| Torrent Power Limited | ||||||||||||||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||||||||||||||
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| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term bank facilities and non-convertible debentures (NCDs) of Torrent Power Limited (TPL) to ‘Positive’ from ‘Stable’, and reaffirmed the rating at ‘CRISIL AA’; rating on the short-term bank facilities and commercial paper programme has been reaffirmed at ‘CRISIL A1+’.
The reaffirmation reflects the stable cash flows of the company from regulated businesses, diversified business risk profile as well as strong liquidity. These strengths are partially offset by the absence of long-term power purchase agreements (PPAs) for DGEN.
The company posted stable performance in fiscal 2021 despite Covid-19. Due to its regulated nature, the generation and license distribution businesses clocked steady profitability while the franchise distribution business was adversely impacted by lower demand and higher distribution losses in the first-half of the fiscal due to Covid-19 induced lockdowns; however, it recovered in the second-half. With strong accrual and limited capital expenditure (capex), financial risk profile continued to strengthen: net debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) declined to around 2.0 times from 3.2 times in fiscal 2017.
Operating performance is likely to continue to improve in the current fiscal with recovery in the franchise distribution business. TPL is expected to step up capex with higher investment in the distribution and renewable segments. Hence, apart from regular capex towards distribution, capex towards 515 megawatt (MW) of renewable capacities (including 300 MW of captive power towards the distribution business) is expected to be incurred in the next two fiscals. This is expected to lead to an increase in net leverage to about 2.5 times in fiscal 2022 before reverting to below 2 times. While the company may pursue inorganic growth opportunities that could temporarily lead to a rise in leverage, this is likely to be in areas of core competence, and the proportion of investments in regulated returns will remain high.
The ‘Positive’ outlook reflects the increased likelihood that profitability will continue to be strong while net leverage may sustain below 2.6-2.8 times. This is likely if bidding for new renewable capacities or license distribution is on a prudent and staggered basis. This could then result in a rating upgrade. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has fully consolidated its renewable special-purpose vehicles due to its 100% ownership and strong operational and financial linkages. These include Jodhpur Wind Farms Pvt Ltd (rated 'CRISIL AACE)/Positive'), Latur Renewable Pvt Ltd (rated 'CRISIL AA(CE)/Positive') and Torrent Solargen Ltd.
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:
Weakness:
The 1,200 MW DGEN plant, which accounts for about 30% of the total generation capacity, is stranded due to lack of approved PPAs and non-availability of domestic gas. Though the unit operated at a limited plant load factor in fiscals 2020 and 2021 through bilateral contracts due to favourable LNG (liquefied natural gas) prices, it would continue to report losses. |
Liquidity: StrongCRISIL Ratings believes, expected annual cash accrual of about Rs 2,000 crore during fiscals 2022 and 2023 are sufficient to meet yearly term debt repayment of Rs 1,100 crore. Liquidity is further supported by cash balance of over Rs 900 crore and unutilised fund-based limit of Rs 1,150 crore as on May 31, 2021. Capex for fiscals 2022 and 2023 is likely to be funded through a mix of internal accrual and debt. |
Outlook: Positive Business risk profile will remain strong over the medium term, driven by stable cash flows from the regulated and renewables businesses. Sustained business performance and continued prudent capital allocation are expected to help sustain healthy financial risk profile. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company TPL is in the power generation and distribution business. It is a distribution licensee in Ahmedabad, Gandhinagar, Surat, Dahej SEZ and DSIR; and is the distribution franchisee for Bhiwandi, Agra and SMK. 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 (1,200 MW gas-based combined cycle DGEN power plant). The renewable portfolio includes 49.6 MW wind power plant (WPP) at Lalpur, 51 MW solar power plant at Charanka, 252 MW Suzlon WPP at Kutch and Bhavnagar, 50.9 MW WPP at Mahidad, and 87 MW GENSU solar power plant at Surat (all in Gujarat). The company also has a 120 MW (60 MWX2) WPP in Karnataka and 126 MW (63 MWX2) WPP in Maharashtra through wholly owned subsidiaries; and a 50 MW (25 MWX2) WPP in Kutch through associate company. TPL is implementing 515 MW wind and solar projects. |
Key Financial Indicators (reported)
*The above reflect consolidated reported financials |
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)
*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 &Of the total, Rs 183.3 crore already been redeemed %Interchangeable with long term bank facilities
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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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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