Instrument Type |
Date of Issuance |
Coupon Rate |
Maturity Date |
Size of Issue (billion) |
Rating/Outlook |
Rating Action |
Long-Term Issuer Rating |
- |
- |
- |
- |
IND AAA/Stable |
Affirmed |
Short-Term Issuer Rating |
- |
- |
- |
- |
IND A1+ |
Affirmed |
Term Loan |
- |
- |
February 2031 |
INR850 |
IND AAA/Stable |
Assigned |
Non-convertible debentures* |
- |
- |
- |
INR150 |
IND AAA/Stable |
Affirmed |
Fund-based working capital limits@ |
- |
- |
- |
INR35 |
IND AAA/Stable/IND A1+ |
Affirmed |
Non-fund-based working capital limits |
- |
- |
- |
INR55 |
IND AAA/Stable/IND A1+ |
Affirmed |
Proposed working capital limits** |
- |
- |
- |
INR180 |
IND AAA/Stable/IND A1+ |
Affirmed |
Commercial paper (CP) |
- |
- |
7-365 days |
INR201 |
IND A1+ |
Affirmed |
*Details in Annexure
@ Including interchangeability of INR5 billion from non-fund
based to fund-based limit.
@ Of INR35 billion, INR21 billion may be utilised in the form
of CP as per the Reserve Bank of India’s guidelines.
** Unallocated limits
Analytical Approach: Ind-Ra continues to take a consolidated view of NTPC
and its subsidiaries , together referred to as group, for arriving at the ratings.
KEY RATING DRIVERS
Strong Business Profile: The ratings continue to factor in NTPC’s strong dominant
position in the Indian power sector, with 21% share (FY19: 22%, FY18: 23%) in overall
generation and 25% share (24%, 23.3%) in thermal capacity with a consolidated
thermal capacity of 62GW (55GW, 53.6GW).
The
ratings are further supported by:
1. NTPC operating on a cost-plus-regulated
equity model, which allows a healthy return-on-equity and the recovery of
reasonable costs and pass through of foreign exchange variation.
2. the presence of long-term power
purchase agreement (PPAs) with the offtakers
3. the competitive cost of generation,
given the operational efficiencies
4. the adequate availability of
domestic coal on account of fuel-supply agreements along with the commencement
of captive coal mining operations (FY20: 11.2 million tonnes (mt), FY19: 9.3
mt)
5. the presence of tri-partite
arrangements (TPAs) with offtakers, which ensure timely payment receipts
6. geographical and fuel-source
diversification – coal (82%), gas (11%), hydro (6%), renewable (2%), and
7. the importance of NTPC as a
strategically-important vehicle for furthering the government of India’s (GoI) objectives
in the power sector.
NTPC’s regulatory equity increased to INR611 billion at FYE20 (FYE19: INR540
billion, FYE18: INR509 billion) and the agency expects it to further increase
to around INR900 billion by FYE23.
Strong Linkages with the GoI: The ratings continue to factor in the strong linkages of
NTPC with the GoI, as reflected in the recent acquisitions of the GoI’s stake
in North Eastern Electric Power Corporation Limited(NEEPCO)and THDC India
Limited (THDC, ‘IND AA+’/RWE) by NTPC for an equity consideration of INR115 billion.
Moreover, in order to tide over the liquidity crunch faced by discoms amid the
COVID-19 led economic disruption, the GoI acting through the Ministry of Power also
asked the central generators to give a rebate and defer collection of capacity
charges. NTPC, on the direction of the Ministry of Power has
also deferred the capacity charges of around INR21 billion and provided a
rebate of INR13.6 billion to discoms during the lockdown. The company has
previously acquired
other state generation assets, such as Kanti Bijlee Utpadan Nigam Limited and
Nabinagar Power Generating Company Limited.
At
FYE20, the GoI held majority stake in NTPC (51%), though its overall holding
has reduced gradually from 63% in FY17. The board and the senior management at
NTPC are appointed by the GoI and the company is o strategically important to
the government. Additionally, the GoI guaranteed NTPC’s INR19 billion of
foreign currency loans at FYE20 (FYE19: INR18.9 billion).
Liquidity Indicator – Adequate: NTPC’s on balance sheet liquidity remains low
with unencumbered cash balances at INR16.5 billion in FY20 (FY19: INR12.6
billion). However, the liquidity is supported by:
1. the sanctioned fund-based working
capital limits of INR35 billion with utilisation close to around 43% for the
last 12 months ended August 2020
2. its high financial flexibility given
its ability to raise CPs at competitive rates due to its longstanding
relationships in the domestic banking system and capital markets
3. the healthy cash flow from
operations after interest payment of INR112 billion in FY20 ; FY19: INR72
billion, and
4. the competitive cost of borrowing
with 6.81% average borrowing cost in FY20 (FY19: 6.92%).
