Rating Rationale

Key Rating Drivers & Detailed Description - Probability of Default

Strengths:

Moderate sales and fuel availability risk for majority of capacity

The 400-megawatt (MW) hydro plant at Vishnuprayag in Uttarakhand has a long-term power purchase agreement (PPA) for its entire capacity with Uttar Pradesh and plant has demonstrated consistent recovery of capacity charges historically.

Further, the Bina thermal power plant (installed capacity 500 MW) has long-term PPAs, valid for 25 years, covering 70% of the capacity with MP Power Management Co. Ltd (MPPMCL). The fuel supply agreement (FSA) of 1.5 million tonne per annum (MTPA) for the plant is with Central Coalfields Ltd and South-Eastern Coalfields Ltd, subsidiaries of Coal India Ltd. This caters to around 68% of the plant requirement, while the balance will be met through e-auctions. Despite a relatively higher PPA, the plant remains unfavourable for offtake by the counterparty due to plant’s distance from the mines, leading to high fuel costs and hence, the variable cost of generation from the plant is high at Rs 3.3 per unit.

The Nigrie thermal plant (installed capacity 1,320 MW) has long-term PPAs, valid for 20 years, covering 37.5% of the capacity (495 MW) with MPPMCLalong with a medium-term PPA for 50 MW capacity through PTC India Ltd (with Tamil Nadu discoms) valid till fiscal 2025. For fuel security, the company has captive Amelia coal mine in Madhya Pradesh on reverse bidding of Rs 712/tonne. The mine caters to 3.36 MTPA as of March 2023 (2.8 MTPA as of March 2022), of the 5.7 MTPA fuel requirement; the balance is met through e-auctions. Further, Nigrie plant is in coal belt and sources most of its coal requirement from captive mine, therefore, procurement cost (Rs 1.6 per unit) is much lower than Bina, hence, it is more competitive for supplying in merchant markets.

That said, JPVL has diverse portfolio of thermal and hydro power plants along with cost plus PPAs for around 56% of the capacity with corresponding fuel arrangements (including captive mine) for around 64% of the capacity. This is also aided by proximity of its thermal power plants to coal mines. Nevertheless, ability to get into new PPAs at remunerative tariffs would remain a key monitorable.

Established track record of operations

The Vishnuprayag plant has consistently demonstrated plant availability factor (PAF) of over 99%, well over normative levels, for the past five fiscals ensuring full recovery of costs. The Nigrie thermal plant also reported PAF of 87% for the full fiscal 2023 (88% and 86% in fiscals 2022 and 2021, respectively) while plant load factors (PLFs) were healthy at 70% (72% and 70%) despite lower quantum of PPAs for the plant. Also, Bina plant has reported PAF around normative levels of 85% for fiscal 2023 (previous fiscal 74%). PAF for all three plants is expected to remain above normative levels going forward.

Weaknesses:

Average financial risk profile, marked by significant debt-funded capex to be incurred over the medium term

Post restructuring of debt in April 2019, total debt reduced to Rs 2.2 crore per MW which is one of the lowest in its peer group. However, JPVL plans to undertake debt funded capex of around Rs 1,195 crore (for implementation of flue gas desulphurisation (FGD) plant for adhering to emission norms as per government guidelines) over the medium term (on or before December 2026), for which funding is yet to be secured by the company. Ability of the company to get timely sanction of new term loans from lenders will remain a key monitorable. The rating further draws comfort from DSRA (partly utilized in March-2023 but replenished in April-2023) equivalent to three months of debt servicing in the form of cash worth about Rs 200 crore. Also, cushion of Rs 50-60 crore (as unutilized fund-based limit) supports liquidity.

Exposure of cash flow to weak financial risk profiles of counterparties

Exposure to receivables collection risk persists given the weak credit risk profile of key consumers, who are primarily state discoms. The Nigrie plant has PPA with Tamilnadu (through PTC) and Madhya Pradesh discoms while Bina has a single PPA with Madhya Pradesh and Vishnuprayag with Uttar Pradesh. Overall receivables have increased to Rs 1,112 crore i.e. 74 days in fiscal 2023 (67 days and 88 days in fiscals 2022 and 2021, respectively). Any further build-up of receivables and delayed collections from counterparties resulting in weakening of the credit risk profile will remain key monitorables.

Liquidity: Adequate

JPVL is maintaining a DSRA (partly utilized in March-2023 but replenished in April 2023), equivalent to three months of debt servicing (~Rs 202 crore). The fund-based working capital limit was utilised at around 83% (for Bina and Nigrie) during the 12 months through March 2023. Annual net cash accruals of Rs ~400-500 crores are sufficient to fund the debt obligations & equity portion of the capex over the next two fiscals. Liquidity is also aided by the presence of four Trust and Retention accounts, which ensure that surplus cash gets trapped in the system and is used for debt servicing or for meeting operational expenses as permitted by lenders.

