| TP Central Odisha Distribution Limited | ||||
| Rated amount enhanced for Bank Debt; CP Withdrawn | ||||
| 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 'CRISIL AA-/Stable' rating on the long-term bank facilities of TP Central Odisha Distribution Limited (TPCODL). It has also withdrawn its rating on Rs 200. Crore of commercial paper basis client’s request and receipt of required documents. The withdrawal is in line with CRISIL Rating’s withdrawal policy (Refer Annexure - Details of Rating withdrawn for details).
CRISIL Ratings’ ratings on the bank facilities of TP Central Odisha Distribution Ltd (TPCODL), a subsidiary of Tata Power Company Limited (TPCL: ‘CRISIL AA/Stable/CRISIL A1+’), continues to reflect the strong operational, managerial and financial support expected from the parent TPCL, given the strategic importance of TPCODL to the parent. The rating also reflects TPCODL’s regulated cost-plus-return on equity (RoE) business model in its authorized power distribution area in central Odisha, regulation-driven sole distributor and favorable consumer mix. These strengths are partially offset by weak albeit improving operating efficiency and exposure to implementation risk because of stringent aggregate technical and commercial (AT&C) loss reduction target, and to regulatory risks. |
Analytical Approach For arriving at the rating, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support TPCODL is likely to receive from TPCL, if required. |
Key Rating Drivers & Detailed Description Strengths: Strong operational, managerial and financial support from TPCL: TPCL has strong expertise in managing the distribution business in Delhi and Mumbai, as reflected in the substantial reduction in AT&C losses in both these geographies, exceeding the regulator’s targeted benchmarks.
TPCL exercises control over TPCODL through its four board nominees. Key managerial personnel are also from TPCL. The parent will also provide need based funds for any cash flow shortfall in the first few years until operations are stabilized, with necessary regulatory approval.
Regulated business model with sole power distributor in central Odisha: In Odisha, power distribution is divided distinctly among four utilities, of which TPCODL is the sole authorized power supplier in the central region. The regulated business model provides cost plus return on equity of 16%. Moreover, the company retains full benefits of over achievement of regulatory prescribed AT&C loss target until fiscal 2030 along with recovery of past arrears. Also, the yearly true-up mechanism will help to liquidate regulatory assets, if any and recover any substantial increase in power purchase cost.
Weaknesses: Weak albeit improving operating efficiency and exposure to implementation risk due to stringent AT&C loss reduction target Aggregate technical & commercial (AT&C) losses for 9 months of fiscal 2023 (April 2022 to December 2022) stood at ~25% (25.71 % for full fiscal 2022. However, the company has been focussing on improving the operating efficiency and the AT&C losses is estimated to be better than its regulatory target of 23.7% during the full fiscal 2023, on the back of high collections made during fourth quarter.
The vesting order prescribes the AT&C loss roadmap for a period of 10 years starting fiscal 2021 until fiscal 2030, reducing progressively to 20% and 13.5% in fiscals 2025 and 2030, respectively. While the company retains full benefit of any over achievement of the target, any slippages in achieving the target will have to be fully absorbed. Moreover, the company has committed to an AT&C trajectory (23.7% by fiscal 2023 and 20.0% by fiscal 2025), which if not followed, will lead to penalties. However, a defined capital expenditure (capex) plan spread over the next 5 years, aimed at reducing power theft through smart metering, energy audit, improving distribution infrastructure and collection efficiency through digitization and strong recovery mechanism, mitigates the implementation risk. Actual achievement of AT&C loss reduction will remain a key monitorable.
Exposure to regulatory risk The risk of creation of regulatory assets is inherent in any regulated business model and therefore, its non-creation and timely liquidation is dependent on adequate tariff hikes by the regulator in yearly true-up exercises. Any delay in the exercise or inadequate tariff hikes by the regulator can lead to substantial built up of regulatory assets and hence, can significantly weaken the credit risk profile of the company. Hence, timely tariff increase under true-up mechanisms will remain a key monitorable. A performance linked tariff revision roadmap coupled with low power purchase cost and no legacy regulatory assets mitigate the risk. |
Liquidity: Strong Net cash accrual (NCA) is expected to be around Rs 150-200 crore in fiscal 2024 which will cover estimated debt maturity of Rs 20-25 crore. Capex of about Rs 300-350 crore in fiscal 2024 will be funded through a combination of debt (70%) and equity (30%). As of December 2022, the company had free cash & equivalent (excluding fixed deposits earmarked for specific purpose) of around Rs 43crore while fund-based bank lines were utilized at less than 25% in past 12 months through January 2023. Additionally, need based support from parent strengthens the liquidity. |
Outlook: Stable TPCODL will remain strategically important to TPCL and hence, will continue to receive strong managerial and financial support over the medium term. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
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About the Company TPCODL is a 51:49 JV between TPCL and government of Odisha owned GRIDCO. TPCODL was incorporated on April 6, 2020, as a result of transfer of a part of the existing assets and liabilities from erstwhile Central Electricity Supply Unit (CESU) on a going concern basis. The company won sole distribution license to supply power in the central region of Odisha for a period of 25 years with effect from June 1, 2020. The area is spread over 29,354 sq km with a registered consumer base of around 3.05 million as of February 2023. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Non fund based working capital #Bank Guarantee/Standby Letter of Credit *Cash Credit of Rs 40 crore and Inland Bill Discounting of Rs 100 Cr as sub-limits of WCDL
Annexure - Details of Rating Withdrawn
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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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This Annexure has been updated on 06-Apr-2023 in line with the lender-wise facility details as on 07-Apr-2022 received from the rated entity.
^Non fund based working capital
#Bank Guarantee/Standby Letter of Credit
*Cash Credit of Rs 40 crore and Inland Bill Discounting of Rs 100 Cr as sub-limits of WCDL
Criteria Details
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