Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to Rs 600 crores non-convertible debentures (NCDs) of Torrent Power Limited (TPL), while reaffirming its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the long-term bank facilities, other NCDs, short-term bank facilities and commercial paper programme.

 

The reaffirmation reflects strong profitability of TPL, which along with prudent and staggered capital expenditure (capex) plans, has aided sustained improvement in leverage levels, with net debt/EBITDA further improving to 1.7 times as of December 2021, from 2.0 times as of March 2021. The rating also factors in expectation of steady profitability and net debt/EBITDA sustaining below 2.6 times, despite outflow towards acquisitions.

 

For the first nine months of fiscal 2022, adjusted earning before interest, taxes, depreciation and amortisation (EBITDA) grew by nearly 12% year-on-year to Rs 2,759 crore, from Rs 2,462 crore for the corresponding period of fiscal 2021, largely driven by a strong rebound in the franchisee distribution business in Agra and Bhiwandi, and robust profitability in the licensee distribution business.

 

Operating performance is expected to improve further in fiscal 2022, with continued recovery in the franchise distribution business. Also, focus on the license distribution business, with an assured return on equity and judicious expansion in the renewable business, should support growth in EBITDA.

 

In February 2022, the company received the Letter of Intent to acquire a 51% equity stake in Dadra and Nagar Haveli and Daman and Diu Power Distribution Company Ltd, which holds the distribution license for the union territory. While consideration for the equity stake stands at Rs 555 crore, this will increase the contribution of the license distribution business, which entails regulated returns. Further, during the fourth quarter of fiscal 2022, the company completed the acquisition of Surya Vidyut Ltd (156 MW wind capacity) and Visual Percept Solar Projects Pvt Ltd (25 MW solar capacity). The company has also signed share purchase agreements for acquiring LREHL Renewables India SPV1 Ltd (50 MW solar capacity). These acquisitions are expected to have aggregate enterprise value of around Rs 1,270 crores and are in addition to the regular capex plans of the company towards existing businesses and under implementation renewable capacities (515 MW). However, strong net cash accrual should cover part of the capex/acquisition plans, and hence, net debt to EBITDA is likely to sustain below 2.6 times over the medium term.

 

The rating continue to factor in 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 DGEN.

Analytical Approach

CRISIL Ratings has fully consolidated the business and financial risk profiles of TPL along with those of its special-purpose vehicles engaged in the renewable business, considering 100% ownership of the parent and strong operational and financial linkages between the entities. These include Jodhpur Wind Farms Pvt Ltd (rated 'CRISIL AA+ (CE)/Stable'), Latur Renewable Pvt Ltd (rated 'CRISIL AA+ (CE)/Stable') 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:

• Strong operating profile and regulated tariff framework: TPL has high operational efficiency, as reflected in low transmission and distribution losses across circles (3.4% for Ahmedabad, 3.3% for Surat and 0.5% for Dahej in the distribution license business); and 12.3% for Bhiwandi [Maharashtra] and 11.5% for Agra [Uttar Pradesh] in the distribution franchise business for the nine months of fiscal 2022. The company will continue to benefit from stable cash flow, backed by a regulated tariff structure, and high operating efficiency and 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 an average, formed about 64% of revenue and 78% of EBITDA over the last three fiscals. Ramp-up of the Dholera Special Industrial Region (DSIR; Gujarat) and Shil, Mumbra and Kalwa (SMK; Maharashtra) distribution circles is likely to enhance the return profile in the long term. Capital allocation will continue to remain skewed significantly towards the regulated 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, as the second licensee for Dahej SEZ and DSIR, and the power distribution franchisee for Bhiwandi, Agra and SMK. It sells power directly to more than 3.65 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 leverage has been improving over the last few fiscals. Net gearing and net debt to EBITDA ratios stood at 0.7 time and 2.0 times, respectively, as on March 31, 2021, vis-à-vis 1.1 times and 3.2 times, respectively, as on March 31, 2017. This was driven by high profitability and lower capex. Leverage levels could moderate in fiscal 2023, because of larger capex, yet net debt to EBITDA shall sustain below 2.6 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 generation capacity, is stranded due to lack of approved PPAs and non-availability of LNG at affordable prices. Though the unit operated at a limited plant load factor in fiscals 2020 and 2021, aided by favourable LNG (liquefied natural gas) prices and bilateral contracts, it would continue to report losses.

Liquidity: Strong

CRISIL Ratings believes, expected annual cash accrual of over Rs 2,300 crore during fiscals 2023 and 2024 are sufficient to meet yearly term debt repayment in the range of Rs 900-1,255 crores during the period. Liquidity is further supported by unencumbered cash balance of around Rs 800 crore and unutilized fund-based limit of Rs 800 crore as on March 15, 2022. Capex for fiscals 2023 and 2024 is likely to be funded through a mix of internal accrual and debt.

Outlook: Stable

Business risk profile of TPL 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 the healthy financial risk profile.

Rating Sensitivity Factors

Upward Factors

• PPAs getting tied up and material cash flow generation from DGEN
• Improved profitability and sustenance of net debt/EBITDA below 2 times

 

Downward Factors

• Larger-than-expected capex or debt-funded acquisitions
• Sustained net debt/EBITDA of more than 2.8 times

About the Company

TPL is engaged in the power generation and distribution business. It is a distribution licensee in Ahmedabad, Gandhinagar, Surat, Dahej SEZ and DSIR; and 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 its wholly owned subsidiaries, and a 50 MW (25 MWX2) WPP in Kutch through an associate company. Recently, the company has added a renewable portfolio of 181 MW (156 MW wind + 25 MW solar), through acquisition of Solar Vidyut Ltd and Visual Percept Solar Projects Pvt Ltd. TPL is also implementing wind and solar projects with capacity of 515 MW.

