Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to the Rs.650 crore proposed non-convertible debentures (NCDs) of Torrent Power Ltd (TPL) and reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the other debt instruments and bank facilities of the company. Also, CRISIL Ratings has withdrawn its rating on NCDs worth Rs 300 crore (see ‘Annexure - Details of Rating Withdrawn’). The withdrawal is based on independent confirmation of redemption of these instruments and at the company’s request, in line with the CRISIL Ratings withdrawal policy.
The ratings on the bank facilities, NCDs, and commercial paper programme continue to reflect the strong profitability of TPL which, along with prudent and staggered capital expenditure (capex) plans, has aided sustained improvement in leverage, with net debt to Ebitda (earnings before interest, taxes, depreciation, and amortisation) ratio reaching 1.9 times as on March 31, 2023, from more than 3 times as on March 31, 2017. The ratings also factor in the expectation of steady profitability and net debt/Ebitda sustaining below 2.8 times, despite outflow towards incremental capex, over the medium term.
For the first half of fiscal 2024, Ebitda improved to around Rs 2,406 crore from Rs 2,224 crore for the same period previous fiscal on account of strong performance in the franchisee distribution business segment led by lowering of losses, increase in power demand across all distribution areas, contribution from acquired renewable assets, and contribution from its 1,200 megawatt (MW) combined cycle gas power plant in Dahej (DGEN), Gujarat.
In terms of operating performance, plant load factor (PLF) of the company’s lone thermal asset continued to operate at high levels in the first-half of fiscal 2024 as demand for power in the country continued to grow. The company’s gas power plants also operated at higher PLFs in the first-half of fiscal 2024 compared with the previous fiscal as natural gas prices eased. This was offset by lower gains from sale of liquefied natural gas (LNG). Transmission and distribution (T&D) losses across its licence and franchise distribution areas, except Ahmedabad (Gujarat), were lower compared with previous fiscal. PLFs of its renewable assets remained stable.
Operating performance is likely to continue to improve in the current fiscal with steady recovery in the franchise distribution business. Further focus on the licence distribution business with assured return on equity model, coupled with judicious expansion in renewable businesses, should help continued growth in Ebitda. The company has a capex outlay of around Rs 4,500 crore in its licence and franchise distribution business over the next couple of fiscals to strengthen and augment network. Also, it has a pipeline of 600 MW of renewable assets for which the capex outlay is around Rs 4,600 crore in the next two fiscals. Given the significant capex, leverage is likely to increase in fiscal 2024, though remain below 2.8 times over the medium term as the assets scale up.
The ratings continue to factor in the stable cash flow from regulated businesses and the diversified business risk profile and strong liquidity of TPL. These strengths are partially offset by absence of long-term power purchase agreements (PPAs) for its 1,200 MW combined cycle gas power plant in Dahej (DGEN). Improvement in cash flows from DGEN owing to tie-up of PPAs or improvement in PLFs on a sustainable basis, supporting improvement in credit profile, will be a key rating sensitivity factor.
CRISIL Ratings understands the company may augment its generation capacity through the inorganic route to support the increasing demand in its distribution regions. Also, from a growth perspective, it might enter into new distribution areas. However, the management has guided to keep leverage and capital structures within the rating threshold on a sustainable basis. Conversion of any such opportunity that the company may come across to expand capacity or distribution area will be monitorable. |
Analytical Approach CRISIL Ratings has fully consolidated the business and financial risk profiles of TPL along with Dadra and Nagar Haveli and Daman and Diu Power Distribution Corporation Ltd (in which TPL has 51% shareholding), and those of its special-purpose vehicles (SPVs) engaged in the renewable business (considering 100% ownership of the parent and strong operational and financial linkages among the entities). The renewable SPVs include Jodhpur Wind Farms Pvt Ltd (rated 'CRISIL AA+ (CE)/Stable'), Latur Renewable Pvt Ltd (rated 'CRISIL AA+ (CE)/Stable'), Torrent Saurya Urja 2 Pvt Ltd (rated 'CRISIL AA/Stable') and Torrent Solargen Ltd ('CRISIL AA/Stable'), among others.
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 operating profile and regulated tariff framework High operational efficiency is reflected in low T&D losses across circles (3.7% for Ahmedabad, 3.2% for Surat [Gujarat] and 0.5% for Dahej in the distribution licence business; and 10% for Bhiwandi [Maharashtra] and 9.5% for Agra [Uttar Pradesh] in the distribution franchise business) in fiscal 2023. Furthermore, for the Shil, Mumbra and Kalwa (SMK; Maharashtra) franchise distribution circle, it has seen T&D losses drop to 33.5% in fiscal 2023 from 44.9% at the time of takeover in fiscal 2021. The company will continue to benefit from stable cash flow, backed by a regulated tariff structure and high operating efficiency, and the performance of its distribution and generation businesses (AMGEN and SUGEN plants), both of which assure a 14-15.5% post-tax return on equity. Regulated businesses, on average, formed about 60% of revenue and 77% of Ebitda over the last three fiscals. Increase in contribution from Dadra Nagar Haveli and Daman & Diu (DNHDD), ramp-up of the Dholera Special Industrial Region (DSIR; Gujarat) and Dahej (Gujarat), further lowering of T&D losses in SMK and increased contribution from the renewables segment are likely to enhance return profile in the long term. Capital allocation will remain skewed significantly towards the regulated and renewable businesses.
