CRISIL has assigned its rating of ‘AAA/Stable’ to Power Grid Corporation of India Ltd’s (PGCIL’s) Rs.42.35-billion bond programme and has reaffirmed its ratings on the company’s other debt programmes and bank facilities at ‘AAA/Stable/P1+’.

The ratings continue to reflect PGCIL’s strategic importance to the Government of India (GoI), the company’s good operating efficiency, and strong cash accruals and revenues. The ratings also factor in the weak credit profiles of PGCIL’s main customers, the state electricity boards (SEBs).

PGCIL is the only company authorised to transport power across states: it carries 40 to 45 per cent of the total power generated in the country. In the past, GoI has not only provided equity support for PGCIL’s capital expenditure, but has also supported the company by guaranteeing loans it has taken from multilateral lending agencies. However, following the conclusion of its initial public offering (IPO) in 2007-08 (refers to financial year, April 1 to March 31) and given its strong cash accruals, the company is unlikely to require equity support from GoI for its future projects.

In 2007-08, PGCIL posted net cash accruals of Rs.17.5 billion and recovered all its costs. As on March 31, 2008, it had cash and cash equivalents of Rs.18.66 billion. CRISIL believes that PGCIL will continue to generate stable revenues and cash flows due to efficient operations and a regulated tariff structure. The structure ensures recovery of all expenses, including debt-servicing charges.

PGCIL’s key credit constraint, however, is the weak credit profiles of its main customers, the SEBs. Of late, SEBs have been making timely payments, but their credit profiles remain a rating sensitivity factor.

Outlook: Stable
CRISIL expects that PGCIL, aided by increasing demand for power and a regulated tariff regime, will maintain its strong credit profile, notwithstanding its debt-funded capital expenditure plans. The outlook could be revised to ‘Negative’ if SEBs delay or default in their payments to PGCIL.

About the company
PGCIL was incorporated in 1989 to set up extra-high voltage alternate current and high voltage direct current (HVDC) transmission lines. The company moves large blocks of power from the central generating agencies and areas that have surplus power to load centres within and across regions. The company is under the administrative control of the Ministry of Power, GoI. PGCIL owns and operates over 66,807 circuit kilometres of transmission lines, comprising mainly 400 kilovolt transmission lines and HVDC transmission systems. It has 111 sub-stations, carrying 40 to 45 per cent of the total power generated in the country. The company concluded its IPO in 2007-08, which reduced GoI’s shareholding in the company to 86.36 per cent from 100 per cent.

For the quarter ended June 30, 2008, the company reported a net profit of Rs.3.06 billion on net sales of Rs.12.94 billon. For the year ended March 31, 2008, the company posted a net profit of Rs.14.05 billion on net sales of Rs.43.12 billion, as against a net profit of Rs.11.79 billion on net sales of Rs.33.25 billion in the previous year.