| DB Power Limited | ||||||
| 'CRISIL A- / Stable / CRISIL A2+ ' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has assigned its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of DB Power Ltd (DBPL).
The rating reflects DBPL’s healthy business profile along with its established track record of healthy generation and healthy operating efficiency driven by a low cost of generation. These strengths are partially offset by a constrained capital structure and cash flows being exposed to weak financial risk profiles of counterparties. |
Key Rating Drivers & Detailed Description Strengths:
The take-or-pay PPAs with Tamil Nadu Generation and Distribution Corporation (TANGEDCO; ‘CRISIL A (CE)/Negative’) for 221 megawatt (MW) and Rajasthan distribution companies (discoms) (through PTC India) ensure complete recovery of fixed cost, subject to the plant achieving normative parameters. Proximity and access to coal mines of Coal India Ltd ('CRISIL AAA/Stable/CRISIL A1+') ensure adequate fuel supply for the respective PPAs, while balance is sourced through e-auctions. The company also supplies to Chhattisgarh discom for 60 MW at variable cost. Besides, the company also has a long-term PPA of 360 MW with Chhattisgarh, supplies under which are yet to commence. The company has filed a petition with the state regulatory commission in September 2019 for required approvals. Further, the company has won the medium term auction for 100 MW supply at Rs 3.26 per unit. Nevertheless, with almost half of the offtake being through firm offtake arrangements, DBPL’s ability to commence supplies for balance capacity would remain a key monitorable.
The tariff structure of the existing PPAs allows the company to recover its entire fixed cost, provided the plant availability factor (PAF) exceeds the normative plant availability of 85%. PAF improved to 97% in 10 months of fiscal 2021 from 83% during the previous fiscal due to improved coal supply. It is expected to remain higher than the normative level, driven by better coal supply situation and healthy coal stock available at the plant. Nonetheless, coal availability and its impact on plant availability will remain key monitorables.
Further, the company has demonstrated a healthy track record of generation despite only 51% of its installed capacity having PPAs. Plant load factor (PLF) improved to 76% in 10 months of fiscal 2021 from 61% in the previous fiscal, driven by higher demand. The company has also been able to sell around a fifth of its supplies through bilateral trades or merchant sales for up to four months. This has supported the overall generation and the company is expected to continue supplying at around 80% PLFs in fiscal 2022 as well.
Operating efficiency is driven by proximity to coal mines and railway siding. This ensures adequate coal supply and also lower coal handling, transportation costs and transit losses. Consequently, the variable cost of generation is low, which ensures favourable offtake through the respective PPAs. Moreover DBPL has also been able to demonstrate robust volumes on bilateral/merchant at healthy net margins of 70-80 paisa. Ability to sustain volumes on short term at healthy profitability will remain closely monitored.
Weaknesses
DBPL's counterparties have weak credit risk profiles. Overall receivables rose to 189 days as on March 31, 2020, from 122 days a year earlier. Lower collections from the counterparties (TANGEDCO and Rajasthan) have stretched overall liquidity. Overall receivables, however, came down to Rs 1,398 crore as on December 31, 2020, from Rs 1,477 crore as on March 31, 2020, owing to the realisation of Rs 262 crore through the Atma Nirbhar package. The company continues to receive late payment surcharge on the delayed payments from discoms. However, any substantial build-up of receivables or reduction in available liquidity may weaken the credit risk profile. Though the company expects the second tranche of liquidity infusion of about Rs 300 crore over the next couple of months, the timelines of these and the impact on overall receivables needs to be monitored. Any delay in payment from counterparties, coupled with higher generation, may continue to stretch the working capital cycle.
The debt (including outstanding fund based working capital limits) to earnings before interest, tax, depreciation and amortisation ratio remained above 5 times in the past five fiscals. Interest coverage ratio was weak at 1.98 times in fiscal 2020 (1.38 times in fiscal 2019), as was the adjusted gearing at 2.63 times as on March 31, 2020 (3.09 times a year ago). The company had earlier availed of the moratorium on debt servicing for March to August 2020. However, debt protection metrics are expected to improve owing to reduced working capital intensity. Liquidity may also be further augmented in the near term through realisation of overdue receivables from respective counterparties. |
Liquidity: Strong Expected annual cash accrual of Rs 1,200-1,300 crore per annum over the next two fiscals will adequately cover yearly debt obligation of Rs 700-800 crore. Furthermore, DBPL has created a debt service reserve account of three months equivalent of debt servicing (Rs 204 crore). The company’s fund-based working capital limit utilisation (sanctioned limit of Rs 775 crore) was around 68% during the 12 months through January 2021. The limit was utilised at an average of Rs 150 crore during the period Dec’20 to Feb’21. Further, the company maintains cash and equivalents of Rs 100-120 crore. The company expects further realisations from the second tranche of funds being provided to discoms as a part of the Atma Nirbhar package. Sustenance of liquidity would remain closely monitored. |
Outlook Stable The business risk profile should remain healthy over the medium term on the back of a steady operational performance. Liquidity in the form of a DSRA and undrawn bank lines amidst steady realisations support the financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company DBPL, a part of Dainik Bhaskar group, company operates a coal-based thermal power plant of 1,200 MW (2x600 MW) at Janjgir-Champa district of Chhattisgarh, India. The project has received equity contribution from large global private equity firms such as Warburg Pincus, TRG and Global Infrastructure Partners. The plant commenced operations in fiscal 2016. |
Key Financial Indicators*
* As per CRISIL’s analytical adjustment |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
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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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