Tata Power Company Limited Upgraded to ‘CARE AA+/Stable’ by CARE Ratings

On June 21, 2024, Tata Power Company Limited (TPCL) informed in a stock exchange filing that CARE Ratings Limited has upgraded the company’s Long-Term rating on the bank and debt facilities from ‘CARE AA/Positive’ to ‘CARE AA+/Stable’.

CARE Ratings Limited stated that the company ratings have been revised upward due to improved profitability from Mundra operations, driven by extended power sales under Section 11 of the Electricity Act by the Ministry of Power (MoP). Additionally, there has been a turnaround in operational and financial performance at Odisha Discoms, with notable reductions in AT&C losses. Furthermore, commissioning a 4.3 GW module manufacturing facility has enabled backward integration in the renewable energy sector.

The rating agency stated that the ratings are bolstered by TPCL’s diversified presence in the power sector, encompassing generation, transmission, distribution, and engineering procurement construction (EPC). Long-term power purchase agreements (PPAs) for most capacities provide revenue visibility alongside fuel supply agreements (FSAs) with Coal India Limited’s subsidiaries. Operational performance across segments has been robust, supported by long-term mining licenses in Indonesian coal mines, offering partial hedging against adverse fuel price movements.

They added that there has been sustained financial improvement, as evidenced by net debt/profit before interest, lease rental, depreciation, and tax (PBILDT) falling below 3.5 times as of FY24. Despite significant group capital expenditure plans, consolidated Net Debt/PBILDT is projected to remain below 4.0x in the medium term. The ratings also benefit from strong parentage within the Tata group.

They also added that, however, challenges include TPCL’s high leverage, substantial capex commitments, and periodic repayments, which temper the rating strengths. Risks related to fuel cost recovery, particularly for the Mundra plant due to international coal price volatility, are also noted. Additional constraints include delays in signing supplementary PPAs for the Mundra plant, low operating margins in the solar EPC segment, regulatory assets linked to the power distribution business, and project execution and counterparty credit risks associated with its generation business.

On June 21, 2024, the share price of Tata Power Company Ltd opened at ₹443.65, touching the day’s low at ₹439.10, as of 12:07 PM on the NSE.

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