The
liquidity for the group, however, remains dependent on the dividend/buybacks/bonus
debenture issues worth INR37.5 billion in FY20 (FY19: INR65.3 billion), and
capex including acquisitions and investments in joint ventures of INR471 billion
(INR335 billion). The combination of high capex and dividend pay-outs has led
to the group reporting continued negative free cash flow and hence the debt increasing
to INR2,112 billion at FYE20 (FYE19: INR2,030 billion). NTPC announced a share buyback worth INR22.75
billion on 2 November 2020. The agency
believes the company’s capex plans of INR210 billion-250 billion would continue
to lead to a negative free cash flow in the medium term. NTPC has annual debt
repayments of INR108 billion in FY21 and INR148 billion in FY22, respectively. NTPC
has also tied up long-term loans for its ongoing capex of up to INR150 billion
and has access to capital markets for its future debt requirements. The
management does not envisage any major refinancing requirement in FY21-FY23,
although in case of any major increase in receivables, the short-term
borrowings could increase.
Continued Fall in PLFs Despite Stable Plant Availability: The plant load factor (PLF) of
NTPC’s coal-based plants declined to 68.2% in FY20 (FY19: 77.2%, FY18: 77.5%),
and further to 62% in YTD August 2020 due to subdued growth of 1.8% in power
demand (5%, 6.2%) and a 13% decline in demand in YTD August 2020 amid the
COVID-19 led economic disruption. The decline in the coal PLF was due to the
must-run status given to other generation sources including hydro, nuclear and
renewables. However, with the demand ramping up, Ind-Ra expects a pickup in
PLFs for 2HFY21 for NTPC. The PLF of NTPC’s gas-based plants also fell to 14.1%
in FY20 (FY19: 21%; FY18: 25%) similarly. Even though the regasified liquefied
natural gas prices have declined significantly, NTPC does not estimate a major
pick up in the PLF of gas-based plants due to low demand and domestic gas
availability and variable cost with regasified liquefied natural gas still
remaining higher than the coal-based plants.
However, NTPC maintained a healthy plant availability factor for coal-based plants, which improved to 89.7% for FY20 (FY19: 87.1%, FY18: 86.02%) and gas-based plants at 94% (92%; 93%), above the normative level for both coal and gas based plants, thus ensuring fixed cost recovery; despite a decline in the PLF. Consequently, NTPC’s fixed-cost under-recovery declined to INR2.5 billion in FY20 (FY19: INR8 billion), although under-recoveries still continued in a few plants.
Average Selling Price Increase Could Pressurise Offtake: NTPC’s average selling price
increased to INR3.9/kWh in FY20 (FY19: 3.4/kWh), driven by the lower PLFs
leading to higher per unit fixed cost; a higher fixed cost per unit for the new
plants due to increased capital cost, and increased variable cost INR2.1/unit (INR1.92/unit)
due to an increase in the coal cost. Ind-Ra expects the fixed cost per unit to increase
in the medium term as NTPC commissions a bulk of its capital works in progress
(CWIP) over FY20-FY23 and because of an incremental capex requirement for
meeting the flue-gas desulfurisation (FGD) requirements in 64.85GW of the
consolidated capacity, of which orders for 56.8GW had already been placed, as
of FY20. However, NTPC continues to benefit from its fuel tie-ups with Coal
India Limited and captive coal production from its Pakri Barwadih (Jharkhand)
and Dulanga (Odisha)mines.
NTPC
produced 11.2 million metric tonne (mmt) of captive coal in FY20 (FY19: 9.3mmt;
FY18: 2.68mmt). The reliance on imported coal remains below 2% of the total
requirement, however, the annual contracted quantity materialisations dipped
marginally to 92.8% in FY20 (FY19: 95.4%; FY18: 94.8%). Ind-Ra believes a continued
low PLF with high-availability declaration will make the per unit tariff higher
for the discoms and hence, could result in a pushback. Globally, the share of
gas and renewables capacity is increasing in the overall generation profile. Additionally,
PLFs have remained low for the thermal plants in India. In this backdrop,
Ind-Ra sees continued regulatory tightening financially and environmentally for
coal-based plants, to ensure cost competitiveness and low environmental impact.
Coal-based capacity faces the additional risk of lower levelized tariffs from
renewables and gas costs, globally. However, NTPC is attempting to keep overall
tariffs competitive both from fixed- and variable-cost perspectives.
Substantial Increase in Debtors: NTPC’s debtors, including unbilled revenues, increased
to INR326 billion in FY20 (FY19: INR211 billion) with a substantial rise from counterparties
in Jammu & Kashmir, Uttar Pradesh, Karnataka and Telangana. Additionally,
to tide over the delay in payment receipts, NPTC discounted bills of INR108 billion
in FY20 (FY19: INR100 billion). The group further witnessed an increase in the
net regulatory assets to INR64.56 billion as at FYE20 (FYE19:18.08billion). Ind-Ra
expects the company’s receivables to decline by FYE21 on account of the liquidity
schemes announced by the GoI for discoms. Though, disbursements under the
scheme started in August 2020, the full disbursement of INR900 billion may face
challenges on account of conditions attached to the packages and would be a key
determinant of the debtors. Additionally, NTPC is also a counterparty for
around 4GW of renewable energy assets under the developer mode, for which it
has signed back-to-back PPAs with state discoms. Ind-Ra believes NTPC is likely
to be the counterparty for more such projects, which would result in an
increased risk on NTPC’s balance sheet till the health of the discoms improve. The
regulatory balances, the agency believes, would get settled over a period of
time as they are largely attributable to exchange differences and deferred tax.
