total operational capacity), exposure to counterparty risk on account of weak to moderate credit profiles of some distribution companies (discoms).

 

On November 20, 2024, the United States Department of Justice and the US Securities and Exchange Commission (SEC) issued an indictment and a civil complaint, respectively, in the United States District Court for the Eastern District of New York, against senior officials of Adani group and key functionary of Adani Green Energy Ltd for charges related to matters involving AGEL. The issue at hand is sub judice and Crisil Ratings understands that Adani Group has sufficient liquidity and operational cash flows to meet debt obligation and committed capex plans over the medium term. That said, we believe any adverse regulatory, judicial or government action may exacerbate the situation. Thus, such actions will be monitored. Further, any fall-out of developments restricting the Adani Group’s access to domestic and international capital and/or resulting in a significant increase in its cost of debt will also be key rating sensitive factor.

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 among the entities. Crisil Ratings has treated UPS of around Rs 4,266 crore as on Dec 31, 2024 (Rs 7,315 crore as on March 31, 2024), as 100% equity as these are perpetual with no maturity or redemption. Call option for their redemption is available with the issuer (APL) and interest on these securities is cumulative. The UPS can be redeemed through distributable surplus.  (Refer to the annexure for list of entities consolidated).

 

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:

• Strong market position with diversified portfolio of coal-based power plants across geographies: APL is one of India’s largest independent power producers with operational thermal power capacity of 17.55 GW, equivalent to ~7% of the total capacity in the country. With under-construction projects, APL is looking to further scale up operations and strengthen its market position. Its plants are in 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. Of its operational portfolio, 40% is based on imported coal.

 

• Healthy business risk profile with high level of long-term PPAs and FSAs: APL has tied up around 87% of its gross power generation capacity with multiple counterparties under long-term/medium-term PPAs, with escalable tariff structure for majority of these PPAs, providing good revenue visibility. APL has tied-up nearly 83% (1,320 MW of 1,600 MW) of under-construction capacity for Phase II of its subsidiary, Mahan Energen Ltd (MEL), with discoms in Madhya Pradesh and has also signed PPA with Maharashtra State Electricity Distribution Company Limited for full capacity under-construction brownfield project in Raipur. The untied capacities are near pitheads, which supports raw material sourcing and reduces cost of generation. The diversified counterparty mix mitigates any concentration risk.

 

Also, APL has FSAs for around 60% of its coal-based thermal power generation capacity (91% for domestic coal based capacity). Crisil Ratings expects higher materialisation under these FSAs to continue, resulting in relatively lower reliance on alternative coal sources. However, the ability to claim alternate fuel costs as passthrough under change in law claims for the respective PPAs post resolution of the regulatory matter has strengthened the business risk profile. For the imported coal-based plants, APL benefits from Adani Group’s presence in overseas coal mining and its sourcing ability, which mitigates raw material availability risk for these capacities to a certain extent.

 

• Healthy financial risk profile and debt protection metrics: External debt reduced in fiscal 2024 due to partial prepayment and scheduled repayment through operating cash flow, including proceeds of old regulatory dues. The ratio of net external debt to operating Ebitda improved to 1.4 times as of March 2024 (around 3.3 times as of March 2023) and is expected to sustain at similar levels over the near to medium term. Healthy uptick in earnings lead to improvement in interest coverage to around 5.6 times in fiscal 2024 and it is expected to remain above 4 times in the medium term (around 3 times in fiscal 2023). While the financial risk profile is expected to improve over the medium term, timely implementation of the planned capex will be the key risk going forward.

 

Overall, Crisil Ratings expects the consolidated net external debt to operating Ebitda ratio to remain sustainably below 2.5 times as articulated by the management, and the same will remain a key monitorable.

 

Further, as per the corporate debt term sheet, the company has to maintain liquidity reserve of 1.25x of ensuing debt servicing for following 1 year (pertaining to SBI’s corporate debt) and capex reserve equal to next six months of funding requirement (unfunded capex portion), which provides additional comfort.

