| Essar Power Hazira Limited | ||||
| Rating upgraded to 'CRISIL BBB+/Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long term bank facilities of Essar Power Hazira Limited (EPHL) to ‘CRISIL BBB+/Stable’ from ‘CRISIL BBB/Stable’. CRISIL Ratings has also withdrawn its rating on the term loan of Rs.180 crore. The withdrawal is based on the request of the client and is in-line with CRISIL Ratings’ policy on withdrawal of ratings.
The rating action factors in the healthy operational performance of the company with availability above normative levels and the improvement in the liquidity profile of the company supported by built-up of Rs. 40.5 crore of DSRA and an expectation of funding the rest of the required DSRA by fiscal 22 end. This is supported by timely payments from the counterparty- ArcelorMittal Nippon Steel Ltd (AMNSL) with a track record of more than 20 months currently.
The rating also factors in healthy revenue visibility with the entire capacity being tied-up under the Group captive power purchase agreement (PPA) with AMNSL at a fixed tariff also resulting in healthy average debt service coverage ratio (DSCR) over loan tenure. The rating takes further comfort from the highly competitive nature of the tariff structure and low fuel supply risk as the same is in the scope of AMNSL.
The strengths are constrained by linkages with the group companies with instances of ICDs extended to the parent company Essar Power Limited, though with lenders approval, providing comfort to CRISIL Ratings. |
Analytical Approach CRISIL Ratings has assessed the standalone business and financial risk profiles of EPHL |
Key Rating Drivers & Detailed Description Strengths: Healthy revenue visibility with low offtake risk The company has entered a PPA with AMNSL for 243 MW net capacity at a fixed tariff of Rs 416 crore per annum. PPA has remaining tenure of 20 years and needs to be renewed by EPHL every 5 years. Currently PPA has been extended till July 2025 (135 MW) and November 2026 (135 MW). PPA can be terminated only by EPHL.
As per the PPA terms, the company needs to maintain annual average plant availability factor (PAF) of 85% to earn the entire fixed tariff which has remained in the range of 90-96% during the last four years ending fiscal 2021, thus, allowing the company to earn the fixed tariff. The company has also supplied power to AMNSL under a short-term arrangement for additional capacity of 27 MW at a tariff of Rs.1.125 / Kwh from August 14, 2020 to December 13, 2020 and is further in discussion with the offtaker for long term arrangement with similar term and conditions. While PAF had been lower for couple of months in FY21 and current fiscal due to planned maintenance, overall PAF had been healthy. Low fuel availability risk as entire fuel requirement is being met by AMNSL The company primarily uses Corex fines and Corex gas as fuel inputs for plant operations with limited use of coal. These are waste products generated from AMNSL steel plant. Given that Corex fines have high moisture content and there is limited market for its sale, the possibility of utilisation of it for any other purpose remains limited. While the supply of fuel is in the scope of AMNSL, even in case of lower fuel supply, EPHL is entitled to fixed charges subject only to declaring availability. Competitive tariff structure and regulatory benefits Power sourced from EPHL caters to about one-third of power requirement of the steel plant and is one of the cheapest sources of power with capacity charge of around Rs 2 per unit. As the fuels used by the plant are the waste products generated from the steel plant with limited market value, the landed cost of power for AMNSL remains highly competitive as against other sources of power. EPHL, being waste to energy plant, it also improves the carbon footprints. EPHL, being a captive plant for AMNSL, also helps to earn benefits aggregating to Rs 1.7 per unit on account of no cross subsidy charge and lower electricity duty, making the tariff remunerative.
Continuation of benefits shall be subject to adherence to any updates/changes to current captive power plant regulations and remains key rating sensitivity factor.
Comfortable DSCR The healthy financial risk profile is supported by a comfortable average DSCR of over 1.35 times over the loan tenure supported by stable cashflows from take or pay agreement with AMNSL and low fuel risk. Incentives earned from sale of additional power under expected the long term arrangement with AMNSL and optimization of the O&M and overhead expenses planned by the company in medium term will further boost the DSCR.
Weakness Moderate DSRA EPHL currently has DSRA of Rs 40.5 crore as against the requirement of one quarter debt servicing obligations of Rs ~55 Crores. Company has approval from lenders to create DSRA by March 31, 2022 and is expected to build the same from project cashflows.
Linkages with group companies EHPL has unsecured loan of Rs 1.5 crore as on October 28, 2021 from promoter group companies which it plans to repay in current fiscal. Further company has also extended inter corporate deposits of overall Rs 58 crore to holding company over the last 18 months. These ICDs are interest bearing and short term in nature. The trust and retention account is monitored by the lenders and these ICDs are extended with lender approval. However any significant outflow in the form of ICDs to group companies prior to creation and maintenance of adequate liquidity buffers and debt servicing shall be key rating sensitivity factor. |
Liquidity: Adequate Liquidity is adequate supported by a cash balance of Rs ~8 crore and a DSRA of Rs 40.5 crore supported by timely payment of fixed capacity charges by AMNSL. EPHL shall maintain one quarter DSRA from project cash flows by March 31, 2022. Cash accrual is expected at ~Rs. 280-290 crore per fiscal over fiscals 2022 and 2023 as against repayment obligations of ~Rs. 200-220 crore each fiscal. There are no capital expenditure plans over medium term. |
Outlook: Stable Stable PAF and timely payments from AMNSL will result in healthy accruals over the medium term, resulting in healthy debt servicing ability and expected build-up of a one quarter DSRA. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company EPHL had set up a 270 MW (135 X 2 units) captive power plant in Hazira, Gujarat, at a project cost of Rs 2,154 crore. The company is part of the Essar group that has a diversified presence across the core sectors of energy (comprising exploration and production, refining and marketing, and power businesses); infrastructure (ports and engineering, procurement and construction businesses); metals and minerals; services (shipping and oilfield services), and technology (technology solutions, mobile wallet, device protection, and customer experience). The plant was commissioned in two phases in fiscals 2016 and 2017. The capacity is fully tied-up with AMNSL. The fuel supply for plant operations is in the scope of AMNSL. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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