Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Jhajjar Power Ltd (JPL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL AA-’. The rating for the commercial paper programme has been reaffirmed at ‘CRISIL A1+’.

 

The ratings factor in healthy operating performance, as reflected by steady plant availability factor (PAF) / plant load factor (PLF) levels above normative 80% PAF, consistent realisation of undisputed monthly billings within 30 days and fuel cost recovery on account of station heating rate operating below quoted levels.

 

Moreover, JPL is to receive a total of Rs 1,170 crore, including interest for the last 10 years, from Haryana distribution companies (discoms) in lieu of disputes pertaining to date of commercial operation impacting applicable rate of capacity charges, penalties for lower availability, payment of transit loss etc., basis mutually agreed resolution. Of this, Rs 38 crore was released in fiscal 2023 and the remaining Rs 1,132 crore is to be paid in six equal monthly installments starting April 2023. Till September 30, 2023, JPL has received five tranches amounting to Rs 892 crore (adjusted for tax deducted at source) in fiscal 2024. This has improved the company’s receivables and liquidity position and JPL plans to partially utilise these proceeds to prepay/repay existing loans, consequently improving coverage ratios. However, the final order from the Appellate Tribunal for Electricity (APTEL) is yet to come and will remain a key monitorable.

 

The company has also used Rs 146 crore from the settlement proceeds to pay revised land cost due to increase in compensation demanded by farmers for around 500 acres of land. However, this is not expected to have any economic impact on JPL as the cost will be recovered under ‘change in law’ for which the company petitioned has its claim with the Central Electricity Regulatory Commission (CERC). CRISIL Ratings takes note that owners of land parcels of another ~700 acres have still not initiated requisite judicial proceedings, and hence, compensation due to them is yet to be estimated.

 

Long-term debt was around Rs 1,417 crore as on July 31, 2023, reduced from Rs 1,982 crore as on March 31, 2023. Average debt service coverage ratio (DSCR) for the debt servicing period of fiscals 2025 to 2032 has improved to over 1.7 times and project life coverage ratio (PLCR) was ~2x on factoring the tail period of six years. Bank lines were utilised at 40% on average for the 12 months through July 2023. Liquidity continues to remain adequate at around Rs 200 crore as on August 31, 2023, and the debt service reserve account (DSRA) of six months in the form of bank guarantee.

 

Furthermore, the company receives payments from counterparties within 30 days of submission of bills, leading to healthy working capital cycle.

 

The ratings continue to reflect the company’s low offtake risk owing to power purchase agreements (PPAs), established track record of healthy generation and comfortable financial risk profile. These strengths are partially offset by exposure to risks related to weak credit risk profiles of counterparties.

Analytical Approach

CRISIL Ratings has assessed the standalone credit risk profile of JPL, which is a 100% subsidiary of Apraava Energy Pvt Ltd (AEPL), which in turn is a 50:50 joint venture between CLP Holdings Ltd, Hong Kong (CLP Holdings; rated 'A/Stable/A1' by S&P Global) and the Canadian pension fund, Caisse de depot et placement du Quebec (CDPQ; rated ‘AAA/Stable/A-1+’ by S&P Global).

 

However, CRISIL Ratings continues to factor in the company’s robust financial flexibility on account of strong shareholders of AEPL - JPL’s ultimate parents - in its assessment.

Key Rating Drivers & Detailed Description

Strengths:

• Low offtake risk: The 25-year PPAs till 2037 mitigate offtake risks and enhance revenue visibility as offtake, at a specified tariff, is assured for the entire power generated. The tariff structure allows the company to recover its entire fixed cost, provided the plant achieves a normative plant availability (PAF) of 80%. Furthermore, operating profitability is protected from adverse movements in domestic or international prices of coal because variable cost is passed through as part of the tariff structure, subject to normative station heat rate and auxiliary consumption.

 

• Established track record of generation: The company has demonstrated a healthy track record of generation and consistently reported above-normative PAF since fiscal 2015. PAF was 86% in fiscal 2023 (81% in fiscal 2022) leading to full recovery of fixed cost. The PAF is expected to remain higher than the normative level over the medium term, driven by adequate coal supply under the fuel supply agreement (FSA) with Coal India Ltd (CIL; ‘CRISIL AAA/CCR AAA/Stable/CRISIL A1+’) for 5.2 metric tonne per annum (MTPA) and coal stock available at the plant. In the past, in case of non-availability of domestic coal, JPL was also allowed to use imported coal to meet fuel shortfall, ensuring higher-than-normative PAF. Nonetheless, coal availability and its impact on plant availability will remain key monitorables.

 

PLF improved to 71% in fiscal 2023 from 67% in fiscal 2022, driven by higher demand. Variable fuel cost is being consistently recovered as net heat rate has been consistently below PPA-mandated 2,396 Kcal/Kwh, resulting in savings in fuel cost. Operating performance is expected to remain healthy over the medium term.

