Adani Power Limited (APL), India’s largest private power producer, has received a rating upgrade from Crisil Ratings, a leading credit rating agency, on its Rs 38,000 crore of bank loan facilities. The rating has been upgraded to ‘AA-‘ from ‘A’ with a stable outlook, reflecting the strong improvement in the business and financial risk profiles of the company.
Key drivers of the rating upgrade
According to Crisil Ratings, the rating upgrade follows the better-than-expected operating performance of APL backed by timely commissioning and ramp-up of the Godda power plant (1.6 gigawatt [GW]), ramp-up at the Mahan power plant (1.2 GW), full recovery of pending regulatory dues related to claims for fuel costs as passthrough under change in law clauses of existing power purchase agreements (PPAs) and continued improvement in receivables.
The company has also utilised its strong cash accrual in fiscal 2024 for prepayment of portion of external debt, leading to more-than-expected correction in the leverage and healthy improvement in liquidity.
The rating also factors in the completion of most of the regulatory investigations into Adani Group, which had raised some concerns over the corporate governance practices of the group. Regulatory investigations in two remaining allegations are underway and are expected to be completed over the next three months.
Operating performance and outlook
The operating performance of APL has been strong with robust plant load factor (PLF) and healthy operating margin. The company had better-than-expected operating earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 10,041 crore for fiscal 2023 and Rs 7,926 crore for the first half of fiscal 2024 (Rs 10,280 crore in fiscal 2022).
CRISIL Ratings believes the operating performance of APL will continue to benefit from 81% of total capacities tied up under long-term PPAs, further ramp-up at the Godda and Mahan power plants, healthy utilisation of merchant capacities backed by strong power demand outlook for the country over the medium term, and robust fuel supply arrangements (FSAs).
Conclusion
The rating upgrade by Crisil Ratings is a positive development for APL, as it reflects its strong improvement in business and financial risk profiles. The company has demonstrated its ability to execute large-scale projects, recover regulatory dues, manage fuel supply and demand risks, and improve its debt profile. The rating also provides comfort to the lenders and investors of APL, as it indicates a lower probability of default and higher credit quality.