| NTPC-SAIL Power Company Limited | ||||||
| Rating reaffirmed; rated amount enhanced | ||||||
| Rating Action | ||||||
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| 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 reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on bank facilities and commercial paper of NTPC-SAIL Power Company Ltd (NSPCL)
On May 25, 2023, CRISIL Ratings had upgraded its rating on the long-term bank facilities of NSPCL to ‘CRISIL AA+’ from ‘CRISIL AA’ while revising the outlook to ‘Stable’ from ‘Positive’. Also, CRISIL Ratings had reaffirmed its ‘CRISIL A1+’ rating on the short-term bank facility and commercial paper of the company.
The rating action factored in the improvement in the business risk profile of the company, aided by stabilization and ramp-up of the recently commissioned 250 mega-watt (MW) Rourkela plant, and commissioning and ramp-up of the 20 MW Durgapur plant in FY2023 (commissioned on 30th September 2022). Expected commissioning of the remaining 20 MW of the Durgapur plant by the end of second quarter of fiscal 2024, along with strong operational performance of existing assets, will support the business risk profile over the medium term. This is expected to improve earnings before interest, tax, depreciation, and amortization (EBITDA) by Rs 50-70 crore over the next two fiscals. However, timely commissioning of the new plant and continued operations of existing plants at healthy plant load factor (PLF) are key monitorables.
Operating performance of existing assets remains strong with plant availability above normative levels of 85%. The plant load factor (PLF) of NSPCL rose to 82% during fiscal 2023 (excluding newly commissioned Rourkela expansion and Durgapur expansion plants), from 78% in the previous fiscal, led by increased power demand.
Financial risk profile continues to remain strong with gearing and net debt/ EBITDA ratios at 0.7 times and 2.6 times, respectively, as on March 31, 2023. Adequate cash accrual should support the financial risk profile, despite large capex plan of over Rs 1000 crore over the medium term. Gearing is expected to remain low while the net debt/ EBITDA is expected to sustain at 2.5 times over the medium term. Moreover, bonds worth Rs 500 crore were repaid during fiscal 2023 from internal accruals, along with dividend payments of Rs. 650 crores. CRISIL Ratings understands that this was a one off event and going forward, dividend payments would be in-line to support repayment and capex plans.
The ratings reflect the company’s strong business risk profile because of the take-or-pay nature of its power purchase agreements (PPAs), which ensures complete recovery of fixed cost and adequate fuel security. The ratings also factor in adequate financial flexibility because of healthy cash accrual, benefits derived from being a joint venture (JV) of NTPC Ltd (NTPC; ‘CRISIL AAA/Stable/CRISIL A1+’) and Steel Authority of India Ltd (SAIL), and technical and managerial support from the promoters. These strengths are partially offset by exposure to project related risk in the ongoing projects and upcoming capital expenditure (capex) and high dependence on a single counterparty, SAIL. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of NSPCL. |
Key Rating Drivers & Detailed Description Strengths:
Long-term PPAs mitigate offtake risk for the operational capacity of 1084 MW and the upcoming capacity of 20 MW. Power plants in Durgapur (120 MW), Rourkela (120 MW), and Bhilai (74 MW)—together referred to as CPP-II, supply their entire output to SAIL under a PPA valid till fiscal 2027 (revised from fiscal 2029 on account of re-evaluation of PPE life). SAIL has executed a similar PPA for the recently commissioned 250 MW Rourkela expansion facility and newly commissioned 20 MW Durgapur expansion facility for 25 years . Fuel supply risk is mitigated as coal supply and its cost is borne entirely by SAIL. As a result, energy charges do not form the part of the tariff for these plants. The balance cost, mainly comprising fixed cost, including debt obligation and return on equity component, are paid by SAIL.
The 500 MW power plant in Bhilai—referred to as CPP-III—supplies 56%of its output to SAIL. The remaining is sold to state electricity boards in the western grid (Chhattisgarh, Daman & Diu, and Dadra and Nagar Haveli) under a PPA valid till 2033. The total coal requirement for CPP-III, at 85% PLF, is 2.9 million tonne (MT). NSPCL has a fuel supply agreement for 2.4 MT with Coal India Ltd, and sources the remaining from Singareni Collieries Company Ltd (SECL).
Contractual terms of PPAs with all customers support complete recovery of fixed cost, including debt obligation and a fixed return on equity, based on achievement of the normative plant availability factor (PAF), which the company has maintained consistently. Given the fuel security, NSPCL’s plants should maintain higher-than-normative PAF over the medium term.
