Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the short-term bank facilities and Rs 300 crore commercial paper of PTC India Limited (PTC India).

 

The rating factors in the recent announcements by PTC India and PTC India Financial Services Ltd (PFS; rated ‘CRISIL A+/CRISIL A1+ Watch Developing’), a subsidiary of PTC India, regarding resignation of independent directors sighting issues in governance and compliance by the management. CRISIL Ratings has noted various developments in this matter, including outcome of forensic audit and various other internal and external audits/inspections such as inspection by the Reserve Bank of India, audit by internal risk management committee and audit by Agency for Specialized Monitoring appointed by the lenders. These audits and inspections did not reveal any adverse findings with respect to diversion of funds. However, the auditor of PTC India has mentioned in its latest quarterly financials that the matter is yet to be examined independently and pending the conclusion, it is yet to determine and comment on the possible non-compliances and their impact and the extent of adjustments and further disclosures, if any. CRISIL Ratings will closely monitor the situation for any material development and assess its impact on the credit risk profiles of PTC India.

 

The rating continues to reflect the leadership position of PTC India in the domestic power trading market, healthy relationships with customers and market linkages because of strong track record, and robust financial risk profile. These strengths are partially offset by exposure to counterparty risk and risk inherent in the wind energy industry with respect to PTC Energy Ltd (PEL; 'CRISIL A/Stable/CRISIL A1').

Analytical Approach

To arrive at its rating, CRISIL Ratings has combined the business and financial risk profiles of PTC India and its wholly owned subsidiary, PEL. Both these entities have strong operational, financial and management linkages. Also, adjustments for assets and liabilities have been made as per CRISIL Ratings capital allocation approach for the financing business undertaken by PFS.

 

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:

• Leadership position

PTC India is the largest player in the Indian power trading market, with a market share of around 50% of total volume traded in fiscal 2022. The company is likely to maintain its dominant market position over the medium term, despite intensifying competition.

 

• Long track record of operations resulting in strong customer relationships and market linkages

PTC India was the first company to start power trading in India in 2001; over the years, it has established strong relationships with various players. Long- and medium-term trades, which relatively have a higher margin (including cross border), contributed around 41% of total volume, while short-term trades accounted for the remaining during fiscal 2022. Furthermore, the company has maintained healthy relations with state power utilities (SPUs). It is efficient in client servicing and management, and should continue to leverage its market leadership position.

 

• Healthy financial risk profile

Financial risk profile is underscored by comfortable capital structure and healthy cash accrual. Volume traded has almost tripled in the past nine years, to 87,515 million units (MU) in fiscal 2022 from 28,597 MU in fiscal 2013. PTC India receives a rebate from generation companies in case of timely payment for the power procured and charges surcharge from distribution companies (discoms) in case of delayed payments for the power sold. Net working capital cycle* has remained 25-36 days over the three fiscals through fiscal 2022. The company (on a standalone basis) does not have any long-term debt and manages working capital through fund-based limit of Rs 2,000 crore (of which Rs 1,152 crore remained unutilised as on September 2022). Cash and equivalents were healthy at Rs 494 crore as of September 2022. With better receivables realisations under the new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, the cash balance improved and company is a net cash** surplus as on December 31, 2022. Further receipt of pending instalments in the coming months should keep the working capital position comfortable and the debt may not increase substantially over the medium term. However, it will remain a rating sensitivity factor.

 

PTC India is planning to sell its stake in its subsidiary, PEL. CRISIL Ratings will continue to closely monitor the developments and take any need-based rating action thereafter. No additional investments/support is envisaged from PTC India towards the subsidiaries (PEL and PFS). However, CRISIL Ratings’ expects that PTC India may provide need based support to these subsidiaries in case of distress. Any significant investment in these or other companies, which adversely impacts financial risk profile, will remain a key sensitivity factor.

 

*Net working capital cycle = debtor days less creditor days; CRISIL Ratings has added the sale/purchase of electricity of agency nature also in the revenue from operations since the debtors / creditors include those amounts as well.

