Rating Rationale
November 10, 2017 | Mumbai
The Tata Power Company Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated 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)
Non Convertible Debentures Aggregating Rs.1564 Crore  CRISIL AA-/Stable (Reaffirmed)
Rs.1500 Crore Perpetual Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.3500 Crore Commercial Paper (Enhanced from Rs.3000 Crore) CRISIL A1+ (Reaffirmed)
Rs.500 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 Ltd (Tata Power). In December 2016, Central Electricity Regulatory Commission (CERC), based on an Appellate Tribunal for Electricity (APTEL) order dated April 7, 2016, came up with a formula for the relief to be provided in the form of compensatory tariff based on force majeure conditions for Mundra Ultra Mega Power Project (UMPP) held through Coastal Gujarat Power Ltd (CGPL; 'CRISIL A-/CRISIL AA-(SO)/Stable/CRISIL A1+(SO)'), a subsidiary of Tata Power. However, in April 2017, the Supreme Court set aside the order, and hence, no relief is expected for CGPL. CRISIL has taken cognisance of the above outcome.

The ratings continue to reflect Tata Power's stable cash accrual from regulated businesses, which account for more than 40% of total capital employed; its 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+/CRISIL A1+ (SO)'). These strengths are partially offset by continued losses in the Mundra UMPP held through CGPL, on account of unviable project economics; declining dividends from Indonesian coal investments; high gearing; and weak 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/CRISIL A1+'; 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)/Provisional 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 and distribution in Mumbai, distribution business in New Delhi, the 1050 MW capacity of Maithon Power, and its transmission businesses. These accounted for over 55% of consolidated EBITDA (earnings before interest, tax, depreciation, and amortisation) in fiscal 2017, and provide stable cash flow. CRISIL believes Tata Power's credit risk profile will continue to benefit from steady returns in regulated businesseswhich will provide stable cash accruals. Post-acquisition of WREPL assets, earnings before interest, depreciation, tax and amortisation (EBIDTA) from regulated business will account for 50% of consolidated EBITDA over the medium term. In case of power generation business for Mumbai, Power Purchase Agreement (PPA) for around 800 MW is due for renewal in March 2018. 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 Power's financial flexibility is robust, marked by stable cash accrual from existing businesses and adequate liquidity with cash balance of Rs 1250 crore on a consolidated basis as on September 30, 2017. 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 such as Tata Communications Ltd ('CRISIL A1+'), which can be liquidated if required.
 
* Acquisition of renewable assets leading to increased diversity: The acquisition of WREPL assets has strengthened Tata Power's presence in the renewable space, with increase in capacity to about 2.3 gigawatt (GW) 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 15-18% 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.
 
Weakness
* Unviable project economics of CGPL, and reducing dividend from coal companies: Nearly 25% of Tata Power's 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. Also, the company will try 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. Tata Power has signed a definitive agreement to sell PT Arutmin Indonesia to the erstwhile owners, the Bakrie family of Indonesia, which will be a rating monitorable over the medium term.
 
* High leverage, albeit correction expected over the medium term: Tata Power has a leveraged capital structure, with consolidated adjusted gearing of around 3 times, primarily due to large debt of Rs 48,982 crore, as on September 30, 2017 and thereby weakening the company's financial risk profile. WREPL renewables asset acquisition, at an enterprise value of Rs 9,250 crore, was funded through project-related debt of Rs 5,500 crore, medium-term debt of Rs 3,500 crore, and internal accrual. The medium-term debt is expected to be replaced by equity or repaid through sale of non-core investments. Hence, the debt/EBITDA ratio and adjusted gearing are expected to improve to 5 times and 2.5 times, respectively, as on March 31, 2018. The sale of non-core investments or equity infusion is expected over the next 6 months. Any significant delay in correction in debt/EBITDA ratio and gearing will remain a key rating sensitivity factor. Also, project debt of Rs 5,500 crore is expected to be refinanced through longer tenor debt at a lower interest rate, which will help improve debt coverage parameters.
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 debt by Rs 3,500 crore through equity or sale of non-core assets in the near term.

