Detailed Rationale

CRISIL Ratings has upgraded its rating on the long term bank loan facilities of Jaiprakash Power Ventures Limited (JPVL) to ‘CRISIL BBB/Stable’ from ‘CRISIL BBB-/Stable’.

 

The upgrade in the ratings factors in the healthy improvement in the company’s cash accruals on the back of strong PLFs recorded across its thermal plants over FY2024 and Q1 FY2025 leading to a significant improvement in the liquidity of the company. The company witnessed a combined PLF of 76% for FY2024 compared to 66% for FY2023. While 56% of the capacity of the company is tied-up through long term PPAs (1245 MW), a large part of its capacity (975 MW) continues to be untied and dependent on short term markets which are currently witnessing healthy rates leading to an improvement in the company’s EBITDA to touch Rs. 2,252 crore in FY2024 from Rs. 1,173 crores in FY2023. This improvement has led to build up of cash reserves to the tune of Rs. 1,197 crores (including DSRA of Rs. 207 crores) as on June 30, 2024, up from Rs. 222 crores as on March 31, 2023. The company’s receivable position has also improved to 64 days as of March 2024 from 74 days as of March 2023, however, a sizeable chunk of disputed receivables remains. The ability of the company to tap the short-term markets consistently with healthy volumes and margins along with a reduction in disputed receivables will remain a key monitorable going forward.

 

The production capacity of JPVL’s captive coal mine (Amelia), increased to 3.92MTPA in FY2024 from 3.36MTPA leading to tie-up of nearly 64% of JPVL’s fuel requirement. The company was also declared as preferred bidder for Bandha North Coal Block located near the exiting captive mine having extractable reserves of ~200 MT, however, it will take at least FY2028 to develop the coal block for commercial use. Further, the company would be able to surrender the coal block without any penalty/demure in case if decided to not to proceed with mining post completion of exploration activities. Bandha north coal block, once commissioned, along with existing fuel arrangements including captive coal mine will cater to 100% of the company’s fuel requirement, however, the same is subject to project related risks and will remain a key monitorable going forward.

 

The rating continues to consider business risk profile driven by healthy sales and fuel availability risk for majority of the capacity and established track record of operations. These strengths are partially offset by tie-up of only 56% of the capacity with long term PPAs, average financial risk profile marked by significant capex to be incurred over the medium term, and exposure of cash flow to weak financial risk profiles of counterparties.

 

CRISIL Ratings has taken note of the initiation of Corporate Insolvency Resolution Process (CIRP) of Jaiprakash Associates Ltd (JAL) on June 3, 2024, which is the promoter entity of JPVL and holds 24% stake in the company. Further, majority of the lenders are common across JAL and JPVL. While the initiation of CIRP of JAL is not expected to have any material impact on the business and financial profile of JPVL, CRISIL Ratings will continue to monitor the situation closely.

Analytical Approach

CRISIL Ratings has taken a consolidated approach on the company.

 

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:

• Adequate sale tie-up and fuel availability risk for majority of capacity: The 400-megawatt (MW) hydro plant at Vishnuprayag in Uttarakhand has a long-term power purchase agreement (PPA) for its entire capacity with Uttar Pradesh and plant has demonstrated consistent recovery of capacity charges historically.

 

Further, the Bina thermal power plant (installed capacity 500 MW) has long-term PPAs, valid for 25 years, covering 70% of the capacity with MP Power Management Company Ltd (MPPMCL). The fuel supply agreement of 1.5 million tonne per annum (MTPA) for the plant is in place. This caters to around 68% of the plant requirement, while the balance is met through e-auctions. Despite a relatively higher PPA, the plant falls a bit towards the end in merit order due to plant’s distance from the mines, leading to high fuel costs.

 

The Nigrie thermal plant (installed capacity 1,320 MW) has long-term PPAs, valid for 20 years, covering 37.5% of the capacity (495 MW) with MPPMCL. For fuel security, the company has captive Amelia coal mine in Madhya Pradesh on reverse bidding of Rs 712/tonne. The mine caters to 3.92 MTPA as of March 2024 (3.36 MTPA as of March 2023), of the 5.7 MTPA fuel requirement; the balance is met through e-auctions. Further, Nigrie plant is in coal belt and source most of its coal requirement from captive mine, therefore, procurement cost is much lower than Bina, hence, it is more competitive for supplying in merchant markets.

 

That said, JPVL has diverse portfolio of thermal & hydro power plants along with cost plus PPAs for around 56% of the capacity. This is also aided by proximity of its thermal power plants to coal mines. Nevertheless, ability to get into new PPAs at remunerative tariffs would remain a key monitorable.

 

• Established track record of operations: The Vishnuprayag plant has consistently demonstrated plant availability factor (PAF) of over 99%, well over normative levels, for the past five fiscals ensuring full recovery of costs. The Nigrie thermal plant also reported PAF of 93% for the FY2024 (87% and 88% in fiscals 2023 and 2022, respectively) while plant load factors (PLFs) were healthy at 85% (70% and 72%) despite lower quantum of PPAs for the plant. Also, Bina plant has reported PAF of 90% for FY2024 which was around normative levels of 85% for fiscal 2023. PAF for all three plants is expected to remain above normative levels going forward.