**Net cash = Cash and equivalents – Total debt

 

Weaknesses:

• Susceptibility to counterparty risk and open positions

PTC India remains susceptible to the weak credit risk profiles of customers, mainly SPUs. The company tries to mitigate counterparty risk by distributing sales across multiple buyers and through payment security mechanisms. Seasonal reversal of buy-and-sell positions of SPUs also acts as a natural hedge. However, the large scale of operations reduces the risk of default and enables PTC India to negotiate better terms with clients. Net working capital cycle has remained 25-36 days over the three fiscals through 2022. From the peak of 38 days in covid year, working capital cycle has reduced consistently over the years.

 

The company has started receiving payments (both current dues as well as installments) under the new LPS rules which is expected to lower counter party risk further. However, risk of prolonged delays in payment by customers remains a key rating sensitivity factor.

 

• Exposure to risks inherent in the wind energy industry

The business risk profile of the wind energy segment under PEL is weaker compared with the more established trading business and will remain exposed to inherent risks such as wind speed variability, long-term wind patterns, and technology risk.

Liquidity: Strong

On a standalone basis, cash and equivalent stood at Rs 494 crore and unutilised bank limit was Rs 1,152 crore as on September 2022. These, along with annual cash accrual, should be adequate to meet any working capital requirement over the medium term. Ability to stretch payables provides additional comfort. Given the operational track record and longstanding relationships with discoms, liquidity should be prudently managed and will remain healthy over the medium term. Liquidity at PEL was also adequate, with debt service reserve account of Rs.100 crore and cash and equivalent and unutilised bank limit of Rs 83 crore and Rs 158 crore, respectively, as on December 2022.

Rating Sensitivity factors

Downward factors

• Any subsequent development in the matter of resignation of directors with alleged governance issues impacting financial and business risk profiles
• Significant delays in realisation of dues from counterparties leading to receivables* (standalone) remaining ~ 120 days or more on a sustained basis
• Significant deterioration in financial and liquidity risk profile due higher reliance on debt along with weakening of liquidity

 

*Excluding debtors on account of tariff revision, compensation & change in law matter which are paid only after being received.

About the Company

PTC India was incorporated in 1999 to support implementation of the mega power policy of the government. The promoters are NHPC Ltd, NTPC Ltd, Power Finance Corporation Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), and Power Grid Corporation of India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’). PTC India has a Category I licence issued by the Central Electricity Regulatory Commission under the Electricity Act 2003, which permits unlimited trading in power. It is the largest player in the power trading market with share of over 52%% in fiscal 2022. PTC India traded 87 billion units in fiscal 2022 (80 billion units in fiscal 2021).

 

For the six months ended September 30, 2022, PTC India, on a standalone basis, reported net profit of Rs 136 crore on a total income of Rs 8,624 crore; against Rs 190 crore and Rs 9,747 crore, respectively, for the corresponding period previous fiscal.

Key Financial Indicators (Standalone)*

Particulars	Unit	2022	2021
Operating Income	Rs crore	15,631	16,963
Profit after tax (PAT)	Rs crore	425	410
PAT margin	%	2.7	2.4
Adjusted debt/adjusted networth	Times	0.40	0.32
Adjusted Interest coverage	Times	14.5	19.3

*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	Fund-Based Facilities**	NA	NA	NA	100	NA	CRISIL A1+
NA	Non-Fund Based Limit*	NA	NA	NA	1390	NA	CRISIL A1+
NA	Non-Fund Based Limit	NA	NA	NA	1960	NA	CRISIL A1+
NA	Non-Fund Based Limit**	NA	NA	NA	250	NA	CRISIL A1+
NA	Fund-Based Facilities	NA	NA	NA	1600	NA	CRISIL A1+
NA	Non-Fund Based Limit*$	NA	NA	NA	100	NA	CRISIL A1+
NA	Proposed Short Term Bank Loan Facility	NA	NA	NA	100	NA	CRISIL A1+
NA	Commercial paper	NA	NA	7-365 days	300	Simple	CRISIL A1+

*Interchangeable with fund-based facilities

** Out of the total limit of IDBI Bank Ltd (including fund-based and non-fund based), Rs 300 crore is interchangeable with commercial paper limit

$Rs 100 crore bank guarantee limit considered for non-fund based limit

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
PTC Energy Ltd	Full	Strong financial and business linkages
PTC India Financial Services Ltd	Moderately consolidated	Adjustments for the assets and liabilities as per the capital allocation approach of CRISIL Ratings