Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank facilities and non-convertible debentures of Rattanindia Power Limited (RIPL).

 

RIPL’s business risk profile benefits from low offtake risk backed by long-term power purchase agreements (PPAs) of 25 years for almost its entire net capacity, available fuel supply agreement (FSA), and timely receipt of regular receivables from its counterparty, Maharashtra State Electricity Distribution Company Ltd (MSEDCL).

 

The plant has a two-part tariff structure under Case 1 competitive bid with non-escalable capacity charge and energy charge. The energy charge has been further divided into escalable and non-escalable components along with escalable transportation charge. The escalable components on both coal and transportation costs ensure timely recovery of overall coal cost hikes, thereby protecting the operating profitability. Further, the tariff structure allows it to recover its entire fixed cost if the plant availability factor (PAF) is more than 85%. Power plant availability has improved significantly to 84% in the first half of fiscal 2024, from 81% in fiscal 2023.

 

Fuel risk is moderate, on the back of fuel supply agreements with South-Eastern Coal Fields (SECL), enough for running the plant at around 85% capacity, subject to contracted gross calorific value (GCV). Availability of domestic coal has increased significantly in the past two fiscals reflected in coal stock equivalent to 18 days as of September 2023, compared to 6 days in fiscal 2022. However, in case of non-availability of domestic coal, discoms have allowed for usage of imported/alternate coal to meet fuel shortfalls in the past through requisite approvals.

 

RIPL underwent a one-time settlement (OTS) in December 2019, post which the outstanding secured debt got reconstituted to Rs 3,665 crore. Further, healthy plant availability, improved plant load factor (PLF) since fiscal 2022 and timely receipts of dues from counterparty including liquidation of regulatory receivables, has enabled RIPL to reduce the debt to Rs 861 crore as on October 31, 2023. PLF improved fiscal 2022 onwards once non-escalable energy charge reduced by 46 paise/kWh in fiscal 2021 leading to more favourable position in merit order. The better PLFs also contributed to overall profitability given savings due to efficient operations and tariff structure.  The plant posted its highest ever PLF of 77% in fiscal 2023.

 

Profitability, however, continues to be dependent on the timely and adequate supply of coal. Going forward, any downtrend in revenue and profitability, in line with PPA tariff structure, may impact servicing ability. However, the financial profile is likely to be supported by the excess cash accumulated in lenders’ trust and retention account (TRA), which will support debt servicing in fiscals 2026 and 2027.

 

After receiving favourable judgement from the relevant judicial forum, company has made collections of regulatory receivables amounting to Rs 1,121 crore from fiscal 2022 till October 2023. Consequently, the plant’s regulatory receivable days have improved, and the company has used this windfall liquidity for prepayments and the rest is accumulated in TRA. As on October 2023, TRA had cash and equivalent of Rs 646 crore. Operations of the plant is managed through a monitoring agency and all cashflows are escrowed in TRA and operational expenses and debt servicing are prioritized. RIPL cannot withdraw from TRA without lenders’ consent. The company plans to continue to utilize the excess cash for prepayments periodically, subject to the terms and conditions of the lenders.

 

In line with the government’s requirement to incorporate Flue Gas Desulfurization (FGD) process in thermal power plants by fiscal 2027, RIPL may also have to earmark funds towards FGD, which is expected to be significant. However, management expects financing for the same to be tied up timely and believes that most of the secured debt will be paid off before expenditure towards FGD materialises. Hence, the ability of RIPL to manage its operations and fund capex (if any), while maintaining healthy cash in TRA would remain a key monitorable.

 

These strengths are partially offset by the moderate financial risk profile and presence of counterparty risk due to long-standing, albeit improving levels of outstanding regulatory receivables from MSEDCL.

Analytical Approach

CRISIL Ratings has analysed the standalone business and financial risk profiles of RIPL to arrive at its ratings owing to the presence of ring-fenced mechanism that insulates it from other assets in the group. RIPL entered into a settlement agreement with its erstwhile lenders in December 2019 along with signing an agreement to release RIPL of its obligations of servicing debt of its subsidiary Sinnar Thermal Power Ltd (presently a non-performing asset) out of RIPL’s cash flows

 

Further as part of OTS, aside from secured debt, RIPL also has Rs 1,450 crore of inter-corporate deposits from its promoters, and Rs 368 crore of unsecured loans from Aditya Birla ARC (previous lender), which has been subordinated to the rated debt under the subordination agreement signed by both debt holders.

 

Moreover, there are also 0.001% redeemable preference shares (RPS) and 0.001% optionally convertible cumulative RPS (OCCRPS) from original lenders to the project, which would be serviced in line with the Company Law Act.

 

CRISIL Ratings has considered only secured debt for leverage analysis, given, as per understanding from the management, the subordinated debt is long-drawn and expected to be repaid only after secured debt is paid off.

Key Rating Drivers & Detailed Description

Strengths:

Low offtake and fuel supply risk

The company has a 25-year PPA (till 2040) with MSEDCL for almost its entire net capacity, which reduces offtake risk and provides revenue visibility. The tariff structure allows the company to recover its entire fixed cost, provided the plant achieves a normative PAF of 85%.

