Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable' rating on the debt instruments of North Eastern Electric Power Corporation Ltd (NEEPCO).

 

The rating reflects the strategic importance of NEEPCO to its parent, NTPC Ltd (NTPC; 'Crisil AAA/Stable/Crisil A1+), and the strong financial support from the parent, healthy financial risk profile, stable cash flow from power plants with operational capacity of 2057 megawatt (MW) and expected improvement after the completion of renovation of the Khandong Power Station (50 MW), part of the Kopili hydroelectric project (275 MW). These strengths are partially offset by exposure to the risk of delays in implementation of upcoming hydroelectric plants and the weak credit risk profile of customers.

Analytical Approach

Crisil Ratings continues to factor in support to NEEPCO from its parent, NTPC. Crisil Ratings believes NEEPCO will receive operational and managerial support from NTPC, and during exigencies, receive distress support for timely repayment of debt obligation, considering NTPC’s 100% ownership of the entity.

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to NTPC and support from it: NTPC has experience in operating and maintaining power stations at par with the best-run utilities in the world, with respect to availability, reliability, and efficiency. It is a dominant player in the domestic power sector, apart from having a robust financial risk profile and track record of providing timely support to subsidiaries. NEEPCO, a wholly owned subsidiary of NTPC, operates a renewable portfolio of around 1,530 MW, in addition to a conventional gas-based capacity of 527 MW. NEEPCO’s share in the installed capacity of North Eastern Region is around 40%, all of which have been granted special category status by the government. NTPC also brings synergies in terms of superior project execution capabilities and faster realisation of receivables, driven by strong relationships in the sector. The parent will provide financial or distress support to the company.

 

• Stable cash flow from operational portfolio: The company has a stable operational portfolio of 2057 MW, with 225 MW of Kopili hydro power plant having recommissioned, while the last unit (Khandong) is expected to be commissioned by the second quarter of fiscal 2026. The plants provide high cash flow stability driven by a long track record of operations at normative levels. Additionally, a regulated tariff structure allows recovery of the entire cost, including fixed return on equity based on approved capital cost, subject to achievement of normative parameters notified by the Central Electricity Regulatory Commission.

 

Only 259 MW of the Kameng plant capacity is tied up through long-term power purchase agreements (PPAs) while the remaining is sold on merchant basis. The plant was commissioned in fiscal 2021, however the completed project cost is yet to be vetted by the Central Electricity Authority of India (CEA). The company has filed for approval of the final implementation cost, estimated at Rs 8,400 crore (CEA vetted cost is Rs 6,180 crore), followed by the tariff petition. Nevertheless, the approval of expected project cost by CEA and offtake arrangements for the balance capacity of Kameng will remain monitorable.

 

• Healthy financial risk profile: The financial risk profile is healthy driven by comfortable capital structure and debt protection metrics. Gearing remained steady at 1.0 time as on December 31, 2024 (1.1 times as on March 31, 2024, and 1.0 time as on December 31, 2023), while net cash accrual to adjusted debt (NCAAD) ratio remained stable at 0.19 time in December 2024, same as the previous fiscal. With significant annual capital expenditure (capex) of Rs 2,500-4,000 crore over the medium term (to be funded in a debt-equity ratio of 70:30) and healthy cash accrual, gearing is expected to moderate to 1.3 times over the medium term and NCAAD ratio to 0.11-0.15 time on account of debt-funded capex. Sizeable debt obligation in fiscals 2026 and 2027 will be partially offset by the ability to refinance debt and expectation of any need-based support from NTPC.

 

Weaknesses:

• Exposure to delay in the implementation of new projects: Although capex is expected to be moderate at less than Rs 1,500 crore in the short term, it is likely to increase to more than Rs 2,500 crore fiscal 2027 onwards as the company plans to ramp up capacity to 5 gigawatt (GW) from 2 GW over the next 8-10 years. However, as with other hydro projects, risks associated with delays because of geological challenges and issues with contractors, land acquisition, hydrology and heavy rains persist. Therefore, any time or cost overruns in the projects will be monitorable.

 

• Exposure to the weak credit risk profiles of counterparties, although receivables have improved over previous fiscal: NEEPCO remains susceptible to the weak financial risk profiles of distribution companies (discoms) in Northeast India, as reflected in stretched receivables (excluding unbilled revenue and net contract assets) of Rs 436 crore as on December 31, 2024 (Rs 420 crore as on March 31, 2024). However, this is an improvement over receivables of Rs 533 crore as on December 31, 2023. This is also backed by improved collection efficiency during the past three fiscals and an increased share of merchant power sales from the Kameng plant, where payment is received within a couple of days. Receivables are not expected to increase materially from current levels over the medium term, mainly because of the presence of a payment security mechanism through letter of credit (LC). Currently all the beneficiary discoms, except Meghalaya, have valid LC, while Meghalaya is buying power on a cash and carry basis. Moreover, with NTPC as the parent and the tripartite agreement between the Reserve Bank of India and discoms also provide comfort. However, timely receipt and regularisation of dues will remain monitorable.

Liquidity: Strong

Liquidity is driven by strong annual cash accrual of over Rs 1,100 crore and largely unutilised bank lines of ~Rs 1,650 crore. Cash accrual is expected to improve further with ramp-up of the 225 MW Kopili capacity and expected commissioning of the remaining 50 MW by the second quarter of fiscal 2026. The annual cash accrual and unutilised bank lines should be adequate to meet the debt obligation, capex, and incremental working capital requirement during fiscal 2026. Moreover, the strong refinancing ability of NEEPCO, as demonstrated in the past, along with need-based support from NTPC provides comfort.

Outlook: Stable

Crisil Ratings believes the continued robust operating performance of the company, with healthy merchant market tariffs should keep the financial profile comfortable over the medium term.

Rating sensitivity factors

Upward factors:

• Significant and sustained improvement in operating performance through approval of entire capital cost of the Kameng plant and ramp-up of Kopili hydroelectric plant along with sustenance of the receivables position
• Significant improvement in the financial risk profile, leading to improvement in NCAAD ratio (excluding dividend) to more than 0.3 time on sustained basis

Downward factors:

• Any downward rating action of NTPC or any change in the support philosophy of the parent
• Significant weakening of operating performance due to lower-than-expected plant load factor or significant increase in operating cost, impacting cash accrual, and leading to a moderation in NCAAD ratio (excluding dividend) to less than 0.1 time on sustained basis
• Higher-than-expected, debt-funded capex or material delays in receipt of payments from discoms, leading to deterioration of the financial risk profile

About the Company

Incorporated in 1976, NEEPCO has 12 power stations and is the largest supplier of power to Northeast India. The company is fully owned by NTPC and has a generation capacity of 2057 MW with presence in hydro based, gas based and solar. NEEPCO has hydro stations in Assam, Nagaland, Arunachal Pradesh and Mizoram; gas plants in Assam and Tripura; and solar currently in Tripura, with new capacities coming up in Rajasthan. It has also been conferred the Mini Ratna-Category I status by the Government of India. NEEPCO’s share in the installed capacity of North Eastern Region is around 40%.

Key Financial Indicators*

Particulars	Unit	2024	2023	2022
Operating income	Rs crore	4,229	4,475	3,135
Profit after tax (PAT)	Rs crore	548	397	212
PAT margin	%	13.0	8.9	6.8
Adjusted debt/adjusted networth	Times	1.09	1.09	1.15
Adjusted interest coverage	Times	3.8	3.9	3.1

   *As per Crisil Ratings’ analytical adjustment

Any other information: Not Applicable