| SJVN Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable’ rating on the bond programme of SJVN Limited (SJVN).
The ratings continue to reflect SJVN’s strong business risk profile, driven by stable cash flows, robust financial risk profile and the strategic importance of the company to the Government of India. These strengths are partially offset by exposure to risks related to the implementation of large capital expenditure (capex) projects and weak credit risk profiles of customers. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SJVN and its subsidiaries and joint ventures (JVs). This is because all these entities, collectively referred to as SJVN, are under a common management and have strong business and financial linkages.
The ratings also factor in the support expected from the central government, which owns 59.92% stake in the company and is under the administrative control of the Ministry of Power with its nominee on the board. Moreover, the government has guaranteed a part of the debt (Rs 1,423.92 crore as on March 31, 2023). Furthermore, the company is playing an active role in achieving the government’s objective of cross-border hydropower development as well as achieving the target of renewable capacity addition in the country. The government has granted Miniratna status to SJVN and is expected to continue providing need-based support.
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 business risk profile, driven by stability of cash flow: SJVN has a stable operational portfolio of 1,912 megawatt (MW) of hydropower plants that form more than 90% of the total operational capacity. These plants have long-term power purchase agreements (PPAs) and regulated tariff structure that allow recovery of the entire cost, including a fixed return on equity based on approved capital cost, subject to achievement of normative parameters notified by the Central Electricity Regulatory Commission (CERC) for each plant. The company has a decade-long track record of operating at more than normative level, resulting in high stability in cash flow. The plant availability factor for both the hydro power plants, Nathpa Jhakri and Rampur-Himachal Pradesh, was above 100% during fiscal 2023 (similar to previous fiscal), which is well above the normative levels of 90% and 85%, respectively.
Further, a 75 MW, Parasan Solar Power project got commissioned during fiscal 2023, this has effectively increased total operational solar / wind capacity to 178.2 MW as of March 2023 (103.2 MW as of March 2022). These operational projects have healthy tariffs and provide additional cash accrual. CRISIL Ratings believes SJVN’s operating performance is likely to sustain over the medium term as the regulated tariff structure should provide stability to cash flow.
Strategic importance to and support from the government: The central government holds a majority equity stake of 59.92% in SJVN, while the Government of Himachal Pradesh has a 26.85% stake. The company plays a key role in achieving the central government’s objective of optimally tapping the hydropower potential in the northern region, as well as cross-border hydropower development. Furthermore, it is under the administrative control of the Ministry of Power, whose nominee is on SJVN’s board. The Miniratna status gives it greater operational autonomy and discretion to set up projects, up to Rs 500 crore, without the express consent of the government. Also, the government’s majority ownership provides access to need-based or viability gap funding support. Furthermore, the government has guaranteed the world bank loan for Rampur hydro power project (Rs 1,423.92 crore as on March 31, 2023).
Strong financial risk profile: The financial risk profile is supported by comfortable debt protection metrics and healthy capital structure. Gearing increased to 1.0 times as on March 31, 2023 (0.5 times as on March 31, 2022) due to debt funded capex of Rs. 8,240 crore during fiscal 2023. Cash and equivalents remain robust at around Rs 2,195 crore as on June 30, 2023, despite significant dividend payout during last fiscal. A part of the debt comprises a foreign currency loan for its Rampur Bushahr hydro power plant that is guaranteed by the.GOI The gearing ratio, although expected to increase, should remain comfortable, despite significant capital expenditure (capex) planned over the next few years. The upcoming capex will be funded in a debt-to-equity ratio of 70:30 or 80:20 and the equity contribution will be funded through internal accruals
Weaknesses: Exposure to risks related to large ongoing under-construction projects The company has planned capex of more than Rs 50,000 crore over the next 7 years including current fiscal across the hydro, thermal and solar segments.Capex planned for the current fiscal is over Rs. 10,000 crore. The under-construction hydro power projects have an aggregate capacity of 1,618 MW (including through subsidiaries) and are located in Nepal, Himachal Pradesh and Uttarakhand while the others are in the pre-construction, investment approval and survey and investigation stages. The thermal coal-based plant of 1,320 MW at Buxar, Bihar, has 85% of its capacity tied-up in the state, while a coal block has been allocated for meeting fuel requirement. Its implementation is being supported by NTPC Ltd (‘CRISIL AAA/Stable /CRISIL A1+') through consultancy services. While first unit of the plant is expected to get commissioned by end of this fiscal, second unit is expected to get commissioned by Q1 of next fiscal 2025. These hydro and thermal projects would have their costs recoverable under the regulated regime of CERC, subject to achievement of stipulated normative availability norms. In case of any cost or time overruns arising in any of them, regulatory approval will be required for pass-through tariff. Any disallowance of costs may impact the cash flow available for debt servicing. In addition, the company is executing multiple solar projects of around 2.8 GW, which are expected to get commissioned during the next 2-3 years. Company is also planning to expand its renewables portfolio by adding 15 GW of solar capacities by fiscal 2030.