 

• Comfortable financial risk profile: Networth was strong at Rs 3,388 crore and gearing low at 0.72 time as on March 31, 2023. Interest coverage ratio improved to 6.0 times in fiscal 2023 from 3.2 times in fiscal 2022 backed by healthy cash accrual and income accrued from the dispute settlement. Furthermore, JPL has strong liquidity with free cash balance of around Rs 200 crore and sanctioned working capital (by Board and part of overall indebtedness) bank lines worth Rs 1,250 crore as on August 31, 2023. It also maintains a DSRA of two quarters in the form of a bank guarantees. The financial risk profile is supported by the presence of two strong shareholders of Apraava Energy Private Limited (holding company of JPL), CLP Holdings and CDPQ, which have substantial financial flexibility and are expected to provide need-based support to JPL. With healthy accrual and no major capital expansion plans, and the company being flue gas desulphurization (FGD) compliant since commissioning, the financial risk profile is expected to remain healthy over the medium term. Any plan to leverage the company or upstream significant cash flow to support AEPL, will be key monitorables.

 

Weakness:

• Susceptibility to weak credit risk profiles of counterparties: Around 90% of JPL’s power capacity is tied up with discoms of Haryana—Dakshin Haryana Bijli Vitran Nigam Ltd and Uttar Haryana Bijli Vitran Nigam Ltd—which have weak financial risk profiles on account of high aggregate technical and commercial losses. The remaining 10% capacity is tied up with Tata Power Trading Company Ltd (TPTCL). To mitigate counterparty risk, PPAs provide three-tier payment security mechanism, in the form of a revolving, irrevocable letter of credit equivalent to 1.1 times the monthly billing, a default escrow mechanism and the option of sale of contracted power to third parties. Furthermore, the plant is one of the largest private independent power producers in Haryana, and hence, important to state discoms.

Liquidity: Strong

Cash and equivalent was around Rs 200 crore as on August 31, 2023 while drawn working capital bank limits of Rs 1,000 crore (out of sanctioned Rs 1,250 crore) were utilised at ~40% on average. Liquidity is aided by the presence of DSRA of six months in the form of bank guarantee and high refinancing ability. In the absence of major debt-funded capital expenditure (capex), the cash accrual, cash and equivalent, and unutilised bank lines will comfortably cover debt obligation and incremental working capital requirement over the medium term. Moreover, the settlement of disputes will aid liquidity.

Outlook: Positive

Liquidity and coverage ratios have improved due to one-time settlement with Haryana discoms. JPL will continue to benefit from the long-term PPAs, resulting in healthy cash accrual, subject to achievement of normative plant availability.

Rating Sensitivity factors

Upward factors:

• Favourable resolution from APTEL regarding disputes with Haryana discoms and TPTCL
• Further debt reduction leading to improvement in average DSCR to more than 2 times over the remaining project life

 

Downward factors:

• Unfavourable outcome for JPL from APTEL
• Normative PAF less than 80% on sustained basis
• Increase in leverage leading to weakening of the financial risk profile

About the Company

JPL is a SPV promoted by AEPL. Its units were commissioned in March and July 2012. Initial project cost of Rs 6,035 crore was funded in debt-to-equity ratio of 65:35. AEPL won the bid for the 1,320-MW coal-based plant by quoting a tariff of Rs 2.996 per kilowatt hour (kWh). The tariff structure of the project has two components: quoted non-scalable capacity charge, payable at normative PAF of 80%, and fuel charges payable based on quoted net heat rate of 2,396 kilocalorie per kWh. The quoted net heat rate-linked recovery of fuel charges allows fuel cost to be passed through in the tariff structure. JPL has signed PPAs, valid for 25 years, with two Haryana-based discoms for 90% of its generation capacity, and TPTCL for the remaining 10%.

Key Financial Indicators (CRISIL Ratings-adjusted numbers)

As on / for the period ended March 31		2023	2022
Operating income	Rs crore	4263*	3442
Profit after tax (PAT)	Rs crore	921**	-69
PAT margin	%	22	-2
Adjusted debt / adjusted networth	Times	0.72	0.85
Adjusted interest coverage	Times	6.01	3.16

*includes other income of Rs 651 crore

**includes reversal of impairment of Rs 500 crore

Any other information: Not applicable

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	Long-term loan	NA	NA	Nov-23	21.89	NA	CRISIL AA-/Positive
NA	Long-term loan	NA	NA	Dec-24	55.41	NA	CRISIL AA-/Positive
NA	Long-term loan	NA	NA	Nov-23	20.35	NA	CRISIL AA-/Positive
NA	Long-term loan	NA	NA	Nov-23	9.6	NA	CRISIL AA-/Positive
NA	Long-term loan	NA	NA	Dec-23	0.39	NA	CRISIL AA-/Positive
NA	Long-term loan	NA	NA	Apr-25	61.1	NA	CRISIL AA-/Positive
NA	Long-term loan	NA	NA	Mar-32	391.52	NA	CRISIL AA-/Positive
NA	Proposed long-term bank loan facility	NA	NA	NA	439.74	NA	CRISIL AA-/Positive
NA	Commercial paper	NA	NA	7-365 days	800	Simple	CRISIL A1+