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NTPC Green Energy Limited Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+' Rating Action...

Posted: 27 Nov 2024

NTPC Green Energy Limited Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+' Rating Action Total Bank Loan Facilities Rated Rs.10000 Crore Long Term Rating CRISIL AAA/Stable (Reaffirmed) Short Term Rating CRISIL A1+ (Reaffirmed) 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 AAA/Stable/CRISIL A1+� ratings on the bank facilities of NTPC Green Energy Ltd (NGEL). The ratings continue to factor in the commissioning of 314-megawatt (MW) capacity (consolidated) during fiscal 2024 supporting the overall credit profile of NGEL. While the pace of capacity addition has remained below expectations during the last fiscal, it is expected to ramp up from the current fiscal as articulated by the management. That said, any significant delay in commissioning of capacities, leading to material cost overruns impacting the viability and debt protection metrics of NGEL, will remain a key rating sensitivity factor. During the first nine months fiscal 2024, plant load factor (PLF) of the operational assets were at par with respective P90 levels. Also, NGEL has reported revenue from operations of Rs 1,450 crore and earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 1,320 crore during the same period. Receivables continue to remain healthy at ~93 days as of December 2023. Liquidity is supported by annual cash accrual of Rs 2,500-3,000 crore over the medium term. Furthermore, as on March 31, 2024, the company had a cash balance of Rs 470 crore. The ratings continue to reflect the high strategic importance of NGEL to NTPC and strong financial and managerial linkages with it, diversified portfolio and low offtake risk due to long-term power purchase agreements (PPAs), resulting in healthy debt service coverage ratio (DSCR). These strengths are partially offset by the weak credit risk profiles of some of the counterparties and susceptibility to implementation risk owing to large capital expenditure (capex). Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of NGEL, NTPC REL and all its subsidiaries. CRISIL Ratings has also applied its parent notch-up framework to factor in support from NTPC due to the strategic importance of NGEL to NTPC and strong financial, operational and managerial linkages with it. 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: High strategic importance to NTPC and strong financial and managerial linkages with it: NTPC has experience in operating and maintaining power stations at par with the best-run utilities in the world, with respect to availability, reliability and efficiency. It is a dominant player in the domestic power sector, apart from having a robust financial risk profile and track record of providing timely support to subsidiaries. While NTPC has existing renewable energy asset base of ~ 3.5 gigawatt (GW), it has plans to increase total renewable energy capacity to 60 GW by 2032, which will mainly be carried out through NGEL and NTPC REL. Furthermore, the board of NGEL and key management positions consist of NTPC personnel. NTPC provides benefits of high project execution capabilities and timely realisation of receivables, driven by strong market position in the power sector. NTPC is looking to monetize its shareholding in NGEL to support future growth plans in the renewable business and will control its subsidiary while maintaining majority holding. CRISIL Ratings understands NTPC shall provide need-based growth and distress support to NGEL. Well�diversified portfolio and low offtake risk along with healthy DSCR: The assets are diversified into solar and wind with presence in multiple locations in more than six states. This helps mitigate the risk of location-specific generation variability. Moreover, all the tied up projects have a tenure of 25 years with a fixed tariff, leading to high revenue visibility. The operating renewable assets witnessed adequate average PLF of 23.3% in fiscal 2024, but sustenance of healthy PLFs will be a key monitorable. Sustainable operating performance is expected to support comfortable consolidated average DSCR for the portfolio. Weaknesses: Weak credit risk profile of the counterparties: Long-term PPAs with distribution companies (discoms) having relatively weaker financial risk profiles and payment track record pose receivables risk. While receivables for operational renewable assets stood at ~93 days as on December 31, 2023, the weak financial health of state discoms could lead to further stretch in payments, constraining the standalone credit risk profile of NGEL. However, the discoms have started making payments under the new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022. This risk is also mitigated by diversity in counterparties with presence of over six state discoms and central public sector enterprises (CPSEs) in the portfolio, and benefits of being a part of the NTPC group. Payment security mechanisms such as letters of credit also lend comfort. Susceptibility to implementation risk owing to large capex: The company has large capex plans to reach overall capacity of 60 GW by 2032 from around 3 GW. Currently, 7.8 GW of capacity is under construction and ~9.8 GW is under various stages of tendering. The company is exposed to time and cost overrun in these under-construction assets. It executes projects primarily through the engineering, procurement and construction (EPC) route and has provisions for getting liquidated damages for delays in commissioning. However, it remains exposed to increase in costs for projects not yet awarded. Nonetheless, CRISIL Ratings draws comfort from the strong track record of NTPC. NGEL is likely to fund the new projects in a debt-equity ratio of 80:20. The company has equity commitment from NTPC and is also expected to receive funds from the dilution of minority stake by NTPC. Liquidity: Superior Liquidity is driven by annual cash accrual of Rs 2,500-3,000 crore from operational renewable energy assets, which is adequate to meet debt obligation of Rs 900-1,000 crore during fiscal 2025. The company had cash and cash equivalent of Rs 470 crore as of 31st March 2024. The management intends to build and maintain liquidity (cash and unutilised fund-based bank lines) of at least one quarter of debt servicing over the medium term. Being a subsidiary of NTPC also adds to its ability to raise funds. Outlook: Stable NGEL will benefit from its strategic importance to NTPC. The ability to generate steady cash accrual on the back of a diversified portfolio and long-term PPAs will continue to support the credit risk profile. Rating Sensitivity factors Downward factors Downgrade in the rating of NTPC by one or more notches. Change in the support philosophy of NTPC or significant reduction in shareholding. Weakening of the operating performance of the operational assets impacting cash flow, including recovery of dues from customers. Significant delay in commissioning of the assets leading to material cost overruns impacting the debt protection metrics of NGEL. About the Company NGEL was incorporated in April 2022 as a wholly owned subsidiary of NTPC for consolidation of identified renewable energy assets of NTPC along with NTPC REL. NTPC REL is currently a wholly owned subsidiary of NGEL, which holds all the operational assets transferred from NTPC. As on March 31, 2024, NGEL had an operational capacity of 2,925 MW. Business transfer of renewable energy assets and share purchase agreement of NTPC REL were executed in July 2022, while the transfer of assets was done in February 2023. NGEL has an under-construction capacity of 7.9 GW, with additional 9.8 GW under pipeline, along with plans to commission 3.8 GW in fiscal 2025, and 5-5.5 GW per annum going forward.