High financial flexibility is accentuated by the fact that both NTPC and SAIL have infused equity to fund the capacity expansion of NSPCL in the past. While the equity contribution for the recently commissioned project and the ongoing/upcoming projects have been funded through internal accrual, both NTPC and SAIL are committed to infuse fresh equity if required. Moreover, the annual cash accrual of over Rs 300-400 crore from existing operational projects (debt-free) and new projects of Rourkela and Durgapur expansion plants, should support the overall financial flexibility.
NTPC has extensive experience in operation and maintenance of power stations at par with the best–run utilities in the world, with respect to availability, reliability, efficiency, productivity, and cost. Key managerial posts in NSPCL are held by a team of experts from NTPC, enabling efficient power station management.
NSPCL sells around 79.70% of output to SAIL under a long-term PPA and has assured fuel supply from SAIL for nearly 53% of the generation capacity. Furthermore, all the present and proposed plants of the company are in the vicinity of SAIL’s plants, with land being made available by the latter. Any change in shareholding by existing promoters impacting the flexibility of the company will remain a key monitorable.
Weaknesses:
The company has been implementing capacity expansion plans as well as flue gas desulphurization (FGD) projects for the past several years, and hence, remains exposed to project related risk. Ongoing projects include the 20 MW expansion plant in Durgapur, and FGD project at Bhilai (500 MW).
Bhilai FGD project (total cost of ~Rs. 490 crore) was awarded in the previous fiscal and should be completed by end of fiscal 2024. However, there have been delays in FGD for the 250 MW Rourkela project, which is at the final stage of tendering and should be awarded by end of the second quarter of current fiscal. The cost of FGD capex for Rourkela expansion facility (250 MW) is estimated around Rs 250 crore. Further, the company plans to implement FGD at its existing 314 MW capacity and Durgapur expansion project, and the same are likely to be awarded in the current fiscal. All FGD capex plans are expected to be completed within regulatory deadlines.
In addition, the company plans to install a 15 MW floating solar plant on the reservoir at Bhilai. This project is expected to be commissioned by the end of current fiscal. Given the large capex, the company will remain susceptible to project implementation risk and timely execution of the project within the stipulated cost will be a key rating sensitivity factor.
These risks are partly offset by partial tie-up of the debt for the ongoing capex including receipt of in-principal approval for recovery of cost through tariffs, post commissioning. Nevertheless, continued operations of existing plants, with plant functioning at or above normative parameters, remains a key monitorable.
SAIL is the single largest consumer, accounting for offtake of over 79.70% of NSPCL’s power output. SAIL has made payments regularly, within 30 days of receipt of the bill for the 564 MW capacity, and within 45 days for the 500 MW capacity.
NSPCL sells the remaining 20.30% of its output to state power utilities, which generally have moderate-to-weak credit risk profiles. However, these utilities clear their dues within 45 days (as per CERC payment terms) to avail early payment rebates. Receivables collection period (excluding unbilled revenue) remained low at around 15 days as on March 31, 2023, vis-à-vis 21 days as on March 31, 2022.
Though NSPCL is assured of complete recovery of cost incurred because of the take-or-pay nature of its PPAs, timely payment by counterparties remains critical to avoid cash flow mismatch and will be a key monitorable. |
Liquidity: Strong Liquidity is supported by cash and equivalent of Rs 72 crore and a largely unutilized fund-based bank limit of over Rs 200 crore as on May 31, 2023. Healthy liquidity and annual cash accruals of over Rs 300-400 crore will suffice to cover the ongoing capex, debt obligation and any incremental working capital requirement during fiscal 2024. |
Outlook Stable CRISIL Ratings believes the operating performance of NSPCL may improve with expected commissioning of remaining 20 MW Durgapur expansion project during the second quarter of fiscal 2024, and healthy operations at existing plants. The business risk profile will remain strong, backed by stable cash accrual owing to a two-part tariff structure. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company NSPCL was set up as an equal JV between NTPC and SAIL in 2001. The company primarily generates power, and owns and operates five coal-based plants, with aggregate installed capacity of 1,084 MW. Most of these plants supply power to the Bhilai, Durgapur and Rourkela steel plants of SAIL on a captive basis. In fiscal 2010, NSPCL successfully stabilized its 500-MW Bhilai CPP-III plant, for which it has entered a long-term PPA with SAIL (for 56% of generated power), Chhattisgarh State Electricity Board, the Union Territory of Daman and Diu and the Union Territory of Dadra Nagar Haveli. During March 2022 &September 2022, NSPCL commissioned a new 250 MW Rourkela expansion plant & 20 MW Durgapur expansion plant respectively. |
Key Financial Indicators+
*As per analytical adjustments made by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
# Full interchangeability from fund-based to non-fund-based limit % Interchangeability up to Rs 125 crore from fund-based to non-fund-based limit |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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