Rating Rationale
March 31, 2020 | Mumbai
PTC Energy Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.2000 Crore (Enhanced from Rs.1900 Crore)
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of PTC Energy Limited (PEL).
 
PEL has a total operational capacity of 288.8 megawatt (MW) wind energy, out of which power purchase agreement (PPA) for 188.8 MW is with distribution companies (discoms) of Andhra Pradesh (AP) at a tariff of Rs 4.84 per unit.
 
In July 2019, there was an announcement by the Government of AP to form a high-level negotiation committee (HLNC) to review and bring down the high wind and solar energy purchase prices in AP. The HLNC was to submit a report to the Government within 45 days from the date of issue of the order.
 
On September 24, 2019, the High Court of AP has put a stay order on the appointment of the HLNC and directed discoms to honour all pending and future bills of the wind purchasers at the interim rate of Rs. 2.43 per unit till the dispute is resolved by the Andhra Pradesh Electricity Regulatory Commission (APERC) and timeframe of six months was suggested.  PEL had meanwhile been relying on working capital borrowings to ensure timely debt servicing. In September 2019, PTC India Financial Services Ltd (PFS, 'CRISIL A+/Stable/CRISIL A1+') had sanctioned Rs 100 crore medium term loan to PEL. As on date, the total sanctioned fund based working capital loans are Rs 200 crore.
 
Furthermore, in October 2019, in a specific order for PEL, the high court directed the state discoms to clear outstanding dues at an interim rate of Rs. 2.43 per unit in three instalments starting November 2019. Pursuant to this order, the company received Rs 113 crore between November 2019 and February 2020 with respect to the past dues from AP discoms. This had resulted in decline in receivables to Rs 170 crore as on February 06, 2020, from Rs 257 crore as on October 10, 2019.
 
Uncertainty remains towards APERC's stance on review of tariff for already concluded PPAs and CRISIL will continue to monitor the status of payments from AP discom. Sustenance of any adverse recommendation by APERC towards reduction in tariff can materially impact PEL's credit risk profile.
 
The ratings continue to reflect in the strong operational and managerial support received by PEL from its parent, PTC India Ltd (PTC India; rated 'CRISIL A1+'), low offtake risk, and comfortable debt service metrics. These strengths are partially offset by exposure to inherent risk of variability in the long-term wind speed and pattern, and to counterparty risk.

Analytical Approach

The ratings of PEL factor in the support expected from its parent, PTC India. CRISIL believes PEL will, in case of exigencies, receive distress support from its parent for timely debt repayment. PEL, which is also a wholly owned subsidiary of PTC India, receives operational and managerial support from the parent.

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:
* Strong financial, operational, and managerial support from parent
PEL benefits from PTC India's leadership position in the domestic power trading segment, strong market linkages, and sectorial expertise. The parent's support is central to CRISIL's assessment. PTC India had infused the entire equity of Rs 600 crore in PEL in fiscal 2017 to fund implementation of 288.8 MW capacity of wind energy projects. Any change in shareholding or support articulation from PTC India will be a key monitorable.
 
* Low exposure to sales risk and comfortable debt service metrics
The entire 288.8 MW of operational capacities spread across Madhya Pradesh (MP), AP, and Karnataka have been tied up through long-term PPAs (MP, AP ' 25 years; Karnataka ' 20 years) signed with the discoms of the respective states.
 
Debt servicing is expected to be comfortable with cash flows for all the projects being sufficient at the contracted tariffs. Assuming a P90 plant load factor (PLF), the projects are likely to have a healthy average debt service coverage ratio of over 1.4 times. Any adverse impact on cash flows due to the ongoing petition for review of tariff with AP will be a key monitorable.
 
Weaknesses:
* Exposure to inherent risk of variability in long-term wind speed and pattern
Variation in wind speeds and patterns could lead to a low operating PLF, thus impairing cash flow. The wind variability risk for PEL is mitigated by liquidity cushion in the form of debt service reserve account (DSRA) and support from PTC India, if required. This was evident in fiscal 2018, wherein PEL comfortably serviced its debt obligation from cash accrual and internal liquidity even though the PLFs were significantly lower than P90 levels. Lower wind in MP and Karnataka has resulted in marginally lower PLFs in fiscal 2020 for the respective projects. Furthermore, AP projects have been operating at significantly lower than P90 PLFs, because of the curtailment of wind energy by AP. CRISIL will continue to closely monitor the operational performance of these projects and their impact on the cash flow.
 
* Exposure to moderate counterparty credit risk
Cash flow is vulnerable to the risk of delayed payments by counterparties (MP, AP, and Karnataka discoms), given their moderate to weak credit risk profiles. While payments from MP and Karnataka are presently being received in 2-3 months, uncertainty remains towards APERC's stance on review of tariff of the PPA. After the court order in October 2019, AP has made payment at Rs 2.43 per unit for past dues (aggregating to Rs 113 crore) between November 2019 and February 2020. However, out of the total receivables of Rs 206 crore as on February 06, 2020, dues from AP remain high at Rs 170 crore. Delayed payment risk is partially offset by stable liquidity along with unutilised working capital limit. Any adverse recommendation by APERC towards reduction in tariff along with timely payment from the counterparties (MP, AP, and Karnataka discoms) will remain a key monitorable.
Liquidity Adequate

Liquidity is healthy, as indicated by DSRA of six months of debt obligation for 209.3 MW of the projects (DSRA of three months for the remaining 79.5 MW). As on March 27, 2020, PEL had a DSRA of Rs 110 crore in the form of fixed deposits (Rs 76 crore) and bank guarantees (Rs 34 crore). In addition, cash equivalents stood at ~Rs 40-45 crore as on March 27, 2020. Bank limit of about Rs 216 crore was utilised at an average of 65% for the 12 months through January 2020. Working capital borrowing reduced to Rs 75 crore in January 2020 with the receipt of payments at the interim rate of Rs 2.43 per unit from AP.

