Rating Rationale
November 05, 2018 | Mumbai
The Tata Power Company Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.17305.35 Crore (Enhanced from Rs.13805.35 Crore)
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.1500 Crore Subordinated Non-Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.1564 Crore Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.1500 Crore Perpetual Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.7000 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
 
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes of The Tata Power Company Limited (Tata Power). The ratings reflect Tata Power's stable cash accrual from regulated businesses, which account for more than 40% of total capital employed. Company has a strong management and robust financial flexibility, further enhanced by being a part of the Tata group. The ratings also factor increased diversity post-acquisition of renewable assets of Walwhan Renewable Energy Pvt Ltd [earlier known as Welspun Renewables Energy Pvt Ltd (WREPL), rated 'CRISIL AA-/Stable'] through Tata Power's subsidiary, Tata Power Renewable Energy Ltd (TPREL; 'CRISIL AA-/Stable/CRISIL A1+').

These strengths are partially offset by continued losses in the Mundra UMPP held through CGPL, on account of unviable project economics; high gearing; and moderate debt protection metrics.

Analytical Approach

CRISIL has combined the business and financial risk profiles of Tata Power; Tata Power's Delhi Distribution Company Ltd (TPDDL); CGPL; Maithon Power Ltd (MPL, 'CRISIL AA-/Stable/CRISIL A1+'), operating the 1050-megawatt (MW) thermal power plant at Maithon; TPREL, a company executing renewable projects for Tata Power; power trading arm Tata Power Trading Company Ltd ; transmission subsidiary Powerlinks Transmission Ltd (PTL; 'CRISIL AAA/Stable'; a joint venture with Power Grid Corporation of India Ltd [Power Grid, 'CRISIL AAA/Stable/CRISIL A1+']); Industrial Energy Ltd; Tata Power Solar Systems Ltd (TPSSL; 'CRISIL A+/Stable/CRISIL A1/ CRISIL A1+ (SO)'); and the SPVs formed for the acquisition of coal entities in Indonesia, including Bhira Investments, Bhivpuri Investments, and Khopoli Investments. CRISIL has also combined the business and financial risk profiles of Tata Power's coal operating entities in Indonesia on a proportionate basis. The company has an effective stake of 30% in PT Kaltim Prima Coal and of 26% in PT Baramulti Suksessarana Tbk, and both these companies are under a common management.

Key Rating Drivers & Detailed Description
Strengths
* Stable cash accrual from regulated businesses:
Tata Power earns stable income from its regulated businesses such as power generation, distribution in Mumbai and New Delhi and its transmission businesses. These accounted for over 45% of consolidated EBITDA (earnings before interest, tax, depreciation, and amortisation) in fiscal 2018 vs. 55% in fiscal 2016. High cash flow stability strengthens Tata Power's business profile. In case of power generation business for Mumbai, Power Purchase Agreement (PPA) for around 800MW is due for renewal in March 2019 (renewed for a year from March 2018 to March 2019). Any material decline in the proportion of cash accruals from the stable, regulated businesses will remain a rating sensitive factor.

* Strong management, and robust financial flexibility: Tata Powers financial flexibility is robust, marked by stable cash accrual from existing businesses and adequate liquidity with cash balance of around Rs 1,194 crore on a consolidated basis as on September 30, 2018. Financial flexibility is also enhanced by being a part of the Tata group, which enhances access to the capital market and the banking system. Also, Tata Power's financial flexibility is supported by its investment in various Tata group entities which can be liquidated if required; Tata Power announced its plan to divest its stake in Tata Projects and Strategic Engineering Division (SED).

* Exposure to renewable assets aids diversity: The acquisition of WREPL assets has strengthened Tata Power's presence in the renewable space, with increase in capacity to about 2.2 gigawatt (GW) as on September 30, 2018 from 1.2 GW as on March 31, 2017, and wider geographical reach with presence in 10 states. It translates to more than 20% of generation capacity from renewables, and will contribute 15-20% to consolidated EBITDA over the medium term. Although the business risk profile of the newly acquired assets is relatively weaker than that of the regulatory assets, a significant proportion of the newly acquired assets are operational, lending diversity and partially offsetting high risks in the Mundra UMPP.

Weaknesses
* Unviable project economics of CGPL:
Nearly 25% of Tata Powers total capital employed is invested in CGPL, which continues to make losses on account of unviable project economics, adversely impacting Tata Power's credit risk profile. CGPL's unfavourable project economics are primarily on account of the 55% non-escalable variable charges component in the tariff. As the variable component is primarily linked to coal price, the change in coal pricing regulations by the Indonesian government resulted in increase in fuel costs and substantial loss for CGPL. Tata Power's management has reiterated its stance of providing incremental support to CGPL's debt, most likely in the form of corporate guarantee which shall constrain the financial risk profile. CGPL refinanced its external commercial borrowings of USD 770 million (around Rs 5500 crore) with equity infusion of Rs 2000 crore from Tata Power, Rs 2700 crore of NCDs and remaining with loans from NBFCs; all of which is guaranteed by Tata Power. Due to refinancing the debt servicing support from Tata Power is expected to reduce in the near term.

