Rating Rationale
November 21, 2023 | Mumbai
Tata Power Delhi Distribution Limited
Rating Reaffirmed
 
Rating Action
Rs.500 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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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 commercial paper programme of Tata Power Delhi Distribution Limited (TPDDL).

 

The rating continues to reflect the robust business risk profile supported by the regulated cost-plus-return on equity (ROE) business model in TPDDL's licensed power distribution zone in north and north-west Delhi, a favourable consumer mix, healthy operational metrics underpinned by adequate ARR-ACS (average revenue realized-average cost of supply) gap, and low AT&C (aggregate technical and collection) losses. Furthermore, the financial risk profile is strong, supported by a low gearing of 0.6 time as on March 31, 2023.

 

These strengths are partially offset by high level of regulatory assets (RAs) of Rs 5,700 crore as on September 30, 2023, mainly due to insufficient tariff hikes in the past.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in the extent of financial and managerial support from Tata Power Company Ltd (TPCL, CRISIL AA/Positive/CRISIL A1+).

Key Rating Drivers & Detailed Description

Strengths:

  • Regulated business model with monopoly in the power distribution business in north and north-west Delhi: Power distribution in Delhi is demarcated distinctly between three private distribution companies (discoms), of which, TPDDL is solely responsible for supplying power in north and north-west area of Delhi. This mitigates any potential risk of losing customers on account of high tariffs. Its license is valid for 25 years (till 2029).

 

The regulated business model with a cost-plus-tariff regime ensures recovery of cost incurred coupled with an ROE of 16%. Automatic/suo-moto adjustment of tariff through the Power Purchase Adjustment Cost (PPAC) mechanism has further helped to recover a part of the rising power purchase costs in a timely manner (up to 8.75% suo-moto without taking any prior approval from Delhi Electricity Regulatory Commission (DERC) as per currently applicable business plan regulations). Further, CRISIL Ratings understands that DERC has allowed the company ~29.13% recovery under PPAC mechanism covering period of June-March 2024, during the current fiscal. Also, the true-up mechanism helps in recovery of any substantial increase in power purchase costs. In fact, regulatory assets have liquidated from Rs. 6139 Crore as on March 2023 to Rs. 5700 Cr by September 2023.

 

The discom also generates additional income in the form of AT&C incentives and a part of the cost saving benefits on operations and maintenance (O&M) and financing costs. This has helped the company generate strong cash accrual, with additional income over and above the regulated returns.
 

  • Strong operational metrics supported by a favourable customer mix: The company has been overachieving its AT&C loss targets for the past 18 fiscals, bringing it down to 6.35% in fiscal 2023 (against DERC target of 8.2%) from 53.1% in fiscal 2002. However AT&C losses, which were around 7.1% for the first half of fiscal 2024, are expected to improve in the second. Improvement in AT&C losses over the years has been on account of focus on reducing power theft, enhancement in distribution infrastructure, collection efficiency through digitisation and strong recovery mechanism.   

 

The customer mix (as per units sold) remains favourable with a large presence of industrial (35%), commercial (23%), and domestic consumers (34%). Others comprise only 7%, while there is a very small portion of agricultural consumption. Higher industrial consumption and strong collection efficiency have partly helped in maintaining lower AT&C losses.

 

  • Strong financial risk profile with low gearing: Financial risk profile is robust with low gearing. Debt levels reduced to Rs 2175 crore as on September 2023 from Rs 2,442 crore in March 2023 and Rs 2,883 crore in March 2022, led by repayment of loans supported by increased accruals. Gearing improved to 0.6 time (in line with allowed regulated gearing of 70:30) as on March 31, 2023, from 0.7 in March 2022. Government subsidies are also received in time, and continuation of this remains a key rating monitorable.

 

Weakness:

  • High level of RAs: RAs were sizeable at Rs 5,700 crore as on September 30, 2023, down from Rs 6,139 crore as on March 31, 2023.  However, this mainly pertains to build-up prior to fiscal 2015 as increase in power purchase costs were not reflected through tariff increases. RAs have largely been at Rs 4400-6000 crore since, as measures such as recovery of RAs through levy of surcharge and automatic PPAC have helped. Without considering the impact of carrying cost, RAs continue to be liquidated faster. As of fiscal 2020 order (order since fiscal 2021 is pending), close to 34% of RAs (Rs 1763 crore) have been approved by DERC.

 

The unapproved RAs mainly pertain to capital expenditure (capex), which is pending physical inspection, Rithala power plants and miscellaneous order pending in APTEL. However, CRISIL Ratings understands that the same is likely to reduce in the medium term through expected increase in percentage pass through under PPAC mechanism. Also, favourable order for increase in approved portion of outstanding RAs should further aid their reduction. Timely recognition of RAs by DERC, along with their continued liquidation will be a key monitorable.

Liquidity: Strong

Net cash accrual is likely to be at Rs 600-630 crore each in the coming two fiscals against debt repayment of Rs 420 crore and Rs.365 crore in fiscal 2024 and fiscal 2025, respectively. With a gearing of 0.6 time, there is sufficient headroom to refinance or raise additional debt (70% of capex) to meet average capex requirement of around Rs 330 crore each in fiscals 2024 and 2025. Average utilisation of the fund-based limit of Rs 1055 crore was a modest ~20% during the 9 months through September 2023. The bank lines are expected to meet incremental working capital requirement. Moreover, TPDDL enjoys need-based support from Tata Power, the parent.

Rating Sensitivity factors

Downward factors:

  • Downgrade in the rating of Tata Power by 1 notch
  • Significant increase in leverage due to capex or dividend payout combined with lower accruals
  • Substantial and sustained increase in RAs

About the Company

TPDDL is a 51:49 joint venture of Tata Power and the Government of Delhi. The company distributes electricity in north and north-west parts of Delhi and serves a populace of 70 lakh. It started operations on July 1, 2002, post the unbundling of the erstwhile Delhi Vidyut Board. With a registered consumer base of 2 million as on September 30, 2023, operations span across an area of 510 square kilometre. The company has around 3,500 employees.

Key Financial Indicators (CRISIL Ratings Adjusted)

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

9,318

7,670

Reported profit after tax (PAT)

Rs crore

440

439

PAT margin

%

4.7

5.72

Adjusted debt/adjusted networth

Times

0.6

0.7

Interest coverage

Times

3.3

2.9

 

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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)

Complexity

Level

Rating assigned

with outlook

NA

Commercial paper

NA

NA

7-365 days

500.00

Simple

CRISIL A1+

 

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 500.0 CRISIL A1+   -- 30-11-22 CRISIL A1+ 30-11-21 CRISIL A1+ 04-11-20 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.

                                                                          

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Power Distribution Utilities
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Understanding CRISILs Ratings and Rating Scales

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