 Key Financial Indicators (Reported)

As on / for the period ended March 31		2021	2020
Operating income	Rs crore	12,210	13,681
Adjusted profit after tax	Rs crore	1,293	1,176
PAT margin	%	10.6	8.6
Debt/networth	Times	0.76	0.97
Interest coverage	Times	4.63	3.89

   *The above reflect consolidated reported financials

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	Non-convertible debentures@	NA	NA	NA	600	Complex	CRISIL AA+/Stable
INE813H07135	Non-convertible debentures	3-Mar-22	6.50%	3-Mar-25	85	Complex*	CRISIL AA+/Stable
INE813H07143	Non-convertible debentures	3-Mar-22	6.90%	3-Mar-26	80	Complex*	CRISIL AA+/Stable
INE813H07150	Non-convertible debentures	3-Mar-22	7.25%	3-Mar-27	85	Complex*	CRISIL AA+/Stable
INE813H07119	Non-convertible debentures - series 5	19-Mar-20	7.65%	19-Mar-23	100	Complex*	CRISIL AA+/Stable
INE813H07093	Non-convertible debentures - series 3b	31-Mar-17	8.95%	6-Apr-22	85	Complex*	CRISIL AA+/Stable
INE813H07101	Non-convertible debentures - series 3c	31-Mar-17	8.95%	6-Apr-23	80	Complex*	CRISIL AA+/Stable
INE813H07127	Non-convertible debentures - series 6	6-Jul-20	7.30%	6-Jul-23	300	Complex*	CRISIL AA+/Stable
INE813H08018	Non-convertible debentures - series 4a	14-May-19	10.25%	13-May-22	90	Complex**	CRISIL AA+/Stable
INE813H08026	Non-convertible debentures - series 4b	14-May-19	10.25%	12-May-23	90	Complex**	CRISIL AA+/Stable
INE813H08034	Non-convertible debentures - series 4c	14-May-19	10.25%	14-May-24	90	Complex**	CRISIL AA+/Stable
INE813H07069	Non-convertible debentures - series 2b	25-Mar-13	10.35%	25-Mar-22	100	Simple	CRISIL AA+/Stable
INE813H07077	Non-convertible debentures - series 2c	25-Mar-13	10.35%	25-Mar-23	100	Simple	CRISIL AA+/Stable
INE813H07010&	Non-convertible debentures - series 1	26-Sep-12	10.35%	26-Sep-22	200	Simple	CRISIL AA+/Stable
INE813H07010&	Non-convertible debentures - series 1	26-Sep-12	10.35%	26-Sep-22	175	Simple	CRISIL AA+/Stable
INE813H07010&	Non-convertible debentures - series 1	26-Sep-12	10.35%	26-Sep-22	175	Simple	CRISIL AA+/Stable
NA	Commercial paper	NA	NA	7-365 days	1150	Simple	CRISIL A1+
NA	Cash credit	NA	NA	NA	1150	NA	CRISIL AA+/Stable
NA	Letter of Credit and Bank Guarantee	NA	NA	NA	2800	NA	CRISIL A1+
NA	Proposed short term bank loan facility%	NA	NA	NA	1861.1	NA	CRISIL A1+
NA	Proposed Letter of credit and Bank Guarantee	NA	NA	NA	700	NA	CRISIL A1+
NA	Proposed term loan	NA	NA	NA	4151.1	NA	CRISIL AA+/Stable
NA	Term loan 1	10-Mar-16	NA	30-Sep-32	1501.53	NA	CRISIL AA+/Stable
NA	Term loan 2	27-Sep-19	NA	30-Sep-32	530.91	NA	CRISIL AA+/Stable
NA	Term loan 3	14-Mar-16	NA	30-Sep-32	1032.45	NA	CRISIL AA+/Stable
NA	Term loan 4	14-Mar-16	NA	30-Sep-32	315.32	NA	CRISIL AA+/Stable
NA	Term loan 5	28-Mar-17	NA	30-Sep-32	421.96	NA	CRISIL AA+/Stable
NA	Term loan 6	28-Mar-17	NA	30-Sep-32	245.68	NA	CRISIL AA+/Stable
NA	Term loan 7	16-Jun-17	NA	31-Dec-27	262.1	NA	CRISIL AA+/Stable
NA	Term loan 8	16-Jun-17	NA	31-Dec-27	157.89	NA	CRISIL AA+/Stable
NA	Term loan 9	16-Sep-19	NA	30-Sep-30	609.98	NA	CRISIL AA+/Stable
NA	Term loan 10	16-Sep-19	NA	30-Sep-30	609.98	NA	CRISIL AA+/Stable
NA	Term loan 11	NA	NA	31-March-27	250	NA	CRISIL AA+/Stable

* 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. 366.63 cr has already been redeemed;

% - Interchangeable with long term bank facilities

@yet to be placed

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
Jodhpur Wind Farms Pvt Ltd	Full	100% ownership and strong operational and financial linkages
Latur Renewable Pvt Ltd	Full	100% ownership and strong operational and financial linkages
Torrent Solargen Ltd	Full	100% ownership and strong operational and financial linkages