Rating Rationale
January 10, 2020 | Mumbai
Torrent Power Limited
Long-term rating upgraded to 'CRISIL AA/Stable' ; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.16600 Crore
Long Term Rating CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable')
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.25 Crore Non-Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable') 
Rs.175 Crore Non-Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable') 
Rs.175 Crore Non-Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable') 
Rs.495 Crore Non-Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable') 
Rs.300 Crore Non-Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable')
Rs.200 Crore Non-Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable')
Rs.850 Crore Commercial Paper Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the non-convertible debentures and long term bank facilities of Torrent Power Limited (TPL) to 'CRISIL AA/Stable' from 'CRISIL AA-/Stable' and reaffirmed its rating on the short-term bank facilities and commercial paper at 'CRISIL A1+'.
 
The upgrade factors in the PPA adoption by Gujarat Electricity Regulatory Commission (GERC) of UNOSUGEN for 278 MW with TPL's licensed distribution business, which would help to cover the fixed charges such as depreciation, interest cost and O&M resulting in Profit before tax (PBT) breakeven. The upgrade also factors in a sharp reduction in the expected leverage (Net debt to EBITDA) to 2.2x fiscal 2020 and 1.9x 2021 (against earlier expectations of 3x and 2.5x) as the company has decided to drop the SECI III wind project (499.8 MW) due to delays in execution. This also helps substantially reduce the project risk and also improves the return profile of the company as the project had aggressively bid tariff.
 
The rating continues to factor in the improvement in cash flows with a regulated tariff structure from its distribution business and its power generation plants in Sabarmati (AMGEN; 362-megawatt [MW] coal-based station) and Surat (SUGEN; 1147.5-MW gas-based plant).TPL also benefits from the strong EBITDA growth from its distribution franchisee business at both Bhiwandi, Maharashtra and Agra, Uttar Pradesh, driven by steady increase in consumption coupled with sharp reduction in AT&C losses. The rating also reflects healthy cash flows from its existing renewable portfolio, which enjoy superior tariffs from the legacy feed-in-tariff regime and also helps meet TPL's renewable power purchase obligation. TPL being a counterparty for existing renewable energy portfolio, partially offsets risks related to offtake and delays in payments by counterparty. The ratings are partially constrained by the absence of long term PPA/offtake agreements for DGEN.

Analytical Approach

For arriving at its ratings, CRISIL has fully consolidated its renewable SPV's due to its 100% ownership and strong operational and financial linkages. These SPV's include Jodhpur Wind Farms Private Limited (JWFPL, rated 'CRISIL AA-/ Stable'), Latur Renewable Private Limited (LRPL, 'CRISIL AA-/ Stable') and Torrent Solargen Limited.

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:
* Strong operating profile and regulated tariff frameworkTPL has robust operational efficiency marked by lowest transmission and distribution (T&D) losses in India (5.61% for Ahmedabad & 4.21% for Surat distribution business for fiscal 2019) and low aggregate technical and commercial (AT&C) losses (14.9% for Bhiwandi & 16.1% for Agra distribution business for fiscal 2019). CRISIL believes, TPL will benefit from stable cash flow, backed by regulated tariff structure, high operating efficiency, and strong operating performance from its distribution and generation businesses (AMGEN and SUGEN plants), both of which assure a 14-15.5% post tax return on equity. Furthermore, TPL was awarded distribution license for Dholera Special Industrial Region (Dholera SIR) of ~920 Sq Kms in Gujarat for 25 years as second licensee and distribution franchise for Shil, Mumbra & Kalwa (SMK) area in Maharashtra by MSEDCL, based on competitive bidding for 20 years, which is expected to be accretive to the company's return profile over the medium to long term.

* Robust market position of power distribution business with diverse consumer base: TPL has a strong market position as a sole power distribution licensee for Ahmedabad, Surat, Gandhinagar and Dahej SEZ, and power distribution franchisee for Bhiwandi (Maharashtra); and Agra (Uttar Pradesh). It sells power directly to a consumer base of more than 3.32 million across domestic, industrial and commercial consumers. Urban-centric and diversified customer base enables high collection efficiency of nearly 100% in Ahmedabad, Gandhinagar, Surat and Dahej SEZ.

* Improving financial risk profile: The company's net leverage (net debt to EBITDA) improved to 2.6x for fiscal 2019 as against previous expectation of 3x, primarily driven by improved profitability and lower than expected capex. Further, with the company's cancellation of the 499.8MW SECI III project SCOD being November 2019, the company's capex plans have been substantially scaled down.  Currently, the company has renewable investment of Rs ~1500 crore over fiscals 2020-2021, relating to 115 MW SECI V project and 126 MW MSEDCL project, as against earlier planned capex of about ~Rs. 3,700 crore over fiscals 2020-2021. The reduction in planned capex largely eliminates the previously existing project risk on the SECI III project, which had an aggressively bid tariff of Rs. 2.44/unit. Leverage is likely to continue to reduce over the medium term and sustain below 2.5x owing to its significant reduction in capex outlay and improved profitability driven by higher EBITDA particularly from distribution (licensed and franchised) and UNOSUGEN.
 
