Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+ (CE) /Stable’ rating on the non-convertible debentures (NCDs) of Latur Renewable Pvt Ltd (LRPL). CRISIL Ratings has withdrawn its rating on NCDs worth Rs 100 crore (see 'Annexure: Details of Rating Withdrawn'). The withdrawal is based on independent confirmation of redemption of these instruments and at the company’s request, in line with the withdrawal policy of CRISIL Ratings.

 

Operational performance improved in fiscal 2024, with average plant load factor (PLF) of 34.41% against 31.0% in fiscal 2023, and was higher than the P-90 levels for the first time over the last 4 years (assessed at the time of implementation of the project). Furthermore, generation continued to remain heathy and above P-90 levels during the initial eight months of fiscal 2025, with average PLF of 35.9%, but remained lower than 40.8% seen during the same period previous fiscal. Further, the average receivables days continued to remain within 3 months, which is in line with expectations. CRISIL Ratings will continue to monitor PLF levels and the receivables cycles as key rating sensitivity factors.

 

The rating on the NCDs is based on the strength of the unconditional and irrevocable corporate guarantee from the parent of LRPL, Torrent Power Ltd (TPL; CRISIL AA+/Stable/CRISIL A1+). The guarantee covers the principal, interest and other monies payable on these NCDs. The payment mechanism is administered by the debenture trustee to ensure timely payment of coupon and redemption on respective scheduled due dates. Any adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism are key rating sensitivity factors. (Refer to any other information section for ‘Payment Mechanism for NCDs’).

Analytical Approach

CRISIL Ratings has applied its criteria on rating instruments backed by guarantees. The (CE) suffix reflects the payment structure, which is designed to ensure full and timely payment to lenders on account of the corporate guarantee by TPL.

Key Rating Drivers & Detailed Description

Strengths:

• Unconditional and irrevocable corporate guarantee from the parent: The NCDs have an unconditional, irrevocable, and continuing corporate guarantee from TPL. The payment structure is designed to ensure full and timely payment to the lender. In case of any shortfall in funds in LRPL to meet the upcoming debt obligation, TPL will pay the shortfall amounts at least two days prior to the due date. The guarantee and undertaking together cover the principal, interest and other amounts payable under the NCDs. Furthermore, LRPL is a 100% subsidiary of TPL and the project cost was entirely funded by the parent initially. TPL also exercises managerial control and provides technical inputs to the entity.

 

• Strong revenue visibility and low offtake risk: The 20-year power purchase agreement (PPA) between LRPL and Gulbarga Electricity Supply Company (GESCOM), with an option to extend the PPA to 25 years, provides strong revenue visibility due to an assured offtake at Rs 3.74 per unit for the entire power generated. While the NCDs have door-to-door maturity of five years, refinancing risk is mitigated by the long-term PPA with GESCOM.

 

• Adequate debt service metrics: The debt service coverage ratio, with P-90 PLF and tariff of Rs 3.74 per unit, will remain adequate. Furthermore, the payment mechanism for the NCDs ensures timely debt servicing, which is on an annual basis. The NCDs worth Rs 100 crore that matured in November 2024, were repaid from a mix of internal accruals and inter corporate deposits from Torrent Power. To service the Rs 100 crore NCDs maturing in November 2025, LRPL is expected to either refinance the debt or rely on parent support to make the payment. CRISIL Ratings continues to take comfort from the healthy financial risk profile of the parent, TPL, and the remaining available useful life of nearly 20 years, which would help the company either fulfill its debt obligation or refinance it.

 

Weaknesses:

• Exposure to counterparty credit risk: The company remains vulnerable to the risk of delayed payments by a moderate counterparty, GESCOM. As on November 30, 2024, the total outstanding dues from GESCOM stood at ~Rs 26.55 crore (including receivables under late payment surcharge (LPS) of Rs. 15.03 crore), translating into receivables of ~5 months, as against ~15 months as on December 31, 2022 (on trailing 12-month revenue).

 

However, under the central government’s LPS Rules 2022*, GESCOM has opted to liquidate outstanding dues as on June 3, 2022, by paying equal monthly installments of around Rs 1.25 crore per month over 48 months starting August 2022.

 

Also, for subsequent generation, GESCOM has been clearing the bills in a timely manner. As of November 30, 2024, non-LPS receivables stood at ~2 months, as against ~4 months as of March 31, 2024 and ~5 months as of March 31, 2023. While these factors are expected to help improve the receivables position, any further stretch in payment cycle from GESCOM, due to non-adherence to payment schedules, is a key rating sensitivity factor.

 

*The Ministry of Power, Government of India has issued Electricity, (Late Payment Surcharge [LPS} and Related Matters) Rules, 2022 (LPS Rules 2022), to address the rising dues of state power utilities.

 

• Susceptibility to risks inherent in operating wind energy assets: Wind power generation remains highly vulnerable to seasonality and variance in wind intensity. Given that cash flow is highly sensitive to PLFs in both solar and wind assets, these risks could severely impair debt servicing and free cash flow. CRISIL Ratings will continue to monitor PLF levels as a key rating sensitivity factor.

Liquidity: Strong

Liquidity is supported by the credit enhancement available in the form of an unconditional and irrevocable corporate guarantee by TPL. The parent is likely to provide financial support in the event of exigency. At the standalone level, LRPL has cash and equivalents of Rs 45.7 crore as on September 30, 2024.

