Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of PTC Energy Ltd (PEL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A’. The rating on the short term bank facilities has been reaffirmed at ‘CRISIL A1’.

 

The revision in outlook reflects weak operating performance of the company with actual PLFs remaining lower than P90 levels impacting the cash accruals. It also factors increase in receivables position leading to higher reliance on working capital borrowings.

 

The average plant load factor (PLFs) of the combined assets were lower at 19.7% and 19.1% during fiscal 2022 and 2021 respectively vis-à-vis the P90 PLF of ~27% leading to lower operating profits. Earnings before interest taxes depreciation and amortization (EBITDA) stood at Rs. 228 and 225 crore during the last 2 fiscals respectively compared to over Rs. 250 crores during the previous 2 fiscals. This has led to lower net cash accruals for the company. The PLF level will remain a key monitorable.

 

Moreover, the delay in the payment from the counterparties has led to increase in receivables position. The High Court of Andhra Pradesh (AP) in March 2022 had given a favourable order wherein the Hon’ble court had directed the state discoms to honour the terms of the signed Power Purchase Agreements (PPAs) and clear pending payments as per the agreed tariff under the PPA within six weeks, however, the AP discom did not make the payment as per the order. This led to increase in the receivables position to Rs. 527 crores as on June 2022. The increased receivables had led to increase in the working capital borrowings and interest costs for the company impacting the financial risk profile. However, the AP discom opted for the new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 wherein the payment would be made in 12 instalments. The company has already received two instalments of Rs. 28 crore each from AP Discoms. The other discoms (Karnataka and Madhya Pradesh) have also opted for the scheme and have started paying the instalments and are also paying the regular dues. While the company has adequate liquidity (including cash and equivalents and unutilised bank lines) to cover the debt servicing obligations, due to weak financial position of the counterparties, timely collection of dues will remain a key monitorable.

 

The ratings also factor in the announcement by PTC India Financial Services Ltd (PFS), a subsidiary of PTC India, dated January 19, 2022, regarding resignation of three independent directors sighting issues in governance and compliance by the management of PFS and subsequent developments. PFS appointed an auditor to conduct forensic audit on the issues highlighted by the erstwhile Independent Directors. The forensic audit is underway and the report is not published yet. Meanwhile, there were multiple internal and external audits/inspections such as inspection by the Reserve Bank of India (RBI), audit by internal Risk Management Committee (RMC) and audit by Agency for Specialized Monitoring (ASM) appointed by lenders. These audits and inspections did not reveal any adverse findings with respect to diversion of funds.

 

While the event is unlikely to have any direct impact on the credit risk profiles of PTC India and PEL, CRISIL Ratings will closely monitor the situation for any material development and assess its impact on the credit risk profiles of PTC India and PEL, if any.

 

The ratings continue to reflect the strong operational and managerial support received by PEL from its parent, PTC India Ltd (PTC India; ‘CRISIL A1+’) and low offtake risk. These strengths are partially offset by exposure to inherent risks of variability in the long-term wind speed and pattern and counterparty risk.

Analytical Approach

CRISIL Ratings has factored in expected support from PTC India. During exigencies, PEL will receive distress support from its parent for timely debt servicing. PEL is a wholly owned subsidiary of PTC India and receives operational and managerial support from the parent. PTC India is planning to sell its stake in PEL; CRISIL Ratings will continue to closely monitor developments in this regard and take need-based rating action thereafter.

Key Rating Drivers & Detailed Description

Strengths

Strong financial, operational and managerial support from the parent

PEL benefits from the leading position of PTC India in the domestic power trading segment and its strong market linkages and sectorial expertise. PTC India extended corporate guarantees for PEL’s working capital lines of Rs 200 crore and Rs 75 crore in fiscals 2022 and 2023, respectively. Also, PTC India infused equity of ~Rs 600 crore in PEL upto fiscal 2017 to fund the 288.8-MW capacity wind energy projects. Change in shareholding or support articulation from PTC India will be a key monitorable.

 

Low offtake risk

The entire 288.8-MW of operational capacity is tied up through long-term power purchase agreements (PPAs) with distribution companies (discoms) of Madhya Pradesh, Andhra Pradesh and Karnataka (25 years, 25 years and 20 years, respectively).

 

Weaknesses

Exposure to inherent risks of variability in long-term wind speed and pattern

Variation in wind speed and pattern may lead to low operating PLF, impairing cash flow. Though PLF was impacted because of stabilisation and technical reasons in initial years, low wind speed resulted in subdued utilisation in fiscal 2021 and 2022 resulting in lower than P90 PLF. The wind variability risk for PEL is mitigated by liquidity cushion in the form of debt service reserve account (DSRA) and need-based support from PTC India.