Weaknesses:
* Susceptibility to risks related to offtake for DGEN: The 1200 MW DGEN plant, which accounts for about 30% of the total generation capacity, is stranded due to lack of approved PPA's and non-availability of domestic gas. Although the plant operated at a limited PLF in H1 of FY20 through bilateral contracts due to favourable LNG prices, it would continue to report significant losses. Till 1QFY20, UNOSUGEN was also stranded constraining the credit profile. However, in June 2019, GERC adopted PPA of UNOSUGEN for 278 MW with TPL's licensed distribution business and the plant has started operating under long term PPA from 1st July, 2019. The PPA tenor is 19 years with overall tariff capped at Rs 5.61/unit for the medium term. With the adoption of PPA by GERC, UNOSUGEN is expected to cover the fixed charges such as depreciation, interest cost and O&M resulting in Profit before tax (PBT) breakeven, but nevertheless is not expected to generate significant returns.
Liquidity Strong

TPL has strong liquidity marked by healthy cash accruals and sufficient availability of bank limits. CRISIL believes the cash accruals of about Rs. 2, 250 crore in fiscal 2020 and Rs 2, 600 crore in fiscal 2021 are adequate to meet the debt obligations of Rs. 1,725 crore (including voluntary prepayments of Rs 947 crores) and Rs. 846 crore respectively. The liquidity profile is further supported by cash balance of over Rs. 1,350 crore as on September 30, 2019, and largely unutilized fund-based limits of Rs 1,150 crore as on September 30, 2019.

Outlook: Stable

CRISIL believes TPL will maintain its strong business risk profile, driven by stable cash flows from its regulated businesses over the medium term. Also, financial risk profile expected to remain healthy.

Rating Sensitivity factors
Upward factors
* PPAs getting tied up and material cash flow generation from DGEN
* Ramp up in EBITDA from distribution and generation assets, resulting in improvement in TPL's profitability and sustained improvement in net debt/EBITDA to below 2x
 
Downward factors
* Larger-than-expected capital expenditure (capex) or debt-funded acquisitions
* Sustained net debt/EBITDA of more than 3x
About the Company

TPL is in the power generation and distribution business. It is a distribution licensee in Ahmedabad, Gandhinagar, Surat, and Dahej SEZ and is the distribution franchisee for Bhiwandi and Agra. Its power generation plants are in Sabarmati (AMGEN, a 362-MW coal-based station) in Ahmedabad; Surat (1147.5-MW gas-based SUGEN plant with 382.5-MW expansion), and Dahej (1200 MW gas based combined cycle DGEN power plant). The company's renewable portfolio includes its 49.6-MW wind power plant (WPP) at Lalpur, 51 MW solar power plant at Charanka, Patan, 252 MW Suzlon WPP at Kutch and Bhavnagar, Gujarat, 50.9 MW WPP at Mahidad, Gujarat and 87 MW GENSU solar power plant at Surat. The Company also has 120 MW (60 MW x 2) WPP at Karnataka through wholly owned subsidiaries. TPL is in the process of implementing 241 MW wind projects across Gujarat and Maharashtra.

Key Financial Indicators - (Reported)
Particulars Unit 2019 2018
Revenue Rs. Cr. 12,978 11,449
Profit After Tax Rs. Cr. 889 922
PAT Margins % 6.9 8.1
Debt/Net worth Times 1.00 1.20
Interest coverage Times 3.6 3.9
*The above reflect standalone reported financials