Also company is looking to improve operating efficiencies and minimise under-recoveries through procurement of coal from various sources. Moreover, the coal mines in Indonesia are likely to continue to provide a natural hedge to CGPL's operations partially, however, the quantum of dividends are lower than CGPL's support requirements including debt repayments and has to rely on support from Tata Power. On 29th October 2018, the Supreme Court allowed the CERC to revise the PPA terms for power plants impacted by higher coal import prices from Indonesia due to change in law. The CERC is expected to finalize the matter in eight weeks in consultation with all stakeholders. Earlier, the High Power Committee appointed by the Gujarat Electricity Regulation Commission recommended that the fuel under-recovery be shared equally between developers, lenders and consumers (discoms). CRISIL believes that any relief in the fuel under-recovery may reduce cash losses and enhance project viability for CGPL. The final CERC order would be a key rating monitorable.

* High leverage, albeit correction expected over the medium term: Tata Power has a leveraged capital structure, with consolidated debt/EBITDA ratio of around 5 times and adjusted gearing of around 2.6 times as of March 31, 2018. However, the company is in the process of reducing gross debt by divestment of non-core assets. The company received Rs 2,100 crore from the sale of its stake in Tata Communications and Panatone Investments. Additionally, sale of investments in SED with a realization of around Rs 2,200 crore is expected to complete in the next two years. Hence, Debt/EBITDA ratio is expected to improve to about 4.6 times over the next two years. Any significant delay in correction in debt/EBITDA ratio and gearing will remain a key rating sensitivity factor.
Outlook: Stable

CRISIL believes Tata Power's business risk profile will continue to be supported by stable cash accrual from regulated businesses, over the medium term. Furthermore, robust financial flexibility, because of investments and benefits of being a part of the Tata group, is likely to enable it to reduce leverage through sale of non-core assets in the next two years.

Upside scenario
* Substantial improvement in the operating profitability or higher-than-expected reduction  in the debt leading to higher-than-expected improvement in debt/EBITDA

Downside scenario
* Material delay in sale of non-core investments to reduce debt
* Larger-than-expected, debt-funded capital expenditure or acquisition, or significant delay in improvement in operating profitability, leading to delay in improvement in gearing and debt/EBITDA ratio

About the Company

Tata Power is India's largest integrated private power utility, with installed generation capacity of 10,757 MW (as on March 31, 2018). The company is present across the entire power business spectrum, from generation (thermal, hydro, solar, and wind) to transmission and distribution.

CGPL was formed to implement the Mundra 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.

PTL operates a 400-kilovolt transmission line from Bhutan to Delhi.

Tata Power has 30% stake in Indonesian coal mining companies PT Kaltim Prima Coal and PT Arutmin Indonesia (Arutmin), and 26% stake in PT Baramulti Suksessarana Tbk. It has signed a definitive agreement to sell 30% stake in Arutmin to the Bakrie family.

In September 2016, Tata Power and ICICI Venture partnered to launch Power Platform along with global investors. The platform will invest in operational and near operational thermal/hydro/transmission assets, and has a joint commitment of up to USD 850 million (around Rs 6,000 crore) by Tata Power, ICICI Bank, Caisse de depot et placement du Quebec, Canada, Kuwait Investment Authority, Kuwait and State General Reserve Fund of the Sultanate of Oman.

During fiscal 2018, Tata Power, on a consolidated basis, reported a net profit of Rs 2,679 crore on revenue of Rs 29,331 crore, against a net profit of Rs 1,100 crore on total income of Rs 27,587 crore in fiscal 2017.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs cr 29,331 27,587
Profit After Tax (PAT) Rs cr 2,679 1,100
PAT margin % 9.13 3.99
Adjusted debt/Adjusted networth Times 2.59 2.94
Interest coverage Times 2.60 2.47
^Reported as per Ind-AS

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Type of instrument Date of allotment Coupon Maturity date Issue Size
(Rs cr)
Rating Assigned with Outlook
 INE245A08034 Perpetual NCD 2-Jun-11 11.40%  Perpetual 1500 CRISIL AA-/Stable
 INE245A08042  Subordinate NCD 21-Aug-12 10.75% 21-Aug-72 1500 CRISIL AA-/Stable
 INE245A07184 NCD* 23-Jul-14 9.15% 23-Jul-17 25 CRISIL AA-/Stable
 INE245A07192 NCD* 23-Jul-14 9.15% 23-Jul-18 25 CRISIL AA-/Stable
 INE245A07200 NCD 23-Jul-14 9.15% 23-Jul-19 25 CRISIL AA-/Stable
 INE245A07218 NCD 23-Jul-14 9.15% 23-Jul-20 25 CRISIL AA-/Stable
 INE245A07226 NCD 23-Jul-14 9.15% 23-Jul-21 20 CRISIL AA-/Stable
 INE245A07234 NCD 23-Jul-14 9.15% 23-Jul-22 20 CRISIL AA-/Stable
 INE245A07242 NCD 23-Jul-14 9.15% 23-Jul-23 20 CRISIL AA-/Stable
 INE245A07259 NCD 23-Jul-14 9.15% 23-Jul-24 20 CRISIL AA-/Stable
 INE245A07267 NCD 23-Jul-14 9.15% 23-Jul-25 20 CRISIL AA-/Stable
 INE245A07333 NCD* 17-Sep-14 9.15% 17-Sep-17 16 CRISIL AA-/Stable
 INE245A07341 NCD* 17-Sep-14 9.15% 17-Sep-18 16 CRISIL AA-/Stable
 INE245A07358 NCD 17-Sep-14 9.15% 17-Sep-19 16 CRISIL AA-/Stable
 INE245A07366 NCD 17-Sep-14 9.15% 17-Sep-20 16 CRISIL AA-/Stable
 INE245A07374 NCD 17-Sep-14 9.15% 17-Sep-21 16 CRISIL AA-/Stable
 INE245A07382 NCD 17-Sep-14 9.15% 17-Sep-22 16 CRISIL AA-/Stable
 INE245A07390 NCD 17-Sep-14 9.15% 17-Sep-23 16 CRISIL AA-/Stable
 INE245A07408 NCD 17-Sep-14 9.15% 17-Sep-24 16 CRISIL AA-/Stable
 INE245A07416 NCD 17-Sep-14 9.15% 17-Sep-25 26 CRISIL AA-/Stable
 INE245A07101  NCD* 25-Apr-08 10.10% 25-Apr-18 500 CRISIL AA-/Stable
 INE245A07119  NCD* 20-Jun-08 10.40% 20-Jun-18 500 CRISIL AA-/Stable
 INE245A07424  NCD 28-Dec-12 9.40% 28-Dec-22 210 CRISIL AA-/Stable
NA Commercial Paper NA NA 7-365 days 7000 CRISIL A1+
NA Cash credit and working capital demand loan NA NA NA 1956 CRISIL AA-/Stable
NA Letter of credit and bank guarantee NA NA NA 4370 CRISIL A1+
NA Letter of credit and bank guarantee # NA NA NA 190 CRISIL A1+
NA Term loan-1* NA NA 15-Jun-20 38.01 CRISIL AA-/Stable
NA Term loan-2 NA NA 16-Feb-29 1,211.25 CRISIL AA-/Stable
NA Term loan-3 NA NA 30-Sept-25 280 CRISIL AA-/Stable
NA Term loan-4 NA NA Jan-23 109 CRISIL AA-/Stable
NA Term loan-5 NA NA 30-Mar-28 500.94 CRISIL AA-/Stable
NA Term loan-6 NA NA 30-Mar-26 2,000 CRISIL AA-/Stable
NA Term loan-7* NA NA 8-Aug-18 605 CRISIL AA-/Stable
NA Term loan-8 NA NA NA 300 CRISIL AA-/Stable
NA Term loan-9 NA NA NA 250 CRISIL AA-/Stable
NA Rupee term loan-1 NA NA 31-Dec-24 17.61 CRISIL AA-/Stable
NA Rupee term loan-2 NA NA 18-Feb-29 1,172.95 CRISIL AA-/Stable
NA Rupee term loan-3 NA NA NA 500 CRISIL AA-/Stable
NA Rupee term loan-4 NA NA NA 500 CRISIL AA-/Stable
NA Rupee term loan-5 NA NA NA 300 CRISIL AA-/Stable
NA Rupee term loan-6 NA NA NA 750 CRISIL AA-/Stable
NA Proposed cash credit NA NA NA 9.59 CRISIL AA-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 2245 CRISIL AA-/Stable
*CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these instruments
#Fully Interchangeable with Letter of Credit, Buyers Credit, Short term loan, Purchase invoice Discounting, Overdraft maximum upto Rs. 50 Crores, Foreign Currency Resident loan, Short Term Derivatives/ Foreign lines to the extent of Rs.190 crores

 
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  7000.00  CRISIL A1+  12-10-18  CRISIL A1+  10-11-17  CRISIL A1+    --    --  -- 
        26-07-18  CRISIL A1+  05-10-17  CRISIL A1+           
Non Convertible Debentures  LT  1514.00
05-11-18 
CRISIL AA-/Stable  12-10-18  CRISIL AA-/Stable  10-11-17  CRISIL AA-/Stable  18-07-16  CRISIL AA-/Stable  26-06-15  CRISIL AA-/Stable  CRISIL AA-/Stable 
        26-07-18  CRISIL AA-/Stable  05-10-17  CRISIL AA-/Stable  28-06-16  CRISIL AA-/Watch Developing       
            18-05-17  CRISIL AA-/Stable  15-06-16  CRISIL AA-/Watch Developing       
                16-03-16  CRISIL AA-/Stable       
Perpetual Non Convertible Debentures   LT  1500.00
05-11-18 
CRISIL AA-/Stable  12-10-18  CRISIL AA-/Stable  10-11-17  CRISIL AA-/Stable  18-07-16  CRISIL AA-/Stable  26-06-15  CRISIL AA-/Stable  CRISIL AA-/Stable 
        26-07-18  CRISIL AA-/Stable  05-10-17  CRISIL AA-/Stable  28-06-16  CRISIL AA-/Watch Developing       
            18-05-17  CRISIL AA-/Stable  15-06-16  CRISIL AA-/Watch Developing       
                16-03-16  CRISIL AA-/Stable       
Short Term Debt  ST          05-10-17  CRISIL A1+  18-07-16  CRISIL A1+  26-06-15  CRISIL A1+  CRISIL A1+ 
            18-05-17  CRISIL A1+  28-06-16  CRISIL A1+/Watch Developing       
                15-06-16  CRISIL A1+       
                16-03-16  CRISIL A1+       
Subordinated Non-Convertible Debentures  LT  1500.00
05-11-18 
CRISIL AA-/Stable  12-10-18  CRISIL AA-/Stable  10-11-17  CRISIL AA-/Stable  18-07-16  CRISIL AA-/Stable  26-06-15  CRISIL AA-/Stable  CRISIL AA-/Stable 
        26-07-18  CRISIL AA-/Stable  05-10-17  CRISIL AA-/Stable  28-06-16  CRISIL AA-/Watch Developing       
            18-05-17  CRISIL AA-/Stable  15-06-16  CRISIL AA-/Watch Developing       
                16-03-16  CRISIL AA-/Stable       
Fund-based Bank Facilities  LT/ST  12745.35  CRISIL AA-/Stable  12-10-18  CRISIL AA-/Stable  10-11-17  CRISIL AA-/Stable  18-07-16  CRISIL AA-/Stable  26-06-15  CRISIL AA-/Stable  CRISIL AA-/Stable 
        26-07-18  CRISIL AA-/Stable  05-10-17  CRISIL AA-/Stable  28-06-16  CRISIL AA-/Watch Developing       
            18-05-17  CRISIL AA-/Stable  15-06-16  CRISIL AA-/Watch Developing       
                16-03-16  CRISIL AA-/Stable       
Non Fund-based Bank Facilities  LT/ST  4560.00  CRISIL A1+  12-10-18  CRISIL A1+  10-11-17  CRISIL A1+  18-07-16  CRISIL A1+  26-06-15  CRISIL A1+  CRISIL A1+ 
        26-07-18  CRISIL A1+  05-10-17  CRISIL A1+  28-06-16  CRISIL A1+/Watch Developing       
            18-05-17  CRISIL A1+  15-06-16  CRISIL A1+       
                16-03-16  CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit & Working Capital demand loan 1956 CRISIL AA-/Stable Cash Credit & Working Capital demand loan 2141 CRISIL AA-/Stable
Letter of credit & Bank Guarantee# 4560 CRISIL A1+ Letter of credit & Bank Guarantee 4370 CRISIL A1+
Proposed Cash Credit Limit 9.59 CRISIL AA-/Stable Proposed Cash Credit Limit 9.59 CRISIL AA-/Stable
Proposed Long Term Bank Loan Facility 2245 CRISIL AA-/Stable Rupee Term Loan 1190.56 CRISIL AA-/Stable
Rupee Term Loan 3240.56 CRISIL AA-/Stable Term Loan 6094.2 CRISIL AA-/Stable
Term Loan 5294.2 CRISIL AA-/Stable -- 0 --
Total 17305.35 -- Total 13805.35 --
#Fully Interchangeable with Letter of Credit, Buyers Credit, Short term loan, Purchase invoice Discounting, Overdraft maximum upto Rs. 50 Crores, Foreign Currency Resident loan, Short Term Derivatives/ Foreign lines
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Power Distribution Utilities
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
CRISILs criteria for rating and capital treatment of corporate sector hybrid instruments

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