| NTPC-SAIL Power Company Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper programme of NTPC-SAIL Power Company Limited (NSPCL). |
| Analytical Approach |
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For arriving at the ratings, CRISIL has considered the standalone business and financial risk profiles of NSPCL. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong contractual terms resulting in low offtake and fuel risks Operating capacity of 814 MW as well as upcoming capacity of 290 MW are insulated from off-take risk by long-term PPAs. The 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 2029. Fuel supply risk is mitigated as coal supply and its cost is borne entirely by SAIL. As a result, the energy charges do not form a part of the tariff for these plants. The remaining charges, mainly comprising fixed costs, 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 51% 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 this plant at 85% plant load factor is 2.8 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. Contractual terms of NSPCL's PPAs with all its customers support complete recovery of fixed costs, including debt obligation and a fixed return on equity based on achievement of the normative plant availability factor (PAF), which the company has been consistently maintaining. Given the fuel security, NSPCL's plants should maintain higher-than-normative PAF over the medium term. . High financial flexibility because of healthy cash accrual and liquidity, and strong parents Financial flexibility is accentuated by the fact that both NTPC and SAIL have infused equity to fund NSPCL's capacity expansion in the past. While the equity contribution for ongoing expansion at Rourkela (250 MW) and Durgapur (40 MW) has been funded through internal accrual, both NTPC and SAIL are committed to fresh equity infusion if required. Annual cash accrual of around Rs 400 crore and liquidity of Rs 134 crore should cover capex and debt servicing over the medium term. Liquidity is further supported by largely unutilised bank lines of Rs 300 crore. NTPC has extensive experience in operating and maintaining 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 70% of output to SAIL as per a long-term PPA, and has assured fuel supply from SAIL for nearly 39% of the generation capacity. Furthermore, all the present and proposed plants are in the vicinity of SAIL's plants, with land being made available by SAIL. Weaknesses: * Exposure to project-related risks for ongoing debt-funded expansion SAIL is in expansion mode. To meet its increasing requirement for power, NSPCL is increasing its thermal capacity by 290 MW, at Rourkela (250 MW) and Durgapur (40 MW). The project has seen multiple delays due to technical reasons to comply with the environmental norms and partly due to the national lockdown from March 2020. However, it is now expected to be achieve commercialisation by March 2021. Despite the time overrun, the cost overrun has been negligible as NSPCL has delayed the debt drawdown, interest rates have reduced, and the company has started repaying the debt as per the original schedule. The company will continue to fund projects in a debt-to-equity ratio of 70:30. The new capacity is being set up within SAIL's steel plant, and PPA has been signed with SAIL on similar terms as for CPP-II. Furthermore, NSPCL has initiated capex to adhere to flue gas desulphurisation (FGD) norms at the Rourkela (250 MW) and CPP-III (500 MW) plants. Total cost (including interest during construction) is estimated at Rs 700-750 crore and the expansion is expected to be completed by fiscal 2023. The cost is expected to be recovered through increase in tariffs for existing PPAs post-commissioning. Given the large expansion, the company will remain exposed to project implementation risks over the medium term and timely execution of the project will remain a key rating sensitivity factor. * High dependence on a single counterparty SAIL is the single largest consumer, accounting for offtake of over 70% of NSPCL's power output. SAIL has made payments regularly, within 30 days of receipt of the bill for the 314 MW capacity and in 1-2 days for the 500 MW capacity. NSPCL sells the remaining 30% of its output to state power utilities, which generally have moderate-to-weak credit risk profiles. However, these utilities pay their dues in 1-2 days to take advantage of early payment rebates. 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 remain a key monitorable. |
| Liquidity Strong |
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Liquidity is supported by cash and equivalent of Rs 134 crore and bank limit of Rs 300 crore as on March 31, 2020, which is largely unutilised. Healthy liquidity and annual cash accrual of around Rs 400 crore will be adequate to fund the ongoing capex and to service debt. Commissioning of the upcoming capacity of 290 MW should bolster accrual and liquidity. |
| Outlook: Stable |
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CRISIL believes NSPCL will maintain its strong business risk profile over the medium term, supported by the take-or-pay nature of its PPAs and fuel security. However, it will remain exposed to project implementation risks for its ongoing capacity expansion. |
| About the Company |
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NSPCL was set up as an equal JV between NTPC and SAIL in 2001. The company primarily generates power, and owns and operates four coal-based plants with aggregate capacity of 814 MW. These plants supply power to the Bhilai, Durgapur, and Rourkela steel plants of SAIL on a captive basis. In fiscal 2010, NSPCL successfully stabilised its 500-MW Bhilai CPP-III plant, for which it has entered into a long-term PPA with SAIL (for 51% of the generated power), Chhattisgarh State Electricity Board, the Union Territory of Daman and Diu and the Union Territory of Dadra Nagar Haveli. NSPCL is adding thermal capacity of 290 MW at SAIL's plants in Rourkela and Durgapur. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
%One way 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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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
%One-way interchangeability up to Rs 125 crore from fund-based to non-fund-based limit *Interchangeable to Rs 115 crore non-fund-based limit from SBI; sublimit of Rs 64 crore for inland/import letter of credit and Rs 60 crore for bank guarantee | ||||||||||||||||||||||||||||||||||||||||||||||||
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