All these projects will be funded in a debt-to-equity ratio of 70:30 or 80:20. Consequently, debt is expected to increase by over Rs 23,000 crore in the next five years from around Rs 14,000 crores as on March 31, 2023. Cash accrual from the operational and upcoming projects will be largely sufficient to fund the equity requirement for the capex. Moreover, the company has also securitized part of the cash flows of its plant Nathpa Jhakri Hydro Power Station (NJHPS) and raised Rs. 2,000 crore for 15 years to part fund the equity requirement. However, execution risks in these large projects and the long gestation of hydro power projects should moderate the return on capital over the medium term. Furthermore, hydro project of 900 MW, is being implemented in Nepal through inter-governmental agreements and two more of 669 MW (Lower Arun HEP) and 490 MW(Arun-4 HEP) have also been awarded to SJVN recently. In addition, SJVN has multiple upcoming hydro projects under survey and investigation stage in Arunachal Pradesh with aggregate capacity of more than 5 GW.
This has exposed the company to geo-political risks as well. Given the large expansion plans, the company will remain exposed to project implementation risks, over the medium term, and timely execution of these projects will remain a key rating sensitivity factor.
During fiscal 2023, entire stake in Kholongchhu Hydro Energy Limited (KHEL), a 50% JV for development of 600 MW HEP in Bhutan, was divested. The entire equity amount invested of Rs. 240 crores along with interest of Rs. 114 crores was returned to the company.
Receivables position improved, albeit counterparties credit profile remains weak Company has PPAs with various state electricity distribution companies (discoms) that have weak financial health and, therefore, SJVN is exposed to the risk of delays in payments. However, receivables position has improved in last couple of fiscals due to various government measures like Atmanirbhar Bharath package and recoveries under new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022. Regular receivables as on March 31, 2023, reduced to Rs 277 crore as on March 31, 2023 (equivalent to 40 days) compared to Rs 574 crore as on March 31, 2022 (equivalent to 87 days) and Rs 874 crore as on March 31, 2021 (equivalent to 127 days), due to realization of old receivables from J&K under new electricity rules 2022 and timely collections of current dues. The receivables are expected to sustain at this level over the medium term. The counterparty risks are mitigated by the presence of various payment security mechanisms, such as sales backed by letters of credit, tripartite agreements between the central government, the Reserve Bank of India (RBI) and state governments, and incentive schemes for timely payment. Timely collection of receivables will remain a key monitorable. |
Liquidity: Superior Cash and equivalents (around Rs 2,195 crore as of June 30, 2023), annual cash accruals and unutilised bank lines (more than Rs 300 crore as on June 30, 2023) should be adequate for meeting debt obligation and capex requirement. Despite large capex commitment, the company is expected to maintain liquidity of over Rs 1,000 crore at all times. The dividend outflow will also be in accordance with the funds required for capex. Commissioning of under-implementation capacities at regular intervals will support cash accrual and liquidity. |
Outlook: Stable CRISIL Ratings believes SJVN will maintain its credit risk profile over the medium term, backed by efficient operations, regulated tariff structure and comfortable debt protection metrics. However, it will remain exposed to project implementation risks for its ongoing capacity expansion.
Environment, Social, and Governance (ESG) profile of SJVN CRISIL Ratings believes that SJVN’s ESG profile supports its already strong credit risk profile.
The power sector has a significant impact on the environment owing to higher emissions, water consumption and waste generation. This is because generation of conventional power involves high dependence on natural resources, mainly coal. However, SJVN is into renewable energy generation and hence, it has no dependence on fossil fuels such as coal/gas at present. The sector also has a social impact due to its nature of operations affecting local community and health hazards involved. SJVN is focused on mitigating its environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. SJVN’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowings in its overall debt and access to both domestic and foreign markets. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SJVN, a Miniratna, Category-I and Schedule –‘A’ Central Public Sector Entity under the administrative control of the Ministry of Power, was incorporated on May 24, 1988, as a JV of the central government and Himachal Pradesh state government. SJVN is now a listed company with 59.92% and 26.85% shares, respectively, with these two governments and the remaining 13.23% with the public.
The company operates in the power generation segment with total hydropower capacity of 1,912 MW in Himachal Pradesh, wind capacity of 97.6 MW in Maharashtra and Gujarat, and solar capacity of 80.6 MW in Gujarat and Uttar Pradesh. In addition, it operates 86 km 400 KV transmission line across the Indo-Nepal border through a JV with Powergrid Corporation of India Ltd and IL&FS. SJVN is presently implementing hydro, thermal and solar power projects in Himachal Pradesh, Uttarakhand, Bihar and Gujarat, as well as in neighbouring Nepal. |
Key Financial Indicators (Consolidated)*
*As per analytical adjustments made by CRISIL Ratings **based on abridged financials published by SJVN in stock exchange |
Status of non cooperation with previous CRA SJVN Limited has not co-operated with Brickwork Ratings India Private Limited which has classified it as Issuer Non Cooperative vide release dated 27th July 2023. The reason provided by Brickwork Ratings India Private Limited is non-furnishing of information for monitoring of ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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