Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Jaiprakash Power Ventures Ltd (JPVL) to ‘Stable’ from ‘Positive’ while reaffirming the rating at ‘CRISIL BBB-’

 

The revision in outlook reflects the moderation in the liquidity of the company during Q4FY23 leading to part utilization of debt service reserve account (DSRA) during March 2023 due to higher coal procurements under e-auction routes and increase in its receivables position (74 days as of March 2023 as compared with 67 days as of March 2022). The cash and unutilized bank lines position remained at Rs ~240 crore as of March 2023 as compared to Rs ~453 crore as of March 2022. While, the DSRA was replenished in April 2023, the receivables and liquidity position remains a key monitorable.

 

Operating performance of the company remained moderate with combined PLF remaining at 66% for fiscal 2023 as compared to 65% for fiscal 2022. 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 continues to rely on short term markets for sales (26% during FY23 vis-à-vis 28% in FY22). This has exposed company to vagaries of short-term markets like subdued demand & margins, and reliance on e-auctions for coal. Ability of the company to tap the short-term markets consistently with healthy volumes and margins will remain a key monitorable going forward.

 

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 3 years’ of time to develop the coal block for commercial use. 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 moderate sales and fuel availability risk for majority of the capacity and established track record of operations. These strengths are partially offset by average financial risk profile marked by significant debt-funded capex to be incurred over the medium term, and exposure of cash flow to weak financial risk profiles of counterparties.

 

As per the discussion with JPVL and its lenders, the credit risk profile of the company will not be impacted by any unforeseen or adverse development pertaining to debt restructuring at its group entity, Jaiprakash Associates Ltd (JAL). Further, corporate guarantees extended by JPVL to JAL’s external commercial borrowing from State Bank of India (which is now converted to rupee term loan) will be released in the resolution plan of JAL which is pending at NCLT for approval and is unlikely to be invoked by lenders. Any deviation from this understanding will remain a key rating sensitivity factor.

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:

• Moderate sales 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 remains unfavourable for offtake by the counterparty due to plant’s distance from the mines, leading to high fuel costs and hence, the variable cost of generation from the plant is Rs 3.3 per unit.

 

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 along with a medium-term PPA for 50 MW capacity under PTC (Tamil Nadu) valid till fiscal 2025. For fuel security, the company has captive Amelia coal mine in Madhya Pradesh on reverse bidding of Rs 712/tonne. The mine caters to 3.36 MTPA as of March 2023 (2.8 MTPA as of March 2022), 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 (Rs 1.6 per unit) 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 87% for the full fiscal 2023 (88% and 86% in fiscals 2022 and 2021, respectively) while plant load factors (PLFs) were healthy at 70% (72% and 70%) despite lower quantum of PPAs for the plant. Also, Bina plant has reported PAF around normative levels of 85% for fiscal 2023 (previous fiscal 74%). PAF for all three plants is expected to remain above normative levels going forward.

 

Weaknesses:

• Average financial risk profile, marked by significant debt-funded 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. This has contributed to JPVL’s outstanding debt reducing to Rs 2.2 crore per MW which is one of the lowest in its peer group. However, JPVL plans to undertake debt funded capex of around Rs 1,195 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 funding is yet to be secured by the company. Ability of the company to get timely sanction of new term loans from lenders will remain a key monitorable. The rating further draws comfort from DSRA (partly utilized in March-2023 but replenished in April-2023) equivalent to three months of debt servicing in the form of cash worth about Rs 200 crore. Also, cushion of Rs 50-60 crore (as unutilized fund-based limit) supports liquidity.

 

• 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 plant has PPA with Tamilnadu (through PTC) and MPPMCL while Bina has a single PPA with MPPMCL and Vishnuprayag with Uttar Pradesh. Overall receivables have increased to Rs 1,112 crore i.e. 74 days in fiscal 2023 (67 days and 88 days in fiscals 2022 and 2021, respectively). Any further build-up of receivables and delayed collections from counterparties resulting in weakening of the credit risk profile will remain key monitorables.

Liquidity: Adequate

JPVL is maintaining a DSRA (partly utilized in March-2023 but replenished in April 2023), equivalent to three months of debt servicing (~Rs 202 crore). The fund-based working capital limit was utilised at around 83% (for Bina and Nigrie) during the 12 months through March 2023. Annual net cash accruals of Rs ~400-500 crores are sufficient to fund the debt obligations & equity portion of the capex over the next two fiscals. Liquidity is also aided by the presence of four Trust and Retention accounts, which ensure that surplus cash gets trapped in the system and is used for debt servicing or for meeting operational expenses as permitted by lenders. Further, the corporate guarantees provided by JPVL to group entities will be released by respective lenders at the time of implementation of their resolution plans and will have no adverse impact on the former.

Outlook: Stable

The operating performance is expected to remain steady and the liquidity is expected to remain adequate in the form of DSRA amid regular realizations from counterparties.

Rating Sensitivity Factors

Upward factors:

• Significant and sustained improvement in the operating performance and profits through new offtake arrangements leading to improvement in the liquidity position with DSRA of 2 quarters and above
• Reduction in the debt position leading to significant improvement in the financial risk profile

 

Downward factors:

• Delays in receipt of payments from counterparties resulting in reduction in liquidity position from current levels (includes DSRA of 1 quarter, cash and equivalents and unutilized bank lines)
• Weakening of the operating performance, impacting cash flow and debt servicing
• Any obligation arising because of restructuring at associate/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		2023**	2022
Operating income	Rs crore	5,922	4,860
PAT	Rs crore	55	107
PAT margin	%	0.90	2.10
Adjusted debt/adjusted net-worth	Times	0.46	0.48
Adjusted Interest coverage	Times	2.24	2.42

* As per analytical adjustment by CRISIL Ratings

** based on 2 pager results published by company in stock exchange

Any other information: Not applicable