Outlook: Stable

PEL will continue to benefit from the strong parentage and its operational asset portfolio of 288.8 MW.

Rating Sensitivity factors
Upward factors
* Equity infusion strengthening capital structure and overall receivables coming down to under 60 days
* Robust operating performance improving debt protection metrics while sustaining liquidity
 
Downward factors
* Adverse recommendation on the ongoing PPA tariff review issue in AP
* Tariff-related issue in AP to continue beyond six months, which may result in additional receivables build-up and further weakening of overall liquidity
* PLFs lower than P90 levels due to wind variations and other factors adversely affecting cash flows and liquidity or change in PTC India's stance of support to PEL

About PEL
PEL, a wholly owned subsidiary of PTC India, functions as a holding-cum-operating company for its renewable energy projects. The company has an aggregate of 288.8 MW of operational wind power assets, of which 50 MW is in MP and Karnataka each, while 188.8 MW is in AP.
 
About PTC India
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/Stable/CRISIL A1+'), Power Finance Corporation Ltd ('CRISIL AAA/Stable/CRISIL A1+'), and Power Grid Corporation of India Ltd ('CRISIL AAA/Stable/CRISIL A1+'). PTC has a category I licence issued by the Central Electricity Regulatory Commission under the Electricity Act 2003, which permits unlimited trading in power. It is the largest player in the power trading market, with a share of 37% of the total volume traded in fiscal 2019. It traded 62,491 million units in fiscal 2019, compared with 57,108 million units in fiscal 2018.
Key Financial Indicators - (CRISIL Adjusted)
As on/for the period ended March 31   2019 2018
Revenue Rs crore 332 278
Profit after tax (PAT) Rs crore 52 8
PAT margins % 15.6 3.1
Adjusted debt/adjusted networth Times 2.13 2.32
Interest coverage Times 2.05 1.79

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)		 Rating assigned
with outlook
NA Long Term Loan NA NA Sep-33 1622.44 CRISIL A/Stable
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 27.56 CRISIL A/Stable
NA Proposed Short Term
Bank Loan Facility		 NA NA NA 100 CRISIL A1
NA Working Capital
Demand Loan		 NA NA NA 30.00 CRISIL A/Stable
NA Overdraft@ NA NA NA 1.0 CRISIL A/Stable
NA Short Term Loan @ NA NA NA 20.00 CRISIL A1
NA Bank Guarantee NA NA NA 49.00 CRISIL A1
NA Line of Credit NA NA NA 50.00 CRISIL A1
NA Medium Term loan NA NA NA 100.00 CRISIL A/Stable
@One-way interchangeable with bank guarantee
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  1951.00  CRISIL A/Stable/ CRISIL A1  25-02-20  CRISIL A/Stable/ CRISIL A1      21-12-18  CRISIL A/Stable/ CRISIL A1  30-03-17  CRISIL A/Stable/ CRISIL A1  CRISIL A/Stable/ CRISIL A1 
                05-07-18  CRISIL A/Stable/ CRISIL A1       
                28-05-18  CRISIL A/Stable/ CRISIL A1       
Non Fund-based Bank Facilities  LT/ST  49.00  CRISIL A1  25-02-20  CRISIL A1      21-12-18  CRISIL A1      CRISIL A1 
                05-07-18  CRISIL A1       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 49 CRISIL A1 Bank Guarantee 95 CRISIL A1
Line of Credit 50 CRISIL A1 Cash Credit 15 CRISIL A/Stable
Long Term Loan 1622.44 CRISIL A/Stable Letter of Credit 50 CRISIL A1
Medium Term Loan 100 CRISIL A/Stable Long Term Loan 1510.64 CRISIL A/Stable
Overdraft@ 1 CRISIL A/Stable Overdraft 1 CRISIL A1
Proposed Long Term Bank Loan Facility 27.56 CRISIL A/Stable Proposed Long Term Bank Loan Facility 139.36 CRISIL A/Stable
Proposed Short Term Bank Loan Facility 100 CRISIL A1 Proposed Short Term Bank Loan Facility 19 CRISIL A1
Short Term Loan@ 20 CRISIL A1 Short Term Loan# 20 CRISIL A1
Working Capital Demand Loan 30 CRISIL A/Stable Short Term Loan@ 20 CRISIL A1
-- 0 -- Working Capital Demand Loan* 30 CRISIL A/Stable
Total 2000 -- Total 1900 --
*Includes Rs 15 crore sublimit of bank guarantee
#Fully interchangeable with bank guarantee
@One way interchangeable with bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
Rating Criteria for Power Generation Utilities
Rating criteria for manufaturing and service sector companies
Criteria for rating wind power projects
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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