Rating Rationale
September 04, 2023 | Mumbai
GMR Warora Energy Limited
‘CRISIL BBB-/Stable/CRISIL A3’ assigned to Bank Debt and Non Convertible Debentures
 
Rating Action
Total Bank Loan Facilities RatedRs.2520 Crore
Long Term RatingCRISIL BBB-/Stable (Assigned)
Short Term RatingCRISIL A3 (Assigned)
 
Rs.66 Crore Non Convertible DebenturesCRISIL BBB-/Stable (Assigned)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank loan facilities and non-convertible debenture of GMR Warora Energy Ltd (GWEL).

 

The rating reflects moderate offtake risk and low fuel availability risks due to long-term power purchase agreements (PPAs) with fuel cost passthrough. GWEL has tied up 58% of its overall capacity in long term PPAs and 25% of its capacity through medium term PPA. Low fuel availability risk stems owing to fuel supply agreements (FSA) for supply of coal up to 2.6 million tonnes per annum (MTPA) which covers for majority requirement at the plant availability factor (PAF) of 85%.

 

The rating also factors adequate business risk profile, modest financial risk profile and stable track record post implementation of resolution plan (RP) under Prudential Framework for Resolution of Stressed Assets. The company earned earnings before interest, tax, depreciation and amortization (EBITDA) of Rs 483 crore during fiscal 2023 against Rs 431 crore in fiscal 2022 backed by ability to tap the merchant markets at healthy margins. Operating performance is expected to sustain over the medium term on back of expectation of power offtake to stronger counterparty at higher tariff and realisation of healthy margin in the merchant market.

 

Liquidity is supported by Debt Service Reserve Account (DSRA) of two quarters, additional maintenance of around Rs 70 crore of cash buffer (on the balance sheet) as on March 31, 2023 and moderately utilised bank limits (cushion of around Rs 100 crore as on August 23, 2023). These strengths are partially offset by exposure to risks related to merchant price movements, and the weak credit risk profiles of the counterparties. Further, timely renewal of PPAs expiring in the near to medium term and timely receipt of receivables due will remain a key monitorable.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profile of GWEL.

Key Rating Drivers & Detailed Description

Strengths:

  • Moderate offtake and low fuel risk owing to PPAs and FSAs: The company has visibility on off-take of power generated as it has tied up 58% of its capacity through long term PPAs with Tamil Nadu Generation and Distribution Corporation Ltd [TANGEDCO; rated ‘Provisional CRISIL A (CE)/ Negative] and Maharashtra State Electricity Distribution Company Ltd (MSEDCL) with residual tenure of around five years and sixteen years respectively.  Further, 25% of capacity is currently tied up with Gujarat Urja Vikas Nigam Ltd (GUVNL) till October 31, 2023 which is expected to be tied up with another power distribution company at remunerative tariff basis the recent pricing trend of PPAs in the thermal segment and the prevailing power demand-supply situation. However, timely tie up of the capacity will remain a key monitorable which will otherwise be exposed to merchant tariff rates.

 

Additionally, the company has contracted coal from South Eastern Coalfields Ltd (SECL) and Western Coalfield Ltd (WCL) for supply up to 1.3 MTPA each under PPA, thus meeting 75% of the requirements while remaining 25% is expected to be met through e-auction. WCL mines are located at 50 km distance from GWEL plants resulting into significant freight cost savings with majority of the e-auction coal also being supplied from the mines leading to fuel security.

  • Established track record of healthy normative plant availability factor (PAF) and utilization: The recovery of capacity charges under PPAs is linked to maintenance of PAF. The plant has consistently maintained normative PAF of over 85% in the past two fiscals through fiscal 2023, which has ensured recovery of the capacity charges. The average plant load factor (PLF) has also remained healthy over the past two years. Given the adequate fuel tie-up and healthy merchant power tariff, the plant may continue to achieve higher-than-normative PAF and sustain a healthy PLF over the medium term.
     
  • Modest financial risk profile: The financial risk profile is modest owing to weak cash flows in the past and recent implementation of RP. Total debt to EBITDA and gearing ratios stood at 5.8 times and 4.7 times respectively, as on March 31, 2023 with adjusted interest coverage at 1.6 times. The company doesn’t have significant capex plans apart from flue gas desulphurisation (FGD) project to be implemented in fiscal 2026 and 2027 entailing cash outflow of Rs 506 crore to be funded in debt-to-equity ratio of 3:1. The long tenure of the restructured debt with interest rate fixed at 8.5% should support the financial risk over the medium term.

 

Weaknesses:

  • Weak credit risk profile of counterparties with track record of delayed payment :The company is exposed to risk of irregular cash flows due to inherent weak financial profile of counterparties like TANGEDCO and MSEDCL. The receivables days of the company are stretched with past dues from counterparties like TANGEDCO and MSEDCL and stood at around 198 days. However, the receivable position is expected to improve with company gradually realising the receivables due. The same shall be monitorable.

