Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL EL 2’ rating on the long-term bank facilities of Jaiprakash Power Ventures Ltd (JPVL).

 

The rating indicates very low expected loss (EL) over the life of the instruments given the long duration of the company’s power purchase agreements (PPAs) and commensurate fuel tie-ups for majority of its capacity. The rating also factors in the improved financial risk profile of JPVL underpinned by enhanced debt service coverage ratio (DSCR) post restructuring of the debt in April 2019 and established track record of operations. The EL rating is also supported by adequate liquidity in the form of working capital limit, presence of debt service reserve account (DSRA) and proceeds from sale of a non-core asset utilised for prepayment of principal instalments till June 2022 and a major portion of the September 2022 obligation. These strengths are partially offset by moderate operating efficiency and susceptibility of cash flow to the weak financial risk profiles of counterparties.

 

Based on discussions with the management and lenders of JPVL, the credit risk profile of JPVL will not be impacted by any unforeseen or adverse development pertaining to debt restructuring at group entity Jaiprakash Associates Ltd (JAL). Furthermore, CRISIL Ratings understands that corporate guarantees extended by JPVL for JAL’s external commercial borrowing from State Bank of India (which is now converted to rupee term loan) will be released in the current resolution plan of JAL and is unlikely to be invoked by the lenders. Any deviation from this will be a key rating sensitivity factor.

Key Rating Drivers & Detailed Description

Strengths

• Improvement in financial risk profile, driven by moderate DSCR and adequate liquidity

Post restructuring of debt in April 2019, total debt reduced to Rs 5,164 crore (includes long-term debt of Rs 4,695 crore) as on September 30, 2021, from Rs 11,149 crore (including working capital) as on March 31, 2019. With operating profit projected at Rs 1,200 crore for fiscal 2022 and Rs 1,100-1,200 crore over the medium term, cash flow should remain adequate to meet the restructured debt and capital expenditure (capex) creditors, translating into moderate DSCR.

 

Further, JPVL completed the sale of one of its non-core assets (Jaypee Powergrid Ltd) in March 2021 and used the cash consideration for prepayment of principal instalments till June 2022 and a major part of the September 2022 instalment from the operating cash flow of the Company. The rating further draws comfort from DSRA equivalent to three months of debt servicing in the form of cash worth about Rs 200 crore, which has been built as part of implementation of the debt resolution plan. Also, cushion of Rs 50-60 crore (as unutilised fund-based limit) supports liquidity.

 

JPVL plans to undertake capex of around Rs 1,195 crore (for adhering to emission norms as per government guidelines) over the next three fiscals, prudently funded through long-term debt (expected at Rs 4,800-4,900 crore over the medium term) and cash accrual. Sanction of new term loans from lenders and plans to sell other non-core assets will remain key monitorables. Further, as part of the resolution plan, JPVL is in the process of completing one of the conditions on promoter shareholding, satisfactory completion of which will remain closely monitored.

 

• Low 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.

 

Further, the Bina thermal power plant (installed capacity 500 MW) has long-term PPAs, valid for 25 years, covering 70% of the capacity with Madhya Pradesh. The fuel supply agreement 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.

 

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 Madhya Pradesh. With the expiry of earlier operational 100 MW PPA (PTC-I) with West Bengal (tariff Rs 4.24 per unit) in February 2022, a new medium-term PPA of 200 MW under PTC-II at a tariff of Rs 3.26 per unit is expected to be operationalised in fiscal 2023.

 

JPVL continues to pursue new PPAs for its balance capacities. For fuel security, the company has won the Amelia coal mine in Madhya Pradesh on reverse bidding of Rs 712/tonne. The mine caters to 2.8 MTPA, of the 5.7 MTPA fuel requirement; the balance is met through e-auctions. In view of the cost dynamics, the Nigrie plant has been able to sell the balance power on merchant at healthy margin consistently as compared to Bina.

 

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 90% for the first nine months of fiscal 2022 (86% and 86% in fiscals 2021 and 2020, respectively) while plant load factors (PLFs) were healthy at 75% (70% and 54%) despite lower quantum of PPAs for the plant. PAF for Bina moderated to 75% (from 95% and 85%) owing to plant breakdowns and domestic coal shortage faced during August-September 2021. This may result in shortfall of capacity charges by Rs 40-45 crore in fiscal 2022. However, this shortfall shall be mitigated by the revenue generated from the Nigrie plant with higher prevailing merchant tariffs. PLF for the Bina plant was low at 56% (against 38% and 57%) because of higher cost of generation. PLFs for the Vishnuprayag and Nigrie plants should remain healthy owing to lower cost of generation, while that for the Bina plant may continue to be constrained.

