Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Moderate financial risk profile driven by a moderate DSCR and adequate liquidity

Post restructuring of the debt in April 2019, total debt reduced to Rs 5,595 crore (includes long-term debt of Rs 5,106 crore) as on December 31, 2020, from Rs 11,149 crore as on March 31, 2019. With improved overall operating profit of Rs 1,050 crore estimated for fiscal 2021 and expectation of its sustenance at Rs 1,000-1,100 crore over the medium term, cash flow should remain adequate to meet the restructured debt as well as capital expenditure (capex) creditors, translating into moderate DSCR.

Further, JPVL is expected to complete the sale of one of its non-core assets (Jaype Powergrid Ltd) in March 2021 and use the cash consideration to pay 4-5 quarterly principal obligations in advance. The rating further draws comfort from DSRA equivalent to three months of debt servicing in the form of cash of about Rs 202 crore, which has been built as part of implementation of debt resolution plan. Also, cushion of about Rs 100 crore in the form of unutilised fund based limits support liquidity.

JPVL plans to incur capex of around Rs 1195 crore (for adhering to emission norms as per government guidelines) spread over next three fiscals prudently funded through debt and cash accrual. Thus, long-term debt is expected at Rs 4,800-4,900 crore over the medium term. Furthermore, JPVL plans to sell its other non-core assets over the medium term and will remain key monitorable.

While the existing loans have a tenor till fiscal 2035, few of the PPAs are valid beyond that. Therefore, long economic life of the project provides enough tail period for refinance of the existing debt, in case of any mismatches, thereby indicating a very low EL for the lenders.

Low sales and fuel availability risk for majority of the capacity

JPVL’s Vishnuprayag hydro plant (400 megawatt [MW]) in Uttarakhand has long-term PPA for its entire capacity with Uttar Pradesh. Besides, this the company has two thermal plants as well. The Bina thermal 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 would cater to around 68% of the plant requirement, while the balance will be met through e-auctions.

The Nigrie thermal plant (installed capacity 1320 MW) has long-term PPAs, valid for 20 years, covering 37.5% of the capacity (495 MW) with Madhya Pradesh. A medium-term PPA of 100 MW with West Bengal at a tariff of Rs 4.24 per unit has also commenced supplies since February 2019. For fuel security, the company has won 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, balance 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 margins consistently as compared to Bina. The company continues to pursue new PPAs for balance capacities and has won in the last few years medium-term auction for 200 MW as well. 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 has also consistently shown plant availability. PAF was 90% in the 10 months of fiscal 2021 (84% and 87% in fiscals 2020 and 2019) while PLFs were also healthy at 69% (54% and 63% respectively) despite lower quantum of PPAs for the plant. While PAF for Bina has been above 85% for the past three years, PLFs have been lower because of its higher cost of generation. In view of the lower cost of generation for Vishnuprayag and Nigrie, PLFs are expected to remain healthy for these while remaining constrained for the Bina plant.

Weaknesses:

Moderate 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 is able to demonstrate higher than normative availability, the company continues to receive capacity charges of ~Rs 450 crore every year.

For the Nigrie plant, Amelia coal mine (capacity of 2.8 mtpa) is allocated to JPVL, which 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 vulnerable to the fluctuations of the same. Nevertheless, cost of generation along with movement of coal prices impacting the sustenance of healthy margins on merchant sales would remain a key monitorable.

Cash flow exposed to weak financial risk profiles of counterparties

Exposure to receivables collection risk persists given the weak credit risk profile of key consumers, which 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. With regular realisations from the respective counterparties, the overall receivables were comfortable at Rs 362 crore i.e. 40 days in fiscal 2020 (48 days and 32 days in fiscals 2019 and 2018, respectively). However, due to the ongoing Covid-19 pandemic and discoms’ ability to pay gencos on time being adversely impacted, receivables were elevated at about Rs 663 crore or 77 days as on December 31, 2020. Going forward, the extent of regular realisations and overall receivables level would be a key rating monitorable.