 

The company has been relying on higher working capital utilisation and internal cash accrual or cash balance to undertake debt servicing, which has been impacted by lower operating performance and collections. CRISIL Ratings will continue to closely monitor the operational performance of these projects and their impact on cash flow.

 

Exposure to counterparty risk

Cash flow is susceptible to delayed payments by counterparties, given their weak credit risk profiles. In the past, payments from Madhya Pradesh and Karnataka, though delayed, were received at regular intervals. For Andhra Pradesh, there were uncertainty regarding the stance of Andhra Pradesh Electricity Regulatory Commission (APERC) on review of the PPA tariff. After the order by High Court of Andhra Pradesh in October 2019 in the matter of PPA tariff renegotiation for wind and solar power projects, the Andhra Pradesh discom has been paying Rs 2.43 per unit for past dues. This, along with delays from other state discoms, resulted in increase in receivables. However, in March 2022, the High Court vide its order, directed the state discoms to honour the terms of the signed PPAs and clear pending payments as per the agreed tariff under the PPA within six weeks. The payment has not been made as per the order, but the state discom has started paying instalments under the new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022.  However, timely collection of dues will remain a key monitorable.

Liquidity: Adequate

The company has DSRA of six months of debt obligation for 209.3 MW and DSRA of three months for the remaining 79.5 MW. As on September 13, 2022, PEL had DSRA of Rs 100 crore in the form of fixed deposits (Rs 66 crore) and bank guarantees (Rs 34 crore). In addition, cash and equivalent and unutilised bank lines stood at Rs 50 crore and Rs. 90 crore respectively. Internal cash accrual, unutilised bank lines and cash and equivalent will adequately cover debt obligation. Timely collections and reduction in receivables from all counterparties, leading to recouping of liquidity, will remain key monitorables.

Outlook: Negative

PEL’s operating performance may remain weak with actual PLFs lower than P90 levels while the company remains exposed to delay in payments from the counterparties. However, PEL will continue to benefit from its strong parentage.

Rating Sensitivity Factors

Upward Factors

• Steady improvement in operating performance with PLF around P90 level, strengthening the debt protection metrics
• Decline in receivables leading to improvement in liquidity

 

Downward Factors

• Further increase in receivables weakening the liquidity
• Lower operating performance because of wind variations or other factors, weakening the cash flow
• Downward revision in the credit rating of, or change in stance of support from, PTC India, with reduction in ownership of PEL to below 50%

About the Company

PEL, a wholly owned subsidiary of PTC India. It has aggregate capacity of 288.8 MW of operational wind power assets, of which 50 MW is in each Madhya Pradesh and Karnataka and 188.8 MW in Andhra Pradesh.

About the Group

PTC India was incorporated in 1999 to support implementation of the government’s mega power policy. NHPC Ltd, NTPC Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Power Finance Corporation Ltd (‘CRISIL AAA/Stable/CRISIL A1+’) and Power Grid Corporation of India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’) are the promoters of PTC India. The company has a category I licence, which permits unlimited trading in power, issued by the Central Electricity Regulatory Commission (CERC) under the Electricity Act, 2003. It is the largest player in the power trading market, with share of over 40% in fiscal 2022. PTC India traded 87 billion units in fiscal 2022 (80 billion units in fiscal 2021).

Key Financial Indicators*

As on/for the period ended March 31	Unit	2022	2021
Operating income	Rs crore	245	238
Profit After Tax (PAT)	Rs crore	-2	-9
PAT Margin	%	-0.9	-3.4
Adjusted debt/adjusted networth	Times	2.10	2.11
Adjusted interest coverage	Times	1.66	1.53

*as per analytical adjustments made 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.Crore)	Complexity level	Rating assigned with outlook
NA	Long Term Loan	NA	NA	Sept 2033	1622.44	NA	CRISIL A/Negative
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	47.56	NA	CRISIL A/Negative
NA	Working Capital Demand Loan	NA	NA	NA	30.00	NA	CRISIL A/Negative
NA	Working Capital Demand Loan	NA	NA	NA	75.00	NA	CRISIL A1
NA	Short Term Loan@	NA	NA	NA	20.00	NA	CRISIL A1
NA	Short Term Loan	NA	NA	NA	200.00	NA	CRISIL A1
NA	Bank Guarantee	NA	NA	NA	30.00	NA	CRISIL A1
NA	Line of Credit	NA	NA	NA	50.00	NA	CRISIL A1

@One-way interchangeable with bank guarantee