 

Weaknesses:

• Exposure to merchant market demand and pricing risk: Around 13% of the capacity does not have any PPA tied up, resulting in exposure to offtake and price risks. APL has been able to utilise the untied capacity for merchant power sales, which led to improved PLF and realisations over the past few years, backed by higher power demand across India. The company also enters into short term contracts of 2-6 months with discoms thereby safeguarding itself from significant fluctuations. Also, the said capacities benefit from being near pitheads, which lowers fuel supply risk and transportation costs. However, ability to sustain higher merchant sales with healthy margins, thereby supporting robust cash accrual over the long term, depends on various factors, including power demand-supply dynamics and fuel availability in the country, and will be monitorable.

 

• Exposure to counterparty risk having moderately weak credit profile: While APL has witnessed timely recovery of receivables over the past years, some discoms have average to weak credit profiles. At times, this may result in a delay in collection of bills, leading to cash flow mismatches, which is partially mitigated with presence of letter of credit mechanism and DSRA. Overall receivables have moderated post recovery of old regulatory dues, but receivables from Bangladesh Power Development Board (BPDB) have accumulated. Collections from BPDB has improved steadily on monthly basis post the political developments in Bangladesh in August 2024. Further improvement in the monthly collections as well as sustenance of receivables (from other counterparties as well) will remain monitorable.

 

• Exposure to risk associated with brownfield expansion and growth through acquisitions: APL is implementing 11.20 GW brownfield expansion projects of 1.60 GW each consisting of 800 MW Ultra-supercritical units; which are expected to be implemented in a staggered manner over the next 4-5 years. These projects are in the planning stage, however, execution risk is mitigated to some extent by the availability of land and Adani Power’s vast experience in the sector. The fact that APL executed the greenfield Godda plant on time despite the pandemic and achieved financial closure for Mahan Phase II provides comfort.

 

The company also needs to undertake capex of around Rs 9,000 crore towards FGD, deadline of which has been extended till December 2029, across all its plants.

 

APL also plans to expand through the inorganic route and has recently acquired 2.3 GW of operational thermal capacities. The company continues to be on a lookout for value accretive projects available in the market. That said, APL has a consistent track record of turning around newly acquired merchant plants.

Liquidity: Strong

Liquidity will be supported by strong net cash accrual of over Rs 15,000 crore over fiscals 2025 and 2026, which should be sufficient to meet the principal debt obligation over the medium term. As on December 31, 2024, the company had unencumbered cash and liquid investments, of around Rs 5,614 crore, including DSRA. The company also had fund-based working capital buffer of Rs 329 crores. The company plans to utilize its surplus funds to meet its capex requirement and will be raising debt as per the requirement.

Outlook: Stable

The business and financial risk profile of APL is expected to be supported by sustaining of healthy operational performance over the medium term on account of healthy power demand, remunerative tariffs for most capacities tied up under long term PPA and assured supply of captive or linkage fuel.

Rating sensitivity factors

Upward factors:

• Sustainable improvement in business risk profile with significant improvement in coal linkage and/or tie-up of at least 90% of operational capacity under long term PPAs, leading to sustained improvement in leverage and DSCR from the current levels
• Significant reduction in project implementation risk through signing of new long term PPAs for upcoming capacities and timely commissioning of planned capex without any significant cost overrun
• Sustained improvement in receivables from counterparties, especially from BPDB
   

Downward factors:

• Weakening operating performance with plant availability factor (PAF) remaining below normative levels for existing capacities having PPAs, leading to delay in fixed cost recoveries or lower PLFs of merchant capacities/ Imported coal-based capacities impacting operating cash flow and liquidity
• Weaker-than-expected cash flow or larger-than-expected, debt-funded growth capex (organic or inorganic) resulting in external net debt to operating Ebitda ratio exceeding 3.0 times on sustained basis with DSCR falling below 2.0 times over the remaining debt tenure
• Adverse outcome for pending regulatory investigation constraining financial flexibility of Adani Group, including APL

About the Company

APL, part of Adani Group, is the largest private sector thermal power producer in India, with an operational portfolio of 17.55 GW of assets. The power plants are located across the country, in Maharashtra, Karnataka, Rajasthan, Chhattisgarh, Gujarat, Madhya Pradesh, Tamil Nadu and Jharkhand. APL has a diversified set of counterparties.

 

For first nine months of fiscal 2025, APL has reported revenue from operation of Rs 41,966 crore and PAT of Rs 10,150 crore as against Rs 36,988 crore and Rs 18,092 crore, respectively, during the corresponding period last fiscal.

Any other information: Not Applicable