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

Downside scenario
* Material delay in equity infusion or sale of non-core investments to reduce debt by around Rs 3500 crore
* 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 10,577 MW (as on March 31, 2017). 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 target operating and near operating thermal/hydro/transmission assets, and has a joint commitment of up to USD 850 million by Tata Power, ICICI Bank, Caisse de dÃ''Ã'©pÃ''Ã'´t et placement du QuÃ''Ã'©bec, Canada , Kuwait Investment Authority, Kuwait and State General Reserve Fundof the Sultanate of Oman.

For first six months of fiscal 2018, Tata Power, on a consolidated basis, had a net profit of Rs 553 crore on total income of Rs 14,903 crore, against a net profit of Rs 627 crore on total income of Rs 14,340 crore over the corresponding period of the previous fiscal.

Key Financial Indicators - Tata Power Consolidated
Particulars Unit 2017^ 2016^
Revenue Rs cr 28,099 29,592
Profit After Tax Rs cr 949 786
PAT margin % 3.38 2.66
Adjusted debt/Adjusted networth Times 3.22 2.61
Interest coverage Times 2.11 1.98
^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 Program NA NA 7-365 days 4000 CRISIL A1+
NA Cash credit and working
capital demand loan
NA NA NA 2,240 CRISIL AA-/Stable
NA Letter of credit and bank
guarantee
NA NA NA 4,370 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 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 Proposed cash credit NA NA NA 1,260.59 CRISIL AA-/Stable
*CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these instruments
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  4000  CRISIL A1+    No Rating Change  18-07-16   CRISIL A1+    No Rating Change    No Rating Change  CRISIL A1+ 
            28-06-16  CRISIL A1+/Watch Developing           
Non Convertible Debentures  LT  1564  CRISIL AA-/Stable    No Rating Change  18-07-16  CRISIL AA-/Stable    No Rating Change  31-03-14  CRISIL AA-/Stable  CRISIL AA-/Negative 
            15-06-16  CRISIL AA-/Watch Developing           
Perpetual Non Convertible Debentures   LT  1500  CRISIL AA-/Stable    No Rating Change  18-07-16  CRISIL AA-/Stable    No Rating Change  31-03-14  CRISIL AA-/Stable  CRISIL AA-/Negative 
            15-06-16  CRISIL AA-/Watch Developing           
Subordinated Non-Convertible Debentures  LT  1500  CRISIL AA-/Stable    No Rating Change  18-07-16  CRISIL AA-/Stable    No Rating Change  31-03-14  CRISIL AA-/Stable  CRISIL AA-/Negative 
            15-06-16  CRISIL AA-/Watch Developing           
Fund-based Bank Facilities  LT/ST  9435.35  CRISIL AA-/Stable    No Rating Change  18-07-16  CRISIL AA-/Stable    No Rating Change  31-03-14  CRISIL AA-/Stable  CRISIL AA-/Negative 
            15-06-16  CRISIL AA-/Watch Developing           
Non Fund-based Bank Facilities  LT/ST  4370  CRISIL A1+    No Rating Change  18-07-16  CRISIL A1+    No Rating Change    No Rating Change  CRISIL A1+ 
            28-06-16  CRISIL A1+/Watch Developing           
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
 
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 2240 CRISIL AA-/Stable Cash Credit & Working Capital demand loan 2240 CRISIL AA-/Stable
Letter of credit & Bank Guarantee 4370 CRISIL A1+ Letter of credit & Bank Guarantee 4370 CRISIL A1+
Proposed Cash Credit Limit 1260.59 CRISIL AA-/Stable Proposed Cash Credit Limit 1260.59 CRISIL AA-/Stable
Rupee Term Loan 1190.56 CRISIL AA-/Stable Rupee Term Loan 1190.56 CRISIL AA-/Stable
Term Loan 4744.2 CRISIL AA-/Stable Term Loan 4744.2 CRISIL AA-/Stable
Total 13805.35 -- Total 13805.35 --
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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