CRISIL upgrades long-term credit rating of NCDs and bank facilities of Torrent Power; Stock gains

18 Feb 2022 , 10:15 AM

CRISIL Limited has upgraded the long-term credit rating of non-convertible debentures and long-term bank facilities of Torrent Power Limited (TPL) to ‘CRISIL AA+/Stable’ from ‘CRISIL AA/Positive’ considering, apart from other factors, continued strong profitability and sustained improvement in the leverage levels. CRISIL has reaffirmed its rating on the short-term bank facilities and commercial paper programme at ‘CRISIL A1+’.

The company stock was trading marginally higher on Friday morning. At around 10.18 AM, Torrent Power Ltd was trading at Rs483.10 per share up by Rs3.95 or 0.82% from its previous closing of Rs479.15 per share on the BSE.

“CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to the Rs250 crore NCDs of TPL. The upgrade reflects TPL’s continued strong profitability, which along with prudent and staggered capital expenditure plans have resulted in the sustained improvement in the leverage levels, with net debt/EBITDA further improving to 1.7 times on December 2021 from 2.0 times as on March 2021. The rating upgrade also factors in expectation of continued strong profitability and net debt/EBITDA sustaining below 2.6 times, despite outflow towards acquisitions,” company share CRISIL’s rating rationale on Thursday.

It further added, Adjusted earnings before depreciation interest and taxes (EBITDA) for the first nine months of fiscal 2022 grew by nearly 12% on yoy basis to Rs2,759 crore from Rs2,462 crore for the corresponding period of fiscal 2021, largely driven by a strong rebound in franchisee distribution businesses in Agra and Bhiwandi, while the licensee distribution businesses continued to post robust profitability.

Operating performance is likely to continue to improve in the current fiscal with continued recovery in the franchise distribution business. Further focus on licence distribution business with assured return on equity model coupled with judicious expansion in renewable businesses should help continued growth in EBITDA.

In February 2022, the company received the Letter of Intent to acquire a 51% equity stake in Dadra and Nagar Haveli and Daman and Diu Power Distribution Company Ltd, which holds distribution license for the union territory. While the consideration for the equity stake is Rs555 crore, this will increase the contribution of license distribution business which entails regulated returns.

Further, during the first nine months of fiscal 2022, the company signed share purchase agreements for acquiring Surya Vidyut Limited (156 MW wind capacity) and LREHL Renewables India SPV1 Ltd. (50 MW solar capacity) for aggregate enterprise value of ~Rs1,107 crore. These acquisitions are in addition to the company’s regular capex plans towards existing businesses and under implementation renewable capacities (515 MW). However, strong net cash accruals shall help funding part of the capex/acquisition plans, and hence net debt to EBITDA should sustain below 2.6 times over the medium term.

The rating continues to factor in stable cash flows of the company from regulated businesses, diversified business risk profile as well as strong liquidity. These strengths are partially offset by the absence of long-term power purchase agreements (PPAs) for DGEN.