Robust market position of the power distribution business with diverse consumer base TPL enjoys a strong market position, being the sole power distribution licensee for Ahmedabad, Surat, Gandhinagar, and DNHDD; second licensee for Dahej SEZ and DSIR; and the power distribution franchisee for Bhiwandi, Agra and SMK. With the takeover of DNDD, TPL now sells power directly to more than 4.03 million consumers across the domestic, industrial and commercial divisions. An urban-centric and diversified customer base enables collection efficiency of nearly 100% in Ahmedabad, Gandhinagar, Surat and Dahej SEZ..
Strong financial risk profile Financial risk profile has improved in the past few fiscals. Net gearing and net debt to Ebitda ratios stood at 0.9 time and 1.9 times, respectively, as on March 31, 2023, against 1.1 times and 3.2 times respectively, as on March 31, 2017. This was driven by high profitability and relatively lower capex. While leverage is likely to increase over the medium term because of higher capex outlay, net debt to Ebitda shall sustain below 2.8 times over the medium term.
Weakness: Susceptibility to risk related to offtake for DGEN The 1,200 MW DGEN plant, which accounts for about 30% of the total operational power generation capacity, has been stranded due to lack of approved PPAs and non-availability of LNG at affordable prices. The unit has operated at a limited PLF in fiscals 2020, 2021 and the first half of fiscal 2024, aided by favourable LNG prices and bilateral contracts. However, it is expected to continue to report losses due to low level of operations by the asset.
CRISIL Ratings has factored in the operating losses arising from non-operation of the plant due to absence of PPAs; however, any material improvement in cash flows from DGEN owing to tie-up of PPAs or improvement in PLFs on a sustainable basis, supporting improvement in credit profile of the company will be a key rating sensitivity factor. |
Liquidity: Strong Expected annual cash accrual of about Rs 2,500 crore during fiscals 2024 and 2025 will be sufficient to meet yearly average term debt repayment of ~Rs 1,600 crore. Cash balance of around Rs 1,500 crore and unutilised fund-based limit of Rs 1,150 crore as on September 30, 2023, also support liquidity. Furthermore, the company has an unutilised capex line of Rs 1,700 crore. Capex for fiscals 2024 and 2025 are likely to be funded through a mix of internal accrual and debt.
ESG profile The ESG profile of TPL 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. The sector has a social impact as its operations affect local community and involve health hazards. TPL is focused on mitigating its environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. The commitment of TPL to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable Business risk profile will remain strong over the medium term, driven by stable cash flow from the regulated and renewables businesses. Sustained business performance and prudent capital allocation should support healthy financial risk profile. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company TPL is engaged in the power generation, transmission, and distribution business. It is a distribution licensee in Ahmedabad, Gandhinagar, Surat, Dahej SEZ, Dholera SIR, and Dadra and Nagar Haveli and Daman and Diu; and the distribution franchisee for Bhiwandi, Agra and SMK (Shil, Mumbra, Kalwa). Its power generation plants are in Sabarmati (AMGEN, a 362-MW coal-based station) in Ahmedabad, Surat (1,147.5 MW gas-based SUGEN plant with 382.5 MW expansion), and Dahej SEZ (1,200 MW gas-based combined cycle DGEN power plant). The renewable portfolio includes 49.6 MW wind power plant (WPP) in Lalpur, 51 MW solar power plant in Charanka, 252 MW Suzlon WPP in Kutch and Bhavnagar, 50.9 MW WPP in Mahidad, and 87 MW GENSU solar power plant in Surat (all in Gujarat).
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Key Financial Indicators – TPL - consolidated - CRISIL Ratings-adjusted numbers
*Adjusted for impairment loss of Rs 928 crore (net of tax) |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*It is being categorised as a complex instrument as there is a rating covenant attached to these NCDs wherein if rating downgrades to “BBB+” or below, debenture holders would have a put option on the company **It is being categorised as a complex instrument as there is a rating covenant attached to these NCDs wherein if rating downgrades to “A-” or below, debenture holders would have a put option on the company #It is being categorised as a complex instrument as CRISIL Ratings understands that, in line with other outstanding NCDs of the company, a rating covenant is likely to be attached to these NCDs as well wherein depending on certain rating action, debenture holders would have a put option on the company %Interchangeable with long-term bank facilities ^Capex letter of credit (LC), with sublimit of standby letter of credit (SBLC) of Rs 300 crore @Yet to be placed ##CRISIL Ratings understands that the facility has been repaid as on date, however, CRISIL Ratings is awaiting necessary supporting documents for withdrawal of the ratings on the given instrument
Annexure- Details of Rating Withdrawn
*It is being categorised as a complex instrument as there is a rating covenant attached to these NCDs wherein if rating downgrades to “BBB+” or below, debenture holders would have a put option on the company |
Annexure - List of Entities Consolidated
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%Interchangeable with long-term bank facilities
^Capex letter of credit (LC), with sublimit of standby letter of credit (SBLC) of Rs 300 crore
##CRISIL Ratings understands that the facility has been repaid as on date, however, CRISIL Ratings is awaiting necessary supporting documents for withdrawal of the ratings on the given instrument
Criteria Details
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