Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable’ rating on the bonds programme of SJVN Ltd (SJVN).

 

The rating continues to reflect the company’s strong business risk profile driven by stable cash flow, robust financial risk profile and strategic importance of the company to government of India. These strengths are partially offset by exposure to project risks related to implementation of large capital expenditure (capex) and weak credit risk profiles of customers.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of SJVN and its subsidiaries and joint ventures (JVs). This is because these entities, collectively referred to as SJVN, are under common management and have strong business and financial linkages.

 

The rating also factors in the support expected from the central government, which owns 55% stake in the company and is under the administrative control of the Ministry of Power with its nominee on the board. Moreover, the government has guaranteed a part of the debt (Rs 1,187.71 crore as on March 31, 2024). Furthermore, the company is playing an active role in achieving the government’s objective of cross-border hydropower development as well as achieving the target of renewable capacity addition in the country. The government has granted Miniratna status to SJVN and is expected to continue providing need-based support.

 

CRISIL Ratings has considered unbilled revenue and receivables from late payment surcharge as receivables.

 

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:

• Strong business risk profile, driven by stable cash flow: SJVN has a stable operational portfolio of 1,972 MW of hydropower plants, which account for more than 80% of the total operational capacity. Of these, 1,912 MW capacity has been tied up in long-term power purchase agreements (PPAs) with regulated tariff structure, which allows recovery of the entire cost, including a fixed return on equity based on approved capital cost, subject to achievement of normative parameters notified by the Central Electricity Regulatory Commission (CERC) for each plant. The company has a decade-long track record of operating at higher than normative level, resulting in high stability in cash flow. The plant availability factor for the hydropower plants, Nathpa Jhakri and Rampur-Himachal Pradesh, remained above 100% in fiscal 2024, which is well above the normative levels of 90% and 85%, respectively. The company has also recently commissioned its 60 MW hydropower plant and is in the process of tying up PPA.

 

It also commissioned solar capacity of 225 MW in fiscal 2024, which increased operational solar / wind capacity to 404.5 MW as on March 31, 2024 (179.5 MW as of March 2023). These projects have healthy tariff and provide additional cash accrual. 

 

CRISIL Ratings believes the operating performance of the company will likely be sustained over the medium term as the regulated tariff structure will provide stability to cash flow.

 

• Strategic importance to, and support from, the government: The central government holds a majority equity stake of 55% in SJVN while the government of Himachal Pradesh holds 26.85% stake. The company plays a key role in achieving the central government’s objective of optimally tapping the hydropower potential in the northern region as well as cross-border hydropower development. Furthermore, it is under the administrative control of the Ministry of Power, whose nominee is on the board of the company. The Miniratna status gives the company greater operational autonomy and discretion to set up projects up to Rs 500 crore without the express consent of the government. Also, the government’s majority ownership provides access to need-based or viability gap funding support. Furthermore, the government has guaranteed the World Bank loan for Rampur hydro power project (Rs 1,187.71 crore as on March 31, 2024).

 

• Strong financial risk profile: The financial risk profile is supported by healthy capital structure and adequate debt protection metrics. Adjusted gearing increased to 1.5 times as on March 31, 2024 (1.0 time as on March 31, 2023), owing to debt-funded capex of ~Rs 7,300 crore in fiscal 2024. Gearing, although expected to increase further given significant capex planned over the next few years, should remain comfortable. The planned capex of over Rs 10,000 crore per annum will be funded in debt to equity ratio of 70:30 or 80:20, with equity contribution expected to be funded through internal accrual. Moreover, the company has securitised part of the cash flow of Nathpa Jhakri Hydro Power Station (NJHPS) and has already raised Rs 3,233 crore out of securitisation proceeds of Rs 4,053.5 crore for 15 years to part fund the equity requirement.

 

Weaknesses:

• Exposure to project risks: The company has planned capex of more than Rs 10,000 crore per annum over the next 5-7 years across the hydro, thermal and solar segments, enabling the company to achieve capacity of more than 10 GW. The under-construction thermal, coal-based plant of 1,320 MW in Buxar, Bihar, has 85% of its capacity tied-up in the state and a coal block has been allocated for meeting fuel requirement. Its implementation is being supported by NTPC Ltd (‘CRISIL AAA/Stable/CRISIL A1+') through consultancy services. The plant is expected to be commissioned this fiscal. The company also has a large under-construction hydro-projects, viz 12 GW, as well as a few smaller solar and wind projects which are expected to be commissioned in 1-2 years. The hydro and thermal projects will have their cost recoverable under the regulated regime of CERC, subject to achievement of stipulated normative availability norms. In case of significant cost or time overruns, regulatory approval will be required for pass-through tariff. Any disallowance of cost may impact the cash flow available for debt servicing. Timely execution of these projects will remain a key rating sensitivity factor.

 

Also, execution risks in these projects and the long gestation of hydro power projects will moderate the return on capital over the medium term. Furthermore, a hydroproject of 900 MW is being implemented in Nepal through inter-governmental agreements and two more projects of 669 MW (Lower Arun HEP) and 490 MW (Arun-4 HEP) have been awarded to SJVN. This exposes the company to geopolitical risks as well.

