| The Tata Power Company Limited | ||||||||||
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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/CRISIL A1+' ratings on the bank facilities and debt instruments of The Tata Power Company Limited (Tata Power).
The ratings continue to reflect Tata Power's stable cash accrual from regulated businesses, which account for 45-50% of its earnings before interest, tax, depreciation and amortisation (Ebitda), its diversified business risk profile and strong financial flexibility as part of the Tata group. These strengths are partially offset by losses in Coastal Gujarat Power Ltd (CGPL; ‘CRISIL A1+ (CE)’) on account of unviable project economics, and high leverage. The ratings also factor in the management's intent to keep leverage in the form of adjusted net debt to Ebitda ratio sustainably below 3.5 times, which includes possible monetisation of the renewables portfolio.
Adjusted EBITDA for first half of current fiscal increased by 9% on-year, driven by regulated businesses, and coal companies amidst higher coal prices, while partly offset by operating losses of CGPL on account of voluntary plant shutdown.
CRISIL Ratings expects operating profitability to remain strong over the medium term given the increasing share of regulated business, healthy profitability at coal companies while partly offset by under-recoveries at CGPL and lower margins at solar EPC business due to higher raw-material prices. |
Analytical Approach CRISIL Ratings has used a combination of full and proportionate consolidation of Tata Power's companies.
CRISIL Ratings has fully consolidated the following subsidiaries as they form the core of the company’s business risk profile: Tata Power Delhi Distribution Limited (‘CRISIL A1+’); CGPL, Maithon Power Ltd (MPL; ‘CRISIL AA/Stable/CRISIL A1+’), Tata Power Renewable Energy Ltd (TPREL; ‘CRISIL AA/Stable/CRISIL A1+’), Walwhan Renewable Energy Ltd (WREL, ‘CRISIL AA/Stable’), Powerlinks Transmission Ltd (‘CRISIL AAA/Stable/CRISIL A1+'), Tata Power Trading Company Ltd, Industrial Energy Ltd, TPSSL, and the special-purpose vehicles formed for the acquisition of coal entities in Indonesia, including Bhira Investments, Bhivpuri Investments and Khopoli Investments.
CRISIL Ratings has proportionately consolidated certain joint ventures and associate companies to the extent of Tata Power’s shareholding in these entities, to reflect support to the extent of its interests in these businesses. These companies include coal-operating entities in Indonesia: 30% in PT Kaltim Prima Coal and 26% in PT Baramulti Suksessarana Tbk.
CRISIL Ratings has treated Tata Power's investment in Prayagraj Power Generation Co Ltd (Prayagraj) as a financial investment, given the minority stake held in the platform company, Resurgent Ventures Power Ventures Pte Ltd (Resurgent).
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:
Tata Power earns 45-50% of Ebitda from its regulated businesses, such as power generation and distribution in Mumbai, power distribution in New Delhi, the 1,050 megawatt (MW) capacity of MPL, and transmission. The PPAs for generation assets, including MPL, CGPL and the renewable portfolio, have balance life of over 15 years, thus offering strong revenue visibility. Distribution licenses for Mumbai and Delhi are valid for another 19 years and 9 years, respectively. The PPA of the power generation business for Mumbai (Trombay assets of around 930 MW) is valid till fiscal 2024, and subject to renewal risk. The proportion of cash flows from the regulated businesses could increase over the medium term, driven by the company's focus on adding licenses in the distribution sector, and regulated capex in its generation, transmission and distribution assets.
Tata Power had around 11.1 gigawatt (GW) capacity as on September 30, 2021 (excluding 1,980 MW of Prayagraj Power Generation Co Ltd), including its thermal and clean energy generation businesses, which include around 2.9 GW of renewable energy capacity through TPREL and WREL. Its presence across the value chain of the power sector (generation, transmission and distribution, power trading, as well as fuel supply [imported coal mining and shipping]) cushions it from project-specific risks and helps achieve operating efficiency and better working capital management at the group level.
Financial flexibility is strong, driven by stable cash accrual and adequate liquidity. Being a part of the Tata group, Tata Power benefits from access to the capital market and the banking system. After the preferential allotment, Tata Sons has a 45.2% shareholding in Tata Power and the latter is recognised as one of the flagship companies.