Ind-Ra
also takes comfort from NTPC’s 100% collection efficiency since FY04 post the
one-time settlement scheme in 2003; a payment security mechanism in the form of a
letter of credit, backed by a TPA;
NTPC’s ability to regulate power, and the presence of late-payment
surcharge that ensures there is no economic loss on delayed payments (FY20:
INR16 billion, FY19: INR13 billion, FY18: INR5.1 billion). NTPC has
successfully extended the TPA with 29 states/union territories for 10-15 years
at end-January 2020; Ind-Ra believes the remaining states of Punjab and Haryana
are also likely to sign the TPA.
Decline in CWIP due to Higher Commissioning: NTPC commissioned 5.3GW during
FY20 (FY19: 2.2GW) and expects to commission additional 4.7GW and 6.9GW during
FY21 and FY22, respectively. NTPC has 20.5GW under construction at the
consolidated level with around 11GW at the standalone level, of which 2.3GW is
solar power. Ind-Ra expects an annual capex of INR210 billion-250 billion on
these projects over the next three-to-four years. NTPC plans to substantially
increase the share of renewables in its portfolio to over 24.6% by 2032 from
1.7% in FY20, to avail fuel-diversification benefits.
Given
the large commissioning done in FY20, NTPC’s CWIP as a percentage of gross block declined to 26% at FYE20 (FYE19: 41%, FYE18:
38%) resulting in a lower proportion of non-EBITDA generating assets. Although the
CWIP may not decline substantially in absolute terms in FY21 and FY22 on
account of the planned FGD capex in FY21 and FY22, Ind-Ra believes the CWIP as
a percentage of gross block will decline further owing to the accelerated pace
of commissioning.
Ind-Ra
believes as the project commissioning increases, EBITDA generation will rise. The
agency believes construction risk is low-to-moderate, given NTPC’s experience
in setting up power projects and its policy of starting projects only once PPAs,
fuel supply agreements and clearances are in place.
Net Leverage to Remain Elevated: NTPC’s consolidated net leverage (net debt/EBITDA),
although improved marginally, remained high at 6.4x in FY20 (FY19: 6.5x). NTPC’s
EBITDA increased to INR315 billion in FY20 (FY19: INR267 billion, FY18: INR224
billion) owing to the commercial capacity commissioning of 5.3GW and the full
year benefit of 2.2GW capacity commissioned in FY19. Historically, the capex incurred
in FY20 was among the highest owing to the acquisition of NEEPCO and THDC for
INR115 billion for 3.3GW of capacity completed on 27 March 2020.
Ind-Ra expects the net leverage to remain high even in FY21, given the high receivables, a likely delay in increase in EBITDA due to the delay in capacity commissioning due to COVID-19 and the rebate offered of around INR14 billion as directed by the GoI and the INR1,000 billion capex plan outlined by the company for FY19-FY24. Though, the company is not likely to pursue new thermal projects, the group would focus on increasing the renewable capacity to 32GW by FY32, which would entail significant capex. Given the large capex plans; acquisitions; the possibility of receivables spiking given the financial health of the discoms, and pay-outs to shareholders, Ind-Ra believes the leverage would remain elevated, exceeding 5.5x over FY22-FY24. NTPC’s consolidated gross debt increased to INR2,112 billion at FYE20 (FYE19: INR2,030 billion) diversified across foreign currency debt, domestic debentures, domestic bank loans and commercial papers (27%/25%/40%/8%). Despite the high net leverage, NTPC’s regulated cost-plus return on equity model provides sufficient cash-flow predictability, thus allowing the business to have higher leverage than its category medians.
Standalone Performance: At the standalone level, NTPC reported revenue of INR977
billion in FY20 (FY19: INR903.1 billion, FY18: INR834.5 billion), EBITDA of
INR271 billion (INR227.7 billion, INR216.7 billion) and interest coverage (EBITDA/Gross
Interest Expense) of 4.0x (4.8x, 5.4x) while net leverage was 6.2x at FYE20
(6.3x, 5.5x).
RATING SENSITIVITIES
COMPANY PROFILE
RATING HISTORY
ANNEXURE
Instrument Type |
ISIN |
Date of Issuance |
Coupon Rate (%) |
Maturity Date |
Size of Issue (billion) |
Rating/Outlook |
NCDs |
INE733E08148 |
16 April 2020 |
6.55 |
17 April 2023 |
INR43.74 |
IND AAA/Stable |
NCDs |
INE733E08155 |
31 July 2020 |
6.29 |
11 April 2031 |
INR10.00 |
IND AAA/Stable |
NCDs |
INE733E08163 |
15 October 2020 |
5.45 |
15 October 2025 |
INR 40 |
IND AAA/Stable |
NCDs# |
|
|
|
|
INR 56.26 |
IND AAA/Stable |
Total |
|
|
|
|
INR150 |
|
# yet to
be issued
COMPLEXITY LEVEL OF INSTRUMENTS
For
details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators
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Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.
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