By Bhanu Patni

India Ratings and Research (Ind-Ra) has taken the following rating actions on THDC India Limited’s (THDC) debt instruments:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Long-Term Issuer Rating

-

-

-

-

IND AA/Stable

Affirmed

Non-convertible debentures (NCDs)*

-

-

-

INR12,000

IND AA/Stable

Assigned

NCDs#

-

-

-

INR21,000

IND AA/Stable

Affirmed

*Yet to be issued

# Details in Annexure

ANALYTICAL APPROACH: Ind-Ra continues to factor in the moderate-to-strong strategic and operational linkages between THDC and its parent NTPC Ltd (NTPC; ‘IND AAA’/Stable; holding 74.5% stake) to arrive at the ratings. The remaining stake is held by the government of Uttar Pradesh.
   

KEY RATING DRIVERS

Operations Under Cost-Plus Model: THDC operates its hydropower plants under the cost-plus return on equity framework, outlined by the Central Electricity Regulatory Commission (CERC), thus ensuring a reasonable recovery of costs, the pass-through of forex risks and a guaranteed return on equity. The new hydro and thermal plants being set up by THDC would also be covered under the CERC regulations, thus reducing the operating cash flow risk. THDC plants have continued to operate at better-than-normative parameters and earned incentives of INR0.9 billion in FY21 (FY20: INR1 billion).

Moderate-to-Strong Linkages with NTPC: Ind-Ra has assessed THDC’s strategic and operational linkages with NTPC to be moderate-to-strong. The equity commitment for the under-construction (UC) hydro projects has already been largely completed by way of infusions or internal accruals, with INR0.9 billion of committed infusion yet to be called on for Vishnugad Pipalkoti (VP) project. The same would now be fulfilled by NTPC after the change in ownership, when required.  For the other UC projects, especially Khurja Super Thermal Power Plant (KSTPP), the technical, operational and financial support from NTPC will be forthcoming, given the companies are in the same line of business. NTPC is also acting as the project consultant for KSTPP. Additionally, THDC has two nominee directors from NTPC on its board. Ind-Ra expects NTPC to also support THDC, if required.

Large UC Portfolio: THDC’s UC portfolio stood at 1.7x the operational capacity at 2.8GW at end-June 2021. The company’s UC portfolio is spread across three projects, namely Tehri Pumped Storage Plant (TPSP; 1000MW; project cost: INR48.2 billion); VP (444MW; INR38.6 billion); KSTPP (1,320MW, INR110.9 billion). These projects, along with Amelia coal block (INR15.9 billion) entail a capex of INR214 billion, of which INR88.6 billion has been incurred till June 2021. The cumulative costs have increased by INR32 billion from the original cost estimates, though remain the same as assessed in the previous review. The management expects the commissioning of the TPSP/VP/KSTPP by December 2022, June 2023 and March 2024, respectively.  Given the large UC portfolio, the construction and execution risks are assessed to be high. Thus, any further time and cost over-runs can lead to an increase in i) debt drawdowns resulting in increased leverage and ii) tariff, leading to offtake risk.

Debt Tie-up Partially Complete; Equity Funding to Remain Comfortable: THDC is required to cumulatively infuse INR64 billion as equity in the projects, of which INR47.8 billion has been already infused till June 2021. Ind-Ra believes the balance equity infusion of INR16.2 billion over FY22-FY24 can be met comfortably given the company’s annual cash flow from operations (CFO) of INR13 billion-15 billion. Moreover, given the large cushion available in equity requirement and CFO generation, Ind-Ra does not envisage a situation of equity shortfall for infusion even in case project costs increase. However, in the stressed scenario, wherein, project cost increases materially beyond the CFO generation, Ind-Ra believes support to be available from NTPC.

THDC has tied up GoI guaranteed-USD548 million debt for VP with the World Bank. The debt tie up for TPSP has also been completed through a mix of domestic loans (INR7 billion); NCDs (INR21.2 billion) and balance is yet to be tied. However, the debt for KSTPP and Amelia coal block is yet to be fully tied up, as only INR6 billion has been raised in debt so far from the NCDs for KSTPP. Any delay in the debt tie up could delay project commissioning and impact project cost.

Liquidity Indicator - Adequate: THDC's liquidity is supported by cash of INR2.2 billion at FYE21 (FYE20: INR252 million). THDC had strong CFO in FY21 of INR26 billion (FY20: INR7 billion) given a decline in the receivables and collection of late payment surcharge (LPSC). THDC's liquidity is supported by a fund-based working capital limit of INR10 billion, which was utilised at around 46% over the 12 months ended April 2021.

THDC has repayments of INR5.3 billion in FY22 and INR3 billion in FY23, including the repayment on the World Bank loan. Ind-Ra expects the debt service coverage ratio for THDC to remain strong over 2x for FY22-FY23, as the interest on the UC projects gets capitalised. Furthermore, Ind-Ra expects the company’s funding tie up to remain comfortable, given THDC's presence in the capital market and multiple banks. The company’s liquidity however, also remains contingent on the capex plans (FY21: INR20.9 billion, FY20: INR16 billion) and the dividend distribution which increased to INR7 billion in FY21 (FY20: INR1.5 billion).