 

• Receivables position improved, albeit credit profiles of counterparties remain weak: The company has PPAs with various state electricity distribution companies (discoms), which have weak financial health and, therefore, SJVN is exposed to risk of delays in payment. However, receivables have improved in the last couple of fiscals due to various government measures such as Atmanirbhar Bharat package and recoveries under new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022. Regular receivables as on March 31, 2024, reduced to Rs 167 crore as on March 31, 2024 (equivalent to 24 days), from Rs 574 crore as on March 31, 2022 (equivalent to 87 days), owing to realisation of  old receivables from Jammu and Kashmir (J&K) under the new electricity rules and timely collection of current dues. The receivables are expected to sustain at this level over the medium term. Counterparty risks are mitigated by the presence of various payment security mechanisms, such as sales backed by letters of credit, tripartite agreements between the central government, the Reserve Bank of India (RBI) and state governments, and incentive schemes for timely payment. Timely collection of receivables will remain key monitorable.

Liquidity: Superior

Cash and equivalent (around Rs 4,135 crore as on March 31, 2024), annual cash accrual and unutilised bank lines (more than Rs 400 crore as on May 31, 2024) will adequately cover yearly debt obligation of around Rs 460 crore in fiscal 2025 and equity requirement for capex. Despite large capex commitment, the company is expected to maintain liquidity of over Rs 1,000 crore at all times. The dividend outflow will also be in accordance with the funds required for capex. Commissioning of under-implementation capacities at regular intervals will support cash accrual and liquidity.

 

Environment, social and governance (ESG) profile of SJVN

CRISIL Ratings believes the ESG profile of SJVN supports its already strong credit risk profile.

 

The power sector has a significant impact on the environment owing to higher emissions, water consumption and waste generation. This is because generation of conventional power involves high dependence on natural resources, mainly coal. However, SJVN is into renewable energy generation, and hence, it has no dependence on fossil fuels, such as coal or gas at present. The sector also has a social impact due to its nature of operations affecting local community and health hazards involved. SJVN is focused on mitigating its environmental and social risks.

 

Key ESG highlights:

• In fiscal 2023, the company’s greenhouse gas (GHG) emissions and water withdrawal intensity were ~9% and ~12%, lower than its fiscal 2022 baseline, respectively.
• The company has sewage treatment plants (STP) in all its offices and site locations to ensure treatment of wastewater.
• Further, it reported a relatively high share of women in its workforce (~12%), employees trained on skills and safety (~87% and ~100%), and nil lost-time injury frequency rate (LTIFR) in fiscal 2023.
• Its governance structure is characterised by 50% of its board comprising independent directors, two woman board directors, dedicated investor grievance redressal system and extensive financial disclosures.

 

There is growing importance of ESG among investors and lenders. SJVN’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowings in overall debt and access to both domestic and foreign markets.

Rating Sensitivity factors

Upward factors:

• Significant equity infusion leading to substantial improvement in the financial risk profile
• Timely commissioning of the under-construction projects within stipulated costs
• Improvement in operating cashflow post commissioning of new projects, leading to reduction in net debt  to operating earnings before interest, tax, depreciation and amortisation (Ebitda) to below 4 times on sustained basis.

 

Downward factors:

• Weakening of operating performance of the operational plants or delay in receipt of dues from counterparties adversely impacting the financial performance
• Cost and time overruns in the under-construction projects resulting in significant increase in net debt to operating Ebitda on sustained basis
• Any change in the support philosophy of GOI or dilution of equity of GOI below 51%.

About the Company

SJVN, a Miniratna, category-I and schedule – A central public sector entity under the administrative control of the Ministry of Power, was incorporated on May 24, 1988, as a JV of the central government and Himachal Pradesh state government. SJVN is now a listed company with 55% and 26.85% shares, respectively, with these two governments and the remaining 18.15% with the public.

 

The company operates in the power generation segment with total hydropower capacity of 1,972 MW in Himachal Pradesh and Uttarakhand, wind capacity of 97.6 MW in Maharashtra and Gujarat and solar capacity of 306.9 MW in Gujarat, Himachal Pradesh and Uttar Pradesh. In addition, it operates a 86-km 400 KV transmission line across the Indo-Nepal border through a JV with Power Grid Corporation of India Ltd and IL&FS. SJVN is presently implementing hydro, thermal and solar power projects in north and west states of India as well as in neighbouring Nepal.

Key financial indicators (Consolidated)*

Particulars	Unit	2024**	2023
Operating income	Rs crore	2,594	2,603
Profit after tax (PAT)	Rs crore	911	1,359
PAT margin	%	35.1	52.2
Adjusted debt/adjusted networth	Times	1.5	1.0
Adjusted interest coverage	Times	4.4	5.5

*As per analytical adjustments made by CRISIL Ratings

**based on provisional financials

Any other information: Not Applicable