Loss Given Default (LGD) Assessment – Key drivers

While assessing LGD, CRISIL Ratings has considered several probable events which may lead JPVL into a default. For each of these events, CRISIL Ratings has also evaluated their associated probabilities and likely loss levels, as detailed below.

S. No	Events	Event probability	Probable resolution strategy	Loss estimates
1	Counterparty linked delays	Moderate	Liquidity infusion or debt restructuring	Very low
2	Coal supply issues	Moderate	Debt restructuring	Moderate
3	Untied capacities and higher reliance on short term markets	Low	Debt restructuring	Moderate
4	Regulatory issues	Very low	Debt restructuring or moratorium	Very low
5	Others (like force majeure events, invocation of corporate guarantee, delay in FGD capex etc.)	Very low	Debt restructuring	Very low

Please refer to the annexure for details on the qualifiers used

CRISIL Ratings assumes a mutually exclusive probability for each of the probable events while arriving at the corresponding loss estimates (haircut) for the lenders.

Counterparty issues: JPVL has two major counterparties, MPPMCL for its coal plants (1820 MW) and UP discoms for its Hydro plant (400 MW). These counterparties are state discoms having weak credit risk profile exposing JPVL to receivables’ collection risk. While billing and collections from these counterparties are timely at present, there are disputed receivables which form around 52% of the total receivables as of March 2023. Company is contesting these disputed receivables at Appellate Tribunal for Electricity (APTEL) and expects recovery of these receivables. Still, JPVL is exposed to counterparty issues which have a moderate probability of occurrence and can arise on account of delay in payments from state discoms and other private counterparties.

Such events generally result into very low haircut for the lenders and in most of the cases will be absorbed majorly by the equity shareholders. The most probable resolution strategy in such cases will be infusing liquidity or debt restructuring.

Coal supply issues: JPVL has two thermal power plants with combined capacity of 1820 MW. It has secured 64% of its fuel requirement of 8.5 MTPA at 85% normative PLFs through Fuel Supply Agreements (1.54 MTPA) and owned captive coal mine (3.36 MTPA). Balance 36% fuel requirement is sourced through e-auctions. While both the plants of company are located in the coal belt having higher probability of sourcing coal on timely basis, it is still exposed to issues which can occur on account of any ban on coal mining in the area where coal is supplied from, increase in fuel or transportation prices or shortage of coal causing a sudden disruption to the plant’s operations bringing down the PLF below the expected levels.

The probability of occurrence of these issues is moderate and such events can result into a moderate haircut for the lenders. The most probable resolution strategy in such cases will be debt restructuring.

Untied capacities and high reliance on short term markets: JPVL currently has long term (> 20 years) power purchase agreements for around 56% of its overall capacity (2220 MW). However, a large part of its capacity is still untied due to which dependency on short term markets (bilateral arrangements and merchant markets) had always been high. During fiscal 2023, 26% of overall PLFs (66%) of JPVL has come from short term sales as against 28% during fiscal 2022. Untied capacities (975 MW) coupled with unexpected events such as subdued merchant power demand and prices, can put pressure on the financial risk profile of JPVL.

Although, the probability of occurrence of these issues is low, in case such as event happens, it can result into moderate haircut for the lenders. The most probable resolution strategy in such cases will be debt restructuring.

Regulatory issues: Such issues have a very low probability of occurrence and can arise on account of change in payment mechanism or tariff mechanism. For example, significant delays in determination of tariffs or disallowance of some of the cost by regulator resulting in under recoveries of cost for the company, potential levy of carbon / climate taxes on the thermal power plants in future etc.

Such issues shall mostly be absorbed by the equity holders. However, in some cases if the issue is dragged for a prolonged period it may result into very low haircut for the lenders. The most probable resolution strategy in such cases will be a debt moratorium for around two years.

Others: Other potential events which may lead JPVL into a default can be force majeure events such as natural calamities like flood, earthquake, pandemic etc., although their probability is expected to be low. Some of the other such events could be invoking by the lenders of the corporate guarantees provided by JPVL for its group entities, which can potentially increase the liability profile of JPVL. The most likely resolution strategy in this case will be debt restructuring by loading the guaranteed debt in line with cashflows of JPVL. If invoked for entire amount, it can result in financial burden on JPVL. Also, inability to complete flue gas desulphurization capex within regulatory timelines, delay or disapproval of FGD capex for determination of PPA tariffs can impact the operating performance and financial profile of the company.

Resolution strategy: The most likely resolution strategy in this case will be a debt restructuring with very low haircut for the lenders.

CRISIL Ratings’ estimates the overall LGD for JPVL will be on the lower side in case of a default. This is given Vishnuprayag hydro plant must run on the merit order scale for Uttar Pradesh discom and consistent scheduling of power from Nigrie plant by Madhya Pradesh discoms due to lower marginal cost of generation of Nigrie plant.