 

Weaknesses:

• Average financial risk profile, marked by significant capex to be incurred over the medium term: Post restructuring of debt in April 2019, total debt reduced to Rs 4,870 crore (includes long-term debt of Rs 4,361 crore) as on December 31, 2022, from Rs 11,149 crore (including working capital) as on March 31, 2019. As of March 31, 2024, the total debt for the company stood at Rs. 4,242 crores (Term loan and fund based working capital limit). This has contributed to JPVL’s outstanding debt reducing to Rs 1.9 crore per MW which is one of the lowest in its peer group. However, JPVL plans to undertake capex of around Rs 1,500 crore (for implementation of flue gas desulphurization (FGD) for adhering to emission norms as per government guidelines) over the medium term (on or before December 2026), for which the company might not go for any debt tie-up and utilize its free cash reserves. Apart from that, the company has also been declared as preferred bidder for Bandha North Coal Block which would require a capex of around Rs. 750 crores. Ability of the company to arrange funding from internal sources will remain a key monitorable. The rating further draws comfort from DSRA equivalent to three months of debt servicing in the form of cash worth about Rs 207 crore and free cash of Rs. 990 crore as on June 30, 2024.

 

• Exposure of cash flow to weak financial risk profiles of counterparties: Exposure to receivables collection risk persists given the weak credit risk profile of key consumers, who are primarily state discoms. The Nigrie and Bina plant have PPA with MPPMCL and Vishnuprayag with Uttar Pradesh. While overall receivables have reduced to 64 days in FY2024 from 74 days in FY2023, the exposure continues to be around Rs. 1,100-1,200 levels with a sizeable chunk of disputed receivables. Any further build-up of receivables and/or delayed collections from counterparties resulting in weakening of the credit risk profile will remain key monitorables.

 

• Exposure to merchant markets to the extent of untied capacity: The company has demonstrated its ability to sell the untied capacity at healthy margins in short-term markets in the past due to low cost of generation at its Nigrie plant following proximity of its plant to coal mines, and ability to capture healthy peak rates. Given that the company’s 44% of overall capacity is untied as of date, JPVL remains exposed to volatility in volumes and margins in short-term markets, which depends on various factors such as peak power deficit, coal prices and its availability. Ability to tap into short-term markets at healthy volumes and margins remain monitorable.

 

• Initiation of CIRP for JAL: Pursuant to the petition filed by ICICI Bank Ltd. under the Insolvency and Bankruptcy Code, 2016, the Hon'ble National Company Law Tribunal (NCLT) has admitted JAL into CIRP, vide its order dated 3rd June 2024. JAL is the promoter entity of JPVL and holds 24% stake in JPVL. Further, Crisil also notes that JPVL had extended a corporate guarantee (CG) to JAL’s external commercial borrowing from State Bank of India (which is now converted to rupee term loan). While the CG was to be released as per the framework agreement signed between JPVL and its lenders in April 2019, the same has not yet been released. Any potential cash outflows arising from the crystallisation of the said CG could have a bearing on the liquidity of JPVL and thus would be a key monitorable for the ratings.

Liquidity: Adequate

JPVL is maintaining a DSRA equivalent to three months of debt servicing (~Rs 207 crore) and has free cash reserves of Rs. 990 crores as on June 30, 2024. The fund-based working capital limit was utilised at around 81% (for Bina and Nigrie) during the 12 months through March 2024. Annual net cash accruals are expected to be healthy on the back of strong merchant market rates and sufficient to fund the debt obligations & capex over the next two fiscals. Liquidity is also aided by the presence of three Trust and Retention accounts, which ensure that surplus cash gets trapped in the system and is used for debt servicing or for meeting operational requirements as permitted by lenders.

Outlook: Stable

The operating performance is expected to remain steady, and the liquidity is expected to remain healthy amid regular realizations from counterparties and healthy merchant market rates.

Rating Sensitivity factors

Upward factors

• Sustainable improvement in business risk profile most likely with a further tie up of capacity under medium to long term PPAs (currently 56% of capacity is tied-up) leading to an improvement in financial risk profile
• Faster than scheduled debt reduction leading to significant improvement in the financial risk profile

 

Downward factors

• Weakening operating performance with plant availability factor remaining below normative levels (PAF<85%) or lower realisations from merchant market impacting operating cash flow
• Delays in receipt of payments from counterparties resulting in cashflow mismatch
• Any material obligation arising because of restructuring at parent/group company

About the Company

JPVL, incorporated in 1994, is promoted by Jaiprakash Associates Ltd (JAL) and operates 2,220 MW of power plants divided amongst three plants -- 500 MW at Bina thermal power plant, 1,320 MW at Nigrie thermal power plant and 400 MW at Vishnuprayag hydro power plant.

Key Financial Indicators (Consolidated)*

As on/for the period ended March 31	Unit	2024	2023
Operating income	Rs.Crore	6,777	5,794
PAT	Rs.Crore	1,022	55
PAT margin	%	15.1	1.0
Adjusted debt/adjusted networth	Times	0.38	0.46
Adjusted Interest coverage	Times	5.10	2.13

    *As per analytical adjustment by CRISIL Ratings

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs.Cr)	Complexity Levels	Rating Assigned with Outlook
NA	Rupee term loan	NA	NA	30-Jun-2033	61.3	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	72.42	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	35.25	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	175.63	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	379.78	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	64.24	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Dec-2031	22.09	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	84.95	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	1107.48	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	466.27	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	49.01	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	30-Jun-2033	47.91	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	79.21	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	81.06	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	386.72	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	809.69	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	73.59	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	88.23	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	30-Jun-2033	88.42	NA	CRISIL BBB/Stable
NA	Rupee term loan	NA	NA	31-Mar-2035	144.57	NA	CRISIL BBB/Stable
NA	Working capital facility*	NA	NA	NA	744.05	NA	CRISIL BBB/Stable
NA	Proposed long term bank loan facility	NA	NA	NA	538.13	NA	CRISIL BBB/Stable

*Interchangeable between fund based and non-fund based