| PTC India Limited | ||||
| Rating reaffirmed at 'CRISIL A1+ ' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the short-term bank facilities and Rs 300 crore commercial paper of PTC India Ltd (PTC India).
The rating considers the announcement by PTC India Financial Services Ltd (PFS), a subsidiary of PTC, on January 19, 2022 regarding resignation of three independent directors -- Mr Kamlesh Shivji Vikamsey, Mr Thomas Mathew T and Mr Santosh B Nayar -- sighting some issues in governance and compliance matters by the management of PFS. PFS has formed a high-level committee to look into the matter. While the event is unlikely to have any direct impact on the credit risk profile of PTC India, CRISIL Ratings closely monitor the situation for any material development.
The rating continues to reflect leadership position of PTC India in the domestic power trading market, healthy relationship with customers and market linkages because of strong track record, and robust financial risk profile. These strengths are partially offset by exposure to counterparty risk and risk inherent in the wind energy industry with respect to PTC Energy Ltd (PEL; 'CRISIL A/Stable/CRISIL A1'). |
Analytical Approach To arrive at its rating, CRISIL Ratings has combined the business and financial risk profiles of PTC India and its wholly-owned subsidiary, PEL. Both the entities have strong operational, financial and management linkages. Also, adjustments for assets and liabilities have been made as per CRISIL Ratings' capital allocation approach for the financing business undertaken by PFS.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Leadership position in power trading market in India PTC India is the largest player in the Indian power trading market, with a market share of 53% of total volume traded in fiscal 2021. The company is likely to maintain its dominant market position over the medium term, despite intensifying competition.
Long track record of operations, resulting in strong customer relationship and market linkages PTC India was the first company to start power trading in India in 2001; over the years, it has established strong relationship with various players. Long- and medium-term trades, which relatively have a higher margin (including cross border), contributed around 50% of total volume, while short term trades accounted for the remaining during fiscal 2021. Further, the company has maintained healthy relations with state power utilities (SPUs). It is efficient in client servicing and management, and should continue to leverage its customer relationship and market reputation and maintain a market leadership position.
Healthy financial risk profile Financial risk profile is underscored by comfortable capital structure and healthy cash accrual. Volume traded by PTC India has more than doubled in the past eight years, to 80,042 million units (MU) in fiscal 2021 from 28,597 MU in fiscal 2013. Delay in realisations from few SPUs has increased reliance on working capital debt especially over the last two years. The company receives a rebate from generation companies in case of timely payment for the power procured and charges surcharge from distribution companies (discoms) in case of delayed payments for the power sold. Consequently, net working capital cycle increased to around 40 days as on March 31, 2021, from 20 days as on March 31, 2018. The company also enhanced its fund-based working capital sanctioned limit to Rs 2,000 crore as on March 31, 2021. Cash and bank balances were healthy at Rs 817 crore as of September 2021, vis-à-vis Rs 808 crore as on March 31, 2021. The standalone financial risk profile remains supported by nil long-term debt. With better realisations, debt may not increase substantially over the medium term, but will remain a rating sensitivity factor.
PTC India is planning to sell its stake in its subsidiary, PEL. CRISIL Ratings will continue to closely monitor the developments and take any need-based rating action thereafter. No additional investments/support is envisaged from PTC India towards the subsidiaries -- PEL and PFS. However, the former may provide need-based support to these subsidiaries in case of distress. Any significant investment in these subsidiaries or other companies, which adversely impacts the financial risk profile will remain a key sensitivity factor.
Weaknesses Susceptibility to counterparty risk and open positions PTC India remains susceptible to the weak credit risk profiles of customers, mainly SPUs. The company tries to mitigate counterparty risk by distributing sales across multiple buyers and through payment security mechanisms. Seasonal reversal of buy-and-sell positions of SPUs also acts as a natural hedge. However, the large scale of operations reduces the risk of default and enables PTC India to negotiate better terms with clients. The company has been relying on higher working capital borrowing because of higher volume traded and delays by SPUs.
Delays from counterparties increased in the beginning of fiscal 2021 owing to the Covid-19 pandemic-led lockdown. However, the company started receiving timely payments from discoms in the second half of fiscal 2021 and has realised some funds through the Rs 1.2 lakh crore package offered by the central government to pay outstanding dues. Thus, receivables came down in the subsequent period as compared to the first quarter. Nevertheless, the risk of prolonged delays or default in payments by customers, which is a sectoral problem, remains a key rating sensitivity factor.
Exposure to risks inherent in the wind energy industry The business risk profile of the wind energy segment under PEL, is weaker compared to the more established trading business and will remain exposed to inherent risks such as wind speed variability, long-term wind patterns, and technology risk. |
Liquidity: Strong Liquidity remains healthy, with expected annual cash accrual of around Rs 400 crore against yearly debt repayment of around Rs 140 crore, on a consolidated basis, over the medium term. The trading business had unutilised bank limit of ~Rs 1100 crore as on September 30, 2021. Surplus cash at PTC India, on a standalone basis was Rs 817 crore as on September, 2021. Given PTC India's operational track record and longstanding relationship with discoms, liquidity should be prudently managed and will remain healthy over the medium term. Liquidity at PEL was also healthy with debt service reserve account of Rs 100 crore and cash and cash equivalents of about Rs 13 crore as of January, 2022. |
Rating Sensitivity factors Downward factors
[1] excluding debtors on account of tariff revision, compensation & change in law matter which are paid only after being received |
About the Company PTC was incorporated in 1999 to support implementation of the government’s mega power policy. The promoters are NHPC Ltd, NTPC Ltd (‘CRISIL AAA/FAAA/CRISIL A1+’), Power Finance Corporation Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), and Power Grid Corporation of India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’). PTC India has a Category I licence, which permits unlimited trading in power, issued by the Central Electricity Regulatory Commission under the Electricity Act 2003. It is the largest player in the power trading market, with a share of 53% of the total volume traded in fiscal 2021. It traded 80,042 MU in fiscal 2021, compared with 66,262 MU in fiscal 2020.
For the six months ended September 30, 2021, PTC India, on a standalone basis, reported net profit of Rs 190 crore on sales of Rs 9,745 crore, against Rs 234 crore and Rs 9,887 crore, respectively, for the corresponding period of the previous year. |
Key Financial Indicators (consolidated; adjusted by CRISIL Ratings)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Interchangeable with fund-based facilities **Interchangeable with Rs 300 crore commercial paper limit |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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