Receivables Risk Managed: THDC’s receivables (including unbilled revenue) reduced substantially to INR14.1 billion in FY21 (FY20: INR21.2 billion) on account of the receipts from the Aatmanirbhar Bharat scheme. Additionally, THDC also collected INR6.6 billion of LPSC in FY21 (FY20: INR2.2 billion). The high LPSC booked and collected in FY21 was on account of the amendment to Regulation 59 of the CERC, dated 19 February 2021, which stipulates payments made by discoms to be first adjusted towards the LPSC and thereafter, towards monthly charges. This ensures the complete certainty of realisation of LPSC booked. However, Ind-Ra expects the LPSC income to reduce FY22 onwards due to a decline in receivables.

The bulk of the receivables (including unbilled revenue) came in from the discoms of Uttar Pradesh, Jammu and Kashmir and Delhi at INR6.7 billion, INR3.6 billion and INR2.9 billion, respectively and included around INR4.5 billion receivables due for over six months. THDC has been receiving current dues in a timely manner in 1QFY22 from discoms, Ind-Ra expects the same  to continue in the short term, led by the strictness of the regulator in the payments to be made by discoms and the presence of letter of credit mechanism with power generators.

Net Leverage Likely to Remain Elevated: THDC’s gross debt increased to INR64.2 billion at FYE21 (FYE20: INR56.7 billion), comprising INR57.5 billion (INR40.5 billion) on UC assets. THDC’s net leverage (net debt/operating EBITDA) increased in FY21 to 5.3x (FY20: 3.7x), due to the increase in debt and lower EBITDA. However, adjusted for the LPSC, the net leverage remained comfortable at 3.4x for FY21 (FY20: 3.2x). Ind-Ra expects an additional debt drawdown of INR108 billion during FY22-FY24 for the UC projects, and resultantly, elevated net leverage over the medium term, before moderating on the back of additional cash flows as the UC projects commence operations. However, any further delay in the commissioning timelines or an increase in the project costs further, would lead to the net leverage remaining elevated for longer-than-anticipated by the agency.

THDC has further entered into joint ventures with state governments to build ultra-mega solar parks of 3.5GW (2GW in UP and 1.5GW in Rajasthan), which could entail further cash outflows. THDC is engaged in a lawsuit with a contractor for an amount of INR10 billion, against which the company has submitted INR4.5 billion as a bank guarantee to the Delhi High Court. Ind-Ra has not factored any outflows against the same in its base case. A negative ruling against THDC, the agency believes would result in additional outflows, though the management expects the same to be recovered through tariff.

Tariffs Not Finalised; Risks Remain Elevated:  Given the high cost for the UC projects, the agency believes the tariff for the projects will be high at INR5.25-INR8/kWh for hydro projects (VP, TPSP). Ind-Ra expects the tariff for KSPTT to  remain competitive at INR3.6/kWh, given the captive coal block. TPSP could also operate as a grid asset in the future, thus lowering the offtake risk as the per unit cost could fall by INR0.6/kWh. However, in case it continues to operate as a generating asset, the tariffs would be fairly high. Currently, the three projects have PPAs in place. However, given these PPAs were signed in FY06-FY12 and tariffs and cost have risen materially since then, offtakers might look at renegotiating the PPAs or exiting them, which poses a risk to the cashflows. 


RATING SENSITIVITIES

Positive: The timely completion of UC projects, along with the successful operationalisation of their PPAs, leading to the net leverage reducing and sustaining below 4x, and/or the strengthening of the linkages with NTPC, could lead to a positive rating action.

Negative: Any deterioration in the operating performance, accumulation in the receivables, and/or time and cost overruns in the UC projects; and/or an inability to operationalise the PPAs for the UC projects could be negative for the ratings and/or the weakening of linkages with NTPC, could lead to a negative rating action. 


COMPANY PROFILE

Incorporated in 1988, THDC is a Miniratna Category-I and Schedule-A central public sector enterprise. THDC has two operational hydropower plants in Uttarakhand: Tehri Hydro Electric Plant (THEP;1,000MW) and Koteshwar Hydro Electric Plant (KHEP; 400MW). In addition, it has two wind power projects in Gujarat: Patan (50MW) and Devbhumi Dwarka (63MW), one small hydro project in UP- Dhukwan (24MW) and a solar project of 50MW in Kerala. THDC’s two operational plants – THEP and KHEP continued to achieve better than normative levels of operational performance in FY21. During FY21, the plant availability factors of THEP and KHEP were 86.1% (FY20: 82.8%) and 70.1% (76%) compared with the normative availability of 80% and 68%, respectively. Actual generation at both plants remained above design energy over FY14-FY21 (FY21: 4,263 million units (FY20: 4,245 million units).

FINANCIAL SUMMARY

Particulars (INR million)

FY21

FY20

Revenue

17,960

21,231

LPSC

6,609

2,257

EBITDA

11,767

15,235

Interest coverage (x)

6.5

6.3

Net leverage (x)

5.3

3.7

Source: Ind-Ra, THDC


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (million)

Rating/Outlook

3 February 2021

4 February 2020

25 September 2019

21 June 2019

9 October 2018

Issuer rating

Long-term

-

IND AA/Stable

IND AA/Stable

IND AA+/RWE

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

NCDs

Long-term

INR33,000

IND AA/Stable

IND AA/Stable

IND AA+/RWE

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

ANNEXURE

Instrument Type

ISIN

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

NCDs

INE812V07021

6 September 2019

8.75

6 September 2029

INR15,000

IND AA/Stable

NCDs

INE812V07013

3 October 2016

7.59

3 October 2026

INR6,000

IND AA/Stable


COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Name

Instrument Complexity

NCDs

Low

 
For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

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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Analyst Names

  • Primary Analyst

    Bhanu Patni

    Senior Analyst
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    0124 6687276

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121