Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable/Crisil A1+’ ratings on the bank facilities of NTPC Mining Ltd (NML).

 

The rating reaffirmation follows the proposed arrangement wherein NML (wholly owned subsidiary of NTPC Ltd [NTPC]; rated ‘Crisil AAA/Stable/Crisil A1+’) will cater to the captive fuel requirement of its parent. The parent, NTPC is currently developing six coal blocks allocated by the Government of India for captive consumption, which are being transferred to NML. Of these mines, five are operational and the sixth is under development. The proposed scheme of arrangement has been approved by the respective boards of NTPC and NML and is awaiting other requisite approvals. The scheme is expected to be completed in the current fiscal or the first quarter of fiscal 2026. Additionally, NML has acquired a seventh mine through a bidding process and the same is under development.

 

Furthermore, any capital expenditure (capex) requirement of NML, related to proposed acquisition of mines, future land acquisition and other mine development, is expected to be funded in debt to equity mix of 70:30. The equity portion of the capex is expected to be funded through a mix of internal cash accrual and any need-based support, which will be provided by NTPC. This will remain monitorable over the medium term.

 

The ratings continue to reflect the strong financial and managerial linkages of NML with NTPC, reflecting the high strategic importance of NML and the healthy revenue visibility due to long-term mining leases. These strengths are partially offset by exposure to sociopolitical and regulatory risks around mining activities and susceptibility to implementation risk owing to large capex.

Analytical Approach

Crisil Ratings has applied its parent notch-up framework to factor in the support from NTPC due to the strategic importance of NML to NTPC and the strong financial, operational and managerial linkages of NTPC with NML.

Key Rating Drivers & Detailed Description

Strengths:

• High strategic importance for and strong financial and managerial linkages with parent, NTPC: NTPC is a dominant player in the domestic power sector, apart from having a robust financial risk profile and track record of providing timely support to subsidiaries. NTPC has nearly 62 gigawatt (GW) of coal-powered thermal capacity and plans to add more in the future, which will require further supply of coal. NML will be strategically important to NTPC as it will meet 20-25% of the coal requirement of NTPC over the medium term. Also, some of the fuel supply agreements (FSAs) with Coal India are set to expire from fiscal 2028 onwards, which may be replaced with the enhanced output of NML over the medium term.

 

Furthermore, the board of NML consists of NTPC personnel; all key management positions are from NTPC. Additionally, the strong parentage of NTPC enables timely realisation of receivables, driven by a strong market position in the power sector. Crisil Ratings understands that NTPC shall provide need-based and distress support to NML.

 

• Healthy revenue visibility, supported by long-term mining leases: All the six coal blocks, which are being transferred to NML, and North Dhadu mine which has been won by NML through competitive bidding process, have a total mineable reserve of over 2,000 million tonne and an average mine lease of around 35 years, supporting a long-term revenue visibility. At peak rated production capacity of 74 million tonne per annum (MTPA) for the seven mines cumulatively, reserves of these coal blocks are expected to sustain over 27 years. This, with a reliable counterparty such as NTPC, driving consumption of over 25% of India’s total domestic coal production, and a price determination mechanism as per the Central Electricity Regulatory Commission (CERC) regulations, provides additional comfort. That said, any change in the power demand outlook, adversely impacting coal consumption, will remain monitorable over the medium term.

 

Weaknesses:

• Susceptibility to implementation risk owing to large capex plans: NML has large capex plans, which include increasing the production capacity by 5 MTPA annually over the medium term. The peak rated capacity of around 70 MTPA for the six mines being transferred from NTPC is expected to be achieved over the next five to six years. Furthermore, the company is expected to participate in bidding for other coal blocks and venture into mining of other metals which will drive the capex requirement over the medium term. While land is available for expansion and ramp-up of coal blocks over the medium term, significant land acquisition is required for operations to continue in the long term on a sustainable basis. Nonetheless, Crisil Ratings draws comfort from the strong track record of NTPC over the last five years. NML will likely fund the capex in a debt to equity ratio of 70:30, in line with CERC regulations. While the company has equity commitment from NTPC, equity is expected to be mainly funded out of internal cash accrual. Furthermore, Crisil Ratings believes that risk related to daily operations of mines is largely mitigated with the presence of the mine developer and operator (MDO) arrangement for operational mines. Any change in our understanding related to future land acquisitions and capex plans will remain monitorable.

 

• Exposure to sociopolitical and regulatory risks: Mining of metals and minerals is heavily regulated globally due to its impact on the environment and social aspects. The company is also exposed to delays, if any, in obtaining environmental and forest approvals, especially in greenfield projects. Furthermore, flexibility is restricted by sociopolitical factors, which mandate development activities in coal mining areas, impacting the cost structure. However, the company is expected to play an important role in ensuring internal fuel security for NTPC, which contributes to 25% of the total power generation of the country. Any change in the regulatory or sociopolitical policies impacting the business will remain a key rating sensitivity factor.

Liquidity: Superior

Annual net cash accrual is expected to be Rs 700-1,000 crore over the medium term, supporting future debt obligations and equity portion of the capex. NML is expected to avail of fund-based working capital limit of around Rs 500 crore, which will be adequate to meet the working capital requirement over the medium term. Being a subsidiary of NTPC also adds to its ability to raise funds.

Outlook: Stable

NML will benefit from its strategic importance to NTPC. The ability to generate steady cash accrual on the back of long-term mining leases and significant mineable reserves will continue to support the credit risk profile.

Rating sensitivity factors

Downward factors

• Downgrade in the credit rating of NTPC by one or more notches
• Change in the support philosophy of NTPC or significant reduction in shareholding
• Any material, adverse impact of changes in the coal policy

About the Company

NML is a wholly owned subsidiary of NTPC and was incorporated on August 29, 2019, for carrying out its mining business by creating a dedicated workforce with focused approach. The transfer of mines from NTPC to NML is expected to be completed by the end of fiscal 2025.

About the parent

NTPC was incorporated in 1975. As on December 31, 2024, the company had installed power generation capacity of 76,708 MW, including capacity owned by subsidiaries and joint ventures. This includes 62,194 MW of coal-based capacity, 6,511 MW of gas-based and 3,725 MW of hydropower, with the balance comprising other renewable energy. The company has been conferred the Maharatna status by the government, which had 51.1% shareholding as on September 30, 2024.

Key financial indicators*

Particulars	Units	2024	2023
Operating income	Rs.Crore	NA	NA
Profit After Tax (PAT)	Rs.Crore	NA	NA
PAT Margin	%	NA	NA
Adjusted debt/adjusted networth	Times	NA	NA
Adjusted interest coverage	Times	NA	NA

*Currently, NML has no active operations

Any other information: Not Applicable