 

Additionally, the plant has adequate fuel linkage for its coal requirement driven by FSA with SECL for 6.1 metric tonne per annum (MTPA). Moreover, in case of further requirement or unavailability, the plant may procure coal from other alternate sources, contingent on requisite approvals, which allows it to show availability and recover fixed energy charges. Coal availability and its impact on PAF will remain key monitorables.

 

Healthy operating performance

For the past three fiscals, the company has demonstrated a healthy track record of generation and offtake. PAF was 81% in fiscal 2023 (86% in fiscal 2022) leading to healthy recovery of fixed cost.  PLFs for the plant improved to 77% in fiscal 2023 from 75% in fiscal 2022, driven by higher demand from MSEDCL. This has led to optimum recovery of variable energy charges as well. RIPL achieved earnings before interest, taxes, depreciation and amortisation (EBITDA) of 29% in fiscal 2022 and 30% in fiscal 2023, which dipped to 19% in the first half of fiscal 2024, due to low GCV and certain one-time expenses accounted for. This is expected to improve in the second half the fiscal.

 

The Amravati plant is placed at 21 percentile in Merit Order Dispatch (MoD) for Maharashtra, which enables the plant to have healthy PLFs. Since ~80% of the revenue is through energy charges, the ability of the plant to have steady offtake and hence, maintain moderate coal availability becomes critical.

 

The ability of RIPL to consistently recover its fixed capacity and variable energy charges, thus, generating healthy operating performance, will be a sensitivity factor. 

 

Weaknesses:

Moderate financial risk profile

RIPL had low external secured debt of Rs 861 crore as on October 31, 2023. However, inspite of recent refinancing, the cost of funding remains on the higher side. This adversely impacts the company’s financial flexibility. This is expected to improve in the near-to-medium term as the company establishes a track record of timely servicing of debt.

 

Post receiving favourable judgement from appropriate judicial forum, the company has made collections of regulatory receivables amounting to Rs 1,121 crore since fiscal 2022 till October 2023. The company has partially utilised these proceeds to repay/prepay debt, which has improved its debt coverage ratios.

 

As on date, aside from secured debt, RIPL also has Rs 1,450 crore of inter-corporate deposits from its promoters, and Rs 368 crore of unsecured loans from Aditya Birla ARC (previous lender). Based on management articulation and agreements signed by current lenders with promoters and erstwhile creditors, CRISIL Ratings understands that these facilities are subordinate to secured debt and will be paid only once latter is extinguished.

 

That said, any obligations arising out of subordinate debt will be a key monitorable.

 

Susceptibility to weak credit risk profile of counterparty

MSEDCL as an off-taker exposes RIPL to high counterparty risk. Debtor days stood high at more than 200 as on March 31, 2023, with total receivables at ~Rs 2,200 crore. However, out of the total receivables, ~81% are regulatory receivables and the rest are regular receivables. The regulatory receivables are on account of various changes in law billings, late payment surcharges and GCV related issues. However, the company has received favourable judgement from the relevant judicial forum basis which it has already recovered some of its regulatory receivables. This has led to regulatory receivable days being reduced from 360 as on March 31, 2021 to 152 as on October 31, 2023.

Liquidity: Adequate

Liquidity is adequate with cash and equivalents of about Rs 646 crore against debt obligations of Rs 861 crore as on October 31, 2023. Adequate liquidity is duly reinforced by the existence of TRA with the lender, under which all operational cashflows of RIPL is escrowed and utilised in a defined waterfall mechanism with priority for meeting operating expenses and timely debt servicing. The company also does not have major capital expenditure (capex) plans in the near term. However, any significant capex requirement, for instance, expenditure on FGD compliance, will be a key monitorable.

Outlook: Stable

CRISIL Ratings believes RIPL's credit risk profile will remain stable with healthy business and financial risk profiles in the medium term.

Rating Sensitivity Factors

Upward Factors

• Sustained improvement in liquidity, utilised to prepay loan obligations
• Debt reduction leading to improvement in average debt service coverage ratio (DSCR) to more than 2 times over the remaining project life

 

Downward Factors

• Significant delay in receipt of payments from counterparties
• Weakening of the operating performance, for instance, PAF less than 80%, impacting cash flow and debt servicing
• Large, debt-funded capex, deteriorating the financial risk profile

About the Company

RIPL is a private power generation company with installed capacity of 1,350 MW (5 x 270 MW each) having thermal power plants at Amravati in Maharashtra. All the units were commissioned by March 2015. Plant has power offtake arrangement of 1200 MW with MSEDCL under long-term PPA for 25 years and matching FSA for 6.10 MTPA with SECL (a subsidiary of Coal India Ltd).

 

RIPL is promoted by the RattanIndia group.

Status of noncooperation with previous CRA

RattanIndia Power has not cooperated with Brickwork Ratings, which has published its ratings as an issuer not co-operating vide a release dated August 23, 2019. The reason provided by Brickwork Ratings was non-furnishing of information by RattanIndia Power for monitoring the ratings.

Any other information: Not Applicable