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 Name of Instrument Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue Size
(Rs  Crore)
Rating Assigned  
with Outlook
NA Non-Convertible Debentures## NA NA NA 275 CRISIL AA/Stable
INE813H07085 Non-Convertible Debentures -Series 3A 31-Mar-2017 8.95% 06-Apr-2021 80 CRISIL AA/Stable
INE813H07093 Non-Convertible Debentures -Series 3B 31-Mar-2017 8.95% 06-Apr-2022 85 CRISIL AA/Stable
INE813H07101 Non-Convertible Debentures -Series 3C 31-Mar-2017 8.95% 06-Apr-2023 80 CRISIL AA/Stable
INE813H07051 Non-Convertible Debentures -Series 2A 25-Mar-2013 10.35% 25-Mar-2021 100 CRISIL AA/Stable
INE813H07069 Non-Convertible Debentures -Series 2B 25-Mar-2013 10.35% 25-Mar-2022 100 CRISIL AA/Stable
INE813H07077 Non-Convertible Debentures -Series 2C 25-Mar-2013 10.35% 25-Mar-2023 100 CRISIL AA/Stable
INE813H07010 Non-Convertible Debentures - Series 1 26-Sep-2012 10.35% 26-Sep-2022 200 CRISIL AA/Stable
INE813H07010 Non-Convertible Debentures - Series 1 26-Sep-2012 10.35% 26-Sep-2022 175 CRISIL AA/Stable
INE813H07010 Non-Convertible Debentures - Series 1 26-Sep-2012 10.35% 26-Sep-2022 175 CRISIL AA/Stable
NA Commercial Paper NA NA 7-365 days 850 CRISIL A1+
NA Cash Credit NA NA NA 1150 CRISIL AA/Stable
NA Letter of Credit and Bank Guarantee NA NA NA 2800 CRISIL A1+
NA Proposed Letter of Credit and Bank Guarantee NA NA NA 100 CRISIL A1+
NA Proposed Short Term Bank Loan Facility% NA NA NA 2461 CRISIL A1+
NA Proposed Term Loan NA NA NA 2266.1 CRISIL AA/Stable
NA Term Loan 1 14-Mar-16 NA 30-Sep-32 404.8 CRISIL AA/Stable
NA Term Loan 2 25-Jul-19 NA 30-Sep-30 840 CRISIL AA/Stable
NA Term Loan 3 14-Mar-16 NA 30-Sep-32 1496.27 CRISIL AA/Stable
NA Term Loan 4 11-Mar-16 NA 30-Sep-32 1631.18 CRISIL AA/Stable
NA Term Loan 5 28-Mar-17 NA 30-Sep-32 611.51 CRISIL AA/Stable
NA Term Loan 6 28-Mar-17 NA 30-Sep-32 356.05 CRISIL AA/Stable
NA Term Loan 7 16-Jun-17 NA 31-Dec-27 415 CRISIL AA/Stable
NA Term Loan 8 16-Jun-17 NA 31-Dec-27 250 CRISIL AA/Stable
NA Term Loan 9 28-Mar-18 NA 30-Sep-31 155.5 CRISIL AA/Stable
NA Term Loan 10 28-Nov-17 NA 30-Sep-27 82.76 CRISIL AA/Stable
NA Term Loan 11 28-Nov-17 NA 30-Sep-27 292.11 CRISIL AA/Stable
NA Term Loan 12 31-Mar-17 NA 31-Dec-27 115.8 CRISIL AA/Stable
NA Term Loan 13 25-Jul-19 NA 30-Sep-30 840 CRISIL AA/Stable
NA Term Loan 14 NA NA NA 331.93 CRISIL AA/Stable
##Yet to be issued
%Interchangeable with long term bank facilities
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Jodhpur Wind Farms Private Limited Full 100% ownership and strong operational and financial linkages
Latur Renewable Private Limited Full 100% ownership and strong operational and financial linkages
Torrent Solargen Limited Full 100% ownership
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  850.00  CRISIL A1+      08-05-19  CRISIL A1+  29-09-18  CRISIL A1+  26-09-17  CRISIL A1+  CRISIL A1+ 
                    23-03-17  CRISIL A1+   
Non Convertible Debentures  LT  1095.00
10-01-20 
CRISIL AA/Stable      08-05-19  CRISIL AA-/Stable  29-09-18  CRISIL AA-/Stable  26-09-17  CRISIL AA-/Stable  CRISIL AA-/Stable 
                    23-03-17  CRISIL AA-/Stable   
Fund-based Bank Facilities  LT/ST  13700.00  CRISIL AA/Stable/ CRISIL A1+      08-05-19  CRISIL AA-/Stable/ CRISIL A1+  29-09-18  CRISIL AA-/Stable/ CRISIL A1+  26-09-17  CRISIL AA-/Stable  CRISIL AA-/Stable 
                    23-03-17  CRISIL AA-/Stable   
Non Fund-based Bank Facilities  LT/ST  2900.00  CRISIL A1+      08-05-19  CRISIL A1+  29-09-18  CRISIL A1+  26-09-17  CRISIL A1+  CRISIL A1+ 
                    23-03-17  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 1150 CRISIL AA/Stable Cash Credit 850 CRISIL AA-/Stable
Letter of credit & Bank Guarantee 2800 CRISIL A1+ Letter of credit & Bank Guarantee 2261 CRISIL A1+
Proposed Letter of Credit & Bank Guarantee 100 CRISIL A1+ Proposed Letter of Credit & Bank Guarantee 100 CRISIL A1+
Proposed Short Term Bank Loan Facility% 2461 CRISIL A1+ Proposed Short Term Bank Loan Facility% 3000 CRISIL A1+
Proposed Term Loan 2266.1 CRISIL AA/Stable Proposed Term Loan 2052.6 CRISIL AA-/Stable
Term Loan 7822.9 CRISIL AA/Stable Term Loan 8336.4 CRISIL AA-/Stable
Total 16600 -- Total 16600 --
% Interchangeable with long term bank facilities
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

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Manish Kumar Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
manish.gupta@crisil.com


Vignesh Srinivasan
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 6172 3695
Vignesh.Srinivasan@crisil.com


Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL