| The Tata Power Company Limited | ||||||||||||
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| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings’ rating on the bank facilities, non-convertible debentures, commercial paper of The Tata Power Co Ltd (TPCL) continues to reflect Tata Power's stable cash accrual from the regulated businesses, which account for about 45-50% of total EBITDA; the diversified business risk profile and robust financial flexibility, being a part of the Tata group. These strengths are partially offset by losses in CGPL on account of unviable project economics, and moderate debt protection metrics. The ratings also factor in the management's intent to keep the adjusted net debt to EBITDA ratio sustainably below 3.5 times, which includes a possible monetization of the renewables portfolio.
Consolidated EBITDA for fiscal 2021 was in line with expectations across generation, transmission, distribution and renewable businesses. Further, the proceeds from equity infusion and divestment of non-core assets led to a sharp reduction in adjusted net debt to Ebitda to around 3.9 times from 4.3 times as of March-2020.
For fiscal 2022, consolidated operating profitability is expected to improve driven by commissioning of new renewable capacities as well as robust execution at Tata Power Solar. Healthy operational performance above normative levels is expected to continue across regulated generation and distribution businesses. Higher international coal prices is expected to lead to increased fuel cost under-recoveries at Coastal Gujarat Power Ltd (CGPL; rated ‘CRISIL A1+ (CE)’), but offset by higher profitability from coal companies. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has used a combination of full and proportionate consolidation of Tata Power's companies.
CRISIL Ratings has fully consolidated the subsidiaries of Tata Power because these entities form a core of the company’s business risk profile. These include Tata Power's Delhi Distribution Company Ltd (rated ‘CRISIL A1+’); CGPL; Maithon Power Ltd (MPL; rated ‘CRISIL AA/Stable/CRISIL A1+’); Tata Power Renewables Energy Ltd (TPREL; rated ‘CRISIL AA/Stable/CRISIL A1+’) and Walwhan Renewable Energy Ltd (WREL; rated ‘CRISIL AA/Stable’); Powerlinks Transmission Ltd (CRISIL AAA/Stable'), Tata Power Trading Company Ltd; Industrial Energy Ltd; TPSSL; and the special-purpose vehicles formed for the acquisition of coal entities in Indonesia, including Bhira Investments, Bhivpuri Investments and Khopoli Investments.
CRISIL Ratings has also proportionately consolidated certain joint ventures and associate companies to the extent of Tata Power’s shareholding in these entities, to reflect support to the extent of its interests in these businesses. These companies include coal-operating entities in Indonesia: 30% in PT Kaltim Prima Coal and 26% in PT Baramulti Suksessarana Tbk.
CRISIL Ratings has treated Tata Power's investment in Prayagraj Power Generation Co Ltd (Prayagraj) as a financial investment, given the minority stake held in the platform company, Resurgent Ventures Power Ventures Pte Ltd (Resurgent).
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths
Tata Power earns over 45-50% of EBITDA from its regulated businesses, such as power generation and distribution in Mumbai, power distribution in New Delhi, the 1,050 megawatt (MW) capacity of MPL, and its transmission businesses. The balance life of the PPA for generation assets, including MPL, CGPL and the renewable portfolio, spans over 15 years, thus offering strong revenue visibility. Distribution licenses for Mumbai and Delhi also extend for another 19 years and 9 years, respectively. The PPA of the power generation business for Mumbai (Trombay assets for around 930 MW) is valid till fiscal 2024, and subject to renewal risk. The proportion of cash flows from the regulated businesses could increase over the medium term, driven by the company's focus on adding new licenses in the distribution sector, coupled with regulated capex in its existing generation, transmission and distribution assets.
Tata Power had around 10,800 megawatt (MW) capacity as on March-2021 (excluding 1,980 MW of Prayagraj), including its thermal and clean energy generation businesses that include around 2,600 MW of renewable energy capacity through TPREL and WREL. Its presence across the value chain of the power sector (generation, transmission and distribution, power trading, as well as fuel supply [imported coal mining and shipping]) cushions it from project-specific issues and helps achieve operating efficiencies and better working capital management at the group level.
Financial flexibility is strong, characterized by stable cash accrual from the existing businesses and adequate liquidity. Being a part of the Tata group, Tata Power enjoys access to the capital market and the banking system. After the preferential allotment, Tata Sons has a 45.2% shareholding in Tata Power and the latter is recognized as one of the flagship companies.
Weaknesses
Losses incurred by CGPL on account of unviable project economics adversely impact Tata Power's credit risk profile. CGPL's under-recoveries of fuel cost are primarily on account of the non-escalable variable charges component in the tariff. In addition to initial equity commitment of Rs 4,250 crore, Tata Power has supported CGPL by infusing about Rs 13,000 crore till March 31, 2021, via perpetual securities, equity, and inter-company loans. CGPL has made efforts to improve operating efficiencies and minimize under-recoveries by procuring coal from various sources.
CGPL has substantially reduced debt to around Rs 4,800 crore as of March-2021 (from Rs 8,078 crore in September 2020) using divestment and preferential proceeds (from Tata Power). Coal mines in Indonesia offer a partial natural hedge to CGPL's operations. However, dividends from coal mines have been lower than CGPL's debt-servicing requirements, thereby necessitating support from Tata Power. While the adoption of HPC recommendation has been delayed, under-recoveries are expected to increase in fiscal 2022 to Rs 0.80-1.0 per kilowatt hour on account of higher international thermal coal prices.
Tata Power has a moderate capital structure, with consolidated adjusted net debt to EBITDA and gearing of around 3.9 times and 1.9 times, respectively as on March-2021. The proceeds from equity infusion, divestment of non-core assets and higher net cash accruals led to reduction in adjusted net debt to Rs 38,889 crore as on March-2021, from Rs 43,578 crore as on March 31, 2020. |
Liquidity: Strong Liquidity remains strong, driven by expected net cash accrual of over Rs 4,700 crore in fiscal 2022, while cash balance stood at Rs 7,225 crore as on March-2021. Fund-based limit of Rs 3,355 crore remains moderately utilized. Repayment of long-term debt of Rs 4,690 crore in fiscal 2022 is expected to be partly refinanced, given the strength of the company's cash flows. Capex of about Rs 4,000 crore in fiscal 2022 is likely to be funded through a mix of internal accrual and debt |
Outlook: Stable Given the regulated nature of Tata Power's business, the company shall generate healthy cash accrual over the medium term and sustain its credit risk profile |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Tata Power is India's largest integrated private power utility with an installed generation capacity of 10.8 GW (as on March 31, 2020). The company is present across the entire power business spectrum, from generation (thermal, hydro, solar and wind) to transmission and distribution.
CGPL was formed to implement the Mundra Ultra Mega Power Plant (UMPP), which has five units of 800 MW each. MPL, Tata Power's 74% joint venture with Damodar Valley Corporation, operates the Maithon project, which has two units of 525 MW each.
Powerlinks Transmission Ltd operates a 400-kilovolt transmission line from Bhutan to Delhi.
Tata Power holds 30% and 26% stake in Indonesian coal mining companies, PT Kaltim Prima Coal and PT Baramulti Suksessarana Tbk, respectively. It had signed a definitive agreement to sell 30% stake in Arutmin to the Bakrie family for USD 400 million (around Rs 2,800 crore) of which USD 140 million (around Rs 980 crore) is already realised.
In September 2016, Tata Power and ICICI Venture partnered to launch a power platform (known as Resurgent Power Ventures Pte Ltd [Resurgent]) in Singapore, along with global investors. Resurgent will invest in operational and near-operational thermal, hydro, and transmission assets. In December 2019, Renascent Power Ventures Pvt Ltd, a wholly owned subsidiary of Resurgent, completed the acquisition of 75.01% stake in Prayagraj, which owns and operates a 1,980 MW supercritical power plant in Uttar Pradesh. |
Key Financial Indicators - Tata Power Consolidated
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
#Fully Interchangeable with Letter of Credit, Buyers Credit, Short term loan, Purchase invoice Discounting, Overdraft maximum upto Rs. 50 Crores, Foreign Currency Resident loan, Short Term Derivatives/ Foreign lines *yet to be issued ^includes Rs 490 crore of bill discounting facility as a sub limit |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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