Rating Rationale
April 05, 2022 | Mumbai
Inland Power Limited
Ratings upgraded to 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.140 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+ / Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2 ')
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 upgraded its ratings on the bank facilities of Inland Power Ltd (IPL) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.

 

The upgrade reflects the overall improvement in credit risk profile, driven by better debt service coverage ratio (DSCR) due to reducing debt levels and improving operating efficacies indicated on healthy PLF (plant load factor) of over 80% and improving collections that is expected to sustain over the medium term. The liquidty remains supported by the stated posture of the management to maintain six months of DSRA in the form of liquid funds to help meet any cash flow mismatches.

 

The ratings continue to reflect the healthy operating parameters of IPL’s power plant, backed by comfortable PLF; offtake arrangement with Jharkhand State Electricity Board (JSEB) for 100% capacity under a 10-year power purchase agreement (PPA) on a cost-pass-through basis; and assured fuel supply to the plant through arrangement with Jharkhand State Mining Development Corporation. These strengths are partially offset by moderately large working capital requirement on account of regulatory assets (DPS: delayed payment surcharge and FPA: fuel price adjustment).

Analytical approach:

Unsecured loans of Rs 25 crore have been treated as 75% equity and 25% debt as these are from the promoters, interest on the loans is accrued and the loans are expected to remain invested over the medium term.

Key rating drivers & detailed description

Strengths:

Assured fuel supply from JSMDC

The annual coal requirement of IPL at 100% PLF is 4,25,000 tonnes, for which it has a fuel supply arrangement with the state-owned JSMDC, which has earmarked Cigna coal block for supplying the requisite coal to the power plant. However, currently, the company is procuring majority of its coal requirement from Central Coalfields Ltd and Coal India Ltd under a special auction scheme.

 

100% offtake arrangement with JSEB

The company has signed a 10-year PPA (from fiscal 2015) with JSEB for supplying 100% of the power produced, on a pass-through tariff structure with a take or pay clause. Hence, assured PPA guarantees steady revenue.

 

Comfortable Financial Risk Profile

IPL with a strong adjusted networth of around Rs.211 crores as of 31st March,2021, healthy debt protection metrics and strong capital structure as reflected in adjusted gearing estimated at around 0.50 times has a comfortable financial risk profile. Moreover, with reducing debt levels and healthy DSCR of around 1.48 times, the financial risk profile is expected to keep strengthening going forward.

 

Weaknesses:

Accumulation of regulatory assets from JSEB stretching working capital requirement:

Since the company has a 100% offtake arrangement with JSEB, delayed receipt of payment may weaken financial risk profile. IPL raises bills monthly and as per the PPA terms, it should receive payment within two months from the date of raising the bill. However, IPL is currently receiving payment 3-3.5 months from raising the bill. Moreover, delay in approval of FPA in the last two fiscals led to significant build-up in regulatory assets, thereby stretching working capital cycle.

Liquidity: Adequate

Bank limit utilisation was moderate at 54.17% for the 12 months through February 2022.  Cash accrual is expected to be over Rs 45 crore against term debt obligation of Rs 25 crore annually over the medium term. Current ratio was healthy at 1.99 times as on March 31, 2021. Cash and bank balance were moderate at around Rs 13 crore. Moreover, the company will be maintaining DSRA of 6 months debt servicing. Low gearing and moderate networth support financial flexibility and provide cushion in case of any adverse condition or downturn in the business.

Outlook: Stable

The business risk profile of IPL will remain stable over the medium term on account of assured fuel supply and long-term PPA.

Rating sensitivity factors

Upward factors:

  • Improvement in working capital cycle with timely realisation of regulatory assets
  • Average DSCR improving to 1.7 times

 

Downward factors:

  • Deterioration of average DSCR for fiscals 2021-25 below 1.35 times
  • Deterioration of business risk profile because of lower-than-expected offtake by customers, shortage in coal supply affecting debt-servicing ability, delay in payment by JSEB, and any piling up of regulatory assets

About the company

IPL is a part of the Inland group of Kolkata. The company generates power at its coal-based thermal power plant in Ramgarh, Jharkhand, which has installed capacity of 63 megawatt. It commenced operations in May 2014. Implementation of the power plant started in April 2012. The plant was set up at a cost of Rs 322 crore, which was funded in a debt-equity ratio of 2.4 times.

Key financial indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

181.11

194.07

Reported profit after tax (PAT)

Rs crore

27.10

18.10

PAT margin

%

14.96

9.33

Adjusted debt/adjusted networth

Times

0.54

0.68

Interest coverage

Times

3.37

2.73

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN  Name of Instrument  Date of Allotment  Coupon Rate (%)  Maturity Date  Issue Size (Rs cr)  Complexity level Rating Assigned with Outlook 
NA  Cash Credit NA  NA  NA 50 NA CRISIL A-/Stable
NA  Term Loan NA  NA  31-Mar-24 67.37 NA CRISIL A-/Stable
NA Working Capital Term Loan NA  NA  31-Mar-25 17.32 NA CRISIL A-/Stable
NA Proposed Non-Fund based limits NA  NA  NA 5.31 NA CRISIL A2+
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 134.69 CRISIL A-/Stable   -- 06-04-21 CRISIL BBB+/Stable / CRISIL A2   -- 09-12-19 CRISIL BBB+/Stable / CRISIL A2 CRISIL A3+ / CRISIL BBB/Stable
      --   -- 12-03-21 CRISIL BBB+/Stable   -- 03-12-19 CRISIL BBB+/Stable / CRISIL A2 --
Non-Fund Based Facilities ST 5.31 CRISIL A2+   -- 06-04-21 CRISIL A2   -- 09-12-19 CRISIL A2 --
      --   -- 12-03-21 CRISIL A2   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 14 Bank of Baroda CRISIL A-/Stable
Cash Credit 36 State Bank of India CRISIL A-/Stable
Proposed Non Fund based limits 5.31 Not Applicable CRISIL A2+
Term Loan 10.94 Bank of Baroda CRISIL A-/Stable
Term Loan 56.43 State Bank of India CRISIL A-/Stable
Working Capital Term Loan 17.32 State Bank of India CRISIL A-/Stable

This Annexure has been updated on 23-Feb-23 in line with the lender-wise facility details as on 09-Feb-23 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt

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