Outlook: Stable

LRPL should benefit over the medium term from its stable and adequate PLF, along with the managerial, technical and financial support from the parent, TPL.

 

Furthermore, the business risk profile of TPL will remain strong, driven by stable cash flow from the regulated and renewables businesses. Sustained business performance and prudent capital allocation should support healthy financial risk profile.

Rating sensitivity factors

Upward factors:

• Improved credit risk profile of TPL and an upgrade of one notch in its rating
• Significant improvement in PLFs resulting in higher-than-expected cash accrual

 

Downward factors:

• Deterioration in the credit risk profile of TPL and downgrade of one notch in its rating
• Non-adherence to the terms of the transaction structure or payment mechanism

Adequacy of credit enhancement structure

The rating on NCDs of LRPL reflect the unconditional and irrevocable guarantee from TPL. CRISIL Ratings understands that the parent would take measures to monitor the cash flow of LRPL to ensure timely servicing of debt (principal, interest and other monies payable on the guaranteed debt facility).

 

Furthermore, the company’s debt is consolidated with that of TPL. The share of LRPL’s outstanding debt (Rs 100 crore as on December 31, 2024), is not significantly material in relation to that of TPL (around 1% of total consolidated debt of TPL). As a result, even during a stressed scenario, TPL should be able to provide the necessary support to meet debt obligations.

Unsupported ratings: CRISIL AA

CRISIL Ratings has introduced the 'CE' suffix for instruments having explicit credit enhancement feature in compliance with the Securities and Exchange Board of India's circular dated June 13, 2019.

Key drivers for unsupported ratings

For arriving at the unsupported rating, CRISIL Ratings has considered the standalone business and financial risk profiles of LRPL. CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available to LRPL from TPL.

About the Company

LRPL was incorporated in 2017 and is a 100% subsidiary of TPL. LRPL has implemented a 60-megawatt (MW) wind power plant (WPP) in Gudadanal, Raichur district of Karnataka. It has a 20-year PPA with GESCOM (renewable for a further five years) at a fixed tariff of Rs 3.74 per unit. The project was commissioned on March 28, 2018, within the scheduled commercial operation. The operation and maintenance for the project is being carried out by Siemens Gamesa Renewable Power Pvt Ltd.

About the Guarantor

TPL is engaged in the power generation, transmission, and distribution business. It is a distribution licensee in Ahmedabad, Gandhinagar, Surat, Dahej SEZ, Dholera SIR, and Dadra and Nagar Haveli and Daman and Diu; and the distribution franchisee for Bhiwandi, Agra and SMK (Shil, Mumbra, Kalwa). Its power generation plants are in Sabarmati (AMGEN, a 362-MW coal-based station) in Ahmedabad, Surat (1,147.5 MW gas-based SUGEN plant with 382.5 MW expansion), and Dahej SEZ (1,200 MW gas-based combined cycle DGEN power plant). The renewable portfolio includes 49.6 MW wind power plant (WPP) in Lalpur, 51 MW solar power plant in Charanka, 252 MW Suzlon WPP in Kutch and Bhavnagar, 50.9 MW WPP in Mahidad, and 87 MW GENSU solar power plant in Surat (all in Gujarat).

 

Through its wholly owned subsidiaries, the company also has a 120 MW (60 MW X 2) WPP in Karnataka, 126 MW WPP in Maharashtra, 50 MW WPP in Kutch (Gujarat) and 115 MW WPP in Devbhoomi Dwarka (Gujarat). Furthermore, TPL had added a renewable portfolio of 281 MW (156 MW wind + 125 MW solar) through the acquisition of Surya Vidyut Ltd, Visual Percept Solar Projects Pvt Ltd, Torrent Saurya Urja 6 Pvt Ltd (earlier LREHL Renewables India SPV1 Pvt Ltd), and Sunshakti Solar Power Projects Pvt Ltd. TPL is also implementing wind and solar projects with capacity of 3266 MW (including 686 MW of commercial and industrial projects of which around 41 MW have been commissioned). The company is also developing 3 GW of Pump Storage Hydro Power.

List of covenants

• The guarantor shall ensure that its debt-to-equity ratio (standalone basis) shall not exceed 2.33 times
• LRPL is not to raise incremental debt (secured or unsecured) and create any charge on its assets, without permission from NCD holders, except in the following cases:
  •                  Debt for refinancing of NCDs
  •                  Promoter/ guarantor loan to LRPL

• Any other debt (including working capital debt) subject to debt-to-equity ratio of LRPL not exceeding 4 times
• For each notch of rating downgrade i.e. rating being one notch below the rating of the Debentures as on the date immediately before such downgrade, the coupon rate would stand increased by 0.25% over and above the coupon rate immediately prior to such rating downgrade.
• For each notch of rating upgrade i.e. rating being one notch higher the rating of the Debentures as on the date immediately before such upgrade, the coupon rate would stand reduced by 0.25% below the coupon rate immediately prior to such rating upgrade
• In the event of Rating Downgrade to “BBB+” or below by any credit rating agency, Debenture Holders would have a put option on the Issuer. In the event of such downgrade, the Issuer would need to redeem the Debentures within 60 days from date of notice of Debenture Holders for exercising the said put option