 

Weaknesses

• Average operating efficiency

Operating efficiencies for the thermal plants are constrained either by inadequate PPA tie-ups or dynamics around cost of generation. The Bina plant is distant from the mines, leading to high fuel costs and hence, the variable cost of generation from the plant is Rs 3.3 per unit. Therefore, despite a PPA for almost 70% of the capacity, the plant remains unfavourable for offtake by the counterparty i.e. Madhya Pradesh distribution companies (discoms). However, since the plant demonstrates higher than normative availability, the company continues to receive capacity charges of ~Rs 450 crore every year.

 

The Amelia coal mine (capacity of 2.8 MTPA) is allocated to JPVL for its Nigrie plant; this mine is sufficient to cater to 50% fuel requirement. Despite negative bidding for this coal mine, leading to under recovery of fuel costs, the variable cost of generation from this plant is around Rs 2 per unit. Therefore, the plant has been able to mitigate its lower quantum of PPAs by selling on merchant its higher generation. Both the plants continue to rely on e-auction coal for some part of its fuel requirement and therefore remain vulnerable to any unfavourable fluctuation of the same. Nevertheless, cost of generation along with movement of coal prices impacting the sustenance of healthy margin on merchant sales would remain closely monitored.

 

• 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 West Bengal and Madhya Pradesh discoms while Bina has a single PPA with Madhya Pradesh and Vishnuprayag with Uttar Pradesh. Overall receivables were comfortable at Rs 790 crore i.e. 88 days in fiscal 2021 (40 days and 48 days in fiscals 2020 and 2019, respectively). Receivables have increased to Rs 1,106 crore in fiscal 2022 (as of September 2021) owing to delays from the Madhya Pradesh discom; the ongoing Covid-19 pandemic-led disruptions and the inability of discoms to pay power generating companies on time further impacted cash flow. However, the Madhya Pradesh discom has been regular in paying the monthly bills from September 2021 onwards. Outstanding dues (largely pertaining to period prior to September 2021) are expected to be recovered from March 2022 onwards, with the discom receiving subsidies and grants from the state government. Extent of regular realisations and overall receivables level will remain key rating monitorables.

Liquidity: Adequate

JPVL has created a DSRA worth three months equivalent of debt servicing (~Rs 171 crore). The fund-based working capital limit was utilised at around 85% (for Bina and Nigrie) during the 12 months through November 2021. 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. The company received about Rs 354 crore from the sale of Jaypee Powergrid Ltd; the amount has been used for prepayment of principal instalments till June 2022 and a major portion of September 2022 instalment from the operating cash flow of the Company, thereby lowering the debt servicing requirements for subsequent periods. Further, the corporate guarantees provided by JPVL to group entities will be released by respective lenders at the time of implementation of their resolution plans and will have no adverse impact on the former.

Rating Sensitivity factors

Upward factors

• Steady improvement in liquidity and decline in outstanding receivables
• New offtake arrangements at remunerative tariffs, thereby improving operating profits

 

Downward factors

• Material delays in receipt of payments from counterparties, resulting in overall debtors of more than 120 days on a sustained basis
• Weakening of the operating performance, impacting cash flow and debt servicing
• Any obligation arising because of restructuring at associate/group company

About the Company

JPVL, incorporated in 1994, is promoted by JAL and operates 2,220 MW of power plants divided amongst three plants -- 500 MW at Bina thermal power plant, 1,320 MW at Nigrie thermal power plant and 400 MW at Vishnuprayag hydro power plant.

 

Operating income was Rs 3,218 crore and profit after tax (PAT) Rs 111 crore for the nine months ended December 31, 2021, against Rs 2,345 crore and Rs 33 crore, respectively, in the corresponding period of the previous year.

Key Financial Indicators*

As on / for the period ended March 31		2021	2020
Operating income	Rs crore	3302	3284
PAT	Rs crore	366	-3,505
PAT margin	%	10.9	-106.7
Adjusted debt/adjusted networth	Times	0.50	0.58
Interest coverage	Times	2.0	1.48

* As per analytical adjustment by CRISIL Ratings

Any other information: Not applicable