Weaknesses:
Losses in CGPL on account of unviable project economics constrain Tata Power's credit risk profile. CGPL's under-recoveries of fuel cost are primarily on account of the non-escalable variable charges component in the tariff. CGPL has made efforts to improve operating efficiency and minimise under-recoveries by procuring coal from various sources. Coal mines in Indonesia offer a partial natural hedge to CGPL's operations. However, dividends from coal mines have been lower than CGPL's debt obligation, thereby necessitating support from Tata Power.
During first half of current fiscal, under-recoveries were lower than expectation as PLF levels were low due to high coal prices in international market while robust profitability of coal companies eked up the losses. CRISIL Ratings expects full year operating profitability adjusting for coal companies’ profits to reflect improvement over last fiscal.
Tata Power has a moderate capital structure, with consolidated adjusted net debt to EBITDA and gearing of around 3.9 times and 1.9 times, respectively as on March-2021. Going forward, CRISIL Ratings expects the leverage to remain moderate given a large part of capital expenditure (capex) requirement expected to be met from internal accruals and partly through asset monetization proceeds thus reducing reliance on external funds. |
Liquidity: Strong Cash accrual is projected at Rs 4,000-5,000 crore for fiscals 2022 and 2023, and will largely meet the annual capex requirement of Rs 5,000-6,000 crore. Debt obligation of around Rs 4,950 crore in fiscal 2022 and Rs 5,500 crore in fiscal 2023 is expected to be largely refinanced given the company’s strong cash flow. As of September 2021, the company had cash and equivalent of around Rs 4,817 crore besides unutilised bank lines of about Rs.3,000 crore. Need based support from the Tata group bolsters the financial flexibility for Tata Power. |
Outlook: Stable Given the regulated nature of Tata Power's business, the company will generate healthy cash accrual over the medium term and sustain its credit risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Tata Power is India's largest integrated private power utility, with installed generation capacity of 11.1 GW as on September 30, 2021 (excluding 1.98 GW through a platform structure). The company is present across the power business spectrum, from generation (thermal, hydro, solar and wind) to transmission and distribution.
CGPL was formed to implement the Mundra Ultra Mega Power Plant (UMPP), which has five units of 800 MW each. MPL, Tata Power's 74% joint venture with Damodar Valley Corporation, operates the Maithon project, which has two units of 525 MW each.
Powerlinks Transmission Ltd operates a 400-kilovolt transmission line from Bhutan to Delhi.
Tata Power holds 30% and 26% stake in Indonesian coal mining companies, PT Kaltim Prima Coal and PT Baramulti Suksessarana Tbk, respectively. It had signed a definitive agreement to sell 30% stake in Arutmin to the Bakrie family for USD 400 million (around Rs 2,800 crore) of which USD 140 million (around Rs 980 crore) is already realised.
In September 2016, Tata Power and ICICI Venture partnered to launch the power platform under Resurgent in Singapore, along with global investors. Resurgent will invest in operational and near-operational thermal, hydro and transmission assets. In December 2019, Renascent Power Ventures Pvt Ltd, a wholly owned subsidiary of Resurgent, completed the acquisition of 75.01% stake in Prayagraj, which owns and operates a 1,980 MW supercritical power plant in Uttar Pradesh. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Fully interchangeable with letter of credit, buyer’s credit, short-term loan, purchase invoice discounting, overdraft maximum up to Rs 50 crore, foreign currency resident loan, short-term derivatives/ foreign lines *Yet to be issued ^Includes Rs 490 crore of bill discounting facility as a sub limit |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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#Fully interchangeable with letter of credit, buyer’s credit, short-term loan, purchase invoice discounting, overdraft maximum up to Rs 50 crore, foreign currency resident loan, short-term derivatives/ foreign lines
^Includes Rs 490 crore of bill discounting facility as a sub limit
This Annexure has been updated on 07-Jan-2022 in line with the lender-wise facility details as on 07-Jan-2022 received from the rated entity.
Criteria Details
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