 

  • Exposure to risks related to merchant price movement: The company sells power generated of around 10% of the overall capacity on power exchanges, which exposes this capacity to volatility in merchant rates. Accordingly, it remains exposed to the volatility in demand and margins in short-term markets which depends on various factors including peak power deficit, coal prices and its availability.

Liquidity: Adequate

Liquidity is marked by DSRA equivalent to six months of debt obligations (around Rs 117 crore), present surplus DSRA balance of around Rs 60 crore. It is further supported by moderately utilized  fund based working capital lines of Rs 325 crores and unencumbered cash and equivalents of Rs 12 crore as on March 31, 2023. Annual cash accrual and unutilised bank lines should suffice to meet the debt obligations, maintenance capex and any incremental working capital requirements during fiscal 2024.

Outlook: Stable

The business risk profile of GWEL should remain stable over the medium term, backed by its steady operational performance. Adequate liquidity, in the form of a DSRA and undrawn bank lines along with stable realisations will support the financial risk profile

Rating Sensitivity factors

Upward factors:

  • Renewal of PPA at favourable tariff such that more than 80% capacity is tied up and improves revenue visibility over the tenure of loan repayment resulting in sustained improvement in debt service coverage ratio (DSCR)
  • Sustained improvement in liquidity, utilized to prepay future bank loan obligations

 

Downward factors:

  • Any material delay in receipt of payments from counterparties weakening the liquidity position
  • Pressure on operating performance with PAF falling below normative levels (85%), thereby impacting cash flow and debt servicing leading to DSCR below 1.1 times.

About the Company

GWEL, formerly EMCO Energy Limited (EEL), subsidiary of GMR Energy Ltd (GEL) is a special purpose vehicle (SPV), initially promoted by EMCO Group in 2005 to set up a 2*135 MW coal-based power plant at MIDC, Warora Taluka, Chandrapur, Maharashtra. The promoters of EEL sold 100% stake in EEL to GEL in July 2009.

 

Post-acquisition, the scope of the project was enhanced from 2*135 MW to 2*300 MW. The plant building process began in Jan 2010 and units were successfully commissioned in March  and September 2013 respectively. Currently, GWEL operates 600 MW (2*300 MW) coal based power plants.

Key Financial Indicators

Particulars

Units

2023

2022

Revenue

Rs crore

1,690

1,407

PAT

Rs crore

168

(49)

PAT margin

%

9.9

(3.5)

Adjusted debt/adjusted networth

Times

4.69

9.49

Adjusted interest coverage

Times

1.63

1.13

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Non-Fund Based Limit NA NA NA 254.5 NA CRISIL A3
NA Fund-Based Facilities NA NA NA 325 NA CRISIL BBB-/Stable
NA Term Loan 10-Jun-2022 8.5% 31-Mar-2037 117.64 NA CRISIL BBB-/Stable
NA Term Loan 12-Jul-2022 8.5% 31-Mar-2037 84.33 NA CRISIL BBB-/Stable
NA Term Loan 13-Jul-/2022 8.5% 31-Mar-2037 158.03 NA CRISIL BBB-/Stable
NA Term Loan 24-Aug-2022 8.5% 31-Mar-2037 136.8 NA CRISIL BBB-/Stable
NA Term Loan 5-Apr-2022 8.5% 31-Mar-2037 686.94 NA CRISIL BBB-/Stable
NA Term Loan 4-Aug-2022 8.5% 31-Mar-2037 504.46 NA CRISIL BBB-/Stable
NA Term Loan 14-Jun-2022 8.5% 31-Mar-2037 252.3 NA CRISIL BBB-/Stable
INE124L07097 Non Convertible Debentures 25-Sept-2014 8.5% 31-Mar-2024 66 Simple CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 2265.5 CRISIL BBB-/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 254.5 CRISIL A3   --   --   --   -- --
Non Convertible Debentures LT 66.0 CRISIL BBB-/Stable   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 35 UCO Bank CRISIL BBB-/Stable
Fund-Based Facilities 121.25 Union Bank of India CRISIL BBB-/Stable
Fund-Based Facilities 53.75 Bank of Baroda CRISIL BBB-/Stable
Fund-Based Facilities 115 Axis Bank Limited CRISIL BBB-/Stable
Non-Fund Based Limit 100 Axis Bank Limited CRISIL A3
Non-Fund Based Limit 40 IDBI Bank Limited CRISIL A3
Non-Fund Based Limit 108.25 Union Bank of India CRISIL A3
Non-Fund Based Limit 6.25 Bank of Baroda CRISIL A3
Term Loan 117.64 Bank of Baroda CRISIL BBB-/Stable
Term Loan 84.33 Punjab and Sind Bank CRISIL BBB-/Stable
Term Loan 158.03 UCO Bank CRISIL BBB-/Stable
Term Loan 136.8 ICICI Bank Limited CRISIL BBB-/Stable
Term Loan 686.94 State Bank of India CRISIL BBB-/Stable
Term Loan 504.46 Union Bank of India CRISIL BBB-/Stable
Term Loan 252.3 Punjab National Bank CRISIL BBB-/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Power Generation Utilities
The Infrastructure Sector Its Unique Rating Drivers
CRISILs Criteria for rating short term debt

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